6. JOURNALIZING, POSTING AND BALANCING – Financial Accounting

6 CHAPTER

Journalizing, Posting and Balancing

MEANING OF AN ACCOUNT

An account is a summary of relevant transactions at one place relating to a particular head. It records not only the amount of transaction but also their effect and direction.

TRADITIONAL CLASSIFICATION OF ACCOUNTS

The classification of accounts according to the Traditional Approach is given below:

Classification of Accounts According to Traditional Approach

ACCOUNTING EQUATION BASED CLASSIFICATION OF ACCOUNTS

The classification of accounts according to Accounting Equation Approach is given below:

Classification of Accounts According to Accounting Equation Approach

COMPARISON OF TRADITIONAL CLASSIFICATION AND ACCOUNTING EQUATION BASED CLASSIFICATION OF ACCOUNTS

Illustration 1 Classify the following accounts:

  1. Capital brought in
  2. Drawings A/c
  3. Building purchased
  4. Purchases A/c
  5. Sales A/c
  6. Carriage inward paid
  7. Carriage outward paid
  8. Cash received
  9. Cash paid
  10. Interest paid
  11. Interest received
  12. Commission paid
  13. Commission received
  14. Discount allowed
  15. Conveyance charges
  16. Sales promotion expenses
  17. Entertainment expenses
  18. Subscription paid
  19. Subscription received
  20. Light, power and electricity
  21. Telephone, Postage and telegram
  22. Repairs incurred
  23. Insurance premium paid
  24. Bad debts written off
  25. Bad debts recovered
  26. Discount received
  27. Printing and stationery bought
  28. Furniture and fixtures purchased
  29. Bank A/c
  30. Wages and salaries paid
  31. Travelling charges
  32. Current A/c of a partner
  33. Loan account of a partner
  34. Sales returns
  35. Bank overdraft
  36. Purchases returns A/c
  37. Outstanding salary A/c
  38. Prepaid rent A/c
  39. Interest accrued A/c
  40. Interest received in advanced A/c

Solution

  1. According to traditional approach
    1. Personal Accounts—1, 2, 29, 32, 33, 35, 37, 38, 39 and 40
    2. Real Accounts—3, 8, 9, 27, 28
    3. Nominal Accounts—4, 5, 6, 7, 10 to 25, 30, 31, 34, 36
  2. According to accounting equation approach or modern approach
    1. Assets Accounts—3, 8, 9, 27, 28, 29, 38, 39
    2. Liabilities Account—33, 35, 37, 40
    3. Capital Accounts—1, 2, 32
    4. Revenue Accounts—5, 11, 13, 19, 25, 26, 34
    5. Expenses Account—4, 6, 7, 10, 12, 14 to 18, 20 to 24, 30, 31, 36
MEANING AND RULES OF DEBIT AND CREDIT

Basically debit means to enter an amount of transaction on the left side of an account and credit means to enter an amount of transaction on the right side on an account. In the abbreviated form Dr. stands for debit and Cr. stands for credit. Both debit and credit may represent either increase or decrease depending upon the nature of an account. The Rules for Debit and Credit are given below:

Rules for Debit and Credit when the accounts are classified as Personal, Real and Nominal

Rules for Debit and Credit when the accounts are classified on Accounting Equation Basis

Illustration 2 Which rule of debit and credit is applicable for each of the accounts referred to in Illustration 1?

Solution

 

Rules of Debit and Credit According to Traditional Approach

Rules of Debit and Credit According to Accounting Equation Approach

MEANING AND FORMAT OF JOURNAL

Meaning of Journal

A Journal is a book in which transactions are recorded in the order in which they occur i.e., in chronological order. A Journal is called a book of prime entry (also called of original entry) because all business transactions are entered first in this book. The process of recording a transaction in a journal is called Journalizing. An entry made in the journal is called a ‘Journal Entry’.

Format of a Journal

The format of a journal is shown as follows:

 

Journal

  1. Date column Under this column, the date on which the transaction is entered is recorded. The year and month is written once, till they change.
  2. Particulars column Under this column, first the names of the accounts to be debited, then the names of the accounts to be credited and lastly the narration (i.e., a brief explanation of the transaction) are entered.
  3. L.F., i.e., ledger folio column Under this column, the ledger page number containing the relevant account is entered at the time of posting.
  4. Debit amount column Under this column, the amount to be debited is entered.
  5. Credit amount column Under this column, the amount to be credited is entered.

Note Except the L.F. column, all other columns are recorded at the time of journalizing. The L.F. column is recorded at the time of posting.

