University of South Asia Lahore
Layyah Campus
Fundamental Accounting
B.com
Course Outline
First Semester
BEFORE MID
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Basic Terminology of Accounting
Accounting concept
Debit credit rules
Book –keeping
Journal ,ledger, Trail balance
Theory and practical work of (journal,ledger,Trail balance)
Accounting Equation
Theory and practical work of ( accounting equation)
BASIC TERMINOLOGY
Definition of Business
Activity or action under taken by a trader with objective to earn profit, is called business.
Example: Banking business etc.
Trader
A person who performs or dealing in trading is known as trader.
Types of Business
There are three types of business
 Trading
 Manufacturing
 Service
Trading
It is a type of business in which the trader purchase, merchandise/goods and sells then in same
position.
Manufacturing
It is another type of a business in which trader, trade purchase goods and sells them after some
changing
Example: Sugarcane, sugar
Service
It is another type of a business in which any person rending services for earning income is
formation as services business
Example: Teacher, Doctor etc
Transaction
Any dealing between two or more persons in the business for goods or services which effects
financial position of a business is called transaction.
Manufacturer
A person, who manufactured goods for business, is called manufacturer.
Proprietor
A person who invests the money or things in the business is called proprietor, owner.
Capital
Proprietor money or things which he invests in the business is called capital. In other words, a
proprietor interest in the business is called capital
Drawings
The cash or goods taken away from business by the owner for this personal or private user are
called drawing.
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Basic Transaction
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Merchandise
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Purchase
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Purchase Return/Return out word
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Purchase Allowance
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Purchase Discount
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Sales / Turnover
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Sales Return / In word / Return by Customer
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Sales Allowance
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Sales Discount
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Reason of Return Sales
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Profit / Loss
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Invoice / Bill
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Voucher
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Trade Discount, Cash Discount, Discount Allowed, Discount Receipt
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Case Memo, Debtor, Creditor
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Revenue/Income, Expenses
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Material, Direct Material Indirect Material
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Account, Types of Account, according to British Approach, American Approach
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Salary and Wages
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Commission
Business Transaction
A business transaction is occurrence of a condition that must be recorded as an exchange of
merchandise / services in case of it purchase and sales at particular price and date.
Cash Transaction
When cash is paid or received recorded as a result of an exchange of merchandise or services on
cash bases is called cash transaction.
Credit Transaction
When the payment or receipt of cash for future date.
Merchandise
The things purchased for resale purpose.
Purchases
Merchandise purchased for being sold purposes. It may be cash purchase and credit purchase.
Purchase Return
If purchased merchandise are return by supplier / creditor, due to any reason is called purchase
return.
Reasons
o Found defective goods.
o Damaged
o Not according to sample
o Excess of quantity ordered
Purchase Allowance
If purchaser inform supplier that some merchandise are damage, reduction in price by supplier.
Purchase Discount
The concession allowed by the supplier on the purchase of merchandise.
Sales / Turnover
Merchandise sold are called sale. When merchandise are sold by any person at particular price.
It may be cash sale / credit sale.
Sales Return / inword
When any purchase goods are returned by customer to business due to any reason some
purchases
Reasons
o Found defective goods.
o Damaged
o Not according to sample
o Excess of quantity ordered
Sales Allowance
It the seller is informed by the purchaser, that some goods are effective due to some reason, and
agree to sale on reduction price.
Sales Discount
The concession allowed by the seller on the sales of goods to purchaser.
Profit
Excess income over expense.
Loss
Excess expense over income.
Invoice / Bill
A document list given by seller to buyer for credit or cash sales, purchase of goods.
Voucher
Written evidence which prepare in support of business transaction is called voucher.
Trade Discount
It is a deduction allowed by trader/seller, to buyer on list price of product at time of its selling
 When merchandise are sold in bulk.
 When custom is old customer.
 When merchandise are sold to trader.
 No accounting transaction passed and record, but it verbal.
Cash Discount
A discount which is allowed or received at the time of cash receipt or payment on credit sales or
purchases.
Discount Allowed
A discount which is allowed by seller to buyer at the time of early receipt against credit sales.
Discount Received
A discount which is received by the buyer from seller at the time of early payment against credit
purchase.
Cash Memo
It is a voucher that is used for exchange of goods or services for cash.
Debtor
The person who sold goods is business on credit/cash base.
Creditor
The Person who purchase goods for business on credit/cash base.
Revenue/Income
It is means received amount from sold of merchandise in the business.
Expenses
Cost doing business is called expenses.
Material
Buying things which are made different things.
Direct Material
Direct material are those material which are used directly in manufacturing a products e.g.
cotton, cloth.
Indirect Material
The materials which necessarily used in manufacturing a product, but the cost of those material
cannot be directly measures of that product,
Account
A summarized record of transactions relating to a particular person or things is called account.
Types of Account, according to British Approach

