201 The Ledger iii. To know the amount spent on each head of expenditure and losses during a certain period. iv. To know the amount earned on each head of income for a certain period. v. To facilitate to check the arithmetical/numerical errors through the preparation of trial balance. vi. To know the final net effect i.e. net balance of each head of expenses, losses, incomes, gains, assets, capital and liabilities which is the base for ascertaining the operational result of profit or loss and financial position. vii. To classify the transactions on different heads according to their nature. 3. Type of Ledger Account Personal ledger account Impersonal ledger account Real account Nominal account Type of ledger account The accounts affected by the transactions are summarized into ledger account as per their similarities. Ledger accounts are also classified into two groups. They are as follows: A. Personal Ledger Account Personal account is related with an individual, firm and institution. When the credit transaction takes place, the name of the person should be mentioned for the record for future use due to incompleteness of the transactions. The personal ledger account is maintained to know how much is to be received and paid to the others. For example, if goods are sold to ABC on credit, we need to prepare the account of ABC. So ABC’s A/c is personal ledger account. B. Impersonal Ledger Account The account which is not related with person is called impersonal account and these are related with various transactions of other properties, expenses, income, profit, losses, etc. It is also classified into the following two groups: i. Real Account Real account is related with assets, properties, things and real objects. To know the condition of these properties, assets, etc., the real accounts are used. Machine A/c, Cash A/c, Furniture A/c, etc. are the examples of real account.
202 Aakar’s Office Practice and Accountancy - 9 ii. Nominal Account Nominal account is related with income, expenses, profit, loss, etc. It is used to find the total income and expenditure in different heads as well as gain or loss of the organization. Salary A/c, Profit A/c, Discount A/c, Rent A/c, Interest Received A/c, etc. are the some examples of nominal account. 4. Differences between Journal and Ledger Journal Ledger 1. It is a primary record of financial transactions. 1. It is the secondary entry of financial transactions. 2. It is prepared in chronological order or date wise. 2. It is recorded on ledger on head wise basis. 3. It helps to prepare ledger. 3. It helps to prepare trial balance. 4. Recording of transactions in journal is called ‘Entry’. 4. Recording of transactions in ledger account is called ‘Posting’. 5. It contains the narration of transactions. 5. It is not necessary to give narration on it. 6. It contains only five columns. 6. It contains eight columns. 7. It does not provide the balance of an account. 7. It shows the balance of an account. 5. Specimen and Ruling of a Ledger The specimen ruling of a ledger account is given below. Dr. Ledger A/c of ....... Cr. Date Particulars J.F. Amt.(Rs.) Date Particulars J.F. Am. (Rs.) A ledger account is prepared in the shape of English letter ‘T’ having divided into two sides, i.e. the left hand side, known as ‘Dr. side’ and the right hand side, known as ‘Cr. side’. It has four columns in each side, i.e. date, particulars, J.F. and amount to mention the Dr. posting and Cr. posting as necessity. 6. Rules of Posting the Entry Posting is the act of transferring transactions from journal to ledger accounts. In other words, the act of classifying the financial transactions under certain title of account is called posting. Posting takes place with the help of journal entries.
203 The Ledger Rules of Posting The rules of posting of a ledger are mentioned below. i. Journalize the transactions at first. ii. Name of ledger is to be written on the top. iii. Left side must be indicated by `Dr.’ and right side by ‘Cr.” iv. Separate accounts should be opened for posting transaction relating to different accounts. v. Ruling into debit side: a. The date of the transaction is mentioned in the date column. b. Name of the account credited in the journal is mentioned in the particulars column on the debit side as, To (name of the account so credited.) c. Page number of the journal book of the account so posted is mentioned in the J.F. column, if any. It acts as an indexing. d. The given amount of the account so posted is mentioned in the amount column in Dr. side. vi. Ruling into credit side: a. The date of the transaction is mentioned in the date column. b. Name of the account debited in the journal is mentioned in the particulars column on the credit side as, By (name of the account so debited.) c. Page number of the journal book of the account so posted is mentioned in the J.F. column, if any. It acts as an indexing. d. The given amount of the account so posted is mentioned in the amount column in Cr. side. Considering the following example: On 2075-1-11, Ghana Shyam commenced business with Rs. 12,50,000. Solution: The journal entry is: Date Particulars L.F. Dr. Am t. (Rs.) Cr. Amt. (Rs.) 2075-1-11 Cash A/c Dr To Capital A/c (Being business commenced) 12,50,000/- 12,50,000/- The above journal entry suggests that Rs. 12,50,000/- is debited into Cash A/c and the same is credited in Capital A/c, as below: Dr. Cash A/c Cr. Date Particulars J.F. Amt. (Rs.) Date Particulars J.F. Amt. (Rs.) 2075-1-11 To Capital A/c 12,50,000/- Dr. Capital A/c Cr. Date Particulars J.F. Amt. (Rs.) Date Particulars J.F. Amt. (Rs.) 2075-1-11 By Cash A/c 12,50,000/-
204 Aakar’s Office Practice and Accountancy - 9 7. Balancing of Ledger Accounts When the debit side and credit side of a ledger are completely posted from the set of journal entries, it is to be totalled by putting necessary amount in the required side. It is known as balancing ledger. The following are the procedures of balancing of ledger accounts. Case -I: Equal Balancing of Ledger Account Ascertain the totals of both sides. If the totals are equal, it does not need to be balanced. The totals are determined and mentioned in the straight line horizontally and closed by two parallel lines as shown below. Dr. Cash A/c Cr. Date Particulars J.F. Amt. (Rs.) Date Particulars J.F. Amt. (Rs.) 1 To Bank A/c 20,000/- 20,000/- By Salary A/c By Hari’s A/c 10,000/- 10,000/- 20,000/- Case - II: Not Equal Balancing of Ledger Account Step - 1 When debit total exceeds the credit total, it is called debit balance and the account is balanced by putting the necessary amount in the Cr. side by mentioning the words ‘By Balance c/d’. or, When the credit total exceeds the debit total, it is called credit balance and the account is balanced by putting the necessary amount in Dr. side by mentioning the words ‘To Balance c/d’. Note: Simply, the accounts related with assets, expenses and losses have debit balance and those related with capital, liabilities, incomes and gains have credit balance. Step - 2 Determine the totals on both sides and close by two horizontal parallel lines. Step - 3 The debit balance should be brought down on the debit side as “To Balance b/d” in the particulars column with the 1st date of coming period in the date column. Similarly, the credit balance should be brought down on the credit side as “By Balance b/d” in the particulars column with the 1st date of the coming period. The date may also be the same as the end of the last period as of the closing balance date. Note: c/d = carried down b/d = brought down
205 The Ledger Illustration - 1 Prepare the ledger from the following transactions 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. Solution: Necessary accounts to be prepared: Cash A/c Stationery A/c Capital A/c Salary A/c Bank A/c Commission A/c Furniture A/c Rent A/c Machinery A/c Dr. Cash A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 075-5-1 075-5-22 075-5-29 075-6-1 To Capital A/c To Bank A/c To Commission A/c To Balance b/d 100,000/- 10,000/- 5000/- 115000/- 7,000/- 075-5-5 075-5-8 075-5-15 075-5-30 075-5-30 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/- Dr. Capital A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 075-5-30 To Balance c/d 100,000/- 100,000/- 075-5-1 075-6-1 By Cash A/c By Balance b/d 100,000/- 100,000/- 100,000/- Dr. Bank A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 075-5-5 075-6-1 To Cash A/c To Balance b/d 70,000/- 70,000/- 15,000/- 075-5-11 075-5-22 075-5-28 075-5-30 By Machinery A/c By Cash A/c By Salary A/c By Balance c/d 25,000/- 10,000/- 20,000/- 15,000/- 70,000/-
206 Aakar’s Office Practice and Accountancy - 9 Dr. Furniture A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 075-5-8 075-6-1 To Cash A/c By Balance b/d 15,000/- 15,000/- 15,000/- 075-5-30 By Balance c/d 15,000/- 15,000/- Dr. Machinery A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 075-5-11 075-6 -1 To Bank A/c To Balance b/d 25,000/- 25,000/- 25,000/- 075-5-30 By Balance c/d 25,000/- 25,000/- Dr. Stationery A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 075-5-15 075-6-1 To Cash A/c To Balance b/d 5,000/- 5,000/- 5,000/- 075-5-30 By Balance c/d 5,000/- 5,000/- Dr. Salary A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 075-5-28 075-6-1 To Bank A/c To Balance b/d 20,000/- 20,000/- 20,000/- 075-5-30 By Balance c/d 20,000/- 20,000/- Dr. Commission A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 075-5-3 To Balance c/d 5,000/- 5,000/- 075-5-29 075-6-1 By Cash A/c By Balance b/d 5,000/- 5,000/- 5,000/- Dr. Rent A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 075-5-30 075-6-1 To Cash A/c To Balance b/d 18,000/- 18,000/- 18,000/- 075-5-30 By Balance c/d 18,000/- 18,000/-