MEANING OF JOURNALIZING

The process of recording a transaction in the journal is called journalizing. The various steps to be followed in journalizing business transactions are given below:

Steps in Journalizing

Step 1 → Ascertain what accounts are involved in a transaction?

Step 2 → Ascertain what is the nature of the accounts involved?

Step 3 → Ascertain which rule of debit and credit is applicable for each of the accounts involved?

Step 4 → Ascertain which account is to be debited and which is to be credited?

Step 5 → Record the date of transaction in the ‘Date column’.

Step 6 → Write the name of the account to be debited very close to the left hand side (i.e., the line demarcating the ‘Date column’ and the ‘Particulars column’) alongwith the abbreviation ‘Dr.’ on the same line against the name of the account in the ‘Particulars column’ and the amount to be debited in the ‘Debit Amount column’ against the name of the account.

Step 7 → Write the name of the account to be credited in the next line preceded by the word ‘To’ at a few spaces towards right in the ‘Particulars column’ and the amount to be credited in the ‘Credit Amount column’ against the name of the account.

Step 8 → Write ‘Narration’ (i.e., a brief description of the transaction) within brackets in the next line in the ‘Particulars column’.

Step 9 → Draw a line across the entire ‘Particulars column’ to separate one Journal Entry from the other.

Note The ‘Ledger Folio column’ is filled in at the time of posting into the ledger and not at the time of journalising.

Illustration 3 Analyse the following transactions according to the Traditional Approach:

  1. Ganesh started his business with cash.
  2. Borrowed from Mahesh.
  3. Purchased furniture.
  4. Purchased furniture from Mohan on credit.
  5. Purchased goods for cash.
  6. Purchased goods from Ram on credit.
  7. Sold goods for cash.
  8. Sold goods to Shyam on credit.
  9. Received cash from Shyam.
  10. Paid cash to Ram.
  11. Deposited into bank.
  12. Withdrew cash for personal use.
  13. Withdrew from bank for office use.
  14. Withdrew from bank for personal use.
  15. Received a cheque from a customer, Shyam at 4 p.m.
  16. Deposited Shyam’s cheque next day.
  17. Bank intimated that Shyam’s cheque was dishonoured.
  18. Paid Ram by cheque.
  19. Paid salary.
  20. Paid rent by cheque.
  21. Goods withdrawn for personal use.
  22. Paid an advance to suppliers of goods.
  23. Received an advance from customers.
  24. Paid interest on loan.
  25. Paid instalment of loan.
  26. Interest allowed by bank.

Solution

 

Analysis of Transactions

Illustration 4 Analyse the transactions given in Illustration 3 according to the Modem Approach.

Solution

 

Analysis of Transactions

Advantages of Journal

The main advantages of journal are as follows:

  1. Chronological record Journal is a chronological record in the sense that it records the transactions in the order in which they occur.
  2. Explanation of transaction Each journal entry in the journal carries narration which gives a brief explanation of the transaction.
  3. Recording the both aspects Both the aspects (i.e., debit and credit) of a transaction are recorded in the journal. Since the amounts recorded in both debit amount column and credit amount column must be equal, the possibility of committing error is reduced and the detection of errors, if any, committed becomes easy.

Limitations of Journal

When the number of transactions is large, it is practically impossible to record all the transactions through one journal because of the following reasons:

  1. The system of recording all the transactions in a journal required (i) the writing down of the name of the account involved as many times as the transactions occur; and (ii) an individual posting of each account debited and credited and hence involves the repetitive journalising and positing labour.
  2. Such a system does not provide the information on prompt basis.
  3. Such a system does not facilitate the installation of an internal check system since the journal can be handled by only one person.
  4. The journal becomes bulky and voluminous.

To overcome the shortcomings of the use of the journal only as a book of original entry, the journal is subdivided into special journals.

The journal is subdivided in such a way that a separate book is used for each category of transactions which are repetitive in nature and are sufficiently large in number.

DISTINCTION BETWEEN JOURNAL AND LEDGER

Journal differs from the ledger in the following respects:

INVOICE

Meaning of an Invoice

Invoice is a document prepared by the seller to inform the purchaser about the quantity supplied, rates and terms of payment at which goods were supplied trade discount if any allowed, incidental charges if any payable and the total amount payable by him. It is a purchase invoice or inward invoice for the purchaser and a ‘Sales Invoice’ or ‘Outward Invoice’ for the seller. Entries in the Purchases Book are made on the basics of the purchase invoices received. Entries in the Sales Book are made on the basics of sales invoices received.

