final Journal entries,ledger, lecture notes

Lecture notes

1. JOURNAL ENTRIES

2. Types of Accounts

3. Golden Rules of Accounting

4. JOURNAL ENTRIES RELATED TO PURCHASE AND SALE OF ASSEST Machinery purchased for Rs. 10,000 for cash. Furniture sold for cash Rs. 20,000 1-Machinery A/C (Real A/C) Dr. 10,000 To Cash A/C (Real A/C) 10,000 (Being machinery purchased for cash) 2-Cash A/C (Real A/C) Dr. 20,000 To Furniture A/C (Real A/C) 20,000 (Being furniture sold for cash)

5. Types of Transactions

6. JOURNAL ENTRIES RELATED TO CASH AND CREDIT TRANSACTION Purchase and sale may be cash and credit If cash is mentioned in a transaction then it will be considered as cash transaction Building purchase for cash Rs.600,000 Building A/C Dr 6,00,000 To Cash A/C 6,00,000 (Being building purchased for cash)

7. JOURNAL ENTRIES RELATED TO CASH AND CREDIT TRANSACTION 2. If cash and name both are mentioned in a transaction then it will be considered as cash transaction Building purchase for cash from Ramesh for Rs.600,000 Building A/C Dr 6,00,000 To Cash A/C 6,00,000 (Being building purchased for cash)

8. JOURNAL ENTRIES RELATED TO CASH AND CREDIT TRANSACTION 2. If cash is not mentioned and only name is mentioned in a transaction then it will be considered as credit transaction Building purchase from Ramesh- Rs.600,000 Building A/C Dr 6,00,000 To Ramesh A/C 6,00,000 (Being building purchased on credit)

9. JOURNAL ENTRIES RELATED TO GOODS The term “Goods” include articles purchased by the business for re-sale. In business it is desired that a separate record to kept for all sale, purchase and return of goods. In the business at the time of purchase and sale of goods we write purchase and sale account Goods purchased for cash Rs.60,000 Purchase A/C Dr. 60,000 To Cash A/C 60,000 (Being goods purchased for cash) 2. Goods sold to Mr. Ram for Rs,80,000 Mr. Ram A/C Dr. 80,000 To Sales A/C 80,000

10. JOURNAL ENTRIES RELATED TO PURCHASE RETURN Purchase Return or Return Outwards Account:  When purchased goods are returned to the supplier, it is denoted as Purchase Return A/c or Return Outwards A/c.  Goods purchased worth ₹2,000 from Shubham were returned. Shubham A/C Dr. 2,000 To purchase return A/C Dr. 2,000

11. JOURNAL ENTRIES RELATED TO SALES RETURN  Sales Return or Return Inwards Account:  When goods sold are returned by the customers, it is termed as Sales Return or Return Inwards A/c.  Goods sold to Nupur were returned worth ₹1,000 Sales return A/C Dr. 1,000 To Nupur A/C 1,000 (Being goods returned by nupur)

12. When owner invested capital Mr Suresh has invested 100,000 cash and 2,00,000 Furniture in his business Cash A/C Dr 1,00,000 Furniture A/C Dr 2,00,000 To Capital A/C 3,00,000 The amount invested in the business whether in the means of cash or kind by the proprietor or owner of the business is called capital. The capital account will be credited and the cash or assets brought in will be debited. 

13. When owner withdraw capital Drawings Withdrawal of any amount in cash or kind from the enterprise for personal use by the proprietor is termed as Drawings. The Drawings account will be debited and the cash or goods withdrawn will be credited Drawings A/C Dr. To Cash A/C Cash is withdrawn by owner for personal use Rs.10,000 Drawings A/C Dr 10,000 To Cash A/C 10,000

14. Expenses and gain(Nominal A/C) Any amount spent in order to purchase or sell goods or services that generates revenue in the business is called expenses. Cash Account will be decreased with the amount paid as expenses, so it will be credited and Expenses will be debited.

