aakar account 9 final

151 Meeting, Assembly, Seminar and Minuting 3. Types of Meeting, Seminar and Assembly It has already been discussed that different types of organizations hold different types of meetings for different purposes. Thus, there are various types of meeting. The meeting held by sole proprietorship and partnership differs with that of a joint stock company and so forth. Some of the common and important types of meeting, seminar and assembly are described below: Assembly Meeting Seminar Meeting/Seminar/Assembly Mass assembly Annual general meeting Extraordinary assembly Conference Secret meeting Committee meeting Board meeting One-sided meeting and two-sided meeting Staff meeting Unexpected meeting and regular meeting i. Assembly The assembly is organised gathering of large number of individuals and people for conveying of important issues, views, options and information to the shareholders, members and general people. Constitutional assembly, assembly of political party, assembly of shareholders are some examples of assembly. Some important types of assemblies are given below. a. Mass Assembly This is a meeting organised openly by any political, religious or social organization to draw the public attention towards any political, religious or social matters. Only a few selected persons representing a certain group or class deliver speech and others listen to them. A notice of such a meeting is given through mass media like radio, television loudspeaker, pamphlets etc. for inviting the people openly. Since, the number of participants in this meeting is comparatively larger, it is better to call it a conference or convention. Mass Assembly

152 Aakar’s Office Practice and Accountancy - 9 b. Annual General Meeting (Annual Assembly of the Shareholders) According to the Company Act 2063, every company must hold its annual general meeting within six months from the expiry of its financial year. It gives information to the shareholders about the performance and the company’s future plan and programme, so that they can discuss on the matters. A 21 days pre-notice along with the date, place, time and agenda of the meeting should be released to the shareholders in written so that they can prepare for the meeting. The board of directors should follow all the decisions of this sort of meeting. This meeting is organized for the general subjects like to elect board of directors : to pass the budget, to approve the plans and policies, : to approve the audit report, to appoint the auditors, : to divide the bonus, to amend the memorandum. c. Extraordinary general meeting If any important matters which cannot be considered by the board of directors nor can be waited till the coming annual general meeting, require immediate action, extraordinary general meeting is held. The board of directors call this meeting when some unexpected and abnormal situation arises in the company beyond the board of directors’ authority. This sort of meeting is called in case if the board of directors feel necessary at the request of the shareholders representing at least 10 percent of the paid up capital or at least 25% of total capital. The shareholders should be notified about the agenda, date, place and time of the meeting in advance of 15 days for such a meeting. d. Conference/Convention Conference is the gathering of a number of persons in response to a written notice to the specified persons and through mass media to the other general, which is organised by a political, religious, social, business or government organization to pass certain documents for its strategic movement. A conference may be performed through different stages like inauguration ceremony, close door session, etc. The participation in the conference is comparatively a massive than that of other meetings. There are national and international conferences of different organizations and it is occasional in nature. Annual General Meeting Conference

153 Meeting, Assembly, Seminar and Minuting ii. Meeting The different types of meeting are as follows: a. Board of Directors Meeting (BOD Meeting) It is a meeting of the directors of a company. The term ‘Board’ is the collective name of the directors and thus it is termed as Board of Directors Meeting. When the directors of a company come together to determine its plans and policy and to make decisions regarding its management activities, it is called the meeting of the board of directors. The Board Meeting is held at a regular interval. According to the Company Act 2063, a public company must hold such a meeting at least six times a year, not exceeding a three month period. In case of a private company, it is as prescribed in the articles of the association. At least 51 percent of the fully qualified directors must be present for quorum. For this sort of meeting, no proxy is allowed. The general agenda of such a meeting is the management of the company i.e. forfeiture of shares, recommendation of dividend, appointment of officers, fixation of the date of general meeting etc. which are of immense importance to the company’s management. b. Confidential Meeting Confidential meeting is such a meeting which is held among a few selected persons or officials on some confidential matters. This sort of meeting is organized secretly and the decisions may also remain secret for a long period or even forever. The meeting related with peace and security, defence and other internal affairs is of this type. As for the confidentiality of matters, legal obligations, etc., such meetings may be organized secretly. c. Committee Meeting A committee is a group of persons formed by government authorities or any other organizations according to the provisions of the Act, to which it is concerned, for a special task i.e. for study and investigation of any happening or case. Such committees can be formed in government as well as in private sectors for different purposes. The meeting organised by such a committee is known as committee meeting. Thus, a committee Board Meeting Committee Meeting

154 Aakar’s Office Practice and Accountancy - 9 meeting is the one which is organised by a committee among its members to discuss and draw out decisions on some topics like the study and finding of case, preparation of final report of the case or problem, etc. The report made by a committee after its final meeting should be submitted to the authority to which it is accountable. A committee may be permanent or temporary as its responsibility and the nature of tasks. d. One-sided and Two-sided Meetings The meeting which is conducted among the members of same organization is called one-sided meeting. The meeting which is conducted between two or more than two orginasitions in the common issues or problems is called two-sided meeting. e. Staff Meeting A staff meeting is an employee conference. Staff meetings are usually called by the organization’s CEO, owner, human resource manager, or other head management officials. Staff meeting arrangement is often made by administrative support such as executive assistants and secretaries. Staff meetings are seen by many organizations as an important venue for communicating with personnel directly and efficiently. Some staff meetings encourage an open exchange of dialogue with staff, while others are conducted as more of an in-person “memo.” f. Unexpected Meetings and Regular Meetings Meeting could be held unexpectedly to know the progress of the employee or members without giving prior notice about the date. It can be done regularly at fixed date and time also. iii. Seminar Seminar is a form of academic instruction, either at a university/ college/school or offered by a commercial or professional organization. It has the function of bringing together small groups for recurring meetings, focusing each time on some particular subject, in which everyone present is requested to actively participate. Seminar Staff Meeting

155 Meeting, Assembly, Seminar and Minuting Increasingly, the term “seminar” is used to describe a commercial event though sometimes free to attend where delegates are given information and instruction in a subject such as property investing, other types of investing, internet marketing, selfimprovement or a wide range of topics, by experts in that field. The basic focus of the seminar is to raise the concerned matters, discuss on the issues and make conclusion. The seminar proceeds as follows: i. Arrival of the participants. ii. Attendance of the participants. iii. Chairing of the seminar by chairperson and call of the chief guest and others guests. iv. Welcome speech. v. Format inauguration of the seminar by chief guest or chairperson. vi. Best wishes speech by chief guest and other guests. vii. Group discussion on the issue of the seminar. viii. Presentation of discussion and conclusion of the seminar. ix. Conducting remark and vote of thanks on behalf of the organizer. x. Closing the seminar by chairperson. Differences Between Meeting and Conference A meeting and a conference are similar to some extent and at the same time, these two terms are different from each other. The main differences between a meeting and a conference are discussed below: Points of Difference Meeting Conference 1. Minute Meeting is an assembly of a small number of persons for discussion and for making decisions on certain topics. Conference is a gathering of a large number of persons to pass certain documents and to form the body of the political, religious, social or business organization for a certain period. 2. Participation There’s a comparatively, small participation in a meeting and all them can give their opinion in favour or against a resolution. There’s a large participation in conference but a few selected persons deliver their speech and others listen to them. The others can vote to certain persons and documents. 3. Interval A meeting is held from time to time in a short duration i.e. it is regular in nature. A conference is held in long interval i.e. two, three, four or of years etc. i.e. it is occasional.

156 Aakar’s Office Practice and Accountancy - 9 4. Procedure The agenda are respectively forwarded in the meeting and through the mutual discussion the decisions are taken by the same sitting or sometimes in the coming meeting, immediately. It is performed generally through different sittings i.e. the inauguration ceremony, close door session and etc. and the decisions are taken through due discussion in the close door session. 5. Purpose A meeting is intended for solving problems and for regular communication of matters and sometimes for supporting plans and policies. A conference is intended for the information of the working committee, approval of documents and making strategies for the coming period. Minute 4. Introduction As it has been already discussed in the meeting, a number of resolutions are presented or forwarded in a meeting or conference for discussion and decision. These all matters i.e. the resolutions and the decisions made therein are to be written in a separate book for the purpose of creating evidence in the future. Such a book is called a minute book. Different minute books are maintained for different types of meeting. Each meeting should mention in the minute about the chairmanship of the meeting, the agenda, the notable opinions of the members and note of dissent, if any, and the decisions on each resolution. All the participants give their signature at the last to endorse the decisions in the minute. Thus, a minute book may refer to a register which is maintained by an organization or committee to record the necessary details i.e. the agenda and the decisions along with the signature of the participants. A minute book may contain the following particulars: i. Name, date and time of the meeting. ii. The name of the person under whose chairmanship the meeting is conducted. iii. The name and post of the members i.e. participants. iv. The decisions of the meeting along with the respective resolution and notes of dissent, if any. v. The signature of the chairperson and then of the other participants. vi. The minute book is the complementary to the meeting. The act of writing the minute book is known as minuting. Key Point The process of recording the resolutions and the decisions made in a meeting in a separate book in systematic way for the purpose of creating evidence for the future is known as minute.