207 The Ledger Illustration - 2 Prepare the ledger from following transactions for the month of Marga, 2074. 2074-8-1, Krishna Kandel commenced business with Rs. 10,00,000. 2074-8-2, Deposited into bank Rs. 7,50,000. 2074-8-5, Purchased machines and paid by cheque Rs. 50,000. 2074-8-6, Cash purchase for Rs. 25,000. 2074-8-8, Goods purchased from Hari Babu Pariyar Rs. 1,50,000. 2074-8-11, Purchased stationery for Rs 5,000. 2074-8-12, Cash sales made Rs. 50,000. 2074-8-14, Sold to Bhim Gurung Rs. 2,50,000. 2074-8-16, Deposited into bank Rs. 40,000. 2074-8-17, Payment made to Hari Babu Pariyar by cheque. 2074-8-19, Commission received Rs. 7,000. 2074-8-20, Loan taken from bank Rs. 60,000. 2074-8-22, Deposited into bank Rs. 50,000. 2074-8-23, Received from Mr. Gurung in full settlement of his debt Rs. 2,45,000. 2074-8-25, Wage and salary paid by cheque Rs. 40,000 and Rs. 30,000 respectively. 2074-8-29, Rent paid to the landlord for the month Rs. 20,000. Prepared the necessary ledger accounts Cash A/c Capital A/c Bank A/c Machinery A/c Purchase A/c Stationery A/c Sales A/c Bhim Gurung A/c Commission A/c Bank loan A/c Wages A/c Discount A/c Salary A/c Rent A/c Hari Babu Pariyar A/c Solution Dr. Cash A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-1 074-8-12 074-8-19 074-8-20 074-8-23 074-9-1 To Capital A/c To Sales A/c To Commission A/c To Bank loan A/c To Bhim Gurung A/c To balance b/d 10,00,000/- 50,000/- 7000/- 60,000/- 245,000/- 1362,000/- 472000/- 074-8-2 074-8-6 074-8-11 074-8-16 074-8-22 074-8-29 074-8-30 By Bank A/c By Purchase A/c By Stationery A/c By Bank A/c By Bank A/c By Rent A/c By Balance c/d 750,000/- 25,000/- 5,000/- 40,000/- 50,000/- 20,000/- 472,000/- 1362,000/
208 Aakar’s Office Practice and Accountancy - 9 Dr. Capital A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-30 To Balance c/d 10,00,000/- 10,00,000/- 074-8-1 074-9-1 By Cash A/c By Balance b/d 10,00,000/- 10,00,000/- 10,00,000/- Dr. Bank A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-2 074-8-16 074-8-22 074-9-1 To Cash A/c To Cash A/c To Cash A/c To Balance b/d 750,000/- 40,000/- 50,000/- 840,000/- 570,000/- 074-8-5 074-8-17 074-8-25 074-8-25 074-8-30 By Machinery A/c By Hari Babu’s A/c By Wages A/c By Salary A/c By Balance c/d 50,000/- 150,000/- 40,000/- 30,000/- 570,000/- 840,000/- Dr. Machinery A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-5 074-9-1 To Bank A/c To Balance b/d 50,000/- 50,000/- 50,000/- 074-8-30 By Balance c/d 50,000/- 50,000/- Dr. Purchase A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-6 074-8-8 074-9-1 To Cash A/c To Hari Babu’s A/c To Balance b/d 25,000/- 150,000/- 175 000/- 175 000/- 074-8-30 By Balance c/d 175,000/- 175 000/- Dr. Hari Babu Pariyar’s A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-17 To Bank A/c 150,000/- 150,000/- 074-8-8 By Purchase A/c 150,000/- 150,000/- Dr. Stationery A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-11 074-9-1 To Cash A/c To Balance b/d 5,000/- 5,000/- 5,000/- 074-8-30 By Balance c/d 5,000/- 5,000/-
209 The Ledger Dr. Sales A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-30 To Balance c/d 300,000/- 300,000/- 074-8-12 074-8-14 074-9-1 By Cash A/c By Bhim Gurung A/c By Balance b/d 50,000/- 250,000/- 300,000/- 300,000/- Dr. Bhim Gurung’s A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-14 To Sales A/c 250,000/- 250,000/- 074-8-23 074-8-23 By Cash A/c By Discount A/c 245,000/- 5,000/- 250,000/- Dr. Commission A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-30 To Balance c/d 7,000/- 7,000/- 074-8-12 074-9-1 By cash A/c By Balance b/d 7,000/- 7,000/- 7,000/- Dr. Bank Loan A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-30 To Balance c/d 60,000/- 60,000/- 074-8-20 074-9-1 By Cash A/c By Balance b/d 60,000/- 60,000/- 60,000/- Dr. Discount A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-23 074-9-1 To Bhim Gurung A/c To Balance b/d 5,000/- 5,000/- 5,000/- 074-8-30 By Balance c/d 5,000/- 5,000/- Dr. Wages A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-25 074-9-1 To Bank A/c To Balance b/d 40,000/- 40,000/- 40,000/- 074-8-30 By Balance c/d 40,000/- 40,000/-
210 Aakar’s Office Practice and Accountancy - 9 Dr. Salary A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-25 074-9-1 To Bank A/c To Balance b/d 30,000/- 30,000/- 30,000/- 074-8-30 By Balance c/d 30,000/- 30,000/- Dr. Rent A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-8-29 074-9-1 To Cash A/c To Balance b/d 20,000/- 20,000/- 20,000/- 074-8-30 By Balance c/d 20,000/- 20,000/- Glossary Scan : look throughly from the beginning Posting : recording the transaction from journal to ledger Exceed : be more Errors : mistakes Chronological : date wise Exercise A. Answer the following questions in one sentence. 1. What is ledger? 2. What is posting? 3. What is balancing of ledger? 4. What is meant by balance b/d? 5. What is meant by balance c/d? 6. What is closing of ledger? B. Give short questions to the following questions. 7. Write the rules of posting. 8. Describe the balancing of ledger. 9. ‘Journal is a subsidiary book whereas ledger is the principal book of a business house.’ Comment. 10. Describe, in brief, the importance of a ledger. 11. Explain the types of ledger account with examples.
211 The Ledger 12. Write any five differences between journal and ledger. 13. Classify the following account into personal account, real account, and nominal account. Sumita A/c, Cash A/c, Land A/c, Creditors A/c, Capital A/c, Bank A/c, Debtor A/c, Sales A/c, Purchase A/c, Rent A/c, Commission A/c, ABC’s A/c, Ram’s A/c. NUMERICAL PROBLEMS 14. Journalize the following transactions and prepare the necessary ledger accounts. On 1-1-2074, commenced business with Rs. 100,000. On 3-1-2074, deposited into bank Rs. 80,000. On 5-1-2074, machinery purchased and paid by cheque Rs. 30,000. On 7-1-2074, paid for stationery Rs. 2,000. 15. Journalize the following transactions for the month of Bhadra, 2075 and post them into the ledger accounts. 1, Business established with cash investment of Rs. 1,50,000. 3, Deposited into bank Rs. 1.00,000. 4, Furniture purchased for Rs. 20,000. 6, Machineries purchased and paid by cheque Rs. 35,000. 7, Goods purchased from Krishna Trading House of Rs. 40,000. 9, Stationery purchased for Rs. 5,000. 10, Paid for sundry expenses Rs. 3,000. 12, Cash sales made for Rs. 35,000. 13, Withdrawn cash from bank Rs. 20,000. 15, Sold goods on credit to Thapa Shopping Centre for Rs. 50,000. 16. The following transactions are given to you. On 2074-9-5, business started with Rs. 200,000. On 2074-9-6, deposited into bank Rs. 120,000. On 2074-9-8, goods purchased for Rs. 30,000 from Bhimsen partial payment of Rs. 20,000 made through bank. On 2074-9-10, motor car purchased from CMC Traders of Rs. 50,000. On 2074-9-11, paid to Bhimsen Rs. 9,500 for the full settlement of his account. Required a. Journal entries b. Ledger posting
212 Aakar’s Office Practice and Accountancy - 9 17. Journalize the following transactions and prepare the necessary ledger: Chaitra, 2075. 1, Business commenced with Rs. 500,000. 4, Loan taken from bank Rs. 100,000. 5, Deposited into bank Rs. 450,000. 8, Furniture purchased for Rs 50,000. 11, Machinery purchased from ABC Enterprises of Rs. 80,000. 12, Goods purchased from PQR Rs. 70,000. 15, Withdrawn from bank for private use Rs. 10,000. 18, Paid for entertainment expenses Rs. 2000. 19, Sold to XYZ of Rs 140,000. 22, Paid to PQR Rs. 68,000 and discount received Rs. 2000. 26, Paid rent by cheque Rs. 60,000. 29, Received from XYZ Rs. 1,35,000 in full settlement. 18. Post the following transactions in the Ledger account of Khanal and Bhusal Co. of January, 2019. January 1, Sold goods to K C Shakya for Rs. 6,000. 10, K C Shakya returned Rs 500 worth of goods being defective. 12, Sold goods in cash to K C Shakya Rs 4,000. 17, Received from K C Shakya Rs 5,300 in full settlement. 19, Sold goods to K C Shakya Rs 5,000. 21, Received Rs 2,000 on account from him. 31, Received information that K C Shakya became insolvent and only 50 paisa in every rupee only was received from him. 19. Prepare a ledger of Aruna from the following transactions in the books of Roshan Stores Ashadh, 2075. 1, Purchased goods from Aruna for Rs 8,000 12, Returned goods worth Rs 400 to Aruna. 15, Purchased goods from Aruna for Rs 3,000 and paid immediately by cheque. 16, Purchased Rs 1,400 worth of goods from Aruna. 23, Paid Rs 8,800 to Aruna in full settlement. 20. Open ledger account of Shyamji A/c and Sales A/c for the following transactions. On 2075-5-3, Sold goods to Shyamji for Rs. 5,000. On 2075-5-5, Received cash Rs. 3,000 from Shyamji on account. On 2075-5-8, Received goods returned by Shyamji worth Rs. 500.