15. JOURNAL ENTRIES RELATED TO EXPENSES AND GAIN(NOMINAL A/C) 1-Rent paid for Rs.5000 Rent A/C Dr. 5,000 To Cash A/C 5,000 2-Salaries paid 40,000 Salaries A/C Dr 40,000 To Cash A/C 5,00 3-Interest received 6,000 Cash A/C 6,000 To Interest A/C 6,000

16. Journal Entries Related to Discounts A discount is a concession in the selling price of a product offered by a seller to its customers. According to nature, there are two types of discount: A. Discount Allowed B. Discount Received A. Discount Allowed:  When at the time of sales or receiving cash, any concession is given to the customers, it is called discount allowed.  Goods sold  ₹50,000 for cash, discount allowed @ 10%. Cash received from Rishabh worth ₹19,500 and discount allowed to him ₹500. 1-Cash A/C Dr. 45,000 Discount allowed A/C Dr 5,000 To Sales A/C 50,000 2-Cash A/C Dr. 19,500 Discount allowed A/C Dr 5,00 To Rishabh A/C 20,000

17. Discount Received Goods purchased for cash ₹20,000, discount received @ 20%. Cash paid to Vishal ₹14,750 and discount received from him ₹250. Goods purchased for cash ₹20,000, discount received @ 20%. Cash paid to Vishal ₹14,750 and discount received from him ₹250. 1-Purchases A/C Dr 20,000 To Cash A/C 16,000 To Discount A/C 4,000 2-Vishal A/C 15,000 To Cash A/C 14,750 To Discount A/C 250

18. Discount Trade discount Provided to every customer It is deducted from MRP It is not shown separately in the books of account Its purpose is to sell goods at reduced price to encourage sales Cash discount Provided to those customers who make payment cash It is deducted from trade discount It is shown separately in the books of account To encourage cash payment, cash discount is additional discount to trade discount

19. 1-Purchase goods from X 10,000 2-Purchase goods from X 10,000 @ 10% trade discount 3-Purchase goods from X 10,000 @ 10% cash discount Journal Entries 1-Purchase A/C 10,000 3-Purchase AC Dr 10,000 To X’s A/C 10,000 To Cash A/C 9,000 2-Purchase A/C 9000 To Discount A/C 1,000 To X’s A/C 9,000

20. Journal Entries 1-Sold goods to X 10,000 1- X’s A/C 10,000 To Sales A/C 10,000 2-Sold goods to X 10,000 @ 10% trade discount 2- X A/C 9000 To Sales A/C 9,000 3-Sold goods from X 10,000 @ 10% cash discount 3- Cash A/C Dr 1,000 To Discount A/C Dr 9,000 To Sales A/C 10,000

21. SOME OTHER ENTRIES RELATED TO GOODS 1-Drawing in Goods, Rs 20,000 3-Goods distributed as free sample,10,000 Drawing A/C Dr. 20,000 Advertisement Expenses A/C Dr. 10,000 To Purchases A/C 20,000 To purchases A/C 10,000 2-Goods given as Charity 40,000 4-Loss by fire,60,000 Charity A/C Dr. 40,000 Loss by fire A/C Dr. 60,000 To Purchases A/C 40,000 To Purchases A/C 60,000

22. Journal entries related to bank 1- Cash deposited into bank,100,000 1- Bank A/C Dr 1,00,000 To Cash A/C 1,00,000 2-Cash withdrawal from bank, 2,00,000 2-Cash A/C Dr 2,00,000 To Bank A/C 2,00,000 3-Cheque received from customer,4,0000 3-Cheque in hand A/C Dr 40,000 To Customers A/C 40,000 4-Payment made by bank 45,000 4-Expenses A/C Dr. 45,000 To Bank A/C 45,000

23. Compound entries Sometimes, two or more transactions relating to one particular account take place on the same date. When certain transactions of the same nature happen on the same date, it is preferred to pass a single journal entry instead of passing two or more entries 01 June 2022:  Paid Wages ₹2,000. 01 June 2022:  Paid Advertisement Expenses ₹1,000. 01 June 2022:  Paid Salaries ₹7,000. 10 June 2022:  Received Interest ₹5,000. 10 June 2022:  Received Commission ₹3,000. 10 June 2022:  Received Dividend ₹2,000.