When is an Invoice Sent?

Invoice is sent by the seller to the purchaser when goods are supplied by the seller.

 

SPECIMEN OF AN INVOICE

Notes

  1. Words ‘E. & O.E.’ in the invoice stand for Errors and Omissions Excepted. This means if there is an overcharge or undercharge in the invoice because of any error or omissions, it is subject to adjustment.
  2. The expression ‘2% 30 Days’ means that if the amount stated in the invoice is paid within 30 Days, the purchaser will be entitled to a cash discount of 2% on the amount paid.
TRADE DISCOUNT

It is a reduction granted by a supplier from the list price of goods or services on business considerations (such as quantity bought, trade practices, etc.) other than for prompt payment.

Example If 10 Gold Rings are sold at the list price of Rs 20,000 each subject to trade discount of 10%. In this case trade discount will be calculated as under:

10 Gold rings @ Rs 20,000 Rs 2,00,000
Less: Trade discount @ 10% Rs 20,000
Amount payable as per invoice Rs 1.80.000
CASH DISCOUNT

A reductions granted by a supplier from the invoice price in consideration of immediate payment or payment within a stipulated period.

Example If in the above example, terms of payable are 2%, 30 Days, it means buyer will get 2% cash discount if he makes payment within 30 days. In case the purchase makes the payment within 30 days, the cash discount will be calculated as under:

Amount payable as per invoice Rs 1,80,000
Cash discount @ 2% Rs 3,600
Cash paid within 30 days Rs 1,76,400
DISTINCTION BETWEEN TRADE DISCOUNT AND CASH DISCOUNT

Illustration 5 Journalise the following transactions in the books of Shri Ganesh.

Solution

Journal of Shri Ganesh

Illustration 6 Transactions of Ramesh for April, 20X1 are given below. Journalise them.

Solution

Journal of Ramesh

Recording of Cash Purchases, Credit Purchases and Purchase Returns Transactions

Illustration 7 Journalise the following transactions:

Solution

Journal

Recording of Cash Sales, Credit Sales and Sales Returns Transactions

Illustration 8 Journalise the following transactions:

Journal

Recording of Payments on Account and Payments in Full Statement

Illustration 9 Journalise the following transactions in the books of Bharat Tulsian:

  1. Received Rs 975 from Hari Krishan in full settlement of his account for Rs 1,000.
  2. Received Rs 975 from Shyam on his account for Rs 1,000.
  3. Received a first and final dividend of 60 paise in the rupee from the Official Receiver of Mr Rajan who owed us Rs 1,000.
  4. Paid Rs 480 to Mohan in full settlement of his account for Rs 500.
  5. Paid Rs 480 to Sohan on his account for Rs 500.

Solution

Journal

Recording of Special Transactions Relating to Goods

Illustration 10 Journalise the following transactions in the books of Tushar Tulsian:

Solution

Journal

Banking Transactions

Illustration 11 Journalise the following transactions:

Solution

Solution

Journal

Illustration 12 Journalise the following transactions:

Solution

Journal

Illustration 13 Journalise the following transactions:

Solution

Journal

Illustration 14 On 1st January 20X1 Raja Ram opened a Bank Account by depositing Rs 6,000 in cash. All remittances are to be paid into bank on the same day on which they are received and all payments are made by cheques. Enter the following transactions in the Journal:

Solution

Journal of Raja Ram

Recording of Miscellaneous Transactions

Illustration 15 Journalise the following transactions:

  1. Paid rent of building Rs 12,000 half of the building is used by the proprietor for residential use.
  2. Paid fire insurance of the above building in advance Rs 1,000.
  3. Paid life insurance premium Rs 2,000.
  4. Paid income-tax Rs 3,000.
  5. Salary due to clerk Rs 500.
  6. Charge depreciation on furniture @ 10% p.a. for one month (furniture Rs 12,000).
  7. Provide interest on capital (Rs 60,000) at 15% p.a. for six months.
  8. Charge interest on drawing (10,000) at 18% p.a. for six months.
  9. Provide interest on loan to Ram (Rs 1,00,00) at 18% p.a. for two months.
  10. Charge interest on loan to Shyam (Rs 2,00,00) at 18% p.a. for two months.
  11. Received commission Rs 1,000 half of which is in advance.
  12. Brokerage due to us Rs 500.

Solution

Journal

LEDGER

After recording the transaction in the journal, the next stage is the transfer of transactions in the respective accounts opened in the ledger.