213 The Ledger 21. Prepare: a. Bank A/c b. Mrs Radha A/c c. Hira & Co. A/c, from the following transactions. On 2075-6-8, Open a bank account by depositing Rs. 20,000. On 2075-6-9, Purchased goods for Rs. 5,500 from Hira and Co. and issued a cheque of Rs. 3,500. On 2075-6-10, Received Rs. 10,000 from Mrs Radha as loan. On 2075-6-15, Paid Rs. 6,000 in cash to Mrs. Radha as repayment of her loan. On 2075-6-18, Paid Rs. 80. to Hari and Co. On 2075-6-25, Purchased furniture Rs. 5,000 by cheque no. 005. 22. Following transactions are given to you: On 2075-7-1, Started business with Rs. 20,000. On 2075-7-3, Purchased goods for Rs. 22,000 from Upendra and made partial payment of Rs. 18,000. On 2075-7-10, Equipment costing Rs. 5,000 were sold for Rs. 5,200. On 2075-7-15, Paid Rs. 3,800 to Upendra in full settlement of his account. On 2075-7-17, Paid salay Rs. 5,000. Required: a. Cash A/c. b. Upendra’s A/c 23. Mr. Dinesh’s business transactions are given to you. 2075 Jestha-4, Sold goods to Mr. Pradhan Rs. 30,000. 2075 Jestha-10, Cash paid by Mr. Pradhan Rs. 10,000. 2075 Jestha-10, Discount allowed to Mr. Pradhan Rs. 1,000. 2075 Jestha-15, Returns from Mr. Pradhan Rs. 3,000. 2075 Jestha-16, Paid rent Rs. 1,000. 2075 Jestha-18, Received Rs. 15,000 in full settlement by Mr. Pradhan. Required: Mr. Pradhan’s A/c, Cash A/c and Sales A/c. 24. Following are the transactions of A to Z Business House. On Poush, 2075 Poush-6, Sold goods to Kumar and Trade for Rs. 12,000. Poush-14, Received cash from Kumar and Trade Rs. 5,700. Poush-14, Allowed discount of Rs. 300 to Kumar and Trade. Poush-24, Goods returned from Kumar and Trade Rs. 1,500. Poush - 25, Rs. 5,000 received as a discount. Required: Kumar and Trade A/c, Discount A/c and Cash A./C
214 Aakar’s Office Practice and Accountancy - 9 25. Following transactions are given to you. On 2075-8-2, Sold goods to Hari for Rs. 15,000. On 2075-8-3, Furniture costing Rs, 5,000 was sold for Rs. 4,500. On 2075-8-5, Received cash Rs. 14,000 from Hari in full settlement of his account. On 2075-8-7, Received loan of Rs. 80,000 from the Megha Bank. On 2075-8-9, Paid Rs. 3,500 for house rent. Required: a. Journal entries b. Hari’s account c. Cash A/c 26. Following transactions are given to you. Magh, 2075 Magh-10, Purchased furniture from Kishor Furniture Workshop Rs. 20,000. Magh-15, Goods sold to Krishna Mama Rs. 5,000. Magh-25, Furniture costing Rs. 5,000 has been sold for Rs. 5,500. Magh-27, Received from Krishna Mama Rs. 4,900 and allowed discount Rs. 100. Magh-28, Office expenses Rs. 5,000 paid by cheque. Required: i. Journalise the transactions ii. Furniture account iii. Krishna Mama’s A/c iv. Cash A/c 26. Following transactions are given: On 2075-9-9, sold goods of Rs. 5,000 to Ram on credit. On 2075-9-11, Ram settled his account and allowed him Rs. 500 discount. On 2075-9-13, again goods sold to Ram of Rs. 3,000. On 2075-9-14, goods returned by Ram Rs. 1,000, On 2075-9-15, cash received from Ram Rs. 2,000. Required: i. Sales A/c ii. Ram’s Account iii. Discount A/c 27. Following transactions are given: On 2075-3-1, furniture costing Rs. 4,000 was sold for Rs. 3,500. On 2075-3-2, sold goods to Shyam Rs. 9,000. On 2075-3-3, cash withdrawn from bank for office use Rs. 8,000. On 2075-3-4, received cash from Shyam Rs. 8,000 in full settlement. On 2075-3-5, paid to Hari Rs. 5,000 for salary in advance. Required: i. Journal entries ii. Shyam’s account iii. Furniture account iv. Cash account Project Work a. Visit the account section of your school and collect and analyze cash A/c, expenses A/c, fee A/c, annual charge A/c, salary A/c, assets A/c, prepared by your school.
215 Subsidiary Books The Ledger Unit Subsidiary Books CDC Syllabus 11.1 Subsidiary Books: Introduction, Types and Use Purchase Book Purchase Return Book - Sales Book Sales Return Book Cash Book 10 Periods 11 Purchase Book Date Particulars Inward Invoice No. L.F. Details Amount 075 -5-8 075-5-9 075-5-10 075-5-12 Hiralal & Co.: 5 coats at Rs. 1000 each 15 shirts at Rs. 300 each 15 pants at Rs. 400 each Sahabir & Bros: 8 coats at Rs. 1300 each less: 10% trade discount Himalal & Co: 20 bags at Rs. 250 each Saree Palace, Putalisadak Ktm: 12 sarees at Rs. 500 each 5,000 4,500 6,000 10,400 1,040 15,500 9,360 5,000 6,000 Total: 35,860 After studying this unit, students will be able to : know the meaning, purpose and advantage of subsidiary books, explain the types of subsidiary books, know the meaning and types of cash book, prepare different types of subsidiary books. Learning Objectives
216 Aakar’s Office Practice and Accountancy - 9 1. Introduction The general journal is divided into various groups like purchase, purchase return, sales, sales return, etc. for convenience in recording. As such, subsidiary books may be defined as the books of original/primary entry of the business transactions with respect to their nature and kind which help the preparation of the ledger accounts during a certain period. Purchase book, purchase return book, sales book, sales return book, etc., are the examples of subsidiary books of account. These are also known as the sub-division of a journal. The work of journal can be made more classified by creating separate books to write the records of similar transactions, like all credit purchases, all credit sales, all cash transactions, etc. These books are called subsidiary books. According to D.N. Agarwal, “Subsidiary books of accounts are also called books of original entry because at the transactions are recorded originally or in the first instance in these subsidiary books.” Likewise, J.R. Battiboi, “Subsidiary records are also known as book of original entry, as transactions are entered there in time first instance is order that they may be subsequently transferred to their respective accounts in the ledger.” In conclusion, it is a book which helps to keep the record of primary entry of the transactions. It helps as parting ledger. Key Point Subsidiary books are subdivision of journal in which a set of books are maintained for primary recording of business transactions in classified way with respect to their nature and kinds. 2. Purpose and Advantages of Subsidiary Book The subsidiary books of account are gaining popularity among the big and growing business firms due to their notable advantages. Such advantages are mentioned below: i. It makes the division of work among the accounting staff, which leads to the specialisation in performance. ii. The system of internal check can be made more effective by subsidiary books with reduction in frauds. iii. It saves time and makes easy reference of information. iv. It makes information of each class of transactions available at one place and facilitates the auditing works. v. It helps to find out error quickly through separate books. vi. It helps to get all information at a place.
217 Subsidiary Books 3. Types of Subsidiary Books The following figure may help one to classify the books as the classification of the transactions: Cash Transaction Credit Transactions For goods For other than goods Journal proper Business Transactions Cash Book Simple cash book Double column cash book Triple column cash book Purchase book Purchase return book Sales book Sales return book A. Purchase Book A purchase book, which is also termed as purchase day book or purchase journal, is that subsidiary book which is maintained for recording the transactions related with the purchase of goods on credit. Goods refer to raw materials or final products; which are used by an undertaking for manufacturing or production process or for reselling, or trading purpose in a regular way. It only records the credit purchases of manufacturing or trading goods. It does not record cash purchase and the purchase of assets. Specimen Ruling of Purchase Book The specimen of a purchase book may be designed as the need of a company but it should contain necessary information. The following is a common specimen of a purchase book: Purchase book Date Particulars Inward Invoice No. L.F. No Details Amount (1) (2) (3) (4) (5) (6) The ruling of a purchase book is mentioned as below: i. The date of the transaction i.e. credit purchase of goods is mentioned in the first column. ii. The name of the supplier (person or firm) is mentioned in the second column. The details of the goods purchased on credit like name, quantity, rate, etc. are also mentioned in this column, if any. The name mentioned in this column is the supplier’s name. The supplier is the creditor for the purchasing firm, thus, the supplier mentioned in the purchase book is a credit account and the purchase is a debit account. iii. The third column contains the invoice number. Since, an invoice follows the credit purchase and it is received from the selling company, the purchaser mentions the inward invoice number. In other words, a purchaser always gets
218 Aakar’s Office Practice and Accountancy - 9 the invoices from the seller/supplier and thus mentions the inward invoice number in the purchase book. iv. The fourth column is the L.F. column. It contains the page number of the ledger, in which the account of the seller or supplier is mentioned but in theoretical learning it may remain blank or may be filled with an imaginary page number. v. The fifth and the sixth columns are for the value of the transaction. In the fifth column, the gross amount and discount, if any, are mentioned with respect to each type of the goods and the net total amount or value of trade is mentioned in the sixth and the final columns. Illustration - 1 Prepare purchase book and purchase account from the following transactions: On 075-Bhadra 8 : Purchased from Hiralal & Co: 5 coats at Rs. 1000 each 15 shirts at Rs. 300 each and 15 pants at Rs. 400 each Bhadra 9 : Purchased 8 coats from Sahabir & Bros. of Rs. 1300 subject to 10% discount. Bhadra 10 : 20 bags are purchased from Hiralal and Co. at Rs. 250 each. Bhadra 11 : Purchased in cash from Subash Rao & Sons: 5 coats at Rs. 700 each, 15 shirts at Rs. 300 each and 10 pants at Rs. 400 each Bhadra 12 : Purchased 12 sarees from Saree Palace Putalisadak, Kathmandu at Rs. 500 each. Solution: Purchase Book Date Particulars Inward Invoice No. L.F. Details Amount 075 -5-8 075-5-9 075-5-10 075-5-12 Hiralal & Co.: 5 coats at Rs. 1000 each 15 shirts at Rs. 300 each 15 pants at Rs. 400 each Sahabir & Bros: 8 coats at Rs. 1300 each less: 10% trade discount Himalal & Co: 20 bags at Rs. 250 each Saree Palace, Putalisadak Ktm: 12 sarees at Rs. 500 each 5,000 4,500 6,000 10,400 1,040 15,500 9,360 5,000 6,000 Total: 35,860
219 Subsidiary Books Dr. Purchase A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 075-5-8 075-5-9 075-5-10 075-5-10 075-6-1 To Hiralal & Co. To Sahabir & Bros. To Hiralal & Co. To Saree Palace To balance b/d 15,500/- 9,360/- 5,000/- 6,000/- 35,860/- 35,860/- 075-5-30 By balance c/d 35,860/- 35,860/- B. Purchase Return Book When the purchaser or buyer finds some abnormal defects in the goods like excess than the quantity demanded or not according to his order, etc., the whole or part of the goods previously purchased on credit can be returned to the supplier and creditor. Generally, the supplier doesn’t compensate the goods, so returned, in cash but he re-supplies the right quality goods according to the order, by accepting the returns. While returning the goods, the buyer/purchaser prepares a debit note in the name of the supplier by debiting his name along with the goods and the appropriate reasons of the returns. Thus, a purchase return book may be defined as the book, which is maintained for recording the transactions related with the return of goods to the supplier, which were previously purchased on credit. This book is also termed as return outward book. The specimen of the purchase return book is given below: Purchase Return Book Date Particulars Debit Note No. L.F. No Details Amount (1) (2) (3) (4) (5) (6) The first column is for the date, on which the goods were returned to the supplier. The second column contains the name of the supplier along with the necessary details of the goods so returned. The third column is for mentioning the debit note number, which is prepared by the buyer/purchaser in the name of the supplier to whom the goods are returned. It will be discussed later, under a separate topic. The fourth column is for the ledger page number of the supplier, whose name is debited just regarding the return of the goods. And fifth and sixth column mention the value of the goods so returned. The following illustrations may clear the practical concept of a purchase return book.