Personal Account.
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Real Account.
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Nominal Account.
Personal Account
Accounts which is relating to persons, firms, companies, are called personal account.
Real Account
Accounts, which keep records of properties or things owned by business, are called real account.
or
The account which contains Assets, Liability, owner, equity of a business, is called real account.
Nominal Accounts
All these accounts which keep record of expenses, gain, losses.
Types of Account, according to American Approach
I)
Assets.
II) Liabilities.
III) Capital.
IV) Revenue.
V) Expense.
Commission
Remuneration for services performed by one person to another normally o the percentage basis is
called commission
Salary
A fixed remuneration for services performed by one person to another for fixed period and fixed
price is called salary.
Book Keeping
Book-Keeping is an art of recording the business transaction is prescribed manner in set of book,
is called Book Keeping.
A book keeper is responsible for recording of business data. His job is clerical nature.
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It is field of recording accounting system.
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For preparing of book-keeping, not require any special skill or knowledge.
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It is base of Accounting.
Definition of Book-Keeping
Book-Keeping is the recording branch of accounting.
Book-Keeping System
There are two system of Book-Keeping
 Single Entry Book System.
 Double Entry Book System
Objectives of Book-Keeping
 To keep written record of business.
 To provide periodic results.
 For Owner
 For Management.
 For Suppliers.
 For Owner
 The primary objective of book-keeping with reference to the owner is to the supply of
following:
 The amount of profit earned or loss sustain during trading period.
 Increase of decrease in owner, equity and total value of Assets, Liabilities.
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 For Management
The books-keeping must provide financial information, to management, such information
help then in _ future, for planning, and taking decision.
For Suppliers
Book-keeping provide information to suppliers, and other financial institution who have
no access in determining financial position of a business
What is Accounting
Accounting is the art of recording, analyzing, classifying, summarizing, reporting, interpreting
and projecting and communicating the results of economic activity or business activities
In another words we can say accounting is language of business.
Recording
In this part we record the books of original entry.
Classifying
 After analyzing business transaction divided into Real, Personal, Nominal Accounts.
 Prepare journal, ledger transaction.
Analyzing
 Analyzing, according Personal, Nominal and Real Account, of different business
transactions.
 For analyzing apply Debit, Credit rules.
 Identify Capital, Revenue and Expenses.
Summarizing
In summarizing prepare from ledger or profit and loss trading and balance sheet.
Reporting
Prepare business summarizing along with signature of Authentic Officer and prepared
formal documents.
Interpreting
After reporting, gives its explanation in easy words to interested person in business
provide them accurate information to investor, owner, customer, Govt. or any person who
engaged in business activities.
Projecting
In this field of Accounting, take information _____, reporting, interpreting for business future.
Example:
o Future product quantity.
o Future product quality, material, purchase, area etc.
The purpose of Accounting
The basic purpose of accounting is to provide decision makers with information useful in making
economic decision. Such as Money, land, labor, wages.
 To provide information about the accounting period results.
 To provide information about financial position of business.
 To provide information to management for future planning.
 To provide information for income tax collection.
 To provide information for general purpose.
Financial Position
The financial resources and obligations of an organization as described in a balance sheet.
Limitations of Accounting
 It deals only with past transactions.
 Accounting statements do not ____ the effect of inflation.
Accounting Cycle
Accounting Cycle start from journal ______ and end with balance sheet.
DIFFERNIATE BETWEEN BOOK-KEEPING AND ACCOUNTING
Difference Points
Book-keeping
1: Recording
it is recording phase of it is summarizing phase of
accounting system
2. Skill
3. Base
accounting system
it does not require any it requires special skill and
special skill or knowledge
knowledge
It is the basis of accounting
It is business language
Debit
Amount recorded on left side of account.
Credit
Amount recorded on right side on account.
Rules of Debit and Credit
Accounting
Debit
Credit
 Increase in Assets.
 Decrease in Assets.
 Increase in Expense/loss.
 Decrease in Expense.