157 Meeting, Assembly, Seminar and Minuting 5. Objectives/Need/Importance of Minute A minute is of immense importance to any sort of organization as it minutes all the conclusions of a meeting. A minute helps the executive in formulation of plans and policies, maintaining rules and order and the sub-ordinates to get guidelines in their regular performance. The following points may highlight the objectives and importance of a minute. i. Helpful in Formulation of Plans and Policies A minute provides much information for the formulation of plans and policies through the decisions of various meetings. ii. History of the Past Decision A minute is the source of the decisions of the meetings and thus it is the history of decisions and through which much information of the past activities especially the resolutions, decisions and sometimes the notes of dissent etc. are supplied for reference or even as an evidence for the regular operation of an organization. iii. Guidance and Follow-up of T Since, a minute contains the remedies for problems and difficulties in the form of decisions, it can provide guidelines to the executives as well as the staff in the regular course of operation. A minute may be referred as a guideline for the similar cases in the present and future. iv. Proof and Evidence A minute of a meeting can be produced as an evidence to settle some of the disputes and conflicts. It is a legally valid document. v. Execution of Decisions For better execution of decisions of a meeting, all the staff of the organization should be notified about the decisions. It is the minute, which reminds and enables the staff to execute the decisions. The decisions of a meeting may work as the policy of that organization. Points to Remember i. Joint investment ii. Productive organization iii. Guidance and follow-up of tasks iv. Proof and evidence v. Execution of decisions

158 Aakar’s Office Practice and Accountancy - 9 6. Drafting of Minute/Minuting Drafting of a minute simply means the act of writing down the decisions drawn by the meeting. The meeting secretary under the instruction of the chairperson writes a minute. It is prepared in different format and style. It is not an easy task to write a minute in a systematic way. One should have enough skill, experience and even a training to write a minute. There are some factors to be taken into mind while drafting a good and effective minute. These common factors are mentioned below: i. The date and name of the meeting along with the name of the person under whose chairmanship the meeting is conducted, should be written in a simple and clear manner. ii. The procedures of minuting like writing the agenda, the name and post of the participants, the decisions of the respective resolutions, etc. should be systematically mentioned. iii. Since, a minute is a legally valid document, it should be written in a lawful way. iv. If any one of the members has disagreement with the decision, a note of dissent may be noted down by taking the mandate of the meeting and the signature of all the participants should be obtained for its endorsement. v. It should be brief, factual and free from ambiguity. vi. It should be simple and clear and thus crossing, rubbing, use of literary words and phrases should be avoided. vii. A copy of minute should be dispatched to all the concerned members within 15 days of the meeting. 7. Endorsement of Minute (Nirnaya Pustikaran) Endorsement of a minute, which is also termed as confirmation of minute, is the act of approving the decisions taken by a meeting by signing on it. Generally, the signature of the members is collected on the same day in the minute by taking the consent from all of them ultimately even by noting down the notes of dissent, if any. Otherwise, if the decisions are too long to fair immediately, decisions are written in a next register or even in a piece of paper with the authorized signature of the chairperson and secretary and sent to all the members attending the meeting. The members are given the time of 24, 36 or 48 hours to approve, amend or oppose the decisions. The members will either give their consent to the decisions or any of them may write a note of dissent on the decisions and give their signature to the minute. In this way, the minute is endorsed by signing by all the members. Sometimes, if the decisions are approved, they are written in the minute and are forwarded for endorsement in the beginning of the coming meeting. When the minute is endorsed, it becomes a legally valid document and the policy of the organization.

159 Meeting, Assembly, Seminar and Minuting Glossary Board of directors : elected members among the shareholders Remuneration : fee/salary/wage/pay, etc. Auditor : a person who checks books of accounts Dividends : a part of profit distributed to shareholders Bonus : additional benefit Shareholders : owners Quorum : minimum required presence Forfeiture : penalty/give up Share : capital divided into small units (generally of Rs. 100) Accountable : answerability/responsibility Mandate : order/command Endorsement : approval/authorisation Consent : permission/agree Dissent : disagree Fiscal year : one financial year Venue : a place where some programme is held Conference : a large official meeting Minute : a systematic record of the decisions made in a meeting Exercise A. Answer the following questions in one sentence. 1. What is a conference? 2. What is meeting? 3. What is meant by endorsement of minute? 4. Define conference. 5. Write any two purposes of annual general meeting. 6. What is assembly? 7. Write the types of meeting. 8. What is seminar? 9. What is minuting?

160 Aakar’s Office Practice and Accountancy - 9 B. Give short answers to the following questions. 10. What is meeting? Describe its important objectives. 11. Describe the importance of meeting. 12. Distinguish between meeting and conference. 13. Briefly describe the need/importance of a minute. 14. What procedures are to be followed while drafting an effective minute? 15. ‘A minute is the document of a meeting’. Justify this statement. C. Give long answers to the following questions. 12. What are the different types of meeting? Explain. 13. What is meant by a minute? Mention its objectives. 14. What does ‘drafting a minute’ mean? Mention the things to be considered while drafting it. Project Work a. Conduct House/Club meeting in your house/club of school, draft minute and also do the endorsement of it. b. Ask your principal or head administrator of your school to show the minute of meeting. c. Did you see any kind of mass meeting? List out when and where?

161 Meeting, Assembly, Seminar and Minuting Book-keeping Unit 8 Book-keeping CDC Syllabus 8.1 Introduction, Types and Concepts 8.2 Single Entry System: Introduction 8.3 Double Entry System: (i) Introduction, (ii) Objectives and Characteristics 10 Periods After studying this unit, students will be able to : know the meaning, objectives and importance of book-keeping, describe the types of accounting, describe the meaning, differences, merit and demerits of double entry and single entry book-keeping system, know the some terminologies of book-keeping. Learning Objectives

162 Aakar’s Office Practice and Accountancy - 9 1. Introduction Organization performs the monetary transactions to achieve the goals. Investment of capital, taking loans, purchase of assets, materials or suppliers, payment of wage, salary, rent, interest, commission, sales of goods, etc. are some examples of business transactions. All these transactions cannot be recalled by a human memory whenever required and thus they are to be regularly and systematically recorded in a set of books for ascertaining profit or loss during a certain period and financial position till the date. The term ‘Book-Keeping’ is comprised of the two words ‘Book’ and ‘Keeping’. where `Book’ means the documents where to keep the records i.e. journal, ledger, etc. and `Keeping’ means the systematic management of book for future reference. Book-keeping is the art of recording the transactions in a systematic and scientific way for the future references. Different scholars have defined book-keeping in different words. Some of them are quoted below: J.R. Batliboi, “Book-keeping is the art of recording business dealings in a set of books.” Dr. A. N. Agrawal, “Book-keeping is the science and art of recording transactions in money or money’s worth so accurately and systematically that the true state of a businessman’s affairs can be ascertained.” Likewise, Rosenkampff, “Book-keeping is the art of recording business transactions in a systematic manner.” With the study of the above meaning and definitions, it may be defined as a science of collecting and recording the financial transactions of an entity regularly and systematically in a set of books so as to ascertain its operational result i.e. profit/loss during a certain period and the financial position up to the date. Key Point Book-keeping is the act of collecting and recording the financial transactions in a systematic and scientific way in a set of books. 2. Objectives of Book-keeping There are various objectives of book-keeping and accounting to different parties i.e. the owners, managers, creditors, government, customers, etc. The common important objectives of book-keeping are shortly described below. i. Ascertainment of Result of Operation Book-keeping is intended to the ascertainment of the result of operation i.e. the profit/loss of a firm or company by recording all the revenue income and gains

163 Book-keeping and expenses and losses of a certain period and by comparing them. It is ascertained by preparing the income statement or profit and loss account at the end of each fiscal year. ii. Ascertainment of the Financial Position It helps to ascertain the financial position of a firm or company by recording the appropriate values of different types of assets, specially in its net cost, and the capital and liabilities up to the date. It is found by preparing the balance sheet at the close of the fiscal year. iii. Maintaining Control over the Assets and Budget Book-keeping maintains control on the assets, income and expenses of all types by making their complete records. It helps one to see how efficiently the assets are utilized and the budget is disposed off. Thus, it establishes financial discipline by controlling frauds on budget and its expenditure. iv. Prediction of the Volume of Cash for Future Book-keeping helps the future forecast of cash by verifying the receipt and payments of an organization and the proposed expansion programmes. Specially, it is important for those whose financial system is based upon cash budget. v. Assessment of Tax Liabilities Book-keeping keeps the complete records of all business transactions and get them audited. Book-keeping involves the income statement and balance sheet at the end of the fiscal year. It gives the details about the financial affairs of an organization, including the sales and net income on the basis of which tax liabilities i.e. sales tax, income tax, etc. can be easily assessed. Points to Remember i. Ascertainment of result of operation ii. Ascertainment of the financial position iii. Maintaining control over the assets and budget iv. Prediction of the volume of cash for future v. Assessment of tax liabilities 3. Importance and Advantages of Book-keeping Book-keeping is important for all, who are engaged in any sort of occupation and rather is important for the organizations for ascertaining the true state of the organization’s affairs. The importance of book-keeping may be studied with respect to the different sectors.