220 Aakar’s Office Practice and Accountancy - 9 Illustration - 2 Prepare a purchase return book from the following transactions: On 074 Bhadra: 25, returned to Hiralal & Co: 5 Shirts @ Rs. 300 3 Pants @ Rs. 400 28, returned 2 sarees to Saree Palace, Putali Sadak of Rs. 500 each. Solution: Purchase Return Book Date Particulars Debit Note Na. L.F. Details Amounts 074-5-25 074-5-28 Hiralal & Co 5 Shirt @ Rs. 300 3 Peas @ Rs. 400 Saree Palace, Putalisadak 2 Sarees@ Rs. 500 1,500 1,200 2,700 1,000 Total: 3,700 Dr. Purchase Return A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-5-30 To balance c/d 3,700 3,700 074-5-25 074-5-28 074-6-1 By Hiralal & Co. By Saree Palace To balance b/d 2,700 1,000 3,700 3,700 Debit Note: When the goods are returned to the supplier, a statement called a ‘Debit Note’ is sent along with the goods so returned. It is an information to the supplier that his account is being debited with the value of the goods returned to him. Thus, the debit note is a statement by which the buyer informs his supplier or creditor that his account is being debited in the book for the goods returned to him. C. Sales Book A sales book, also known as sales day book or sales journal, is that subsidiary book, which is maintained for recording the transactions related with the sales of goods on credit. Goods refer to the manufacturing or trading goods, which are used in course of business. Thus, a sales book records only the credit sales of goods. It does not record the cash transactions and sale of assets.
221 Subsidiary Books Specimen Ruling of a Sales Book The following is the specimen ruling of a sales book: Sales Book Date Particulars Outward invoice No. L.F. No Details Amount (1) (2) (3) (4) (5) (6) i. The date of the transaction (i.e. the sales on credit) is mentioned in the first column. ii. The name of the buyer/customer person or firm is mentioned in the second, i.e. particulars column. The details of the goods sold on credit like name, quantity, rate, etc. are mentioned in this column. The name mentioned in the particulars column is the customer’s name and thus it is a debit account and the sales account is a credit account. iii. The third column contains the invoice number. The seller/supplier prepares the invoice in the name of each buyer and forwards it along with the goods so dispatched. While maintaining the sales book, he/she mentions the outward invoice number, in this column. iv. The fourth column is the L.F. column. It contains the page number of the ledger, in which the account of the buyer is mentioned. It helps in posting referring the records when needed. v. The fifth and sixth columns are for the value of the transactions. In the fifth column, the gross total amount and the deductible discount, if any, are mentioned with respect to each type of goods. And the net total amount or the net value of the respective transactions is mentioned in the sixth i.e. the last column. Illustration - 3 From the following particulars, write up the sales book of Ajay, who deals in furniture goods, and also make the posting from the sales book. 074 -Kartik 1, Sold on credit to Children Academy: 10 tables @ Rs. 700. 25 chairs @ Rs. 400. 10, Sold to Dinesh & Co: 2 almirahs @ Rs. 2500. 1 dining table @ Rs. 1500. 15, Sold in cash to Ram Hari Traders: 5 chairs @ Rs. 400. 3 almirahs @ Rs. 2500.
222 Aakar’s Office Practice and Accountancy - 9 20, Sold to People’s Academy: 15 desks @ Rs. 1000. 15 benches @ Rs. 600. 5 blackboards @ Rs. 800. 21, Sold on credit to Noble Academy: 3 sofa sets @ Rs. 4000. 15 chairs @ Rs. 500. 5 stools @ Rs. 400. 25, An old computer machine is sold to Shrijan Computers at Rs. 20,000. 30, Sold to Home Land Secondary School: 2 dressing tables @ Rs. 1500. 2 tea table @ Rs. 700. Solution: Sales Book Date Particular Outward invoice No. L.F. Details Amount 074-7-1 074-7-10 074-7-20 074-7-21 074-7-30 Children Academy 10 tables @ Rs. 700 25 chairs @ Rs. 400 Dinesh & Co. 2 almirahs @ Rs. 2,500 1 dining table@, Rs. 1500 People’s Academy 15 desks @ Rs. 1,000 15 benches @ Rs. 600 5 black boards @ Rs. 800 Noble Academy 3 sofa sets @ Rs. 4000 15 chairs @ Rs. 500 5 stools @ Rs. 400 Home Land Secondary School 2 dressing tables @ Rs. 1500 2 tea tables Co. Rs. 700 7,000 10,000 5,000 1,500 15,000 9,000 4,000 12,000 7,500 2,000 3,000 1,400 17,000 6,500 28,000 21,500 4,400 Total 77,400
223 Subsidiary Books Dr. Sales A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-7-31 To balance c/d 86,900 86,900 074-7-1 074-7-10 074-7-15 074-7-20 074-7-21 074-7-30 074-8-1 By Children Academy By Dinesh & Co. By Cash A/c By People’s Academy A/c By Noble Academy A/c By Home Land Sec. School A/c By Balance b/d 17,000 6,500 9,500 28,000 21,500 4,400 86,900 86,900 Dr. Children Academy A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-7-31 074-8-1 To Sales A/c To Balance b/d 17,000 17,000 17,000 074-7-31 By Balance c/d 17,000 17,000 Dr. Dinesh Co.’s A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-7-10 074-8-1 To Sales A/c To Balance b/d 6,500 6,500 6,500 074-7-31 By Balance c/d 6,500 6,500 Dr. People’s Academy A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-7-20 074-8-1 To Sales A/c To Balance b/d 28000 28000 28000 074-7-31 By Balance c/d 28000 28000 Dr. Noble Academy A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-7-21 074-8-1 To Sales A/c To Balance b/d 21,500/- 21,500/- 21,500/- 074-7-31 By Balance c/d 21,500/- 21,500/-
224 Aakar’s Office Practice and Accountancy - 9 Dr. Home Land Secondary School A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-7-30 074-8-1 To Sales A/c To Balance b/d 4,400/- 4,400/- 4,400/- 074-7-31 By Balance c/d 4,400/- 4,400/- Dr. Cash A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 074-7-30 074-8-1 To Sales A/c To Balance b/d 9,500/- 9,500/- 9,500/- 074-7-31 By Balance c/d 9,500/- 9,500/- D. Sales Return Book Sometimes a buyer/customer may return the whole or part of the goods, supplied to him/her because of their excess quantity, difference in brand, quality, colour, size, price, etc. or any kind of defects in them. The buyer sends a debit note to the seller along with the goods to return. After the goods returned by the buyer are received along with a debit note, the seller accepts them and makes the necessary adjustments. The supplier immediately prepares a credit note by crediting the buyer’s name and informing about the necessary adjustments. The specimen of the sales return book is as given below: Sales Return Book Date Particulars Credit Note No. L.F. No Details Amount (1) (2) (3) (4) (5) (6) In the first column, the date on which the goods returned from the buyer were received, is mentioned. In the second column, i.e. the particulars column mentions the name of the buyer along with the necessary details of the goods so returned. In the third column mentions the number of the credit note, which is prepared by the seller himself in the name of the buyer from whom the goods are returned. A credit note will be discussed later, under a separate topic. In the fourth column, the page number of the ledger in which the account of the buyer appears, is mentioned. It helps as indexing to refer to the buyer’s account.
225 Subsidiary Books In the fifth and sixth columns, the value of the goods so received is mentioned. This should be reduced from the earlier invoice price or the goods may be resupplied as per the buyer’s previous order only to the extent of the goods so returned. The following illustration will further clear about the sales return book: Illustration - 4 Prepare sales return book and sales return account from the following transactions. 074 - Mangsir: 5, Children Academy returned us 3 chairs @ Rs. 400 each, Credit Note no. 15 7, People’s Academy returned us: 2 desks @ Rs. 1000 2 benches @ Rs. 600, Credit Note No. 16 10, Obtained from Noble Academy 3 chairs @ Rs. 500, Credit Note No. 17. Solution: Sales Return book Date Particulars Credit Note No. L.F. Details Amounts 074-8-5 074-8-7 074-8-10 Children Academy 3 chairs @Rs. 400 People’s Academy 2 desks @ Rs. 1000 2 banches @ Rs. 600 Noble Academy 3 Chairs @ Rs. 500 15 16 17 2000 1200 1200 3200 1500 Total: 5900 Credit Note: After the goods returned are received by the seller, he prepares a statement by crediting the buyer’s/customer’s name to the extent of the value of the goods so returned, which is known as a credit note. A credit note thus is a statement, by which the seller informs his buyer that his account is being credited in the book of account to the extent of the goods returned by him. It is a proof of the acceptance of the goods. After preparing the credit note, the goods returned is recorded in a separate book called sales return book. Then the seller makes necessary adjustments of the goods so returned either by reducing the invoice price or by resupplying the quality goods.
226 Aakar’s Office Practice and Accountancy - 9 E. Cash Book A business firm deals with hundreds of transactions in a regular course of its operation. Purchase of furniture, machineries, equipment, vehicles, building, goods, materials, stationeries, etc., making payments of expenses like wages, rent, salary, commission, lighting and heating, interest, tax, etc., receiving incomes like commission, interest, rent from sublet, dividends and sales of goods, materials and other old properties are some of the examples of business transaction. Most of the purchases and sales transactions are performed on credit but they will result payment or receipt of cash in the near future. Purchase of furniture, machineries, equipment, vehicles, buildings, etc. is performed in cash but usually through banks or if performed on credit then cash is paid in the near future through a reliable way. Payment of expenses like wages, rent, salaries, etc. are done in cash or through banks. Similarly, the incomes are also received in cash or through banks. In this way, a business firm receives cash/cheque through a number of sources and pays it for a number of expense heads. It is a cash book, which records all the transactions related with the receipt and payment of cash for business purposes. Thus, a cash book may be defined as the book of account, which records all the cash transactions i.e. receipt and payment of cash during a given period of time. It records all receipts on Dr. side and all payments on Cr. Side. Since, a cash book is the original entry of all the cash transactions, other ledger accounts are prepared on the basis of this book, it is said to be a subsidiary book of account. On the other hand, it is prepared in the ledger form and cash transactions are straight-way posted in the cash book and So, it is also termed as the principal book of account. Thus, truly a cash book is a subsidiary as well as principal book of account. Cash transactions refer to the receipt and payment of hard cash and through banks as well. Because of the misusable nature of cash, most of the receipts and payments are done through banks. Thus, both the cash and bank dealings are termed as cash transactions. The cash book of a business firm gives the net effect (a single figure) of cash as well as bank transactions during a given period of time. Key Point A cash book is the original entry of all the cash and bank transactions in which, all the cash received is recorded in debit side and all the cash payment in credit side to find the net effect of cash as well as bank transactions during a given period of time. The following are the salient features of a cash book: i. Cash book begins from the opening balance of cash or bank on the Dr. side as: To Balance b/d ii. All the receipts of cash or through banks are recorded on the Dr. side. iii. All the payments of cash or through banks are recorded on the Cr. side.