24. ACCOUNTING TERMS Business Transaction –  A business transaction is a financial event between two or more parties. It involves an exchange of goods, services or money and gets recorded in the books of accounts for the organisations involved. Capital –  Capital refers owner’s equity in the business to run its daily operations and help its future growth. The capital for a business comes either from its owners or from outsiders (shares, debentures or bonds). Drawings –  Drawings refer to the withdrawals made by the owners of a business for personal use. It gets deducted from the Owner’s Capital in the Liabilities side of a Balance Sheet.

25. ACCOUNTING TERMS Assets (Non-Current and Current) –  Current Assets are the assets that a firm can liquidate within twelve months. Non-Current Assets are the long-term investments of a business that they cannot liquidate within a year. Fixed assets (Tangible and Intangible) –  Tangible Fixed Assets are the long-term investments of a business that have a physical existence. Intangible Fixed Assets are the long-term investments made by a company that doesn’t have a physical existence Liabilities (Non-Current and Current) – It denotes the amount business owes and has to return. Current Liabilities are the amount due to the creditors of a business that has to be paid back within twelve months. Non-Current Liabilities are the long-term obligations of a company that are not due for payment before a year.

26. ACCOUNTING TERMS Expenditure (Capital and Revenue) –  A business incurs Capital Expenditure to acquire assets for long-term income generation. It also incurs Revenue Expenditure to run the day-to-day operations of a business. Expense –  Expenses in accounting refer to the cost incurred or money the business owners spend to generate revenue. A business must keep its expenses under control to generate profits both in the short and long run. Income –  Income is the revenue that a business earns from the sale of its goods or services. It is essential for the survival and growth of any enterprise, and the failure to generate revenue can lead to a shutdown of the business. Profit –  Profit is the positive difference between the income generated from selling goods or services and the Expenses incurred to perform that business activity. Profit is the excess of revenues over the expenses.

27. ACCOUNTING TERMS Purchase –  Purchase is the activity of buying an item to either use it in the production of goods and services or resell it to another entity. Sales –  Sales is an economic activity where a business exchanges goods or services with another entity for money. It is the primary source of revenue for any organisation . Loss –  Loss is the excess of the Expenses incurred from selling goods or services over the income generated to perform that business activity. Sustained losses over time can lead to the shutdown of a business organisation . Gain –  A Gain is an increase in the total value of an asset of a business. It takes place when the current price of the asset exceeds its original purchase price. It can occur at any time during the useful life of an asset.

28. ACCOUNTING TERMS Debtor –  A debtor is an individual or entity that owes money to a business. Companies treat it as an asset because they will get money from them in the near or distant future. Creditor –  A creditor is an individual or entity to whom a business owes money. Companies treat it as a liability because they will have to pay them in the near or distant future. Goods –  Goods are the items that a company manufactures to sell to another entity in exchange for money. When an organisation buys goods, it is known as purchases, and when it sells goods, it is known as sales.

29. ACCOUNTING TERMS Discount (Trade Discount and Cash Discount) –  A Trade Discount is a discount that a seller can offer to the buyer by reducing the price of an item. It helps to increase sales of a product, and it doesn’t get recorded in the accounting books. A Cash Discount is a discount that a seller can offer to the buyer at the time of payment by reducing the invoice price of an item. It helps to ensure timely payment for a product, and it gets recorded in the accounting books.

30. The journal entries which I have provided are based on the following transactions and events: The business started with Rs. 1,00,000  Bought machinery for Rs. 15,000 and furniture for Rs. 10,000 Purchased goods of Rs. 20,000 with cash  Bought Stationery for Rs. 500  Cash deposited into bank Rs. 40,000  Goods sold to Matt for Rs. 15,000  Purchased goods from Uday of Rs. 30,000  Being Rs. 5,000 rent paid for premises  Cheque received from Matt of Rs. 15,000  Defective goods returned to Uday returned of Rs. 2,000  Cash sales of Rs. 25,000  Carriage Inward paid Rs. 700 Cash withdrawn from bank Rs. 15,000  Full payment made to Uday in cash. Discount received from Uday Rs. 1000. Refreshments given to customers of Rs. 200 Goods sold to Shyam for Rs. 7,500  Goods purchased from Ram of Rs. 50,000  Salaries paid to employees by bank Rs. 5,000  Good sold to Suri for Rs. 25,000  Insurance premium paid of Rs. 1,500 by the bank.