164 Aakar’s Office Practice and Accountancy - 9 i. Importance to the Professional and the other Individuals Book-keeping is important for the professionals like doctor, engineer, mechanics, lawyer, auditor, etc. for recording their incomes and expenses and profits and losses, etc. regularly and systematically for controlling expenses and gaining income. Similarly, it is important for the general people for making a proper balance of their income and expenses for their personal and household affairs. ii. Importance to Business Organizations Book-keeping is essentially important for a business organization for keeping the complete records of the transactions. It is important, specially to determine the result of operation, financial position, controlling assets and other resources, establishing financial discipline, assessing tax liabilities, etc. iii. Importance to the Government Book-keeping is important for the government to evaluate the progress of the government projects, to collect necessary statements, data and information for the preparation of government budget, to control over the leakage, misuse and misappropriation of budget, etc. of the government property and resources. iv. Importance to other Parties Book-keeping is equally important for the financial analysts and other interested parties like investors, creditors, banks, customers, etc. to study and analyse the different financial statements of a certain firm or company. It is also important for the job seekers for better opportunity for getting employment. Points to Remember i. Importance to the professional and the other individuals ii. Importance to business organizations iii. Importance to the government iv. Importance to other parties 4. Book-keeping Vs Accounting The terms ‘Book-keeping’ and ‘Accounting’ are used in the same sense, at the ‘beginners’ level. One should be clear of the fact that book-keeping is a method and practice of recording the financial transactions, summarising them and preparing the final statements, after a certain period, whereas accounting refers to the analysis and interpretation of the financial data in addition to the book-keeping. Thus, bookkeeping is more clerical in nature in the sense that it records and summarises the transactions but accounting is wider, in the sense that it analyses and interprets the data, which helps the managers in taking decisions. Accounting includes the bookkeeping as its elementary course. It is more than book-keeping. It is analysis and

165 Book-keeping interpretation of the data and hence more helpful in decision making. But in the introductory course, both the terms are studied in the same sense. Accounting is broader than book keeping. Book keeping is a part of accounting. The following are some of the main definitions of accounting. According to R.N. Anthony, “ An accounting system is a means of collecting, summarizing, analysing and reporting, in monetary terms, information about the business.” Likewise, Lewis and Gillespie, “Accounting may be seen as consisting of recording, classification, presentation and interpretation of financial information.” In conclusion, it is the systematic process of recording, classifying, summarizing, interpreting and communicating the information of a business for making financial decisions. 5. Types/Branches of Accounting Financial accounting is the most common and first accounting in accounting history. At first, accounting was started in financial institutions. Gradually, it was used in other organizations. Different types of accounting we use are as follows: Financial Accounting Management Accounting Cost Accounting Social Responsibility Accounting Types/Branches of Accounting i. Financial Accounting Financial accounting is one branch of accounting and historically has involved processes by which financial information about a business is recorded, classified, summarized, interpreted, and communicated; for public companies, this information is generally publicly accessible. Financial accounting is the art of recording financial transactions which provides the necessary information to the investors, government, employees, etc. It is single entry as well as double entry system. ii. Management Accounting Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis, to make informed business decisions that will allow them to be better equipped in their management and control functions. In contrast to financial accountancy information, management accounting information is: Usually confidential and used by management, instead of publicly reported.

166 Aakar’s Office Practice and Accountancy - 9 Forward-looking, instead of historical. Pragmatically computed using extensive management information systems and internal controls, instead of complying with accounting standards. iii. Cost Accounting Cost accounting is that part of management accounting which establishes budget and actual cost of operations, processes, departments or product and the analysis of variances, profitability or social use of funds. Managers use cost accounting to support decision making to reduce a company’s costs and improve its profitability. iv. Social Responsibility Accounting It is related with contribution, communication and measurement provided by the business organization to the society where the business organizations are establish and grown. Social responsibility accounting is the process of accounting for social aspects and values of the business. Employment generation, environmental contribution, financial aid to the society, providing residential accommodation to poor people of the society, etc. are the examples of subject matter of social responsibility accounting. 6. Basic Concepts/Principles of Book-keeping and Accounting Every discipline like economics, political science, statistics, etc. is studied under certain theoretical bases. Book-keeping and accounting are also not the exception. Hence, for recording transactions in the books of account, certain fundamental concepts/principles should be followed as the assumptions. Some of the important concepts/principles are briefly discussed below. i. Business Entity Concept This concept assumes that the entity of a business is exactly different from that of its owner. The business transactions of a firm must not be mixed up with the private transactions of the owner. Thus, a separate book of account is prepared for recording the business transactions of a firm, which is separate from that of the owner and the other firms. ii. Going Concern Concept Under this concept, the books of account are maintained continuously in a set of books by assuming that the business has a long existence and carries out its activities continuously onward. In other words, this concept assumes that a firm or company carries on its operation for an indefinite period in future.

167 Book-keeping iii. Money Measurement Concept This concept refers to the recording of those transactions, which show at least a monetary character i.e. involvement of money or money’s worth. The non-monetary transactions are irrelevant to book-keeping Since, they do not show a monetary character. iv. Accounting Period Concept Even though, a business is intended to run its activities continuously onwards, the true position of its affairs should be ascertained at frequent intervals. The owners, managers, creditors, banks and other interested parties need to know the position of its affairs i.e. profit/loss and the financial position for a certain period. The time interval is generally known as accounting or trading period, which is of 12 months. A firm may follow the calendar year or any period of 12 consecutive months as its fiscal year. The books of account are prepared and maintained accordingly. v. Cost Concept The assets of a business, specially the machineries, equipment and materials are recorded at their cost prices and the valuation of the opening as well as the closing stock of materials is made on the basis of cost price or market price whichever is less. vi. Realization Concept There remain many outstanding expenses and accrued incomes in the business in the regular course of dealing. Outstanding expenses refer to the expenses made but not yet paid and accrued income means the income though gained, not received yet. These expenses and incomes though not paid and received, at the very moment, are recorded in the books of account under this concept. Similarly, when expenses are paid and incomes are received in advance, they should not be treated as expenses and incomes before the expiry of the period and thus recorded as advance payment and receipt. vii. Matching Concept Book-keeping is intended to the ascertainment of profit/loss for a certain period, for which the total of income and expenditure should be ascertained separately in the form of statement or account. The difference between the total of incomes and expenses is the profit or loss. Thus, the two totals should be matched with the balancing figure. If the income is excess over the expenditure, it is net profit, but if the expenditure is excess over the income, it is net loss. viii. Dual Concept This concept recognizes the two-side effects of every transaction in the book of both the parties involved. If one or some accounts are debited and some others

168 Aakar’s Office Practice and Accountancy - 9 are credited with the same total effect, an amount is recorded in the debit side of one account and the same on the credit side of other account. Ultimately, the total of the assets of a business becomes equal to the total of its capital plus liabilities. By equation: Assets = Capital+ Liabilities. Points to Remember i. Business entity concept ii. Going concern concept iii. Money measurement concept iv. Accounting period concept v. Cost concept vi. Realization concept vii. Matching concept viii. Dual concept 7. Types of Book-keeping Systems Book-keeping is used by many individuals and organizations from the ancient times. The modern concept of book-keeping is the recent origin and before this, the traditional system of book-keeping was in use. Thus, book-keeping system is studied under two type, viz. (i) single entry book-keeping system and (ii) double entry bookkeeping system. 7.1 Single Entry Book-keeping System It is the traditional system of keeping books of account. Every business transaction has its double aspects, i.e. debit and credit, for both the parties involved, but it does not recognize the two-side effects of the transactions. It considers only the personal i.e. the debtors and creditors and some sort of cash summaries in the books of account. Other real and nominal accounts are completely ignored by this system. Since, the transactions are posted in personal and cash accounts but not in other impersonal accounts, it is called single entry system of book-keeping. As such, single entry system of book-keeping may be defined as the system of keeping books of account, which does not recognize the two-fold aspects of every transaction. Since, it does not record the transactions other than the personal account and a cash summary, it is an incomplete system. According to Kohler, “Single entry system is a system of book-keeping in which, as a rule, the records of only cash and personal accounts are maintained. It is always incomplete double entry system varying with circumstances.” Key Point It is an incomplete and unscientific system of book-keeping which does not follow the rules of double effects and does not accept the basic principles of accounting. The merits and demerits of the single entry systems of book-keeping are discussed below.

169 Book-keeping Merits of Single Entry System i. It is simple to use because only the personal accounts and a cash summary are prepared under this system. ii. It is less costly in the sense that only a limited number of books are maintained by a few number of persons. iii. It is useful for every small and sole proprietorship type of firms. iv. It saves time to maintain the record. Demerits of Single Entry System i. It is incomplete, unsystematic and unscientific system and thus necessary information cannot be supplied. ii. It cannot check the errors and the books of account may lead to the wrong result. iii. It cannot ascertain the true state of affairs of a firm or company. iv. It cannot control different types of frauds, leakage, misuse and misappropriation of assets as well as other resources. v. It cannot make a factual evaluation of projects, neither can assess the tax liabilities in true sense. 7.2 Double Entry Book-keeping System It is already mentioned that every financial transaction shows its double effect one in the debit side of one account and the next in the credit side of another account. This double effect, in every business transaction, cannot be recognized by the single entry book-keeping system. Thus, it was felt necessary to develop the double entry book-keeping system to satisfy the needs of organizations in course of time. It is completely systematic and scientific and thus keeps the records of the transactions by considering both the aspects. So the double entry book-keeping system may be defined as the system of keeping books of account which recognizes the two-fold aspects of every transaction. It is based on the double entry principles that for every debit there is corresponding credit, i.e. one aspect is debited with a certain value and the other is credited with the same value. Double Entry Book-keeping system was propounded by an Italian businessman Luca De Bourga Pacioli in 1494 AD. He published his book named ‘Summa De Arithmetica’ mentioning the recording system of transactions. According to Lewis and Gillespie, “The specific technique which reflects the concept of duality is known as double entry book-keeping.” Likewise, Juneja, Chawla and Saksena, “Double entry system is the system under which each transaction is regarded to have two fold aspects and both the aspects are recorded to obtain complete record of dealings.” Father of Accounting

170 Aakar’s Office Practice and Accountancy - 9 Key Point It is the scientific, complete and systematic system of accounting based on dual concept. The double entry system is illustrated in respect to the following transactions. 1. Furniture purchased for Rs. 10, 000. in cash. This transaction shows the twoside effects, i.e. on the furniture and cash. Furniture A/c is debited with Rs. 10, 000 and the cash A/c is credited with the same amount. The entry is: Furniture A/c Dr 10,000. To Cash A/c 10, 000. (Being furniture purchased) While posting the above entries in the concerned accounts. It is made as: i) Furniture A/c To Cash A/c 10,000. ii) Cash A/c By Furniture A/c 10,000 2. Sold goods for cash Rs. 20,000. Journal Entry: Cash A/c Dr. 20,000 To Sales A/c 20,000 (Being goods sold on cash) Ledger Posting: (i) Cash A/c ii) Sales A/c To Sales A/c 20,000 By Cash A/c 20,000 Note: The term book-keeping generally refers to the double entry book-keeping system and thus the importance, merits, objectives etc. of double entry book-keeping also refers to the book-keeping system, in general.