227 Subsidiary Books iv. It is ended with the closing balance of cash or bank on the Cr. side as ‘By balance c/d’. v. The Dr. side of a cash book is always heavier than its Cr. side. But sometimes both the totals may be equal. The Dr. side total shows the total of receipt and the Cr. side total shows the total of payment. In cash dealing, payment can never exceed the receipt. Types of Cash Book Cash transactions refer to cash as well as bank transactions. Different types of cash book are maintained for recording hard cash transactions, bank transactions i.e. cheques, drafts, etc. and discount related transactions. Discount means cash discount and it is always associated with hard cash or bank dealings. Thus, cash books are maintained for hard cash, bank and cash, bank and discounts as the case and requirement. Different types of cash books are briefly introduced below. With cash and discount column Single column Double column Triple column With discount and bank column With cash and bank column Types of Cash Book i. Single Column Cash Book A single column cash book records only the receipts and payments of cash. Its format is similar to cash account i.e. cash ledger with one amount column on each side. The left hand side known as `debit’, records receipts of cash and the right hand side known as `credit’, record payments. Its format is given below: Dr. Single Column Cash Book Cr. Date Particulars L.F. Amount Date Particulars L.F. Amount From the above format, it is clear that the columns are similar to that of cash or bank A/c. i. In the date column, on both sides, the day, month and the year of the transaction are recorded. ii. In the particulars column, on both sides, the account with respect of which cash has been received or paid is recorded. iii. In the L.F. column, the page number of the ledger, where the posting of the amount has been made is written. iv. The amount of the transaction is mentioned in the amount column to the respective heading.
228 Aakar’s Office Practice and Accountancy - 9 Enter the following transactions in a simple cash book: Illustration - 5 Prepare a simple cash book from the following transactions. 075 - Baishakh: 1, Cash in hand 9500 4, Received cash from Khanal Bros. 4000 6, Paid to Basyal Book Depot. 5000 10, Cash sales 3200 11, Goods purchased from Ravan on credit 5000 17, Bought furniture 1000 20, Cash purchases 5000 21, Goods sold to Hanuman, on credit 4000 27, Cash sales 2500 30, Paid rent 2000 31, Paid salaries 1500 31, Paid wages 500 Solution: Dr. Single Column Cash Book Cr. Date Particulars L.F. Amount Date Particulars L.F. Amount 075: 1-1 1-4 1-10 1-27 075: 2-1 To Balance b/d To Kianal Bors. A/c To Sales A/c To Sa1as A/c To Balance b/d 9500 4000 3200 2500 19,200 4200 075: 1-6 1-17 1-20 1-30 1-31 1-31 1-31 By Basyal Book A/c By Fumiture A/c By Purchase A/c By Rent A/c By Salaries A/c By Wages A/c By Balance c/d 5000 1000 5000 2000 1500 500 4200 19,200 Note: i. Transactions of 11th and 21st Baisakh will not be recorded in the cash book as these are the credit transactions. ii. Instead of totalling the credit side separately, it may be directly balanced.
229 Subsidiary Books ii. Double Column Cash Book Cash transactions refer to the hard cash as well as bank receipts and payments. While remitting money by a debtor to his/her creditor before or on the due date, the creditor may allow him/her a cash discount, to some extent, as a rebate for the timely payment. Therefore, cash discount is a kind of rebate offered by the creditor to his/ her debtor to encourage for timely payment. Most of the payments, especially of the bulk amount, are remitted through banks. Thus, cash discount is always associated with cash or bank dealing and accordingly the double column cash book is also of three types. a. Double column cash book with cash and discount columns, b. Double column cash book with bank and discount columns and c. Double column cash book with cash and bank columns. Before the study of different types of double column cash book, it will be helpful here to introduce some important terms associated with this book. Contra Entry Every business transaction has two side effects, one on debit side and another on credit side with the equal amount. While making the posting, the amount of the same transaction is debited in one account and credited in another account. But in case of double column cash book with cash and bank columns and triple column cash book with discount cash and bank columns, the amount of cash deposits and withdrawals are debited in one column and credited in the another column of the same book completely i.e. there remains no account to post in another ledger or book and it is denoted by ‘C’ alphabet in L.F. columns to indicate the double posting or two-side posting or contra entries. Thus, a contra entry refers to the condition of recording the amount of a transaction, completely on both debit and credit sides of the same book or account i.e. in the double column cash book with cash and bank columns and triple column cash book. There are two transactions, which require contra entry i.e. cash paid to the bank and cash withdrawn from the bank for office use. The following posting will clear the concept of contra entry ‘C’. i. Cash paid into the bank Rs. 10,000 Bank A/c ................................... Dr 10 000 To Cash A/c ............................. 10,000 It is debited in Bank Column and credited in Cash Column in the same book as below: Dr. Cash Book Cr. Date Particulars L.F. Cash (Rs.) Bank (Rs.) Date Particulars L.F. Cash (Rs.) Bank (Rs.) To Cash A/c C 10,000 By Bank A/c C 10,000
230 Aakar’s Office Practice and Accountancy - 9 ii. Cash withdrawn from the bank for office use Rs. 5000. Cash A/c .................................... Dr. 5000 To Bank A/c ............................. 5000 It is debited in Cash Column and credited in Bank Column as below: Dr. Cash Book Cr. Date Particulars L.F. Cash (Rs.) Bank (Rs.) Date Particulars L.F. Cash (Rs.) Bank (Rs.) To Bank A/c C 5,000 By Cash A/c C 5,000 a. Double Column Cash Book with Cash and Discount Columns It is the one, which contains discount and cash columns on both of its sides to record the transactions related with cash and discounts. It does not contain the bank dealings, as there’s no provision of bank column. The following illustration will clear the practical concept of this type of cash book. Illustration - 6 Enter the following transactions in a cash book having cash and discount columns. On 075, Bhadra: (Rs.) 1, Opening balance of cash 7,000 5, Purchased goods from Ganesh in cash 1,500 7, Received cash from Hiralal & Co. 8,800 Discount allowed to them 200 10, Paid to Himalal & Co. 950 Discount received from them 50 16, Purchased goods for cash 1,200 20, Paid to Sharma and Sons 1,800 Discount received 200 21, Cash sales made 5,000 25, Furniture purchased for cash 3,000 27, Paid wages 4,000 28, Rent paid to the landlord 3,000 30, Paid to Shiva Shankar 450 Discount received from him 50
231 Subsidiary Books Solution: Dr. Cash Book with Cash and Discount Columns Cr. Date Particular L.F. Dis. (Rs.) Cash (Rs.) Date Particular L.F. Dis. (Rs.) Cash (Rs.) 075 5-1 5-7 5-21 075 6-1 To Balance b/d To Himlal & Co. A/c To Sales A/c To Balance b/d 200 200 7000 8800 5000 20800 4900 075 5-5 5-10 5-16 5-20 5-25 5-27 5-28 5-30 5-30 By Purchase A/c By Hanalal & Co. A/c By Purchase A/c By Sharma & Son’s A/c By Furniture A/c By Wages A/c By Rent A/c By Shiva Shankar A/c By Balance c/d 50 200 50 300 1,500 950 1,200 1,800 3,000 4,000 3,000 450 4,900 20,800 Note: Since, discount does not flow cash, it is a non-cash income and non-cash expenses but just a gain or loss; thus, in cash book this column is just totalled, not balanced. b. Double Column Cash Book with Bank and Discount Columns It is the one, which contains discount and bank columns on both of its sides to record the transactions related with, banks and discounts, i.e. the receipts and payments through banks along with the discount therein. It does not record the hard cash transactions, as there’s no provision of cash column in it. The following illustration will clear its practical concept. Illustration - 7 Enter the following transactions in double column cash book with bank and discount columns. 075, Ashwin 1, Paid into bank Rs. 20,000. 3, Purchased goods and paid by cheque Rs. 4,000. 7, Sold goods for cash and collected by bank Rs. 15,000. 10, Purchased goods from Sundar Bros. on credit Rs. 2,000. 11, Paid for stationery by cheque Rs. 1,000. 13, Sold goods to Sunita & Co. on credit Rs. 4,000. 15, Withdrawn from bank for office use Rs. 2,000.
232 Aakar’s Office Practice and Accountancy - 9 17, Paid to Sundar Bros. Rs. 1800 by a cheque in their full settlement. 19, Directly paid into bank by Ram Bilash, a previous debtor Rs. 2,300 and allowed him discount of Rs. 200. 22, Bank directly collected from Sunita & Co. Rs. 3,700 as per outstanding instruction in full settlement of their account. 25, Paid to Ram Singh, a previous creditor by cheque Rs. 1,800 and availed discount of Rs. 200. 27, Paid wages by issuing a cheque Rs. 7,000. 29, Paid salaries by bank Rs. 10,000. 30, Issued a cheque for rent Rs. 5,000. 31, Paid insurance premium by cheque Rs. 1,000. Solution: Dr. Cash Book with Bank and Discount Columns Cr. Date Particular L.F. Dis. (Rs.) Bank (Rs.) Date Particulars L.F. Dis. (Rs.) Bank (Rs.) 075: 6-1 6-7 6-19 6-22 075: 7-1 To Cash A/c To Sales A/c To Ram Bilash A/c To Sunita & Co A/c To Balance b/d 200 300 500 20,000 15,000 2,300 3,700 41,000 7,400 075: 6-3 6-11 6-15 6- 17 6-25 6-27 6-29 6-30 6-31 6-31 By Purchase A/c By Stationery A/c By Cash A/c By Sunder Bros. A/c By Ram Singh A/c By Wages A/c By Salaries A/c By Rent A/c By Insurance A/c By Balance c/d 200 200 400 4,000 1,000 2,000 1.800 1,800 7,000 10,000 5,000 1,000 7,400 41,000 c. Double column cash book with cash and bank columns It is the cash book, which manages two columns cash and bank on its both Dr. and Cr. sides to record cash receipts and payments and bank deposits and withdrawals respectively. It doesn’t have any provision for discount. The contra entry takes place in this sort of cash book while depositing cash into banks and withdrawing cash from the bank for office use. The contra entry is denoted by ‘C’ letter in L.F. column on both sides.