 Decrease in Liabilities.
 Increase in Liabilities.
 Decrease in Capital/Ownership.
 Increase in Revenue.
 Decrease in Revenue
 Increase in Capital/Ownership
 JOURNAL
A book of original entry to record different business transactions chronologically (according to
date) is called journal
CHARACTERISTIC OF JOURNAL
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A transaction is recorded originally in the journal
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A transaction is recorded on the same day when it takes place
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Narration is given for each entry
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It provides all necessary information about a transaction
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It helps to locate and remove errors
NARRATION
“A short explanation of each transaction which is written below each entry is called narration”
DOUBLE ENTRY SYSTEM
“A system in which equal debit and credit entries are made for every transaction.in which every
business transaction effects two or more accounts is double entry system”
COMPOUND ENTRY
“The entry in which more than one accounts are debited or more than one accounts are
credited is called Compound entry”
For example:
Wage
Debit
Rent
=
To Cash
Credit
PRACTICS MATERIAL FOR GENERAL JOURNAL
Q.1. Mr. Ali started the business in 2007 and journalizes the following transactions
May
01. Started the business with cash
Rs.
400,000
02. Deposited cash into bank
300,000
03. Purchased building and payment made by cheques
150,000
04. Goods purchased by cheques
15,000
05. Goods sold for cash and amount deposited into bank
10,000
06. Insurance premium paid by cheques
5,000
Q.2. Enter the following transactions into general journal with the month of March
March
01. Merchandise distributed as free sample
Rs
15,00
02. Merchandise given as charity
37
03. Merchandise taken away by the proprietor
36
04. Merchandise destroyed by fire
190
05. Merchandise stolen by dishonest worker
950
06. On Eid day merchandise given as charity
640
07. Merchandise used in the home of proprietor
390
Q.03.Mr. Ali started the business in 2004. The following transactions occurred during the
month of July
July
01. Mr Ali opened a bank account in the name of the business with a deposit of cash Rs
45,000
02. Mr Ali purchased land to be used as the parking plot for a total price of Rs.140,000, Ali
cash down payment of Rs.28,000 was made and a note payable was issued for the
balance of the purchase price
03. Mr Ali purchased a small portable building for Rs.4,000 cash .the purchase price
included installation of the building on the parking plot.
04. Mr Ali purchased office equipment on credit from Suzuki and company for Rs.3,000
05. Mr Ali paid Rs.2,000 of the amount owed to Suzuki and company
INTRUCTIONS
a) Prepare journal entries for the month of July
b) Post to ledger accounts of the three-column running balance form
c) Prepare a trail balance at July.
LEDGER
“The book in which all business transactions are finally recorded in the concerned accounts in a
summarized and classified form is called ledger”
POSTING
“The process of transferring the business transactions from journal to ledger is known as
posting”
FOLIOING
“The process of entering the ledger page number in “ledger column” of the journal and journal
page number in Journal column of the ledger is called “Folioing”
GENRAL LEDGER
The ledger in which all the accounts are posted except debtors or creditors when ledger or
creditors is prepared is called general ledger.
TRAIL BALANCE
A statement which is prepared by taking out the debit and credit balances of all accounts
appearing in ledgers in order to check the arithmetical accuracy of the ledger is called Trail
balance.
ADVANTAGES OF TRAIL BALANCE
01. It provides proof of arithmetical accuracy of accounting entries
02. It facilitate the preparation of final accounts by providing in summarized form.
ADVANTAGES OF LEDGER
Following are the main advantages of Ledger
01. It provides guarantee of successful application of double entry system
02. It provides summarized record of every account separately
03. It helps in preparation of final accounts
CHARACTERISTICS OF LEDGER
Ledger has two identical sides
01. Left hand side (debit side)
02. Right hand side ( credit side)
DIFFERENCE BETWEEN JOURNAL AND LEDGER
Journal
Ledger
It is a book of first entry
It is book of second entry
Recording in journal is called journalizing
Recording in ledger is called posting
Unit of data is called transactions
Unit of data in ledger is called account
ACCOUNTING EQUATION
“A method by which the financial position of a business can be checked at glance is called
accounting equation.”
“A statement which shows the equality of business assets and liabilities is called accounting
equation”
Assets=Liabilities +owners equity
OWNER EQUITY
“Capital invested by the proprietors is called owner equity”
PRACTICS MATERIAL OF ACCOUNTING EQUATION
Q.1. Show the effect of following transactions on the accounting equation.