171 Book-keeping 7.3 Objectives and Importance of Double Entry Book-keeping System Double entry book-keeping system is the systematic and scientific system and completely based on the double entry principles. It is introduced to overcome the limitations of the traditional system of book-keeping, i.e. the single entry system. There are some important objectives of the double entry book-keeping system, which are mentioned below: i. To ascertain the profit or loss resulted from the business operation. ii. To measure the financial position of a concern by making the appropriate valuation of the assets, capital and liabilities. iii. To know the exact amount of the debtors and creditors of a firm for a certain duration. iv. To see the capital structures and the management of assets for analyzing the economic soundness of a firm or company, i.e. short term liquidity and long term solvency, etc. v. To determine the tax liability i.e. sales tax, VAT, income tax, etc. by ascertaining the total sales and net income of the year. vi. To establish an efficient financial administration for the control of all types of resources from leakage, misuse, misappropriation, etc. by keeping complete records of all the transactions. vii. To facilitate the auditing of the books of account. viii. To submit, as evidence, in the courts, if necessary, because the audited financial statements are the authentic and legal financial documents. 7.4 Differences between Double Entry and Single Entry Book- keeping System Bases of difference Single entry system Double entry system i. Duality principle It does not recognize the two-fold aspect of every transaction. It recognizes the two- fold aspect of every transaction. ii. Scope It has a very limited scope for small scale business organizations and enters only the personal and cash transactions. It has a large and wider scope for all the organizational sectors for all types of business transactions. iii. Trial balance A trial balance cannot be prepared and thus the arithmetical accuracy cannot be checked. A trial balance is prepared under this system to check the arithmetical accuracy of the books of account. iv. Net profits/loss Because of an incomplete information, the true net profit/loss cannot be ascertained. The true net profit or loss can be ascertained by preparing the income statement or profit and loss account.

172 Aakar’s Office Practice and Accountancy - 9 v. Financial position It cannot provide accurate and complete information for the preparation of balance sheet. Thus, the financial position cannot be ascertained under this system. True financial position of a business can be easily ascertained by preparing the balance sheet. vi. Authenticity The books of account are neither complete nor can be audited systematically under this system. So, it is not authentic. Since, the books of account are audited by the recognized auditor, these are duly authentic. vii. Reliability It is incomplete and unscientific and thus not trusted by creditors, bankers, tax authority and other financial analysts for the reliability of the financial statements. It is completely scientific and systematic system of keeping books of account. Thus, it is trusted by tax authority, creditors, banker and other financial analysts for the reliability of the results. 8. Terminologies of Book-keeping There are many terms frequently used in book-keeping and accounting. Some of them are briefly discussed below: i. Financial/business transactions The transactions, which show, at least, a financial character, i.e. the involvement of money or money’s worth, are known as the financial or business transactions. Purchase of goods, sales of goods, purchase of assets, raising of capital, borrowing loan, payment of expenses, receiving income are the examples of the financial transaction. The transaction may occur in terms of cash and credit. Cash paid and cash received are the examples of cash transactions likewise credit sales and credit purchase of goods are some examples of credit transactions. ii. Assets Any physical objects (tangible) or rights (intangible) owned by an organization or firm having an economic value are termed as assets. The followings are the examples of assets. Assets = Liabilities + Capital Cash Bills receivable Good will Accrued income Bank Land and building Debtors Plant and machinery Stock Furniture and fixtures Vehicles and equipments

173 Book-keeping iii. Capital The investment of cash or kind in the business by the proprietor/owner is known as capital. The following are the examples of capital. It is a kind of permanent liability to the business enterprise. Capital = Assets - Liabilities iv. Liability The claim or series of claims against the firm or company are liabilities. Liabilities are the obligations of a firm and are of short term as well as long term nature. The following are the examples of liability. Liabilities = Assets - Capital Creditors Advance receipts Bank overdraft Bills payable Outstanding expenses Loan v. Accountant The person who performs accounting job is known as an accountant. vi. Accounting Accounting is the act of recording classification and summarizing the business transactions. vii. Account An account is the financial detail or statement of certain subject, such as cash account, goods account, furniture account, etc. It is denoted as A/c in short form. viii. Accountancy The profession of accounting is called accountancy. It is also a branch of knowledge which deals with accounting activities. ix. Drawing The withdrawal of cash or goods from the business by the proprietor or owner for his household purpose is known as drawing. It reduces the capital in extent of the withdrawn amount and thus is deductible from capital in the balance sheet or treated as asset. x. Revenue Revenue is the inflow of assets by selling goods or services to others. Revenues are the incomes of the business. The following are the examples of income or revenue of an organization. Sales proceeds Commission received Interest received Dividend received Discount received Bad debt recovered, etc.

174 Aakar’s Office Practice and Accountancy - 9 xi. Expenses An expense is the cost of providing goods or services to others. It is the money spent on earning revenues. There are various types of expenses. The following are some of the examples of expenses. Purchase Carriage on purchases Purchasing expenses Shipping, or railway freight xii. Purchase Purchase refers to the acquiring of raw materials, semi-raw materials and finished products for regular production and sales activities. For example, if a furniture centre buys some pieces of furniture items, this is termed as purchase; otherwise if the same is bought by a school or college, it is known as furniture asset. A purchase may be made in cash or credit. xiii. Sales Sales refer to the transfer of the goods or services along with their ownership to them who demand the goods or services and pay or agree to pay, a certain value or price. The sales of any asset do not mean sales. It is also made in cash or credit. xiv. Stock Stock is the unused or unsold quantity of raw materials, semi-raw materials or finished goods. There are generally two types of such stocks, viz. opening stock and closing stock. The stock which is determined at the close of the fiscal year is known as closing stock and the same for the beginning of the coming year is known as opening stock. xv. Cash It refers to a certain amount of money remained in hand, at any time. It is the most liquid asset. xvi. Bank It refers to the amount of money with a bank. It may be kept in current A/c, saving bank A/c and fixed deposit A/c. It is also a liquid asset because it can be immediately changed into cash within a short period. As the institution, bank is a financial institution, which deals with the monetary transactions. xvii. Bank overdraft It is the act of withdrawn amount from the bank by its client in excess of his/ her deposit. It is thus, a short term liability of the firm or company in the sense that it should be re-paid to the bankers within a short period of time i.e. within 90 days.

175 Book-keeping xviii.Cheque Cheque is an instrument, which is used in withdrawing cash from the bank. It is an order made by the account holder called drawer or depositor to his/her banker or drawee to pay a certain sum of money on demand. xix. Depreciation A fixed asset is purchased by a firm or company comparatively in higher prices and for longer period. The firm or company makes the scientific estimation of the economic life of such an asset and its value is written-off during its life period. The value of such fixed assets declines gradually by wear and tear, continuous use and by other reasons. As such, depreciation is a gradual reduction in the original value/ price of a fixed asset due to wear and tear, effluxtion of time, continuous use, obsolescence, etc. It is a non-cash expense for an organization. It is charged in Dr. side of profit and loss A/c, as expense. xx. Debtors and creditors The person or firm who owes something to the firm or company in monetary value is called a debtor. In a debtor, debt is a short term asset. Similarly, the firm or company to whom the firm owes something to pay in monetary value is called a creditor. A creditor is a short term liability. For example, if Ram purchases goods of Rs. 15000 from Shyam on credit, Ram becomes Shyam’s debtor and Shyam becomes Ram’s creditor until the debt is paid/received. xxi. Loan and Interest The sum borrowed from a bank or other persons under some terms and conditions is a loan. Loan is also termed as borrowed capital to a firm or company. Similarly, interest is a certain charge payable to the loan giver, mostly on annual basis until the loan is repaid. The loan is liability and the interest is an expense. xxii. Profit and Loss The income and expenses are completely recorded in the books of account during a certain period. The excess of income over expenses is net profit and the excess of expenses over income is net loss. Profit = Income - Expenses, if +ve Loss = Income - Expenses, if -ve xxiii.Commission and Discount Commission is a kind of reward offered by the business to his agent or by a consignor to his consignee for performing his works. A discount is a kind of rebate offered by a seller to the buyer on the sales of goods or a creditor to his debtor on the payment of cash before the due date. Both the commission and discount may be incomes or expenses as the nature of the transactions or they may be gains or losses

176 Aakar’s Office Practice and Accountancy - 9 The discount can be given in two ways: a. Trade Discount The discount which is given while purchasing and selling goods is called trade discount. b. Cash Discount The discount which is given at the time of payment of credit amount is called cash discount. c. Insolvent A firm/company, which is not financially capable of meeting its debt from its own business resources is considered as insolvent. Only, the court of law can declare a firm or company as insolvent. An insolvent businessman cannot conduct a business in his name. xxv. Value Added Tax (VAT) Value added tax is the tax levied on value added on the price of the product at each stage of production, and/or distribution activities. Value added is the difference between sales value and purchase value or the conversion cost plus profit. Conversion cost means the expenses on rent, depreciation, maintenance, insurance, salary, etc. It is imposed on the goods at import (buying), production and selling stages. For example, when certain goods where VAT is applicable purchased by a wholesaler for Rs. 1,00,000 are sold to a retailer for Rs.1,25,000; the value added tax at whole-selling stage is imposed on the value added tax and profit i.e. on Rs. 25,000 at a given rate. The current rate of VAT is 13%. It is implemented to simplify and systematize the sales tax and minimize the chance of cheating. Example: A factory produced a bicycle in Rs. 4000/- and sold by getting 20% profit. It is sold by the producer through wholesaler and retailer to the consumer. Calculation process of VAT is as follows: Stages of sales Cost price (Value) Profit added Selling Price without VAT VAT (13%) Selling price Producer 4000 800 4800 624 5424 Wholesaler 4800 960 5760 748.8 6503.8 Retailer 5760 1152 6912 898.56 7810.56 Consumer Rs. 7810.56 (Finally consumer should pay for a bicycle) VAT Bill

177 Book-keeping Glossary Retention : preservation Ascertainment : find out Prediction : forecast Auditor : examiner/ who checks the account Accrued income : income earned but not received Outstanding expenses : payable expenses Prepaid expenses : paid in advance before getting goods or services Advance income : income received in advance before providing goods or services Dividend : amount of profit given to shareholder Exercise A. Answer the following questions in one sentence. 1. Define book-keeping. 2. What is accounting? 3. What is meant by business entity concept? 4. What is meant by accounting period concept? 5. What is revenue concept? 6. What is single entry book-keeping system? 7. Define drawing. 8. What is bank overdraft? 9. Write the formula of capital. 10. How are profit and loss calculated? 11. Write any two differences between debtors and creditors. 12. What is single entry of book-keeping? 13. Who is the father of accounting? 14. What is VAT? B. Give short answers to the following questions. 15. What is book-keeping? Explain any ten objectives of it. 16. Explain the importance of book-keeping. 17. Write any five differences between book-keeping and accounting.