233 Subsidiary Books The following is the accounting record of this sort of cash book. Illustration - 8 Enter the following transactions in a double column cash book with cash and bank columns. 075, Kartik: (Rs.) 1, Cash in hand 12,000 l, Cash at bank 15,000 2, Wages paid 1,500 3, Salaries paid by cheque 2,500 5, Goods purchased and paid by cheque 1,200 6, Purchased in cash 1,000 7, Received a cheque from Khanal Bros. and immediately paid into bank 2,000 8, Paid to Ganesh through a cheque 1,600 9, Withdrawn cash from bank for office use 1,500 10, Received from Hari. 500 I2, Interest allowed by bank 400 14, Paid into bank 1,000 Solution: Dr. Cash Book with Cash and Bank Columns Cr. Date Particular L.F. Cash (Rs.) Bank (Rs.) Date Particulars L.F. Cash (Rs.) Bank (Rs.) 075 7-1 7-7 7 9 7-10 7-12 7-14 075 7-1 To Balance b/d To Khanal Bros A/c To Bank A/c To Hari’s A/c To Interest A/c To Cash A/c To Balance b/d C C 12,000 1,500 500 - 14,000 10,500 15,000 2000 - - 400 1,000 18,400 11,600 075 7-2 7-3 7-5 7-6 7-8 7-9 7-14 7-15 By Wages A/c By Salary A/c By Purchase A/c By Purchase A/c By Garesh’s A/c By Cash A/c By Bank A/c By Balance c/d C C 1,500 - - 1,000 - - 1,000 10,500 14,000 - 2500 1200 - 1,600 1,500 - 11,600 18,400 iii. Triple Column Cash Book In the modern day business world, it becomes very difficult and almost impossible to carry out any business without having any dealing with banks. Normally, the bulk of its fund is kept by the business in a bank in a current account
234 Aakar’s Office Practice and Accountancy - 9 where frequent deposits and withdrawals are permitted. The bank transactions are more numerous than cash transactions. Therefore, cash book may be prepared with three columns, i.e. discount, cash and bank, on both of its sides in order to cover all the cash and bank dealings. It overcomes the condition of maintaining discount, cash and bank accounts separately. The following illustration will clear the practical concept of the triple column cash book. Illustration - 9 From the following transactions, prepare the cash book with three columns: On Marga, 075 1, Commenced business with cash Rs. 60,000 and bank deposit 1,00,000. 2, Incurred general expenses 2,000 3, Paid to Bikram by cheque Rs. 4,800 and discount allowed by him 200 4, Bought furniture by cheque 12,000 8, Received cheque from Rabindra 6,900 Discount allowed to him 100 9, Cash sales 10,000 10, Deposited into bank 5,000 12, Purchased by cheque 10,000 Cash purchases 5,000 14, Commission received 1,000 17, Advertising expenses paid 1,500 20, Withdrawn from the bank for office use 1,000 22, Received cheque from Rajesh 2,450 Discount allowed 50 24, Drawn from office for private use 1,000 26, Deposited into bank 10,000 27, Paid office expenses 2,000 28, Salaries paid by cheque 5,000 30, Paid rent by cheque 3,000 31, Purchased a typewriter and paid by cheque 10,000
235 Subsidiary Books Solution: Triple Column Cash Book Date Particular L.F. Dis. (Rs.) Cash (Rs.) Bank (Rs.) Date Particulars L.F. Dis. (Rs.) Cash (Rs.) Bank (Rs.) 2075 8-1 8-8 8-9 8-10 8-14 8-20 8-22 8-26 2075 9-1 To Capital A/c To Rabindra’s A/c To Sales A/c To Cash A/c To Commission A/c To Bank A/c To Rajesh’s A/c To Cash A/c To Balance b/d C C C 100 - - - - 50 - 150 60,000 6,900 10,000 - 1,000 1,000 2,450 - 81,350 54,850 1,00,000 - - 5,000 - - - 10,000 1,15,000 69,200 2075 8-2 8-3 8-4 8-10 8-12 8-17 8-20 8-24 8-26 8-27 8-28 8-30 8-31 8-31 By General expenses A/c By Bikram’s A/c By Furniture A/c By Bank A/c By Purchase A/c By Advertising A/c By Cash A/c By Drawing A/c By Bank A/c By Office expenses A/c By Salaries A/c By Rent A/c By Typewriter A/c By Balance c/d C C C 200 - - - - - - - - - - - - 200 2,000 - - 5,000 5,000 1,500 - 1,000 10,000 2,000 - - - 54,850 81,350 - 4,800 12,000 - 10,000 - 1,000 - - - 5,000 3,000 10,000 69,200 1,15,000 Journal Proper Some transactions do not occur repeatedly, to record such transaction, a separate book is maintained known as journal proper. It records all those transactions in chronological order which cannot be recorded in other subsidiary books. It is similar to journal. Sale of assets, bad debts, depreciation, outstanding expenses, advance incomes, etc. are the some examples of transactions which are recorded in journal proper. Glossary Retention : preservation Overcome : rise above, settle Reselling : not for use for sale Exercise A. Answer the following questions in one sentence. 1. What is subsidiary book? 2. What is purchase book?
236 Aakar’s Office Practice and Accountancy - 9 3. What is purchase return book? 4. What is sales book? 5. What is sales return book? 6. What types of transaction are recorded in sales book? 7. What is meant by debit note? 8. What is meant by credit note? 9. What is meant by cash book? 10. What is meant by journal proper? B. Give short answers to the following questions. 11. What do you mean by subsidiary book? Mention its advantages. 12. Write in brief the objectives of maintaining the subsidiary books. 13. Mention the specimen ruling of a purchase book. 14. Mention the specimen ruling of a sales book. 15. “A cash book is a subsidiary as well as a principal book of a businessman.” Justify this statement. 16. What is contra entry? Explain with a suitable example. C. Give long answers to the following questions. 17. What are the different types of subsidiary books? Introduce all of them along with their specimen. 18. What is meant by a cash book? Mention the prominent features of a cash book. 19. What are the types of cash book? Explain its types with specimen. 20. What are the types of double column cash books? Introduce them with their specimen, respectively. NUMERICAL PROBLEMS 21. From the following transactions, prepare the purchase book of XYZ Books Store for Ashwin, 2075. Also prepare necessary ledger accounts. 7, Purchased books on credit from Kalyani Publishers. 30 Advanced Accounts by T. S. Grewal @ Rs. 350. 35 Financial Management by I.M. Pandey @ Rs. 300. Trade discount for both the books 10%. 12, Purchased from Kitab Mahal. 30 Statistics by K.N. Shrestha @ Rs. 300. 25 Marketing Mgmt. By K.D. Koirala Ca) Rs. 200.
237 Subsidiary Books 18, Purchased books from Ekta Publishers. 20 Junior School Dictionary @ Rs. 150. 30 High School Grammar by Madhav Sharma @Rs. 175. 22, Purchased on credit from Sajha Prakashan. 25 Mitho Nepali Rachana by Ramesh Parajuli @ Rs. 100. 20 Nepali Shabda Kosh by Dhruba Sharma @ Rs. 200. 30, Purchased on credit from Podrej Furniture. 5 books cases @ Rs. 5000. 2 office chairs @ Rs. 1500. Ans: Purchase book total: 47650 22. Enter the following transactions in the purchase book and prepare the necessary ledgers during Marga, 075. 1, Purchased on credit from Ram Sahu. 100 metres coating @ Rs. 500 per metre. 200 metres shirting @ Rs. 200 per metre . 7, Purchased from Hari Sahu. 50 Banarasi sarees @Rs. 500. 60 Janta sarees @ Rs. 300. 9, Purchased 5 showcases @ Rs. 3500 from Baghbazar Furniture. 16, Purchased from Balaju Textiles. 200 metres of polyster @ Rs. 50. 300 metres of cotton @ Rs. 75. 200 metres of nylon @ Rs. 100. 22, Purchased from Ram Hari Merchantiles in cash. 75 metres shirting @ Rs. 190. 50 metres coating @ Rs. 475. 30, Purchased from Hetauda Textiles. 200 metres poplin @ Rs. 350. 200 metres terylene @ Rs. 150. Ans: Purchase book total: 285500 23. Enter the following transactions in the purchase books of Purnaman Electronics for Poush, 075. 5, Purchased on credit from Akbar Electronics. 5 ‘Janta Model’ TV sets @ Rs. 3500. 10 ‘Delex Model’ TV sets @ Rs. 5500. 22, Purchased on credit from Modern Furniture. 1 office showcase @ Rs. 1200
238 Aakar’s Office Practice and Accountancy - 9 1 office table @ Rs. 2300. 3 office chairs @ Rs. 600. 26, Purchased from Bajaj Electronics. 15 electronic iron @ Rs. 500. 15 heaters @ Rs. 1000. 5 table lamps @ Rs. 300. 28, Purchased from Sunita Bros. in cash. 5 toasters @ Rs. 1000. 3 table lamps @ Rs. 300. Ans: Purchase book total: 96,500 24. From the following transactions, prepare the purchase book of Gyan Electronics for Ashwin, 075. And prepare the necessary ledgers. 5, Purchased on credit from Kailash & Co. 50 Electric irons @ Rs. 200. 10 Toasters @ Rs. 300. 6, Purchased for cash from Sharma Bros. 25 Table lamps @ Rs. 150. 10, Purchased from Lamsal & Sons. 20 Electric stoves @ Rs. 500. 10 Heaters @ Rs. 400. 15, Purchased on credit from PQR Electronics. 15 Heaters @ Rs. 450. 10 Mixer grinders @ Rs. 600. 22, Purchased on credit a typewriter from Shivam Electronics for Rs. 10,000. Ans: Purchase book total: 39,750 25. Prepare purchase return book, return outward (purchase return) account from the following transactions. 075-7-2, Return to Kalyani Publishers. 2 Advanced Accounts by T.S. Grewal @ Rs. 350. being defective (original trade discount 10%) 075-7-3, Returned 2 Marketing Management by K.D. Koirala @ Rs. 200 to Kitab Mahal. 075-7-4, Returned to Sajha Prakashan. 3 Mitho Nepali Rachana by Ramesh Parajuli @ Rs. 100. 2 Nepali Shabda Kosh by Dhurba Sharma @ Rs. 200. Ans: Purchase returned book total: 1730
239 Subsidiary Books 26. Enter the following transactions in the Purchase Return Book for Shrawan, 2075. 1, Returned to Gyan Bahadur Pun., Pokhara. 5 tins of local butter @ Rs. 1,000 per tin. 20 bags of Mansuli Rice @ Rs. 500 per bag . Less: 10 % Trade Discount. 2, Returned to Pawan Stores., Dhangadi. 4 bags Chana @ Rs. 300 per bag. 1 bag Sugar @ Rs. 600 per bag. 1 bags of wheat @ Rs. 600 per bag. Less: 10 % Trade Discount. 15, Returned to Ramesh Shrestha., Lagan Tole. 10 bags Sugar @ Rs. 110 per bag. 30 tins Ghee @ Rs. per 80 tin. Ans: Purchase Return Book Total : Rs. 19,160 27. Prepare sales book, sales account and other personal ledgers, from the following transactions for Magh 075. 3, Sold 50 quintals of Hulas Basmati @ Rs. 3000 per quintal to Makalu Consumers’ Cooperative. 4, Sold to Raktim Stores. 10 quintals of Mansuli Rice @ Rs. 2000 per quintal 5 quintals of Hulas Wheat Flour @ Rs. 1200 per quintal 8, Sold to Suman Traders. 50 packets Everyday Milk @ Rs. 160 per pack. 100 hrs of Dhara Oil @ Rs. 80 per ltr. 50 bottles of Meizan Sun Flower Seed Oil @ Rs. 110 per bottle. 12, Sold on credit to ABS National Hostel. 100 jars of boost @ Rs. 180 per jar. 5 quintals of Mansuli @ Rs. 2000 per quintal. 8 tins of ghee @ Rs. 3000 per tin. Ans: Sales book total: 2,49,500 28. Prepare sales book, sales account and necessary personal ledgers during Magh, 075. 1, Sold to Basyal Shoes Company. 15 pairs of leather shoes @ Rs. 800 per pair. 20 pairs of sandals @ Rs. 100 per pair. 5, Sold to Kamal Shoes Centre.