Meaning of Ledger

A ledger is a principal book which contains all the accounts (Assets Accounts, Liabilities Accounts, Capital Accounts, Revenue Accounts, Expenses Accounts) to which the transactions recorded in the books of original entry are transferred. As the ledger is the ultimate destination of all transactions, the ledger is called the ‘Book of Final Entry’. It is considered a permanent record and is more frequently referred to. It may be noted that an account is a formal record of all transactions relating to change in a particular item.

Form of the Ledger

A ledger may be kept in the form of bound books, loose leaf sheets, floppy diskettes or CDs or RCDs or DBDs (in case computer is used) or any other like device.

Utility of the Ledger

The main utilities of a ledger are summarised as follows:

 

  1. It provides complete information about all accounts in one book.
  2. It enables to ascertain what the main items of revenues are.
  3. It enables to ascertain what the main items of expenses are.
  4. It enables to ascertain what the assets are and of what values.
  5. It enables to ascertain what the liabilities are and of what amounts.
  6. It facilities the preparation of Final Accounts.

Format of a Ledger Account

A ledger account can be prepared in any one of the following two forms:

Form 1

Form 2

Meaning of Posting

Posting is the process of transferring the transactions recorded in the books of original entry in the concerned accounts in the ledger. It may be done daily, weekly, fortnightly or monthly according to the convenience and requirements of the business.

Necessity of Posting

It is necessary to post all journal entries into various accounts in the ledger because posting helps us to know the net effect of various transactions during a given period on a particular account.

Procedure of Posting

The procedure of posting is given as follows:

Procedure of Posting for an Account which has been Debited in a Transaction

Step 1 → With the help of an Index, open that page on which the concerned account appears.

Step 2 → Enter the date of the transaction, in the ‘Date column’ on the debit side.

Step 3 → Record the name of the account credited in the journal, in the ‘Particulars column’ on the debit side as “To...(name of the account credited)...”

Step 4 → Record the page number of the Journal in the ‘Folio column’ on the debit side and in the journal, write the page number of the ledger on which a particular account appears in the ‘Ledger Folio column’.

Step 5 → Enter the relevant amount in the ‘Amount column’ on the debit side.

Procedure of Posting for an Account which has been Credited in a Transaction

Step 1 → With the help of an Index, open that page on which the concerned account appears.

Step 2 → Enter the date of the transaction, in the ‘Date column’ on the credit side.

Step 3 → Record the name of the account debited in the journal in the ‘Particulars column’ on the credit side as “By.......(name of the account debited).........”

Step 4 → Record the page number of the journal in the ‘Folio column’ on the credit side and in the journal, write the page number of the ledger on which a particular account appears in the ‘Ledger Folio column’.

Step 5 → Enter the relevant amount in the ‘Amount column’ on the credit side.

Tutorial Note When a Three-Column Cash Book is prepared, both Cash Account and Bank Account are not opened in the ledger, since in such a case the Cash Book itself serves the purpose of Cash Account and Bank Account. This is a case where the book of original entry itself serves the purpose of a ledger.

Illustration 16 On 1.4.20X1 Mohan, a customer, paid cash Rs 950 on account of Rs 1,000. Journalise and post it into the ledger.

Solution

COMPOUND ENTRY

When more than two accounts are involved in a transaction and the transaction is recorded by means of a single journal entry instead of passing several journal entries, such single journal entry is termed as ‘Compound Journal Entry’. A compound entry may also be passed if there are more transactions of the same nature taking place on the same date. It may be recorded in the following three ways:

  1. by debiting one account and crediting two or more accounts; or
  2. by debiting two or more accounts and crediting one account; or
  3. by debiting several accounts and crediting several accounts.

Examples of Compound Entry

Illustration 17 On 2.4.20X1 Mohan, a customer, paid cash Rs 950 in full settlement of his account of Rs 1,000. Journalise and post it into the ledger.

Solution

MEANING, RECORDING AND POSTING OF OPENING ENTRY

Meaning of an ‘Opening Entry’

A journal entry by means of which the balances of various assets, liabilities and capital appearing in the balance sheet of previous accounting period are brought forward in the books of current accounting period, is known as ‘Opening Entry’.

Method of Recording an ‘Opening Entry’

While passing an opening entry, all assets accounts (individually) are debited and all liabilities accounts (individually) are credited and the Net Worth (i.e., excess of assets over liabilities) is credited to Proprietor’s Capital Account (in case of a proprietary concern) or Partners’ Capital Accounts (in case of a partnership concern).

