Accounts PGDM
Accounts PGDM
Accounts PGDM
Accounting Cycle
Personal Account:-Debit receiver and credit giver Real account:-Debit what comes in and credit what goes out Nominal account:- Debit all expenses (and losses) and credit all incomes and gains
What is Journal?
Journal entry is an recording of the daily business transactions in an accounting manner in a set of books in a systematic manner.
After a transaction occur and a source document is generated, the transaction is analyzed and entries are made in General Journal.
Source Documents
Cash Memo Invoice or Bill Receipt Pay in slip Cheque Debit Notes and Credit Notes
What is Ledger?
It is a Principal books of accounts in which all the business transactions find their ultimate place in the shape of accounts (known as T) in a classified form. Ledger is a set of accounts. The process of transferring entry from the journal to ledger is called posting
Ledger
1. Is the book of final entry.
2. Transactions are posted in the ledger after the same have been recorded in the journal. 3. Transactions are classified according to the nature and are grouped in the concerned accounts. 4. Narration is not required. 5. Folio of the journal or sub-journal is written.
Ledger
6. Since transactions of particular nature are grouped at one place therefore relevant information can be ascertained. Ledger is the basis of preparing final accounts.
8 Accuracy of the books is tested by means of list of balances. 9. Debit and credit amounts of a transaction are recorded in two different sides of two different accounts. 10. Ledger has two sides: left side is debit side right side is credit side.
11. Every account in the ledger is balanced at appropriate time. 12. Ledger cannot be avoided. However it may be loose leaf ledger or a computerized ledger. But ledger is a must.
Balancing of LEDGER
Debit Balance:-It is the excess of debit side over credit side of an account Credit balance:-It is the excess of credit side over debit side of an account To equalise their totals, the balance amount is shown/inserted on the shorter side by writing balance carried down, abbreviated as c/d)
LEDGER
If Debit entries are greater than Credit entries, the account will have a debit balance.
Account Name
Debit / Dr. Credit / Cr.
Transaction #1
Transaction #3
10,000
8,000 18,000
3,000
15,000 18,000
Transaction #2
Balance
Illustration
Record the following transaction in the journal of the Delhi Furniture Mart and post them into the ledger. 2010 Jan 1 Started business with cash Rs. 10000. Jan 2 Deposited into Bank Rs. 9000. Jan 3 Purchased Machinery for Rs. 5000 from Jawahar and gave him a cheque for the amount. Jan 15 Paid installation charges of machinery Rs. 100 Jan 20 Purchased timber from Naveen of the list price of Rs.2000. He allowed 10% Trade discount. Jan 23 Furniture costing Rs 500 was used in furnishing the office. Jan 25 Sold Furniture to Naresh of the list price of Rs 1000 and allowed him 5% Trade discount. Jan 28 Received a cheque from Naresh for Rs. 930 in full settlement and sent the cheque to bank Jan 29 Sent to Naveen in full settlement a cheque for Rs.1750. Jan 31 Paid wages Rs. 350 and Rent Rs.200
Journal
Date 2010 Particulars L.F. Dr. Rs. Cr. Rs.
Jan-1
Cash A/c
To Capital A/c
Dr.
10000
10000
Jan-2
Dr
9000 9000
Jan-3
Dr.
5000 5000
Jan-15
Dr.
100 100
Jan-20
Dr.
1800 1800
Journal
Date Particulars L.F. Dr. Cr.
Jan-23
Dr.
500 500
furnishing the office) Jan-25 Naresh A/c To Sales A/c (Being furniture sold to Naresh for Rs. 1,000 and allowed him 5% Trade discount) Dr. 950 950
Jan-28
Dr. Dr.
930 20 950
Jan-29
Dr.
1800 1750 50
Jan-31
Wages A/c
Dr.