178 Aakar’s Office Practice and Accountancy - 9 18. What is discount? Describe its types. 19. Define double entry system of Book-keeping. Illustrate with examples. 20. What are the objectives/importance of double entry book-keeping system? 21. Distinguish between double entry and single entry book-keeping systems. 22. Mention any four limitations of Book-keeping and accounting. 23. Describe the types of accounting. C. Give long answers to the following questions. 24. What are the basic principles/concepts of book-keeping? 25. What is single entry book keeping system? Mention its advantages and disadvantages. Project Work a. Observe the accounting system which are applied by your school. b. Collect the merits and demerits of accounting system which is followed by your school. c. Observe and make a list of assets of your school in details. S.N. Assets Quantities Rate (Rs.) Total Amount 1. Bench 400 1400 56,000 2. Table 20 5000 1,00,000 3. 4. 5. 6 7 8

179 Book-keeping The Journal Unit 9 The Journal CDC Syllabus 9.1 Journal: Introduction, Objectives and Use Rules of debit and credit First rule (based an accounts involved) Second rule (based on accounting equation) 10 Periods Debit: The Receiver Credit: The Giver Personal Account Debit: What comes in Credit: What goes out Real Account Debit: Expenses or Loss Credit: Incomes or Gain Nominal Account After studying this unit, students will be able to : know the meaning, importance and objectives of journal, know the methods and types of journal, know the rules of debit and credit, do the practical problems of journal. Learning Objectives

180 Aakar’s Office Practice and Accountancy - 9 1. Introduction When transactions occur, they should be, first of all, recorded in the primary books. The primary books are termed as original books. The entry made on the original books is known as journal entry. It shows the double effect of each transaction with the same values in both sides, i.e. in debit and credit sides. The word ‘Journal’ is derived from French word ‘Jour’ which means a daily, long book or day book. Journal entries are made in a certain format by showing the debit and credit headings with their respective amounts in order of dates. As such, a journal may be defined as a chronological record of the business transactions showing the accounts to be debited and credited along with the amounts in the respective columns. The journal book is also called the memory book or memorandum book because it recalls the transactions in the future when required. The book in which the entries are made is called a journal book and the act of entering the transactions in the journal book is called journalising. Accounting to L.C. Cropper, “A journal is a book employed to classify or sort out transactions in a form convenient for their subsequent entry in the ledger.” In conclusion, journal is the original/initial/primary entry of all financial transactions in chronological order which are recorded systematically under double entry book keeping concept. It is the way of identifying the debit and credit account heads. Key Point Journal is the primary record of the business transaction in chronological order showing the accounts to be debited and credited along with their amounts. 2. Importance and Advantages of Journal Even though a journal is just a memory book of the business transactions, it has a number of advantages and importance. The common importance and advantages of journal are mentioned below. i. All the transactions are entered in the journal book; thus, it acts as the proof of the occurrence of the transactions. ii. The date of the transactions can be easily identified. iii. Easy identification of the accounts debited and credited along with their amounts which facilitates the checking of arithmetical accuracy. iv. Base for preparing the ledger accounts. v. Journal avoids the chance of omitting the record of transactions. vi. It is prepared with the help of supporting documents to provide legal evidence of all transactions.

181 The Journal 3. Objectives of a Journal The objectives of journal are mentioned below. i. To identify the transactions date. ii. To support for making ledger. iii. To support the transaction by the narration. iv. To give information about posting of transactions. v. To solve the disputes and misunderstanding. 4. Steps / Methods of Journalizing The act of recording transactions in Journal is called ‘Journalizing’ and the record of a transaction in journal is called ‘Journal entry’. Before journalizing a transaction, following steps must be followed. a. Read the transaction. b. Identify the accounts involved. c. Identify the nature or type of accounts affected like Personal Account, Real Account, Nominal Account. d. Determine the rules of debit and credit. e. Apply the rules and pass the journal entry in chronological order. f. Don’t forget to write narration for the journal and account in concerned columns. Underline the narration at last. g. Write the L.F. (Ledger Folio) and amount in debit side and credit side. 5. Specimen of a Journal Journal Entries of ... Date Particulars L.F. Dr. Amt. (Rs) Cr. Amt. (Rs) (1) (2) (3) (4) (5) All the transactions are recorded in this format chronologically. The Five columns of journal are explained below: i. The first column is provided to record the date of the transactions. ii. The second for mentioning the accounts to be debited and credited along with a brief explanation of the entries so made is called narration. iii. The ledger folio (page) number is mentioned in the third column, if any. iv. The fourth and fifth columns are provided for the respective debit and credit amounts of the accounts so debited and credited.

182 Aakar’s Office Practice and Accountancy - 9 6. Rules of Debit and Credit Every business transaction is debited with its total value in one place and credited with the same value in other place. There are certain rules/ principles for debit and credit entry of the transactions. These rules/principles may be studied under the two approaches, viz. (i) accounts classification approach and (ii) accounting equation approach. Both these approaches are discussed below. i. Accounts classification approach Under this approach, the accounts affected by the transactions are classified into three different accounts. The meaning, examples and the rules of all the three accounts are discussed below. a. Personal Account: Personal account is related with an individual, firm and institution. When the credit transaction takes place, the rule of personal account should be used. The rules for debit and credit are; Debit - the receiver and Credit - the giver e.g. Goods purchased from Lalpratap, Chitwan Rs. 15,000. Purchase A/c Dr. 15000 To Lalpratap’s A/c 15000 (Being goods purchased from Lal Pratap) The two effects of this transactions are: purchase/goods and Lalpratap. Goods consist the real account and Lalpratap consists the personal account. According to the rules of personal account, Dr. is receiver and Cr. is giver. Here, Lalpratap is credited as he is the giver of the goods. Likewise, the purchase account is debited as the goods have come into the business. b. Real Account Real account is related with assets and properties or things, the rule of real account should be used. The rules for debit and credit are; Debit - what comes in and Credit - what goes out Machinery purchased in cash Rs. 20,000. Machinery A/c Dr. 20,000 (debit what comes in) To Cash A/c 20,000 (credit what goes out) (Being machinery purchased)

183 The Journal In this example, the two effects are machinery A/c and cash A/c. Machinery is debited as the machinery has come into the business and cash is credited as the cash has gone out from the business. c. Nominal Account Nominal account is related to income, expenses, profit and loss, the rule of nominal account should be used. The rules for debit and credit are; Debit - expenses or losses and Credit - incomes and gains Paid salary Rs. 20,000 Salary A/c Dr. 20,000 (debit the expenses) To Cash A/c 20,000 (credit what goes out) (Being salary paid) In this example, the two effects are salary and cash A/c. Salary is debited as the expenses of the firm and cash is credited as the cash has gone out from the business. Types of Account Examples Rules/Principle of debit and Credit a) Personal A/c (related with person, firm, organization when credit transaction occurred) Ram, Sita, Harihar, ABC Co., XYZ Institute, PQR Academy, Megha Bank Ltd. etc. Dr. the receiver Cr. the giver b) Real A/c (related with assets and properties or things) Cash, furniture, land and building, computer, machinery, etc. Dr. What comes in Cr. What goes out c) Nominal A/c (Income, exp., profit, loss) Salary, rent, allowance, budget release, revolving fund release, commission, discount, wages, etc. Dr. Expenses & Losses Cr. Incomes & gains The following transactions show the application of the above mentioned principles. Illustration - 1 Journalise the following transactions with the detailed analysis of the classified accounts: 2075-5-1 Hari Bahadur started business with Rs. 1,00,000. 2075-5-3 He deposited into bank Rs. 70,000.