Procedure of Posting an Opening Entry

The procedure of posting an opening entry is same as in case of an ordinary journal entry except that in case of an account which has been debited, the words ‘To balance b/f’ are recorded in the ‘Particulars column’ on the debit side and in case of an account which has been credited, the words ‘By balance b/f’ are recorded in the ‘Particulars column’ on the credit side.

Illustration 18 Pass the opening entry in the journal of Ram (as on 1st April 20X1) and post the same into the ledger:

Cash-in-hand Rs 1,000, Cash at Bank Rs 5,000, Stock of Rs 20,000, Land and Building Rs 1,00,000, Plant and Machinery Rs 50,000, Furniture and Fixtures Rs 25,000, Owings from X Ltd. Rs 12,500, Prepaid Insurance Rs 500, Interest received in advance Rs 250, Loan from Y Ltd. 10,000, Owing to Z Ltd. Rs 3,750.

Solution

BALANCING

After posting into the ledger, the next stage is to ascertain the net effect of all transactions posted to an account.

Balance of an Account

Balance of an account is the difference between the total of debits and total of credits appearing in an account. It signifies the net effect of all transactions posted to that account during a given period. It may be a debit balance or a credit balance or a nil balance depending upon whether the debit or the credit side total is higher.

Types of Accounts that are Balanced

Normally, Personal Accounts and Real Accounts are balanced. Nominal Accounts are not usually balanced but are closed by transfer to Trading and Profit and Loss Account.

Significance of Balancing

Balancing an account is necessary to ascertain the net effect of all transactions posted to that account during a given period.

Procedure for Balancing

The procedure for balancing a ledger account is given below:

Procedure for Balancing a Ledger Account

Step 1 → Total both the ‘Debit Amount column’ and ‘Credit Amount column’ separately and ascertain the difference in two totals.

Step 2 → If the debit side total exceeds the credit side total, put such difference (called debit balance) on the credit side in ‘Credit Amount column’, write the date on which balancing is being done in the ‘Date column’ and the words ‘By Balance c/d’ in ‘Particulars column’. OR

If the credit side total exceeds the debit side total, put such difference (called credit balance) on the debit side in ‘Debit Amount column’, write the date on which balancing is being done in the ‘Date column’ and the words ‘To Balance c/d’ in ‘Particulars column’.

Step 3 → Total both the ‘Debit Amount column’ and ‘Credit Amount column’ and put the total on both the sides and draw a double the immediately beneath the totals.

Step 4 → Enter the date of the beginning of next period in ‘Date column’ and bring down the debit balance on the debit side along with the words ‘To Balance b/d’ in Particulars column and the credit balance on the credit side along with the words ‘By Balance b/d’ in ‘Particulars column’.

Illustration 19 Balance the following ledger accounts on 31st January 20X1.

Solution

Steps Involved in Balancing Ram’s Account

Step 1 →

Total of debit amount column Rs 1,00,000
Total of credit amount column Rs 61,000
Difference or balance Rs 39,000

Since the total of debit amount column exceeds the total of credit amount column, the difference in the both these totals is called Debit Balance. Credit side is called shorter side.

Step 2 → Enter the date of balancing (i.e., 31.01.20X1), in Date Column ‘By Balance c/d’ in Particulars column, and the difference in the Amount Column on the shorter side i.e., credit side.

Step 3 →Total both the amounts columns and draw a double line immediately beneath the totals.

Step 4 → Enter the date of the beginning of the next period (i.e., 1st February) in the ‘Date Column’, ‘To Balance b/d’ in ‘Particulars Column’ and debit balance in ‘Amount Column’ on the debit side.

After taking the aforesaid steps, Ram’s Account will appear as follows:

Steps Involved in Balancing Shyam’s Account

Step 1 →

Total of debit amount column Rs 59,000
Total of credit amount column Rs 1,00,000
Difference balance Rs 41,000

Since the total of credit amount column exceeds the total of debit amount column, the difference in both these totals is called ‘Credit Balance’. Debit side is called shorter side.

Step 2 → Enter the date of Balancing (i.e., 31.01.20X1) in the ‘Date Column’, ‘To Balance c/d’ on ‘Particular Column’ and the difference in the Account Column on the shorter side i.e., debit side.

Step 3 → Total both the amounts column and draw a double line immediately beneath the totals.

Step 4 → Enter the date of the beginning of the next period (i.e., 1st Feb.) in the ‘Date Column’, ‘By Balance c/d’ in ‘Particular Column’ and credit balance in ‘Amount Column’ on the credit side.