350
Ledger
Dr Capital Account Cr
Date
2010 Jan--31
Particular
JF
Amount
Date
2010
Particular
JF
Amount
To Balance c/d
10000 Jan--1
By Cash A/c
10000
10000 10000
Ledger
Dr Date 2010 Jan--1 To Capital A/c Particular JF Cash Account Amount Date 2010 10000 Jan--2 By Bank A/c 9000 100 350 200 Particular JF Cr Amount
350 10000
Feb--1
To Balance b/d
250
Ledger
Dr Date 2010 Jan--2 To Cash A/c To Naresh Particular JF Bank Account Amount Date 2010 9000 Jan--3 930 By Machinery A/c By Naveen Jan--31 By Balance c/d 9930 Feb--1 To Balance b/d 3180 5000 1750 3180 9930 9930 Particular JF Cr Amount
Ledger
Dr Machinery Account Cr
Date
2010 Jan--3 Jan--15
Particular
JF
Amount
Date
Particular
JF
Amount
By Balance c/d
5100
5100
Feb--1
To Balance b/d
5100
Ledger
Dr Naveen Cr
Date
2010 Jan--29 Jan--15
Particular
JF
Amount
Date
2010
Particular
JF
Amount
By Purchase A/c
1800
1800
Ledger
Dr Date 2010 Jan-To Purchase 23 A/c Jan-By Balance 500 31 c/d 500 500 500 Particular Office Furniture Account Amou JF nt Date Particular Cr Amou JF nt
500
Ledger
Dr J Date 2010 Jan-2 5 To Sales A/c Particular Naresh Amou F nt Date 2010 Jan-2 950 8 Jan-2 9 950 J Particular Cr Amou F nt
930
20 950
Ledger
Dr Date Particular Sales Account Amoun JF t Date 2010 Jan-To Balance 31 c/d Jan-950 25 By Naresh 950 Feb--1 By Balance b/d 950 950 950 Particular Cr Amoun JF t
Ledger
Dr Date 2010 To Jan-20 Nare sh Jan-20 31 20 Feb--1 To Balance b/d 20 By Balance c/d 20 20 Particular Discount Allowed A/c Amoun JF t Date 2010 Particular JF Cr Amoun t
Ledger
Dr Date Particular Discount Received A/c Amoun JF t Date 2010 Jan-To Balance 31 c/d Jan-50 25 By Naveen 50 Feb--1 By balance b/d 50 50 50 Particular Cr Amoun JF t
Ledger
Dr Wages Account Cr
Date
2010
Particular
Amoun JF t
Date
2010
Particular
Amoun JF t
Jan-350 31 350
By Balance c/d
350 350
350
Ledger
Dr Rent Account Cr
Date
2010
Particular
Particular
Amoun JF t
200 200
Feb-1
To Balance b/d
Trial Balance
Trial Balance is a statement of debit and credit Totals or balances extracted from the various accounts in the ledger with a view to test the arithmetical accuracy of the books. It is a Statement and not Account It provides a convenient summary of all ledger accounts at one place which, in turn provides input to the preparation of income statement and Balance Sheet
Trial Balance
The agreement of Trial Balance is not a conclusive proof of the correctness of recording and posting of business transactions. There can be errors and the sum of each column of the Trial Balance may still be equal. Trial balance fails to disclose following Errors :1. Errors of Omission:-arises from omission of a transaction from the Journal. 2. Errors of Principle:-arises from treatment of revenue expenditure as capital Expenditure and vise versa. 3. Errors of Compensating/Offsetting Errors:-results from offsetting of one error by another error.
Debit Amount
Credit Amount
10000
7
8 9 10 11
Sales Account
Discount Allowed Account Discount Received Account Wages Account Rent Account Total 350 200 11000 20
950
50
11000
9
10 11 12 13
Sales Account
Discount Allowed Account Discount Received Account Wages Account Rent Account 350 200 20
950
50
You are required to make Journal Entries for the transaction, post in Ledger accounts and make Trial Balance
Jan-2010 1. Commenced Business with cash 20000 2. Purchased Goods on Credit from Shyam 15000 3. Purchased Goods for cash 500 4. Paid Gopal in advance for goods offered 1000 5. Received Cash from Murthy as advance for goods 1500 6. Purchased furniture for office use for cash 1000 7. Paid Wages 250 8. Received Commission in cash 300 9. Goods returned to Shyam 100 10. Goods sold to Kamal 5000 11. ..continue
..continue
11. Paid for postage and telegrams 12. Goods returned by Kamal 15. Paid for Stationery 18. Paid into Bank 20.Goods sold for cash 22.Bought goods for Cash 25.Paid Salaries 28.Paid Rent 31.Drew Cash for personal use 100 250 100 250 375 500 350 250 500
Special Journals
Special Journals are designed to facilitate the process of journalizing and posting transactions. Special Journals are used for the most frequent transactions in a business. To save time for journalizing the entries, and posting the entries to the general ledgers and sub ledgers, Special Journals are used by some businesses. Even if the Special Journals are used, the business still needs to use general journal for infrequent transaction, such as adjusting entries and closing entries.