a) Mr Ali started business with cash
Rs. 200,000
b) He purchased building for
Rs. 10,000
c) He purchased goods worth for cash Rs. 50,000
d) He sold goods to Aslam for Rs.20, 000 costing Rs.17, 000 on credit basis
e) He withdraws cash Rs.3, 000 for his personal use.
Q.2.Compute the missing amounts in each of following three
cases.
Assets= Liabilities + Owner equity
a) 3, 72000
= 2, 28000
+
?
b) ?
= 150,000
+ 100,000
c) 820,000
=?
+ 380,000
AFTER MID
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Bank reconciliation statement
Theory and practical work of ( BRS)
Cash book and its types
Theory and practical work of cash book
Depreciation
Method of depreciation
Theory and practical work of ( depreciation )
Inventory
Approaches use for recording inventory
Method of recording inventory
Theory and practical work of ( inventory)
 BANK RECONCILIATION STATEMENT
“A statement which contains a complete and satisfactory detail of the difference in balance as
per the cash book, and pass book is called Bank reconciliations statement”
METHOD OF PREPARING BRS
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Starting with cash book, or Pass book balance
Through adjusted cask book
Correct method
NOTE:
CORRECT BANK BALANCE
(In case of cash book)
If cash book balance is overdraft then the items added should be deducted and the items
deducted should be added to bring correct bank balance
CORRECT BANK BALANCE
(In case of bank statement)
if bank statement balance is overdraft then the items added are deducted and vice versa in
order to bring correct bank balance.
PRACTICS MATERIAL
Q.NO. 1…
From the following particulars, prepare a bank reconciliation statement as on 31st march
1990, and arrive at the balance as per pass book
01. On 31st march 2005, the bank balance as per the cash book was, Rs. 15000.
02. Cheques deposited into the bank on 28th march but were not collected by the bank by 31st march,
Rs. 1000.
03. Cheques issued but were not presented for the payment by 31st march , Rs.1550.
04. The bank credited a dividend of Rs. 2000, on 31st march but the intimation was received by the
trader on 5th april 2005.
05. A cheque of Rs. 500 was received from a customer and was entered in the bank column of cash book
on 25 march but was paid into the bank on 1st april.
Q.NO.2:
Prepare a bank reconciliation statement of Mr.ali as on 31st march 2004, from the
particulars given below.
a) Balance as per the pass book Rs. 30200
b) Insurance premium of Rs 1000 was directly paid by the bank for which there is no record in the cash
book
c) Interest of Rs.700 is credited by the bank in the pass book which is not recorded in the cash book .
d). Cheques for a total amount of Rs, 20000, were deposited into the bank in march but a cheque for
Rs.2500 out of them was credit in April
e) A cheque for Rs 6500 was deposited into the bank on march but in April the cheque was returned by
the bank ….
CASH BOOK
A book of original entry in which all cash receipts and payments are recorded chronologically is
called cash book.
CHARACTERISTICS OF CASH BOOK
A cash book having following characteristics
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Only cash transactions are recorded
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It serves for both journal and the ledger simultaneously
KINDS OF CASH BOOK
The cash book having following kinds
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Single column cash book
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Double column cash book
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Three column cash book
SINGLE COLUMN CASH BOOK
A cash book in which only cash receipts and payments are recorded is called single column cash
book.
DOUBLE COLUMN CASH BOOK
A cash book in which cash as well as discount transactions are recorded is called double column
cash book.
THREE COLUMN CASH BOOK
A cash book in which cash, bank and discount transactions are recorded on each side in three
columns, separately is called three column cash book.
PETTY CASH BOOK
The book in which petty items of expenses are recorded is called petty cash book
CONTRA ENTRY
A transactions in which cash and bank accounts are involved, and which are recorded on both
the sides of cash book is called contra entry
CHEQUE BOOK
A book which is issued by bank to its customer containing number of blank cheques for
withdrawing of money is called cheque book.
BANK STATEMENT
A copy of customer account which is issued by a bank to its customer normally informing about
his balance after regular interval is bank statement
PASS BOOK
A copy of the customer account in the bank ledger is called pass book.
ADVANTAGES OF CAHS BOOK
A cash book having following advantages
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It shows the actual bank balance position
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It prevents misrepresentation in recording the banking transactions
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It helps customer in detecting any mistake in bank transaction