After taking the aforesaid steps, Shyam’s Account will appear as follows:

COMPREHENSIVE PROBLEMS

Problem 1 Journalise the following transactions in the journal of Mr Tulsian.

Solution

Journal of Mr Tulsian

Problem 2 Enter the following transactions in the Journal of Pran, post to the Ledger and prepare a Trial Balance:

Solution

Journal

THEORETICAL QUESTIONS

Multiple Choice Questions

  1. Debit means:
    1. an increase in asset
    2. an increase in liability
    3. a decrease in asset
    4. an increase in proprietor’s equity.
  2. Credit means:
    1. an increase in asset
    2. an increase in liability
    3. a decrease in liability
    4. a decrease in proprietor’s equity.
  3. Journal is a book of:
    1. original entry
    2. secondary entry
    3. all cash transactions
    4. all non-cash transactions.
  4. Ledger is a book of:
    1. original entry
    2. secondary entry
    3. all cash transactions
    4. all non-cash transactions.
  5. The process of recording a transaction in the journal is called:
    1. posting
    2. journalising
    3. tallying
    4. casting
    5. balancing.
  6. L.F. (i.e., Ledger Folio Column) in the journal is filled at the time of:
    1. journalising
    2. balancing
    3. posting
    4. casting.
  7. The process of transferring the transactions relating to changes in a particular item at one place in the form of an account is called:
    1. journalising
    2. balancing
    3. posting
    4. casting.
  8. The words ‘To Balance b/f, or ‘By Balance b/f’ are recorded in the ‘Particular Column’ at the time of posting of....
    1. all compound entries
    2. an opening entry
    3. a closing entry
    4. an adjusting entry
    5. a transfer entry.
  9. Normally, the following accounts are balanced:
    1. personal accounts and nominal accounts
    2. real accounts and nominal accounts
    3. personal accounts and real accounts.
  10. Which of the following is a cash transaction?
    1. Sold goods
    2. Sold goods to Ram
    3. Sold goods to Ram on credit
    4. Sold goods to Ram on account.
  11. Which of the following is a credit transaction?
    1. Sold goods
    2. Sold goods for cash
    3. Sold goods to Ram for cash
    4. Sold goods to Ram.
  12. Received a first and final dividend of 60 paise in the rupee from the Official Receiver of Mr Rajan who owed us Rs 1,000
    1. Discount allowed A/c be debited with Rs 400
    2. Bad debts recovered A/c be debited with Rs 600
    3. bad debt A/c be credited with Rs 400
    4. Bad debt A/c be debited with Rs 400.
  13. On purchase of a machine Rs 100 paid to workers as wages for installing the machine:
    1. Wages A/c be debited
    2. Installation charges A/c be debited
    3. Machinery A/c be debited.
  14. Purchase of an asset is:
    1. an expense
    2. a loss
    3. an asset
    4. None of these.
  15. Patent Right is:
    1. personal Account
    2. real Account
    3. nominal Account
    4. expense Account.
  16. The following account has a credit balance:
    1. carriage Inward
    2. carriage Outward
    3. return Inward
    4. returns Outward.

    [Answer: 1. (a), 2. (b), 3. (a), 4. (b), 5. (b), 6. (c), 7. (c), 8. (b),
    9. (c), 10. (a), 11. (d), 12. (d), 13. (c), 14. (c), 15. (b), 16. (d)]

True or False Questions

State with reasons whether the following statements are True or False:

  1. The system of recording transaction on the basis of their two-old aspect is called double account system.
  2. Sales made to Rajat for cash should be debited to Rajat.
  3. Withdrawal of money by the owner is an expense for the business.
  4. Earning of revenue means increase in Cash/Bank Balance.
  5. Purchase made from Bharat for cash should be credited to Bharat.
  6. The return of goods by a customer should be debited to Returns Outward Account.
  7. If the business has any liability, the proprietor’s capital must be more than the total assets.
  8. Goods bought for resale are referred to as sales.
  9. The balance of an account is always known by the side which is shorter.

    [Answer: All False]

Very Short Answer Type Questions

  1. What is an account?
  2. Name the book in which accounts are opened.
  3. What is the object of preparing an account?
  4. In how many heads are accounts classified?
  5. What is meant by the term Debit?
  6. What is meant by the term Credit?
  7. What is a Journal?
  8. What is Journalising?
  9. Which column in a journal is not filled at the time of journalising?
  10. What is a Compound Entry?
  11. What is Narration?
  12. What is a Ledger?
  13. Why is the Ledger called the Book of Final Entry?
  14. What is Posting?
  15. What is the necessity of posting?
  16. Does any book of original entry serve the purpose of Ledger?
  17. When is posting considered complete?
  18. What is an opening entry?
  19. What is balance of an account?
  20. What is the significance of balancing?
  21. What is a Trial Balance?