184 Aakar’s Office Practice and Accountancy - 9 2075-5-3 Purchased goods of Rs. 10,000. 2075-5-6 Purchased from Narayan Rs. 50,000. 2075-5-10 Paid for stationery Rs. 5,000. 2075-5-12 Sold goods for Rs. 75,000. 2075-5-15 Sold to Basanta Stores for Rs. 60,000. 2075-5-22 Paid to Narayan on account. 2075-5-27 Furniture purchased for Rs 8,000. 2075-5-28 Salary and rent paid by cheques Rs. 20,000 and Rs.7,000 respectively. 2075-5-30 Withdrawn for personal use from bank Rs. 3,000 and for office use Rs. 10,000. Solution: Journal Entries of Hari Bahadur Date Headings affected Types of account Rules or principles Journal entry 2075-5-1 Cash Capital Real Personal Dr. what comes in Cr. the giver Cash A/c Dr. To Capital A/c 2075-5-3 Bank Cash Personal Real Dr. the receiver Cr. what goes out Bank A/c Dr. To Cash A/c 2075-5-3 Purchase (goods) Cash Real Real Dr. what comes in Cr. what goes out Purchase A/c Dr. To Cash A/c 2075-5-6 Purchase (goods) Narayan Real Personal Dr. what comes in Cr. the giver Purchase A/c Dr. To Narayan’s A/c 2075-5-10 Stationery Cash Real Real Dr. what comes in Cr. what goes out Stationery A/c Dr. To Cash A/c 2075-5-12 Cash Sales (goods) Real Nominal/ Real Dr. what comes in Cr. income & gain Cash A/c Dr. To Sales A/c 2075-5-15 Basanta Stores Sales (goods) Personal Nominal/ Real Dr. the receiver Cr. income & gain Basanta Stores’s A/c Dr. To Sales A/c 2075-5-22 Narayan Cash Personal Real Dr. the receiver Cr. what goes out Narayan’s A/c Dr. To Cash A/c 2075-5-27 Furniture Cash Real Real Dr. what comes in Cr. what goes out Furniture A/c Dr. To Cash A/c

185 The Journal 2075-5-28 Salary Rent Bank Nominal Nominal Personal Dr. expenses & losses Dr. expenses & losses Cr. the giver Salary A/c Dr. Rent A/c Dr To Bank A/c 2075-5-30 Drawing Cash Bank Personal Real Personal Dr. the receiver Dr. what comes in Cr. the giver Drawing A/c Dr. Cash A/c Dr. To Bank A/c Note: Purchase of goods and sales of goods are commonly termed as purchase and sales respectively or they can also be treated as goods. When they are regarded as goods, under the real account principle- ‘Dr. what comes in and Cr. what goes out’ should be applied. And when they are taken as purchase and sales, nominal account principle- ‘Dr. expenses and losses and Cr. incomes and gains’ should be applied, purchase as expense and sales as income. If in a question, the name of person or organization is given, the transaction is considered as a credit transaction. But in a question, the name of person or organization and cash is given, then it is considered as cash transaction. ii. Accounting Equation Approach This is the modern approach of debiting and crediting the accounts of the financial transactions. In the equation of assets and liabilities, the rule of debit and credit is made. It is also known as second rule of debit and credit. The following is the accounting equation and its principle for debit and credit. Accounting Equation Assets + Expenses = Capital + Revenue + Liabilities Particulars Debit Credit 1. Assets, expenses and losses increase decrease 2. Capital, liabilities, revenue & gain decrease increase or Dr. = Increase in assets, expenses, losses and decrease in capital, income and liabilities. Cr. = Decrease in assets, expenses, losses and increase in capital and income and liabilities.

186 Aakar’s Office Practice and Accountancy - 9 Illustration - 2 Solution of illustration 1. on the basis of accounting equation. Journal Entries of Hari Bahadur Date Headings affected Types of heading Rule/principle Journal entry 2075-5-1 Cash Capital Asset Capital Increase in asset Dr. Increase in capital Cr. Cash A/c Dr. To Capital A/c 2075-5-3 Cash Bank Assets Assets Decrease in asset Cr. Increase in asset Dr. Bank A/c Dr. To Cash A/c 2075-5-3 Purchase (goods) Cash Expenses (assets) Asset Increase in expense Dr. Decrease in asset Cr. Purchase A/c Dr. To Cash A/c 2075-5-6 Purchase (goods) Narayan Expenses (assets) Liability Increase of expense Dr. Increase in liability Cr. Purchase A/c Dr. To Narayan’s A/c 2075-5-10 Stationery Cash Asset/exp. Asset Increase in asset/exp. Dr. Decrease in Asset Cr. Stationery A/c Dr. To Cash A/c 2075-5-12 Sales (goods) Cash Income (assets) Asset Increase in income Cr. Increase in asset Dr. Cash A/c Dr To Sales A/c 2075-5-15 Sales (goods) Basanta Stores Income (assets) Asset Increase in income Cr. Increase in asset Dr. Basanta Stores’s A/c Dr. To Sales A/c 2075-5-22 Cash Narayan Asset Liability Decrease in asset Cr. Decrease in liabilities Dr. Narayan’s A/c Dr. To Cash 2075-5-27 Furniture Cash Assets Assets Increase in assets Dr. Decrease in assets Cr. Furniture A/c Dr. To Cash 2075-5-28 Salary Rent Bank Expense Expense Assets Increase in expense Dr. Increase in expense Dr. Decrease in assets Cr. Salary A/c Dr Rent A/c Dr To Bank A/c 2075-5-30 Drawing Cash Bank Assets Assets Assets Increase in assets Dr. Increase in assets Dr. Decrease in assets Cr. Drawing A/c Dr. Cash A/c Dr. To Bank A/c 7. Types of a Journal Entry The systematically recorded of financial transactions in journal book is called journal entry. Every organization performs a number of financial transactions to achieve the organizational goals in a day. According to the nature of transactions, there are two types of journal entry. They are:

187 The Journal i. Simple journal entries Some transactions give effect to just two accounts where there’s a single account in each side, i.e. one account is debited with a certain monetary value and another is credited with the same value, such an entry is known as simple journal entry. The following illustration may help to understand the simple entries. Illustration - 3 Journalise the following transactions: On 2075/6/1, business commenced with Rs 1,00,000. On 2075/6/2, machinery purchased of Rs. 60,000. On 2075/6/3, cash purchase of goods worth Rs. 25,000. On 2075/6/4, sold goods to Hari of Rs 75,000. On 2075/6/5, stationery purchased for Rs. 10,000. On 2075/6/8, cash sales made for Rs. 20,000. On 2075/6/9, commission received Rs. 5,200. On 2075/6/10, loan taken from Megha Bank Ltd. Rs. 200,000. On 2075/6/11, commission paid Rs. 1,500. Journal entries of .... Date Particulars L.F. Dr. Amt. (Rs. Cr. Amt. (Rs.) 2075/6/1 Cash A/c Dr. To Capital A/c (Being business started) 1,00,000 1,00,000 2075/6/2 Machinery A/c Dr. To Cash A/c (Being machinery purchased for business) 60,000 60,000 2075/6/3 Purchase A/c Dr. To Cash A/c (Being goods purchased) 25,000 25,000 2075/6/4 Hari’s A/c Dr To Sales A/c (Being goods sold on credit) 75,000 75,000 2075/6/5 Stationery A/c Dr To Cash A/c (Being stationery purchased) 10,000 10,000 2075/6/8 Cash A/c Dr To Sales A/c (Being goods sold for cash) 20,000 20,000

188 Aakar’s Office Practice and Accountancy - 9 2075/6/9 Cash A/c Dr To Commission received A/c (Being commission received) 2,500 2,500 2075/6/10 Cash A/c Dr. To Megha Bank Ltd. A/c (Being loan taken from Megha Bank Ltd.) 2,00,000 2,00,000 2075/6/11 Commission A/c Dr. To Cash A/c (Being commission paid) 1,500 1,500 Total 4,94,000 4,94,000 ii. Compound journal entries Some transactions give effect to more than two accounts i.e. headings. In such a case, there may be more than one heading in debit side or in credit side or in both sides for the equal effect in total of debit and credit each. Such entries are known as compound entries. For example: Ram commenced business with cash Rs. 50,000 and furniture of Rs. 20,000. The effect is on cash, furniture and capital account. Date Particulars L.F. Dr. Amt, Cr. Amt. (Rs) Cash A/c Dr Furniture A/c Dr. To Capital A/c (Being business commenced with cash and furniture) 50,000 20,000 70,000 The following are the other examples of compound entries: Illustration - 4 On 2075/6/1, Ram and Shyam commenced business in partnership with cash Rs. 1,00,000 and 1,50,000 respectively. On 2075/6/2, purchased goods of Rs 2,00,000 from Sundar Stores and partial payment of Rs, 1,50,000 is made. On 2075/6/3, received Rs. 49,500 from Krishna, a previous debtor, in the full settlement of his owing of Rs. 50,000. On 2075/6/4, interest and dividend received Rs. 2,000 and Rs. 5,000 respectively. On 2075/6/5, paid to Sunder Stores Rs 48,000 for their full settlement.

189 The Journal Solution: Journal entries of .... Date Particulars L.F. Dr. Amt. (Rs.) Cr. Amt. (Rs.) 2075/6/1 Cash A/c Dr. To Ram’s Capital A/c To Shyam’s Capital A/c (Being business commenced in partnership by Ram and Shyam) 2,50,000 1,00,000 1,50,000 2075/6/2 Purchase A/c Dr. To Cash A/c To Sundar Stores’s A/c (Being purchased from Sundar Stores and partial payment has been made) 200,000 1,50,000 50,000 2075/6/3 Cash A/c Dr. Discount A/c Dr. To Krishna’s A/c (Being cash received from a previous debtor for full settlement) 49,500 500 50,000 2075/6/4 Cash A/c Dr. To Interest A/c To Dividend A/c (Being amount received as interest and dividend) 7,000 2,000 5,000 2075/6/5 Sundar Stores’s A/c Dr. To Discount A/c To Cash A/c (Being payment made to Sunder Stores for their full settlement) 50,000 2,000 48,000 Illustrations - 5 Journalise the following transactions in the books of Panta and Sons Pvt. Ltd. for the month of Bhadra, 2075. 1, Business commenced with Rs. 1,00,000. 5, Deposited into bank Rs. 70,000. 8, Purchased furniture of Rs. 15,000. 11, Machinery purchased and paid by cheque 25,000. 15, Stationery purchased for Rs. 5,000. 22, Withdrawn from bank Rs. 10,000. 28, Salary paid by cheque Rs. 20,000. 29, Commission received Rs. 5,000. 30, Rent paid to the landlord Rs. 18,000.