Cash Book Sales Book Purchases Book Purchase Return Book Sales Return Book
Cash Book journal is used to record only cash receipts and Payment transactions Sales journal is used to record all Credit sales of goods on account; Purchases journal is used to record only Credit purchases of goods on account; Sales Return Journal is used to record return of goods sold. Purchase Return Journal is used to record Return of goods Bought.
Special Ledger
Like Special Journals, it would be equally advantageous to have more than one general ledger. Type of Special ledger Debtors Ledger Creditors Ledger Expense Ledger Assets Ledger and so on
Adjustment Entries
Adjustment entries are journal entries usually made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred. The revenue recognition principle is the basis of making adjusting entries that pertain to unearned and accrued revenues under accrual-basis of accounting.
Based on the matching principle of accrual accounting, revenues and associated costs are recognized in the same accounting period. However the actual cash may be received or paid at a different time.
Adjustment Entries
Prepayments (Deferral - cash paid or received before consumption)
Expenses
Prepaid expenses: for expenses paid in cash and recorded as assets before they are used Unearned revenue: for revenues received in cash and recorded as liabilities before they are earned
Accrued expenses: for expenses incurred but not yet paid in cash or recorded Accrued revenues: for revenues earned but not yet recorded or received in cash
Revenues
Adjustment Entries
Prepayments/Deferrals
Adjusting entries for prepayments are necessary to account for cash that has been received prior to delivery of goods or completion of services. When this cash is paid, it is first recorded in a prepaid expense asset account; the account is to be expensed either with the passage of time (e.g. rent, insurance) or through use and consumption (e.g. supplies). An example is the insurance premium paid on 1st of March for the next six-month Rs 6000 the Journal entry will be Prepaid Insurance a/c Dr 6000 To Cash a/c 6000 At the end of the year it will be reported as an expense for the months of March. Adjustment journal Entry will be Insurance A/c Dr 1000 To Prepaid Insurance a/c 1000
Adjustment Entries
Prepayments/Deferrals
A company receiving the cash for benefits yet to be delivered, will have to record the amount in an unearned revenue liability account. Then, an adjusting entry to recognize the revenue is used as necessary. For example, If Building has been given to tenant on Rs 2,400 p.a but during the year Rs. 3000 has been received, then Rs. 600 will be rent received in advance
3000
3000
600
Adjustment Entries
Accruals
Accrued revenues are revenues that have been recognized (that is, services have been performed or goods have been delivered), but their cash payment have not yet been recorded or received. When the revenue is recognized, it is recorded as a receivable (asset). For example the interest earned in March on an investment in a government bond, but the interest will not be received until April. Adjustment journal Entry will be Interest Receivable a/c Dr To Interest on Investment a/c
Adjustment Entries
Accruals
Accrued expenses have not yet been paid for, so they are recorded in a payable account. (liability) Expenses for interest, taxes, rent, and salaries are commonly accrued for reporting purposes. An example the electricity that is used in March, but the payment will not be made until April. Journal Entry will be Electricity a/c Dr To Electricity Payable a/c
Adjustment Entries
Estimates A third classification of adjusting entry occurs where the exact amount of an expense cannot easily be determined. The depreciation of fixed assets, for example, is an expense which has to be estimated. Depreciation a/c Dr. To Plant and Machinery a/c
The entry for bad debt expense can also be classified as an estimate. Bad Debt a/c Dr To Sundry Debtors a/c
Closing Entries
Closing Entries are entries that close all revenue and expenses accounts by transfer to profit and loss account. Sales Revenue a/c Dr. Interest Received a/c Dr. Commission received a/c Dr. Discount received a/c Dr. Any other Income a/c Dr. To Profit and Loss a/c (all revenue and other accounts closed by trf to P&L a/c)
Closing Entries
Profit & Loss A/c Dr. To Wages a/c To Salaries a/c To Depreciation a/c To Repairs a/c To any other expense a/c (any expense accounts are closed by trf to P& L a/c)
Opening Entries
Are recorded to transfer all assets and liabilities from the Previous year to the current year. Cash a/c Dr. Machinery a/c Dr. Building a/c Dr. Patent a/c Dr. Any other asset a/c Dr. To Capital A/c To profit and loss a/c To Loan a/c To creditors a/c To any other liability a/c (Being transfer all assets and liabilities)