Short Answer Type Questions

  • 22. Enumerate the items recorded in an account.
  • 23. Give two different specimen of an account.
  • 24. Enumerate the heads of traditional classification of accounts.
  • 25. Enumerate the heads of accounting equation based classification of accounts.
  • 26. Name three different types of Personal Accounts.
  • 27. Name two different types of Real Accounts.
  • 28. Name three different types of Nominal Accounts.
  • 29. Name two different types of Assets Accounts
  • 30. Name two different types of Capital Accounts.
  • 31. Name two different types of Liabilities Accounts.
  • 32. Name two different types of Revenue Accounts.
  • 33. Name two different types of Expenses Accounts.
  • 34. Enumerate the rules of debit and credit for traditional classification of accounts.
  • 35. Enumerate the rules of debit and credit for accounting equation based classification of accounts.
  • 36. Name the side on which increase in Capital Account is recorded.
  • 37. Name the side on which increase in Sales Account is recorded.
  • 38. Name the side on which decrease in Cash Account is recorded.
  • 39. Name the side on which increase in Creditor Account is recorded.
  • 40. Name the side on which decrease in Debtor Account is recorded.
  • 41. Name the side on which increase in Salary Account is recorded.
  • 42. Give a format of a journal and briefly explain its contents.
  • 43. Enumerate the steps in Journalising.
  • 44. Enumerate the forms in which a ledger may be kept.
  • 45. Enumerate any five utilities of ledger.
  • 46. How is an opening entry recorded in a journal?
  • 47. Enumerate any three objectives of preparing a Trial Balance.
  • 48. Enumerate the limitations of a Trial Balance.
  • 49. Enumerate the methods of preparing a Trial Balance.
  • 50. Classify the following under three types of accounts: Personal, Real or Nominal Accounts.
    1. Cash
    2. Bank
    3. Drawings
    4. Depreciation
    5. Outstanding Salary
    6. Prepaid Insurance Premium
    7. Loan
    8. Motor Vehicles
    9. Interest on Investments
    10. Interest accrued but not received
    11. Interest received in advance.

Long Answer Type Questions

  1. Explain the procedure of posting.
  2. Explain the procedure for balancing a ledger account.
  3. Explain the methods of preparing a trial balance.
PRACTICAL QUESTIONS
  1. Journalise the following transactions in the books of Ram. Post them in the ledger and balance the various accounts opened in the ledger.

    [Answer: Total of Journal Rs 1,84,000]

  2. Journalise the following transactions in the books of Mr X. Post them in the ledger and balance the various accounts opened in the ledger.

    [Answer: Total of Journal Rs 2,26,870]

  3. Record the following transactions in the journal of Shri Krishan:

    Ram started business with cash Rs 2,50,000 (ii) He deposited Rs 2,30,000 in a newly opened bank account (iii) He purchased goods for cash Rs 18,000 (iv) He purchased goods for Rs 20,000, payment was made through bank (v) He withdrew Rs 12,000 from the bank for office use (vi) He withdrew Rs 11,000 from the bank for personal use (vii) He sold goods for cash Rs 25,000, out of this he again deposited Rs 22,000 in the bank (viii) He paid salary in cash Rs 1,200 (ix) He gave a cheque for rent Rs 1,300 (x) Sold goods on account to Y, Rs 18,000 (xi) Purchased goods on account from X, Rs 15,000 (xii) Sold goods for cash Rs 11,000 (xiii) Purchased goods from Z for cash Rs 12,500 (xiv) Purchased goods for cash Rs 12,800 (xv) Cash paid to X, Rs 13,000 (xvi) Cash received from Y, Rs 11,600 (xvii) Machinery purchased for cash Rs 30,000 (xviii) Machinery purchased from Anil on account Rs 40,000 (xix) Sold a machine to Satish for cash Rs 15,000. There was a loss on sale of Rs 11,000 (xx) Interest earned Rs 35,400 (xxi) Interest paid Rs 11,200.