31. Problem - 1 Mr. Nirmal has the following transactions in the month of April. Write Journal Entries for the transactions. 10th April : Commenced business with a capital of 1,00,000 11th April : Purchased goods from Veeru for 20,000 13th April : Purchased Goods for Cash 15,000 14th April : Purchased Goods from Abhiram for cash 9,000 16th April : Bought Goods from Shyam on credit 12,000 17th April : Sold goods worth 15,000 to Tarun 19th April : Sold goods for cash 20,000 20th April : Sold goods to Utsav for cash 6,000 21st April : Sold goods to Pranav on credit 17,000 22nd April : Returned goods to Veeru 3,000 23rd April : Goods returned from Tarun 1,000 25th April : Goods taken by the proprietor for personal use 1,000 26th April : Bought Land for 50,000 27th April : Purchased machinery for cash 45,000 28th April : Bought computer from Intel Computers for 25,000 28th April : Cash sales 15,000 29th April : Cash purchases 22,000 30th April : Bought furniture for proprietor's residence and paid cash 10,000

32. Journal in the books of Mr. Nirmal for the period from 1st to 30th April Date V/R No. Particulars L/F Amount (Dr) Amount (Cr) April 10 th – Cash a/cTo Capital a/c Dr – – 1,00,000 1,00,000 [Being the amount received from Mr. Nirmal in cash, the proprietor as his capital contribution vide receipt no:__ dated:__] 11 th – Goods/Stock a/cTo Veeru a/c Dr – – 20,000 20,000 [Being the value of stock purchased from Mr. Veeru on credit vide bill no:___ dated:__] 13 th – Goods/Stock a/cTo Cash a/c Dr – – 15,000 15,000 [Being the value of stock purchased for cash from M/s ___ vide bill no:___ dated:__] 14 th – Goods/Stock a/cTo Cash a/c Dr – – 9,000 9,000 [Being the value of stock purchased for cash from Mr. Abhiram vide bill no:___ dated:__] 16 th – Goods/Stock a/cTo Shyam a/c Dr – – 12,000 12,000 [Being the value of stock purchased from Mr. Shyam on credit vide bill no:___ dated:__]

33. 17 th – Tarun a/cTo Goods/Stock a/c Dr – – 15,000 15,000 [Being the value of stock sold on credit to Mr. Tarun vide invoice no:___ dated:__] 19 th – Cash a/cTo Goods/Stock a/c Dr – – 20,000 20,000 [Being the value of goods sold for cash vide receipt no:___ dated:__] 20 th – Cash a/cTo Goods/Stock a/c Dr – – 6,000 6,000 [Being the value of stock sold to Mr. Utsav for cash vide receipt no:___ dated:__] 21 st – Pranav a/cTo Goods/Stock a/c Dr – – 17,000 17,000 [Being the value of stock sold to Mr. Pranav on credit vide bill no:___ dated:__] 22 nd – Veeru a/cTo Goods/Stock a/c Dr – – 3,000 3,000 [Being the value of goods returned to Mr. Veeru vide returns bill no:___ dated:__] 23 rd – Goods/Stock a/cTo Tarun a/c Dr – – 1,000 1,000 [Being the value of stock returned by Mr. Tarun vide returns bill no:___ dated:__] 25 rd – Drawings a/cTo Goods/Stock a/c Dr – – 1,000 1,000 [Being the value of stock taken by the proprietor vide bill no:___ dated:__]

34. 26 th – Land a/cTo Cash a/c Dr – – 50,000 50,000 [Being the amount paid for land purchased on:__] 27 th – Machinery a/cTo Cash a/c Dr – – 45,000 45,000 [Being the amount paid for the purchase of machinery vide bill no:___ dated:__] 28 th – Computers a/cTo Intel Computers a/c Dr – – 25,000 25,000 [Being the value of a computer purchased from M/S Intel Computers on credit vide bill no:___ dated:__] 29 th – Cash a/cTo Goods/Stock a/c Dr – – 15,000 15,000 [Being the value of stock sold for cash vide receipt no:___ dated:__] 29 th – Goods/Stock a/cTo Cash a/c Dr – – 22,000 22,000 [Being the value of stock purchased for cash vide bill no:___ dated:__] 30 th – Drawings a/cTo Cash a/c Dr – – 10,000 10,000 [Being the amount of cash paid for furniture purchased for proprietor's residence vide bill no:___ dated:__]