240 Aakar’s Office Practice and Accountancy - 9 20 pairs of ladies chappals @ Rs. 75 per pair. 25 pairs of white canvas shoes @ Rs. 125 per pair. 12, Sold to Mahendra Police Club. 50 pairs of leather boot @ Rs. 1500 per pair. 40 pairs of sport shoes @ Rs. 700 per pair. 20, Purchased 20 pairs of leather shoes and 50 pairs of sport shoes from Fit Rite sales depot @ Rs. 600 and 500 respectively. 24, Sold in cash to Harihar & Friends. 3 pairs of white canvas shoes @ Rs. 150 per pair. 3 pairs of sandals @ Rs. 120 per pair. Ans: Sales book total: 1,21,625 29. Prepare sales book, sales account and the debtors account from the following transactions: 075, Falgun: 3, Sold to Lama Cycle Traders, Solu, on credit. 20 Atlas Bicycles (@ Rs. 4000. 10 Auto Bicycles @ Rs. 8000. (Less trade discount 10%) 4, Sold to Basyal Cycle Stores, Butwal. 50 Rambo Cycles @ Rs. 3500. 35 Child Bicycles @ Rs. 2500. 5, Sold in cash, to Bahirab Advertising Agency:. 3 Atlas Bicycles @ Rs. 3500. 4 Auto Bicycles @ Rs. 7000. 7, 30 Child Bicycles were sold to Shrestha Cycle Shop @ Rs. 2500 on credit Ans: Sales book total: 4,81,500 30. Enter the following transactions in the sales book of National Books and Stationery, Thamel for the month of Mangsir, 2075. l, Sold to Mitra Stationers. 15 dozen register @ Rs. 20 per dozen 12 dozen pencil @ Rs. 25 per dozen 7, Sold to Green Field School, Sitapaila. 10 reams of white paper @ Rs. 15 per ream. 3 reams of Nepali Kagaj @ Rs. 10 per ream.
241 Subsidiary Books 12, Sold 20 dozen exercise books @ Rs. 100 per dozen to Shikhar B. School. 18, Sold old 2 almirahs of Rs. 300 each to Kantipur Language Institute. 22, Sold to XYZ Book Centre. 20 Elementary Accountancy part-1 By B.P. Sharma @ Rs. 125. 10 Social Studies for grade (ix) by L.P. Sharma @ Rs. 125. 12 Active English (Book 4) by L.P. Sharma @ Rs. 150. 26, Sold in cash to Jyoti Academy, Sitapaila. 15 pens @ Rs. 45. 5 markers @ Rs. 75. 31, Sold a second hand motorcar, on credit to Shree Ram Enterprises of Rs. 200,000. Ans: Sales book total: 8,330 31. Prepare sales return book and sales return account. 074-11-10, Makalu Consumers’ Cooperative returned to us 2 quintals of Hulas Basmati @ Rs. 3000 per quintal 074-11-11, Returned from Suman Traders. 5 packets of Everyday Milk @ Rs. 160 per packet 3 bottles of Meizan Sun Flower Seed Oil @, Rs. 110 per bottle 074-11-12, The whole 5 quintals of Mansuli Rice @ Rs. 2000 per quintal was returned from ABS National Hostel being of high price. Ans: Sales return book total: 17,130 32. Enter the following transactions in the Sales Return Book of Rabindra Stationery, Bafal for Baisakh, 2075 1, Ganesh Stationery, Ganabahal returned. 45 dozens pencils @ Rs. 7 per dozen. 1 Gross registers @ Rs. 100 per gross. 8, Suchi Books & Stationery, Lazimpat returned to us the following. 5 Dozen pencils @ Rs. 48 per dozen. 10 reams of Cyclostyle Paper @ Rs. 40 per ream. Less : 10 % Trade Discount. 15, Returned by Basundhara Public School, Basundhara. 10 gum bottles @ Rs. 75 per bottle. 5 dozen rulers @ Rs. 30 per dozen. Less: Trade Discount 5 %. Ans: Sales Return Book Total Rs. 1,846
242 Aakar’s Office Practice and Accountancy - 9 33. From the following transactions, prepare necessary subsidiary books in the books of Shree Ram Enterprises. 075-Falgun: 1, Purchased goods from Samjhana Store of Rs. 15,000 less 10% trade discount. 2, Bought from Prabha Trading House of Rs. 20,000 less 10% trade discount. 3, Sold to Basudev & Sons of Rs. 35,000. 4, Sold in cash to Hari Shankar & Co. of Rs. 15,000. 5, Returned to Prabha Trading House of Rs. 5,000 subject to 10% original trade discount. 8, Goods purchased from Subash & Bros. of Rs. 30,000 subject to 12% trade discount. 10, Purchased from Kabi Raj & Co. Rs. 10,000 in cash. 12, Sold goods to ABC Co. Ltd. of Rs. 55,000, subject to 10% trade discount. 15, Sold on credit, to XYZ Pvt. Ltd. of Rs. 25,000. 16, Basudev & Sons returned to us goods of Rs. 3,000 being defective. 20, An old typewriter was sold to PQR Typing Centre for Rs. 15,000. 21, Goods returned to Subash & Bros. of Rs. 3,000 being defective. 25, ABC Co. Ltd returned to us goods of Rs. 5,000. (subject to original trade discount 10%) 27, Invoiced goods to Tripathi Concern of Rs. 10,000 less 10% trade discount. 29, Purchased a second hand computer from Media Computer Centre of Rs. 25,000. 30, Returned to us goods of Rs. 3,000 from Tripathi Concern subject to 10% original trade discount. Ans: Purchase book total: 57,900. Sales book total: 1,18,500 Purchase Returns book total: 7,500 Sales Returns book total 10,200 34. Enter the following transactions in a simple cash book for Bhadra, 075 (Rs.) 1, Started business with cash 15,000 3, Deposited into bank 4,000 5, Bought goods for cash 2,500 9, Sold goods to Harihar Bros. 1,500
243 Subsidiary Books 12, Purchased goods form Jagat & Co. 1,000 15, Sold goods to Bihari Lal in cash 1,200 18, Received cash from Harihar Bros. 1,500 22, Paid to Jagat & Co. 1,000 23, Cash sales 1,700 25, Trade expenses paid 500 27, Withdrew cash from bank for office use 1,500 28, Rent paid 2,000 30, Commission received 500 31, Wages paid 500 Ans: Cash book Total: 21,400 Cash Closing figure (Dr.) 10,900 35. Maintain a single column cash book and record the following transactions in it for the month of Ashwin, 075. (Rs.) 1, Cash in hand 50,000 4, Furniture purchased 10,000 7, Purchased machinery from Shree Ram Traders 2,500 10, Paid for repairs 500 11, Bought goods of 5,000 13, Withdrawn cash from office for private use 1,000 14, Sold goods to Rajendra, on credit 2,500 18, Purchased goods from Mahendra 2,000 20, Received from Rajendra 2,500 22, Paid to Mahendra 2,000 27 , Paid insurance premium 500 28, Rent paid to the landlord 3,000 29, Wages paid for the month 1,500 31, Salary paid 5,000 Ans: Cash book Total: 52,500 Closing Balance of Cash: 24,000 36. Prepare a double column cash book with discount and cash column and enter the following transactions in it. 075, Kartik: (Rs) 1, Ram Chandra commenced business with 1,00,000 2, Paid into bank account 75,000 4, Received from Khanal Bros. 900 Discount allowed to them 100 8, Cash purchases made 2,000
244 Aakar’s Office Practice and Accountancy - 9 9, Paid to Udas Co. a previous creditor 8,000 Discount received 50 11, Paid for stationery 500 12, Purchased from ABC Ltd. on credit 8,000 14, Paid for advertising 1,000 16, Paid water and electricity charges 500 18, Sold goods to XYZ Ltd. of 13,000 20, Settled A/c with ABC Ltd. by paying Rs. 7,500 on account. 22, Withdrawn from bank for office use 15,000 23, Lok, who owed Rs. 1,500 settled his account by paying Rs. 1,350 25, Bought a second hand typewriter of 10,000 27, Paid salaries 15,000 28, Paid rent 8,000 29, Received a cheque from XYZ Ltd. Rs. 12,500 for full settlement of account. Ans: Cash book Total: 1,29,750 Debit Balance: 2,250 37. Enter the following transactions in a cash book with discount and bank columns. 075, Bhadra: 1, Balance at bank Rs. 30,000 3, Purchased goods and paid by cheque Rs. 15,000 4, Sold goods to Sundar & Co. Rs. 25,000 5, Directly received by bank from Shankar & Sons, a previous debtor, Rs. 4,900 for the full payment of Rs. 5000 7, Bank charges charged by bank and settled from bank A/c Rs. 1,000 8, Purchased, on credit from Sarita Traders Rs. 12,000 10, Received from Sundar & Co. a cheque of Rs. 24,500 for the full settlement of the account and immediately deposited into the bank. 11, Sold goods for cash and received by bank Rs. 10,000 13, Paid to Sarita Traders through a cheque Rs. 11,600 Discount availed Rs. 400 14, Paid to Kedia Co. by cheque Rs. 19,500 for the full settlement of the account of Rs. 20,000 Ans: Cash book Total (bank column): 69,400 Bank Balance (Dr.): 22,300
245 Subsidiary Books 38. From the following transactions, compile a cash book with discount and bank column, assuming that all the transactions are done through the bank. 075, Marga (Rs.) 1, Cash at bank 15,000 3; Sold goods and received a cheque for the same 60,000 4, Received from Chundal Bros. Rs. 20,500 and allowed them discount 500 6, Paid Rs. 5,800 to Bhola Nath, in full settlement of his account of 6,000 10, Bought goods 5,000 12, Paid for stationery 1,000 13, Ram Hari settled his account of Rs. 10,000 by paying 9,500 15, Cash withdrawn from the bank for office use 5,000 18, Received a cheque from Ram of Rs. 3,750 for the full settlement of 4000 20, Settled Krishna’s account of Rs. 5,000 by sending a cheque of 4,900 21, Remitted to LMN Enterprises for Rs. 5,000 by sending a cheque of 4,700 28, Paid wages 10,000 29, Salary of the staff paid for the month 15,000 30, Dividend from PQR Co. Ltd., collected by the bank 3,500 Ans: Bank Total: 1,12,250 Bank Balance (Dr.): 60,850 39. Enter the following transactions in double column cash book with cash and bank column for 075, Poush. 075, Poush (Rs.) 1, Commenced business with cash 35,000 and bank 60,000 6, Received cash from Mohan 2,000 10, Bought goods and paid by cheque 10,000 15, Withdrawn from bank for office 5,000 16, Sold goods to Sarala of Rs. 15,000 and received a cheque for the same 22, The cheque of Sarala was deposited into the bank. 23, Insurance premium paid by cheque 1,500 26, Advertisement expenses paid by cheque 5,000