Daily cash receipts and payments may be easily ascertained

Any defalcation of money can be detected through verification of cash book
DIFFERNCE BETWEEN CASH BOOK AND CASH ACCOUNT
CASH BOOK
CASH A/C
It is a separate book in which cash transactions are
directly recorded
It is an account in a ledger in which posting is
made from journal
Narration is given in the cash book
Narration is not given in cash account
DIFFERENCE BETWEEN CASH BOOK AND PASS BOOK
CASH BOOK
PASS BOOK
It is maintained by customer
It is maintained by banker
Its debit balance shows cash at bank and credit
balance shows bank overdraft
It debit balance shows bank overdraft and credit
balance shows cast at bank
DIFFERENT CASUSES OF DISAGREEMENT BETWEEN CASH BOOK, AND PASS BOOK
They are following different point of different causes of disagreement

Timing difference

Transaction without informing about them to other party

Errors
PRACTICS MATERIAL
TITLE: cash book
Q.NO. 1…
Write the following transactions in the Single Column cash book of Mr.Ali . The data
which are given below..
1998
Jan.01 .Cash in hand Rs. 15000
06. Purchased goods for cash Rs. 2000
16. Received from akbar Rs. 3000
18. Paid to babar Rs. 1000
20. Cash sales Rs.4000
25. Paid for stationery Rs. 60
30. Paid for salaries Rs. 1000
31. Purchased office furniture Rs. 2000
Q.NO.2: Write the following transactions in the Double Column cash book of Mr.Ali .The further
data are given below.
1995
Jan. 01. Cash in hand Rs. 2000.
07. Received from Riaz and Co, Rs. 200, and discount allowed Rs. 10
12. Cash sales Rs. 1000.
15. Paid Zahoor and sons Rs. 500, and discount received Rs. 15.
20. Purchased goods for cash Rs. 300.
25. Received from Salman Rs. 500, and discount allowed Rs. 15.
27. Paid Hasan and sons Rs. 300.
28. Bought furniture for cash Rs. 100
31. Paid rent, Rs. 100.
Q.3.From the following particulars write up a treble column
cash of Mr. waseem may 2006
May.
Rs.
1. cash in hand
20,000
2. cash at bank
15,000
3. goods sold for cash
45,00
4. goods bought for cash
9,000
5. received a cheque from Mr.Ali for Rs 9650 in full settlement of his
dues Rs 98,00 and deposited into the bank
6. paid to zulfiqar cash Rs 5,000 and a cheque for Rs 47,00 in full
settlement of his dues Rs 10,000
7. cash received from m. kaleem Rs.4,900 in full settlement of his dues
Rs.5,000
8. paid cash to adnan Rs.1,950 in full clearance of his dues Rs.2,000
9. received a cheque from asim Rs. 3900 in full settlement of his dues
Rs. 4,000
10.
bank credited interest
500
11.
bank debit charges
700
DEPRECIATION