35. 3 rd  May : Cash deposited into bank 60,000 4 th  May : Loan given to Bhuvan 20,000 4 th  May : Paid cash to Veeru 20,000 5 th  May : Paid to Veeru by cheque 15,000 5 th  May : Cash received from Tarun 12,000 5 th  May : Took loan from Anush 15,000 6 th  May : Cheque received from Pranav 15,000 6 th  May : Paid to Intel Computers by cheque 17,000 6 th  May : Withdrew from bank 5,000 7 th  May : Withdrew from bank for office use 8,000 7 th  May : Cash received from Bhuvan on loan account 10,000 8 th  May : Withdrew from bank for personal use 1,000 8 th  May : Cash taken by proprietor for personal use 3,000 9 th  May : Bought furniture and paid by cheque 15,000 9 th  May : Paid to Anush by cheque on loan account 5,000 9 th  May : Brought additional capital of 25,000

36. Journal in the books of M/s Rama & Sonsfor the period from 1st May to 10th May Date V/R No. Particulars L/F Amount (Dr) Amount (Cr) May 3 rd – Bank a/cTo Cash a/c Dr – – 60,000 60,000 [Being the amount of cash deposited into bank vide voucher no:___ dated:__] 4 th – Loan to Bhuvan a/cTo Cash a/c Dr – – 20,000 20,000 [Being the amount of cash given as loan to Bhuvan vide voucher no:___ dated:__] 4 th – Veeru a/cTo Cash a/c Dr – – 20,000 20,000 [Being the amount of cash paid to Veeru vide voucher no:___ dated:__] 5 th – Veeru a/cTo Bank a/c Dr – – 15,000 15,000 [Being the amount paid to veeru on account by cheque no. ___ dated ___] 5 th – Cash a/ cTo Tarun a/c Dr – – 12,000 12,000 [Being the amount of cash received from Tarun vide cash receipt no:___ dated:__] 6 th – Cash a/cTo Bank a/c Dr – – 5,000 5,000 [Being the amount of cash withdrawn from bank]

37. 5 th – Cash a/cTo Loan from Anush a/c Dr – – 15,000 15,000 [Being the amount of loan taken from Anush on:__] 6 th – Bank a/cTo Pranav a/c Dr – – 15,000 15,000 [Being the amount received by cheque no. ____ date ____from Pranav] 6 th – Intel Computers a/cTo Bank a/c Dr – – 17,000 17,000

38. 7 th – Cash a/cTo Bank a/c Dr – – 8,000 8,000 [Being the amount of cash withdrawn from bank vide bill no:___ dated:__] 7 th – Cash a/cTo Loan to Bhuvan a/c Dr – – 10,000 10,000 [Being the amount of cash received from Bhuvan as loan vide cash receipt no:___ dated:__] 8 th – Drawings a/ cTo Bank a/c Dr – – 1,000 1,000 [Being the amount of withdrawn from bank for personal use vide cheque no:___ dated:__] 8 th – Drawings a/cTo Cash a/c Dr – – 3,000 3,000 [Being the amount of cash taken by the proprietor for personal purposes vide voucher no:___ dated:__]

39. 9 th – Furniture a/ cTo Bank a/c Dr – – 15,000 15,000 [Being the amount paid by cheque no ____ date ____ towards the purchase of furniture vide bill no:___ dated:__] 9 th – Loan from Anush a/cTo Bank a/c Dr – – 5,000 5,000 [Being the amount paid by cheque no ____ date ____ towards repayment of loan from Anush vide voucher no:___ dated:__] 9 th – Cash a/cTo Capital a/c Dr – – 25,000 25,000 [Being the amount received from proprietor as capital vide cash receipt no:___ dated:__]