246 Aakar’s Office Practice and Accountancy - 9 28, Wages paid 10,000 29, Paid to Arun by cheque 7,000 30, Received cash for sales 12,000 31, Withdrawn from bank for office use 10,000 Ans: Cash column total: 79,000 Bank column total: 75,000 Cash Balance (Dr.): 54,000 Bank Balance (Dr.): 36,500 40. Enter the following in three columnar cash book, during Falgun, 075. 1, Balance of cash in hand Rs. 5,000 and in bank Rs. 10,000 2, Received cash from Mohan Rs. 970 and discount allowed to him Rs. 30. 3, Paid into bank Rs. 2,000 4, Paid to Dinesh & Co. by cheque Rs. 320 in full settlement of their account of Rs. 350 5, Received from cash sales Rs. 300 15, Cash purchases paid by cheque Rs. 700 17, Paid by cheque to Radha & Co. Rs. 725 in full settlement of Rs. 800 21, Drawn from bank for office use Rs. 1,500 23, Paid cash for advertisement Rs. 1500 25, Jagat Bros. paid us Rs. 525 in full settlement of Rs. 600 27, Paid salaries to the staff by cheque Rs. 2,500 28, Paid rent Rs. 1,500 30, Purchased of furniture and paid by cheque Rs. 2000 30, Received a cheque from Maya & Co. of Rs. 580 in full settlement of their account for Rs. 600 Ans: Cash column total: 8,875 Bank column total: 12,000 Cash Balance (Dr.): 3,875 Bank Balance (Dr.): 4,255
247 Subsidiary Books Trial Balance Unit 12 Trial Balance List of possible items shown in trial balance S.N. Particulars L.F. Debit amount Credit amount Reasons 1 Opening stock ×××× Expenses 2 Purchase ×××× Expenses 3 Sales return ×××× Decrease in sales 4 Traveling expenses ×××× Expenses 5 Cash ×××× Assets 6 Bank ×××× Assets 7 Commission expenses ×××× Expenses 8 Bad debt ×××× Loss/Expenses 9 Wages ×××× Expenses 10 Rent ×××× Expenses 11 Salary ×××× Expenses 12 Allowance ×××× Expenses 13 Land & building ×××× Assets 14 Machinery and plant ×××× Assets 15 Furniture ×××× Assets 16 Motor ×××× Assets 17 Adm. & office expenses ×××× Expenses 18 Patent ×××× Assets 19 Bills receivable ×××× Assets 20 Investment ×××× Assets 21 Depreciation ×××× Expenses 22 Custom, tax &fees ×××× Expenses 23 Debtor ×××× Assets 24 Interest expenses ×××× Expenses 25 Insurance & Advertisement ×××× Expenses 26 Phone & post expenses/ electricity ×××× Expenses 27 Printing, transportation & fuel ×××× Expenses 28 Capital ×××× Capital 29 Purchase return ×××× Decrease in purchase 30 Sales ×××× Revenue 31 Interest received ×××× Income 32 Bank overdraft ×××× Liabilities 33 Commission received ×××× Income 34 Rent received ×××× Income 35 Discount received ×××× Income 36 Creditor ×××× Liabilities 37 Loan and bills payable ×××× Liabilities 38 Reserves ×××× Capital 39 Advance income ×××× Liabilities 40 Carriage inward ×××× Expenses 41 Cartage ×××× Expenses 42 Audit fees ×××× Expenses 43 Legal charges ×××× Expenses 44 Sampling expenses ×××× Expenses 45 Discount ×××× Expenses 46 Commission ×××× Expenses 47 Export duty ×××× Expenses 48 Repair & maintains ×××× Expenses 49 Charity donation ×××× Expenses 50 Bank charge ×××× Expenses 51 Sales tax ×××× Expenses 52 Loss by incident ×××× Loss 53 Drawings ×××× Decrease in capital 54 Goodwill ×××× Assets 55 Accrued income ×××× Assets 56 Income from investment ×××× Income 57 Dividend received ×××× Income 58 Miscellaneous receipts ×××× Income 59 Outstanding expenses ×××× Liabilities Total ×××× ×××× After studying this unit, students will be able to : write the meaning of trial balance, know the objectives and advantages of trial balance, know the types of trial balance, write the difference between journal and ledger, know the rules of posting, know the balancing and closing of trial balance, prepare different types of trial balance. Learning Objectives
248 Aakar’s Office Practice and Accountancy - 9 1. Introduction The duality concept is one of the fundamentals of accounting theory. According to double entry system, the total of debit and the total of credit should be equal. So at the end of month, quarter, half year and year, a statement is prepared with the help of ledger balances to find out/see whether or not the two totals are equal, such a statement is called trial balance. A trial balance is a list of the ledger accounts prepared at a specified date showing their debit or credit balances and thus to see the sum totals of debit side and credit side respectively. It should be noted that this list of ledger balances can only be prepared when they are completed. It is the way of checking arithmetical accuracy of the books of accounts. In the words of M.S. Gosav, “ Trial balance is a statement containing the balances of all the ledger accounts as at any given date arranged in the form of debit and credit columns, placed side by side and prepared with the object of checking the arithmetical accuracy of the ledger posting.” In the words of Dr. A. N. Agrawal, “A trial balance is a statement of the debit and credit balances of the various ledger accounts, which is prepared to check their arithmetic accuracy.” From the above meaning and definitions, it is learnt that a trial balance possesses the following essentials: i. It is the list of all the ledger balances of a business house during a certain period. ii. It is prepared on a specified date. iii. It is prepared to check the arithmetical accuracy of the books of account. iv. Debit and credit totals must be equal. If it is not equal, there may be mistakes. Even though it helps to check the arithmetical accuracy of the books of account, it is not a conclusive proof of their overall accuracy. Hence, a trial balance may be defined as a statement of the ledger accounts of a business in terms of their balances on a certain specified period which helps to check the arithmetic accuracy of the books of account. Key Point Trial balance may be defined as a statement of the ledger accounts of a business in terms of their balances on a certain specified period to check the arithmetic accuracy of the books of account. 2. Objectives of Trial Balance A trial balance is an important tool of the financial administration in checking the arithmetical accuracy of the subsidiary and the main books of account. It is an
249 Trial Balance important base for the preparation of the final accounts. The important objectives of a trial balance are briefly discussed below: i. To check the Arithmetical Accuracy of the Subsidiary Books A trial balance is prepared with a view to check the accuracy of the totals in the subsidiary books like purchase book, sales book and other sub division of journal so that they can be compared with the creditors, debtors, etc. ii. To Check the Arithmetical Accuracy of Posting A trial balance is viewed to check the arithmetical accuracy of the postings made in the ledger accounts. If correct postings, numerically, have been made from the journal book or sub division of journal, the debit and credit totals of the trial balance must tally. iii. To Facilitate the Preparation of the Final Accounts Trial balance collects all the ledger balances related with incomes and gains, expenses and losses, assets, capital and liabilities separately for a certain period i.e. for a certain fiscal year. Thus, it serves as a base for preparing final accounts. Incomes and gains and expenses and losses determine the profit or loss by means of profit and loss account and assets, capital and liabilities determine the financial position by means of balance sheet. iv. To Serve as an Aid to the Management By comparing the trial balances of various periods, especially of the series of years in the past with present, certain important changes in different figures can be notified and its analysis can be made. It serves as an aid to the management in taking various decisions. v. To minimize Errors and Frauds The trial balance helps to minimize errors and frauds. If it does not agree, it helps to locate and rectify the errors as well as it gives moral presence to the accountant to maintain the books of accounts with due care and honesty. 3. Advantages of Trial Balance i. It helps to check the accuracy of journal & ledger. ii. It helps to correct the arithmetical errors. iii. It helps to find out errors of double posting. iv. It helps for internal audit making it easier by supplying the necessary information. v. It helps to prepare final account.
250 Aakar’s Office Practice and Accountancy - 9 vi. It helps to take effective decision at the right time. vii. It provides the summary of all ledger accounts in the same sheet. viii. It also helps in rectification of accounting errors. 4. Specimen and Ruling of a Trial Balance Simply, a trial balance is a statement of the ledger balances taken for a specified period. It is prepared on a plain paper, not specific. The debit balances are mentioned in the debit column and the credit balances in the credit column. The specimen ruling of a trial balance is as follows: “Trial Balance of Co. As on ........................” S.N. Particulars L.F. Dr. Balance Cr. Balance (1) (2) (3) (4) (5) Total i. Since, a trial balance is prepared at any given date, its heading should always be mentioned as: “Trial Balance of ................. Co. As on .........................” ii. The serial numbers of the ledger heading are respectively mentioned in the first column. iii. The ledger accounts in respect of the serial number are mentioned in the 2nd column irrespective of the debit or credit balances on them. iv. Page numbers of the respective ledger accounts are mentioned in the 3rd column, if any. v. The amount of the debit or credit balance is respectively mentioned in the 4th and 5th, columns. But sometimes the debit and credit totals may be mentioned in the respective 4th and 5th columns when trial balance is prepared on total method. vi. Finally, the totals of debit side and credit side are determined to see whether the two totals are equal. 5. Considerations of a Trial Balance Even though a trial balance is a simple list or statement of ledger balances on a certain specified date, one should consider the following important points. i. Since, a trial balance is completely based on the ledger accounts, all the ledgers should be duly prepared.