Definition of depreciation

Objects of depreciation

Necessary steps for chagrining depreciation

Depreciation expense

Defferance between straight line and diminishing balance method

Causes of depreciation

Scrap value

Amortization

Method of calculating depreciation

Depreciations vs Fluctuation

Types of depreciation
DEFINITION OF DEPRECIATION
“ The process of allocating the cost of a fixed assets over its estimated useful life in a rational and
systematic manner” is called depreciation

Physical value of assets decrease due to use in business
OBJECTS OF DEPRECIATION
The depreciation having following objects

To find out net profit or loss for an accounting period

To present a true and fair view of the state of affairs of the business

To replace the asset
NECESSARY STEPS FOR CHAGRINING DEPRECIATION
The depreciation having following process for chagrining depreciation

Determination of cost of an assets

Estimated of the useful life of the assets

Selection of method allocation
DEPRECIATION EXPENSE
The total allocated cost for one accounting period, which is matched against revenue is called
depreciation expense
CAUSES OF DEPRECIATION
The following reason of

Obsolescence

Depletion

Expiry of time

Fall in the market price
OBSOLESCENCE
A process of becoming out of date or obsolete is called obsolescence “ in other words,
reduction in the useful life of the assets arising from following factors

Change in technology

Improvement in production method

Change in market demand
STRAIGHT LINE METHOD
The method under which cost of an assets is equally charged over the useful life of an assets is
called straight line method.
ADVANTAGES OF STRAIGHT LINE METHOD
It having following advantages

Easy calculation of depreciation amount

Reducing the book value to zero
DISADVANTAGES OF OF STRAIGHT LINE METHOD
It having following disadvantages

Higher depreciation is charged in last years of asset useful than its output

If an additional assets are required the amount to be charged as depreciation to be
recalculated
DIMINISHING BALANCE METHOD
The method in which asset is depreciated at fixed percentage over written down value of asset
is called diminishing balance method
ADVANTAGES
It having following advantages

It is also acceptable for income tax purpose

No recalculation is necessary when additional assets are purchased
DISADVANTAGES
It having following disadvantage

There is a lack of simplicity

The asset is never fully depreciated
DEPRECIATION VS FLUCTUATION
DEPRECIATION
FLUCTUATION
It is permanent
It is merely temporary
It is continuing
It is not continuing
It is shrinkage in value
It represent rise or fall in value
It is concerned with book value
It is conferenced with market value
It refers to fixed assets
It refers to floating assets
It must be occur
It may not occur
It reduce value of assets gradually
The value of assets may rise or fall on account
of fluctuation
It always loss or indicate always loss
It may indicate either profit or loss, it depend
on market value
SCRAP VALUE
The amount which will be realized at the end of the asset useful life is called scrap value or
scrap value means the price at which on assets will be sold at the end of its working life.
TYPES OF DEPRECIATION
TWO TYPES

Amortization

Depletion
AMORTIZATION
The process of allocating the cost of an intangible assets over its useful life in a rational and
systemic manner

Long term

Good well

Investment
DEPLETION
The process of measuring and recording the exhaustion of natural resources due to their use is
called depletion

Mine etc
PRACTICS MATERIAL.
Q.01.FIXED INSTALLMENT METHOD
On 1st january 1981 Mr. Munir purchased machinery for Rs.21000. the estimated life of the
machine is 10 years after which its break up value will be Rs.1000, only find out the amount of
annual depreciation according fixed installment and prepare the machinery account for the first
three years.
Q.02. DIMISISHING BALANCE METHOD
On 1st July 2002, Aslam purchased a second-hand machine for Rs.18000 and spent Rs.2000 on
its repairs and installation on 30th June 2005 the machinery was disposed off for a sum of
Rs13600. Assuming the books are closed on 31st December each year and taking the rate of
depreciation at 10 % p.a. on diminishing balance and show the machinery account.
INVENTORY (STOCK)