190 Aakar’s Office Practice and Accountancy - 9 Solution: Journal entries Panta & Sons Pvt. Ltd., for the month of Bhadra, 2075 Date Particulars L.F. Dr. Amt. Cr. Amt. 075-5-1 Cash A/c Dr. To Capital A/c (Being business commenced) 100,000/- 100,000/- 075-5-5 Bank A/c Dr. To Cash A/c (Being cash deposited into bank) 70,000/- 70,000/- 075-5-8 Furniture A/c Dr. To Cash A/c (Being furniture purchased) 15,000/- 15,000/- 075-5-11 Machinery A/c Dr. To Bank A/c (Being machinery purchased and paid by cheque) 25,000/- 25,000/- 075-5-15 Stationery A/c Dr. To Cash A/c (Being stationery purchased) 5,000/- 5,000/- 075-5-22 Cash A/c Dr. To Bank A/c (Being withdrawn from bank for office use) 10,000/- 10,000/- 075-5-28 Salary A/c Dr. To Bank A/c (Being salary paid through bank) 20.000/- 20.000/- 075-5-29 Cash A/c Dr. To Commission received A/c (Being commission received) 5,000/- 5,000/- 075-5-30 Rent A/c Dr. To Cash A/c (Being rent paid to the landlord) 18,000/- 18,000/- Total 2,68,000/- 2,68,000/- Illustrations - 6 Journalise the following transactions in the books of PQR Pvt. Ltd. for the month of Bhadra, 2075: 7, Sold goods to Ram Nath of Rs. 100,000 allowing 10% trade discount. 8, Loss on goods due to fire Rs. 10,00.

191 The Journal 8, Depreciate furniture worth Rs. 2,00,000 by 10%. 10, Sample of goods of Rs. 2,000 distributed. 12, Goods purchased of Rs. 40,000 out of which Rs. 2,000 used for domestic purpose. 13, Paid insurance premium Rs. 2,000. 13, Paid life insurance premium of promoter’s wife Rs. 5,000. 14, Commission received but has not been earned Rs. 20,000. 15. Furniture costing Rs. 5,000 sold for Rs. 4,000. 16, Rent paid in advance to house owner for three months @ Rs. 2,000. 17, Allow interest on capital Rs. 5,000. 18, Wages amount to Rs. 5,000 outstanding 19, Bad debts recovered Rs. 5,000. 20, Ramesh, a debtor who owes Rs. 20,000 became insolvent and only 50% of debt received from him. Journal Entries of PQR Pvt. Ltd. For the month of Bhadra, 2075 Date Particulars L.F. Dr. Amt. Cr. Amt. 075-5-7 Ram Nath’s A/c Dr. To sales A/c (Being goods sold to Ram Nath allowing 10% trade discount) 90,000/- 90,000/- 075-5-8 Goods loss A/c Dr. To purchase A/c (Being goods loss due to fire) 1,000/- 1,000/- 075-5-8 Depreciation A/c Dr. To furniture A/c (Being depreciate furniture by 10%) 20,000/- 20,000/- 075-5-10 Advertisement A/c Dr. To purchase A/c (Being sample of goods distributed) 2,000/- 2,000/- 075-5-12 Purchase A/c Dr. Drawing A/c Dr. To cash A/c (Being goods purchased and some used for domestic purpose) 38,000/- 2,000/- 40,000/- 075-5-13 Insurance Premium A/c Dr. To cash A/c (Being insurance premium paid) 2,000/- 2,000/-

192 Aakar’s Office Practice and Accountancy - 9 075-5-13 Drawing A/c Dr. To cash A/c (Being life insurance paid) 5,000/- 5,000/- 075-5- 14 Cash A/c Dr. To unearned commission A/c (Being commission received but has not been earned) 20,000/- 20,000/- 075-5-15 Cash A/c Dr. Loss on sale of Furniture A/c Dr. To furniture A/c (Being sold furniture worth Rs. 5, 000 for Rs. 4,000) 4,000/- 1,000/- 5,000/- 075-5-16 Prepaid rent A/c Dr. To cash A/G (Being rent paid in advance) 6,000/- 6,000/- 075-5-17 Interest on capital A/c Dr. To capital A/c (Being allowed interest on capital) 5,000/- 5,000/- 075-5-18 Wages A/c Dr. To outstanding wages A/c Being wages outstanding) 5,000/- 5,000/- 075-5-19 Cash A/c Dr. To Bad debts A/c (Being recovered bad debts) 5,000/- 5,000/- 075-5-20 Cash A/c Dr. Bad debts A/c Dr. To Ramesh’s A/c (Being only 50% debt recovered from Ramesh as he became insolvent) 10,000/- 10,000/- 20,000/- Note: Life insurance is for personal use; So, it is treated as drawing. Some important hints to the students: i. In particular column, while recording credit account, leave some space from your left and write To ....... A/c. ii. Purchased goods for Rs. 20,000 means cash purchase. iii. Purchased goods for cash Rs 20,000 means cash purchase. iv. Purchased goods from Surya Stores Rs 20,000 means credit purchase. v. Purchased goods from Surya Stores of Rs. 20,000 for cash, means cash purchase. vi. No personal account is written in the transactions with cash purchase, sales and nominal accounts.

193 The Journal vii. While receiving cheque always Bank A/c is debited and while paying by cheque, Bank A/c is credited. viii. Withdrawn from office Rs. 15,000 means for private purpose. Drawing A/c Dr. 15,000 To Cash A/c 15,000 ix. Withdrawn for office use Rs. 15,000 means withdrawn from bank. Cash A/c Dr. 15,000 To Bank A/c 15,000 Or, Withdrawn from bank for office use Rs 15,000. Cash A/c Dr. 15,000 To Bank A/c 15,000 x. Withdrawn from bank for private use Rs. 15000. Drawing A/c Dr. 15000 To Bank 15000 xi. The installation charges or expenses made for erection of machine, etc. are added in the cost. xii. Payment in full settlement includes discount in general. xiii. Don’t forget to draw two parallel lines under grand total. Glossary Purchase : buying of goods for selling purpose Sales : sale of goods which is purchased for selling purpose Liabilities : any payable amount to others Chronological : date wise order Narration : short explanation of transaction Compound : joint/ more than two effects in a transaction Exercise A. Answer the following questions in one sentence for each. 1. What is a journal? 2. What is meant by Journalizing? 3. What is personal account? 4. What are the rules of personal account? 5. What are the rules of real account?

194 Aakar’s Office Practice and Accountancy - 9 6. What is nominal A/c? 7. How are accounts debited and credited under nominal account? 8. What is meant by narration? B. Give short answer to the following questions. 9. Write the advantages of a journal. 10. Write the objectives of a journal. 11. Write the specimen and rules of a journal. 12. Write the rules of debit and credit on the basis of account. 13. Write the rules of debit and credit on the basis of equation. 14. Explain the types of journal entries with examples. NUMERICAL PROBLEMS 15. Journalise the following transactions for Baisakh, 2075 in the book of Ramesh & Company, Bagbazar, Kathmandu. 1 , Commenced business with cash Rs. 20,000. 2, Deposited into bank Rs. 15,000. 3, Bought goods for cash Rs. 1,000. 4, Furniture purchased from ABC Furniture Rs. 1,500. 6, Purchased goods from Kailash & Co. Rs. 2,000. 8, Goods sold for cash Rs. 1,700. 10, Sold to Rajendra & Co. Rs. 2,500. 17, Purchased machinery of Rs. 1,300. 28, Salary paid by cheque Rs. 2,500. 29, Rent paid by cheque for the month of Baisakh Rs. 1,500. 16. Journalise the following transactions for the month of Bhadra, 2075. l, Business established with cash investment of Rs. 10,50,000. 3, Deposited into bank Rs. 5.00,000. 4, Furniture purchased for Rs. 50,000. 6, Machineries purchased and paid by cheque Rs. 45,000. 7, Goods purchased from ABC Trading House of Rs. 150,000. 9, Stationery purchased for Rs. 15,000. 10, Paid for sundry expenses Rs. 30,000. 22, Cash sales made for Rs. 55,000. 25, Withdrawn cash from bank Rs.40,000. 30, Sold goods on credit to Sapkota Shopping Centre for Rs. 30,000.

195 The Journal 17. Journalise the following transactions in the book of Ram Babu. 2075-7-1, Ram Babu commenced business with Rs. 10,00,000. 2075-7-2, Deposited into bank Rs. 7,50,000. 2075-7-5, Purchased machines and paid by cheque Rs. 50,000. 2075-7-6, Cash purchase made for Rs. 25,000. 2075-7-8, Goods purchased from Laxman Babu Rs. 1,50,000. 2075-7-11, Purchased stationery for Rs 5,000. 2075-7-12, Cash sales made Rs. 50,000. 2075-7-14, Sold to Bhabilal Rs. 2,50,000. 2075-7-16, Deposited into bank Rs. 40,000. 2075-7-17, Payment made to Laxman Babu by cheque. 2075-7-19, Commission received Rs. 7,000. 2075-7-20, Loan taken from bank Rs. 60,000. 2075-7-22, Deposited into bank Rs. 50,000. 2075-7-23, Received from Mr. Bhabilal in full settlement of his debt Rs.2,45,000. 2075-7-25, Wage and salary paid by cheque Rs. 40,000 and Rs. 30,000 respectively. 2075-7-29, Rent paid to the landlord for the month Rs. 20,000. 18. Journalise the following transactions. 1-1-2075, Commenced business with Rs. 100,000. 3-1-2075, Deposited into bank Rs. 80,000. 5-1-2075, Machinery purchased and paid by cheque Rs. 30,000. 7-1-2075, Paid for stationery Rs. 2,000. 19. Journalize the following transactions of Sajan & Co., Kathmandu. On 2075/02/01, Rajan started business with cash investment Rs. 100,000. On 2075/02/03, goods Rs. 25,000 purchased from Rajan on credit. On 2075/02/04, goods sold of Rs. 15,000 in cash. On 2075/02/07, paid house rent Rs. 7,000. On 2075/02/08, furniture of Rs. 13,000 purchased on credit from Ishwor Furniture. On 2075/02/10, electricity charge paid Rs. 1500. On 2075/02/11, borrowing from Ram Sharma Rs. 80,000. On 2075/02/15, paid wages Rs. 1,600 . On 2075/02/18, paid Rs. 24,700 to Rajan in full settlement.