40. On  April 01, 2016   1. Anees started business with Rs. 100,000 and other transactions for the month are: 2.  Purchase Furniture for Cash Rs. 7,000. 8.  Purchase Goods for Cash Rs. 2,000 and for Credit Rs. 1,000 from Khalid Retail Store. 14.  Sold Goods to Khan Brothers Rs. 12,000 and Cash Sales Rs. 5,000. 18.  Owner withdrew of worth Rs. 2,000 for personal use. 22.  Paid Khalid Retail Store Rs. 500. 26.  Received Rs. 10,000 from Khan Brothers. 30.  Paid Salaries Expense Rs. 2,000  

41. Create journal entries for the following transactions (Rs. = Rupees = Indian currency): 1. Harish started business with cash Rs. 10000 2. Bought goods from Manohar Rs. 5000 3. Purchase fittings for cash Rs. 800 4. Sold goods to Charanjeet Rs. 1600 5. Paid Manohar Rs. 3000 6. Sold goods Ram Rs. 2000 7. Received from Charanjeet Rs. 1540 and allowed him discount Rs. 60 8. Paid wages Rs. 80 9. Bought goods for cash Rs. 600 10. Sold goods to Ramesh Rs. 3400 11. Purchase goods from Purchotam Ra. 2600 12. Paid Manohar in settlement Rs. 1900 and discount allowed by him Rs. 100 13. Paid carriage from goods and sold Rs. 40 14. Paid wages Rs. 80 15. Bought goods Manohar Rs. 3000 16. Bought goods for cash Rs. 800 17. Sold goods Ram Rs. 3600 18. Ram paid on account Rs. 4000

42. 19. Purchase goods from Harbans Rs. 1500 20. Sold goods for cash Rs. 1600 21. Paid wages Rs. 80 22. Paid to Harbans Rs. 1440 and discount allowed by him Rs. 60 23. Sold goods to Charanjeet Rs. 2600 24. Bought goods for Manohar Rs. 1400 25. Bought goods for cash Rs. 1460 26. Paid on account to Manohar Rs. 1460 27. Received from Charanjeet Rs. 4000 28. Paid wages Rs. 80 29. Paid for electric lighting Rs. 100 30. Paid rent Rs. 160 31. Harish drew for personal use Rs. 300 32. Purchases Rs. 80 33. General expense Rs. 190 34. Carriage outwards Rs. 60

43. Trial Balance A Trial Balance is a statement that keeps a record of the final ledger balance of all accounts in a business. It has two columns – debit and credit.  Trial Balance  is prepared at the end of a year and is used to prepare financial statements like Profit and Loss Account or Balance Sheet. The main objective of a Trial Balance is to ensure the mathematical accuracy of the business transactions recorded in a company’s ledgers.

44. Need / Importance 1. CHECKING ARITHMETICAL ACCURACY: This means that the trial balance is used to verify actual amount entered in correct side of current account while moving the figures from various ledger books like purchase day book, sales day book, cash book, etc. Trial Balance aside from general ledger accounts is used for checking the accuracy of special purpose accounting books. 2. ASSIST IN PREPARING FINANCIAL STATEMENTS: Financial statements like Profit and Loss Account, Balance Sheet and Cash Flow Statement needs to be prepared at the end of every accounting year. The balances of all the ledger accounts used to prepare financial statements are already available in the trial balance and hence, preparing and analyzing of financial statement becomes easier. 3. ASSIST IN RECTIFYING ERRORS: Since the debit total of trial balance must equal to credit total of trial balance, this checks the arithmetical accuracy of ledger postings. If it is not balanced, it will make accountant to find and rectify the error. After preparing the trial balance, accountants feel relieved when the trial balance debit totals and credit totals match.

45. Need / Importance 5. ASSIST IN COMPARATIVE ANALYSIS:  The trial Balance helps to compare balances of the current year with past year balances along with peer analysis. This will help the business to take important decisions concerning income, expenses, production costs, etc. It helps to recognize the trend in the business and take actions wherever necessary. .

46. Limitations If s ome transactions are not journalized at all. Even a correctly balanced Trial Balance cannot reveal this mistake. If a journal entry with an incorrect amount gets recorded in both accounts, the Trial Balance will not detect that error. A journal entry may have the right amount, but the accountant may have entered it under the wrong accounting heads. The Trial Balance cannot identify such mistakes. If a journal entry is missing in the ledger, it will not reflect in the Trial Balance.