INVENTORY

MERCHANDISING COMPANIES

OPERATING CYCLE OF MERCHANDISEING COMPANIES

GENERAL LEDGER ACCOUNT

SUBSIDIARY LEDGER

CONTROLLING ACCOUNT

APPROACHES USED IN ACCOUNTING FOR MERCHANDISING

PERPETIUAL INVENTORY SYSTMEN

PERIODIC INVENTORY SYSTEM

DEFFERENCE BETWEEN PERPETUAL AND PERIODIC INVENTORY SYSTEM

PRACTICS MATERIAL
INVENTORY (STOCK)
Goods or merchandise on hand that is goods remaining unsold is called, stock, stock in trade or
inventory. Or The goods that a merchandising company sales to its customers are called
inventory
Example: stock of food, Automobiles etc.
MERCHANDISING COMPANIES
The merchandising companies are those that earn revenue in the business by selling their
produce rather then services.
OPERATING CYCLE OF MERCHANDISING COMPANIES
The series of transactions through which a business generates its revenue and its cash receipts
from customers is operating cycle
It contain following basic transactions

Purchase of merchandise

Purchase ( inventory)

Sales of the merchandise on account

Collection of the accounts receivable from customer
GENERAL LEDGER ACCOUNT
The account in which we recording transactions only is called general ledger accounts, such
types of accounts provide a useful overview of a company financial activities. They do not
provide much of the detailed information needed by managers and other company employees
in daily business operations is called general ledger account
SUBSIDIARY LEDGER
The ledger that provides detailed information about accounting records is called subsidiary
ledgers. A subsidiary ledger shows separately the individual items which comprise the balance
of a general ledger account
CONTROLLING ACCOUNT
A general ledger account which summarizes the content of a subsidiary ledger is called control
account
APPROACHES USED IN ACCOUNTING FOR MERCHANDISING TRANSACTIONS
There are two approaches may be used in accounting for merchandising transactions

Perpetual inventory

Periodic inventory
PERPETUAL INVENTORY
In perpetual inventory system merchandising transactions are recorded as they occur, and the
detailed of ledger account for inventory and cost of goods sold are kept perpetually upto-date.
PERIODIC INVENTORY SYSTEM
The system which are used to not keep upto date records, are not maintained either for
inventory or for the cost goods solds
DEFFERNCE BETWEEN PERPETUAL AND PERIODIC INVENTORY SYSTEM.
PERPETUAL
PERIODIC
KEPT UPTO DATE RECORD
NOT KEPT UPTO DATE RECORDS
SHOWING SUBSIDIARY LEDGER ACCOUNT FOR
EVERY PRODUCT COS
IN THIS SYSTEM SUBSIDIARY LEDGER
ACCOUNTS ARE NOT USED
THEIS SYSTEM OF INVENTORY PROVIDE
COMPLETE DETAIL ABOUT INVENTORY
THIS SYSTEM OF INVENTORY PROVIDE
UNCOMPLETE DETAILED OF INVENTORY
l
Perpetual inventory system
›
l
Or Periodic inventory system
›
Determine cost of goods sold
and inventory balance after
each sale.
Determine cost of goods sold
and inventory balance only at
end of each accounting period
METHODS OF RECORDING INVENTORY
There are following

Lifo

Fifo

Average
PRACTICS MATERIAL
Q.1. on january 1st 1994, California, irrigation sold, 2000, rain master-30 oscillating sprinkler,
heads to rancho landscaping, immediately, prior to this sale California perpetual inventory
records for this sprinkler head included the following cost ledger
PURCHASE DATE
=
QUANTITY
= UNIT COST = TOTAL COST
December 12, 1993
=
1200
= 18.5
= 22200
January
=
1800
= 19.00
= 34200
9, 1994
a)
Prepare a separate journal entry to record the cost of goods sold relating to the
january 15 sale of 2000, rain master, 30, sprinklers heads assuming that California
irrigation uses
1)
Specific identification (1000 of the units sold were purchase are December 12, and the
remaining 1000 were purchase on January 9
2)
Average cost method.
3)
Lifo and Fifo
BEST OF LUCK, THIS IS NOT END OF THE WORLD.
HEAD OF DEPARTMENT
CAMPUS DIRECTOR
SYED KHIZER ABBAS SHAH
DR.RASHID IRSHAD CH