    [Answer: Total of Journal Rs 8,27,000]

  4. Journalise the following transactions, post the entries in ledger and prepare the Trial Balance.

    [Answer: Total of Journal 1,29,427]

  5. Journalise the following transactions in the books of Aggarwal & Sons, Calcutta. 1 January 20X1.

    Cash Rs 12,000; Furniture Rs 2,400; Closing Stock Rs 12,000; Building Rs 36,000. Debtors. W Rs 2,400; X Rs 2,400; Y Rs 3,600; Z Rs 3,600. Creditors. P Rs 3,600; Q Rs 6,000.

    [Answer: Total of Journal Rs 96,540]

    [Hint: No entry should be passed for closing stock]

  6. Pass necessary journal entries in the books of Ashish Tulsian for the following transactions:
    1. Rs 6,000 was stolen from the safe of the firm.
    2. Received an order from Kapil for the supply of goods worth Rs 2,40,000. In this connection we received Rs 1,20,000 as advance.
    3. Goods sold for cash Rs 60,000. Also received 7% sales tax.
    4. Given as charity: Cash Rs 6,000, Goods Rs 18,000 and a Sofa-set worth Rs 24,000.
    5. Goods worth Rs 4,200 stolen by an employee.
    6. Purchased two houses worth Rs 1,10,000 for the business.
    7. Goods given to proprietor’s daughter Rs 1,800.
    8. Goods worth Rs 6,000 destroyed by fire.
    9. Goods worth Rs 12,000 distributed as sample.
    10. Bricks worth Rs 6,00,000 purchased for the construction of building.
    11. Received cash from Rita against bad debts Rs 22,000 written off last year, Rs 19,800.
    12. Place an order with M/s Ritik Roshan & Co. for the supply of goods costing Rs 1,00,000. In this connection, we paid 10% advance.

    [Answer: Total of Journal Rs 10,02,000]

  7. Journalise the following transactions:
    1. Paid rent of building Rs 7,200 half of the building is used by the proprietor for residential use.
    2. Paid fire insurance of the above building in advance Rs 600.
    3. Paid life insurance premium Rs 1,200.
    4. Paid income-tax Rs 1,800.
    5. Salary due to clerk Rs 300.
    6. Charge depreciation on furniture @ 10% p.a. for one month (furniture Rs 7,200).
    7. Provide interest on capital (Rs 36,000) at 15% p.a. for six months.
    8. Charge interest on drawing (Rs 6,000) at 18% p.a. for six months.
    9. Provide interest on loan from Ram (Rs 60,000) at 18% p.a. for two months.
    10. Charge interest on loan to Shyam (Rs 1,20,000) at 18% p.a. for two months.
    11. Received commission Rs 600 half of which is in advance.
    12. Brokerage due to us Rs 300.

    [Answer: Total of Journal Rs 25,200]

  8. Journalise the following transactions:
    1. Paid Rs 150 in cost as wages for installation of machine.
    2. Sold goods to Kitty. List price Rs 12,000. Sales subject to 10% Trade Discount and 5% Cash Discount if payment is made immediately. Kitty availed of cash discount.
    3. Supplied goods costing Rs 3,600 to Shakuntala. Issued invoice at 10% above cost less 5% trade discount.
    4. Goods worth Rs 4,200 distributed as sample
    5. Goods costing Rs 66,000 stolen in transit.
    6. Cash embezzled by Himanshu Rs 1,98,000.

    [Answer: Total of Journal Rs 2,82,912]

  9. From the following transactions of M/s Sky and Earth, write up the journal in proper form, post the Ledger and take out a Trial Balance:

    [Answer: Total of Journal Rs 3,09,420]

    [Hint: Discount allowed to Narain Bros. is to be written back on dishonour of their cheque]

  10. Journalise the following in the Journal of Ram

    [Answer: Total of Journal Rs 2,37,000]

  11. Journalise the following transactions in the Journal of Mohan

    [Answer: Total of Journal 56,520]

  12. Journalise the following in the Journal of Krishna:

    [Answer: Total of Journal Rs 3,10,300]

  13. Journalise the following in the books of Mr Complex:

    [Answer: Total of Journal Rs 57,583.33]

  14. The following data is given by Mr Singh, the owner, with a request to compile only the two personal accounts of Mr Herbert and Mr Robert, in his ledger:

    [Answer: Balance in Robert’s A/c Rs 10,000, Bad Debts in Herbert’s A/c Rs 5,000]

  15. Give complete journal entries for the following:
    1. Purchases worth Rs 10,000 from Basak & Sons at 10% trade discount and 2% cash discount for half the values paid in cash, the balance due, promised after 15 days.
    2. Recovery of 50% of Rs 2,000 owed by Haradhan, earlier written off as an irrecoverable debt.