196 Aakar’s Office Practice and Accountancy - 9 20. Journalize the following transactions of Krishna Bakery Pvt. Ltd. Pokhara. On 2075/03/01, Jeshan invested Rs. 2,50,000 and deposited at bank Rs. 1,00,000 on the same day. On 2075/03/04, machineries purchased in cash Rs. 23,000. On 2075/03/05, goods purchased from Shyam Prasad on credit Rs. 15,000. On 2075/03/06, goods sold to Dinesh in cash Rs. 14,000. On 2075/03/07, goods bought on credit Rs. 12,000 from Ram. On 2075/03/09, goods sold to Kabita Rai on credit Rs.12,000. On 2075/03/10, goods sold to Karki on credit Rs. 13,000. On 2075/03/18, goods bought from Kamal on credit Rs. 3,500. On 2075/03//19, goods bought on credit Rs. 2,100 from Sher Bahadur. On 2075/03/21, machine of Rs. 13,200 purchased from Hanuman. 21. Journalize the following transactions of Sunita Company, Chitwan. On 2075/05/01, business started with cash Rs. 5,00,000 and furniture of Rs. 1,00,000. On 2075/05/11, bought office furniture of Rs. 5,000. On 2075/05/12, building purchased of Rs. 1,00,000. On 2075/05/13, paid carriage outward Rs. 2,000. On 2075/05/15, cash deposited at bank Rs. 170,000. On 2075/05/19, goods sold to Mahendra of Rs. 14,650 on credit. 22. Journalize the following transactions of Shayam & Sons Co. On 2075/06/01, business starts with Rs. 1,00,000 by depositing Rs. 40,000 at bank, goods of Rs. 10,000 and furniture of Rs.50,000. On 2075/06/02, goods purchased from Ramita Rs. 51,000. On 2075/06/04, goods returned to Ramita of Rs. 5,000. On 2075/06/06, sold goods to Ram Sharma of Rs. 50,000 allowing Rs. 5,000 discount. On 2075/06/08, theft of goods Rs. 3,000. On 2075/06/09, depreciation on furniture was with Rs. 5,000. On 2075/06/10, furniture purchased and paid by cheque of Rs. 29,000. On 2075/06/15, some samples of goods of Rs. 1,000 distributed. On 2075/06/16, Withdrawn goods for personal use Rs. 200. On 2075/06/18, paid to Ramita Rs. 45,000 in full settlement. On 2075/06/21, paid cash for stationery Rs. 1,000. On 2075/06/22, goods purchased from Hari Rs. 27,000. On 2075/06/25, paid cash for telephone charge Rs. 2,150.

197 The Journal On 2075/06/29, paid to Hari by cheque Rs.26,500 and discount received Rs. 500. On 2075/06/29, purchased machinery for Rs. 15,000 from Jafer and gave him a cheque for the amount. On 2075/06/30, purchased furniture from Nabin furniture of Rs. 13,000. He allowed 10% trade discount. On 2075/06/31, paid to Nabin furniture in full settlement a cheque for Rs. 11,550. 23. Journalise the following transactions. Bhadra, 2075 1, Established business with a bank balance of Rs. 400,000 and cash of Rs. 200,000. 2, Machinery purchased from Nepal Machineries of Rs. 50,000 and partly paid Rs. 30,000 by cheque. 4, Stationery purchased of Rs. 12,000 out of which Rs. 2,000 worth of stationery was used by the proprietor for domestic use. 8,. Purchased goods from Hira Lal and Sons of Rs. 10,000 in cash and Rs. 15,000 on credit. 9, Paid for installation charges of the machinery purchased earlier Rs. 1,500. 10, Paid insurance premium of Rs. 1,700. 11, Paid life insurance premium Rs. 1,000 by cheque. 12, Paid wages for the construction of office building Rs. 13,000. 16, Furniture purchased for Rs. 40,000 and paid by cheque and transportation charges of Rs. 1,000 paid in cash. 17, Commission received but has not been earned Rs. 3,000. 19, Loan given to Subhana Sharma Rs. 25,000 by cheque. 20, Furniture of Rs. 7,000 taken by the proprietor for his household use. 22, Purchased goods of Rs. 30,000 and paid for carriage Rs. 5,000. 23, Goods sold for Rs. 75,000 to Ram Udas and received Rs. 30,000 on account. 27, Purchased a Government Security of Rs. 60,000 at Rs. 57,000 by cheque. 28, Goods costing Rs. 10,000 sold for Rs. 15,000. 30, Rent paid in advance Rs. 3,000. 24. Journalise the following transactions in the books of Surendra Singh. 2075-2-1 He commenced business with Rs. 60,000 cash and goods worth Rs. 20,000. 2075-2-2 Purchased goods from Yadav Raj worth Rs. 12,000. 2075-2-3 Sold goods to Krishna and Sons of Rs. 20,000. 2075-2-6 Paid for repairs Rs. 1,500. 2075-2-8 Cash received from Krishna and Sons Rs. 19,500 in full settlement of their accounts. 2075-2-9 Withdrawn cash from bank for office use 2,500.

198 Aakar’s Office Practice and Accountancy - 9 2075-2-10 Purchased goods from Yadav Raj (subject to 10% trade discount) in cash Rs. 10,000. 2075-2-11 Paid to Yadav Raj Rs. 11,800 discount received Rs. 200. 2075-2-14 Purchased postal stamps of Rs. 100. 2075-2-14 Paid salaries 15,000 and rent 10,000 by issuing two different cheques. 25. Pass journal entries for the following transactions of ABC company of 2076 Baisakh. 1, Commenced business with Rs. 1,50,000 cash and 4,50,000 bank balance. 3, Loan given to ABC & Co. Rs. 14,000 by cheque. 25, Income tax paid by cheque Rs. 15,000. 28, Wages paid for the construction of office building Rs. 13,000 by cheque. 30, Furniture worth Rs. 5,000 taken by Mr. Arjun Pradhan, the proprietor of Pradhan and Co. for his private use. 31, Amrita, a previous debtor who owes Rs. 10,000 to us became insolvent, only 60 paisa in a rupee could be realised from her. 31, Ramila, a previous debtor of Rs. 12,000 became insolvent, only 70% from her debt could be realised. 31, Previously written off bad debts Rs. 3,000 is now being recovered. 26. Following are the journal entries passed by a student, are they correct? If not, what are the correct entries? Journal Entries of Ram sh & Co. Date Particulars L.F. Amount (Dr.) Amount (Cr.) 1/1/2075 Sita’s A/c Dr To Purchase A/c (Being goods purchased) 2000 2000 2 Rita’s A/c Dr To Sales A/c (Being goods sold to Rita for cash) 3000 3000 7 Hari’s A/c Dr T o Cash A/c (Being cash paid to Hari for Salary) 2,000 2,000 10 Capital A/c Dr To Cash A/c (Being cash paid into business by owner) 25,000 25,000 14 Stationery A/c Dr To Cash A/c (Being stationery purchased by bank) 300 300

199 The Journal The Ledger Unit The Ledger CDC Syllabus 10.1Ledger: Introduction, Objectives, Ledger Entry and Closing 10 Periods 10 Dr. Cash A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-5-1 074-5-22 074-5-29 074-6-1 To Capital A/c To Bank A/c To Commission A/c To Balance b/d 100,000/- 10,000/- 5000/- 115000/- 7,000/- 074-5-5 074-5-8 074-5-15 074-5-30 074-5-30 By Bank A/c By Furniture A/c By Stationery A/c By Rent A/c By Balance c/d 70,000/- 15000/- 5000/- 18,000/- 7000/- 115000/- After studying this unit, students will be able to : write the meaning of ledger, know the importance and objectives of ledger, write difference between ledger and journal, know the rules of posting, know the balancing and closing the ledger, prepare different ledger accounts. Learning Objectives

200 Aakar’s Office Practice and Accountancy - 9 1. Introduction Journal shows the daily and periodical total of the debit and credit amounts in respect to their entries. It cannot provide the information in a classified manner as it is just a memorandum entry. The journal book cannot serve with the necessary information required for the businessman for ascertaining the true position of his firm’s affairs during a certain period. If the businessman wants to know the total effect on purchase, sales, debtors, creditors, cash, bank, expenses, income, etc. at the end of a fiscal year, he/she should scan the journal from the beginning to the end of the year. It is impossible to collect thousands of transactions related with expenses, incomes, debtors, creditors, cash, bank, etc. Thus, the businessman should prepare the book on the classified accounts by posting them from the identical journals to ascertain the final net effect of the separate headings of expenses, losses, incomes, gains, assets, capital and liabilities. According to J.R. Batliboi, “The ledger is the chief book of accounts, and it is in this book that all the business transactions would ultimately find their place under their accounts in a duly classified form.” According to V.J. Vickery, “ledger is a book of account which contains in a suitably classified form, the final and permanent record of trader’s transactions.” Likewise, W. Pickles, “A ledger is the most important book of account and is the final destination of the entries made in the subsidiary books.” The ledger is an individual record in which similar transactions of particular person, organization and things are recorded with the help of journal entries from journal book. As such, a ledger may be defined as the classified accounts prepared under each individual head of account by posting from the journal entries in order to ascertain the final net effect on them separately. The final net effect of the classified head of account is known as ledger balance and such ledger balances determine the profit or loss of an entry during a certain period and the financial position up to the date. Key Point Ledger is the classified accounts prepared under each individual head by posting the identical journal entries to ascertain the final net effect of each head. 2. Objectives and Importance of Ledger The following are the important objectives of a ledger: i. To know the position of debtors and creditors of an entity up to a certain period. ii. To know the total purchase and sales of a firm during a certain period.