1.70 Journalizing Transactions Each of the above categories of accounts and the melavant Tule for ‘debit and have been explained in detail in the following pages: Personal accounts Personal accounts include the accounts of persons with beatae 1 whom ty business deals. These accounts can be classified into the three categories, 1. Natural Personal Accounts The term ‘Natural Persons’ means Persons who creation of God. For example, Mohan’s Account, Sohan’s Account, Abha’s Account ef 2. Artificial Personal Accounts These accounts include accounts of corporate bod; or institutions which are recognised as persons in business dealings. For example, account of a Limited Company, the account of a Co-operative Society, the account of, Club, the account of Government, the account of an Insurance Company etc, 3. Representative Personal Accounts These are accounts which represent a certain Person or group of persons. For example, if the rent is due to the Jandlord, an outstanding rent account will be opened in the books. Similarly, for salaries due ‘othe employees (not paid), an outstanding salaries account will be opened. The Outstanding Tent account represents the account of the landlord to whom the rent is to be paid while the outstanding salaries account Tepresents the accounts of the persons to whom the salaries have to be paid. All such accounts are, therefore, termed as ‘Representative Personal Accounts’, The rule is: } > DEBIT THE RECEIVER " . > CREDIT THE GIVER } For example, if cash has been paid to Ram, the account of Ram will have to be debited. Similarly, if cash has been received from Keshav, the account of Keshav will have to be credited. Real accounts Real accounts may be of the followi: 1. Tangible real accounts Tangible Real Accounts are those which relate to such things which can be touched, felt, ing types: a since it represents the account of the banking company—an artificial person a . Intangible real accounts Th present such things whi touched. Of course, they can be measured Be which cannot be in terms of money, For e: I Patents account, goodwill account, etc. i samples y ese accounts re| The rule is: “9. DEBIT WHAT COMES IN ‘ f > CREDIT WHAT GOES ouT COAO_O Journalizing Transactions 1.71 For example, if building has been purchasod for cash, building account should be debited {since it is coming into the businoss) while cash account should be credited (since cash is going out of the business). Similarly whon furniture in, purchased for cash, furniture account should be debited while the cash account should be credited, Nominal accounts These accounts are opened in the books to simply explain the nature of the transactions. They do not really exist. For example, in a business, salary is paid to the manager, rent is paid to the landlord, commission is paid to the salosman—cash goes out of the business and it is something real; while salary, rent or commission as such do not ‘The accounts of these items are oponed simply to explain how the cash has been spent. In the absence of such information, it may be difficult for the person concerned to explain how the cash at his disposal was utilised. Nominal Accounts include accounts of all expenses, losses, incomes and gains. The examples of such accounts are rent, rates lighting, insurance, dividends, loss by fire. etc. The rule is: 2 DEBIT ALL EXPENSES AND LOSSES > CREDIT ALL GAINS AND INCOMES ‘Tutorial Note. Both Real Accounts and Nominal Accounts come in the category of Impersonal Accounts. The student should note that when some prefix or suffix is added to a Nominal Account, it becomes a Personal Account. A table is being given to explain the above rule: Nominal Account Personal Account 1, Rent account Rent prepaid account, Outstanding rent account, Outstanding interest account, Interest received in advance account, Prepaid interest account. 2. Interest account 3. Salary account Outstanding salaries account, Prepaid salaries account, 4, Insurance account Outstanding insurance account, Prepaid insurance account. 5. Commission account Outstanding commission account, Prepaid commission account. Tuiustration 4.1. From the following transactions find out the nature of account and also state which account should be debited and which account should be credited. (a) Rent paid. (b) Salaries paid, (c) Interest received. (d) Dividends received. (e) Furniture purchased for cash. (A Machinery sold. (g) Outstanding for salaries. (h) Telephone charges pai (i) Paid to Suresh. () Received trom Mohan (the proprietor). () Lighting.1,12 Journalizing Transactions Souumon: ; Nominal A/c Rent paid nae i Nominal A/c (8) | Salaries paid haat Me Detin Fl 1 Alc (c) | interest received Cash Ale Real Me ba Interest A/e Ss {d) | Dividends received Cash A/c Real ue wl Osi Dividends A/e Nominal A/c redit (c) | Furniture purchased Furniture A/e Real A/c Debs Cash A/c Real Alc Credi /) | Machinery sold Cash A7e Real Ale Debi Machinery A/c Real A/c Credit (g) | Outstanding for salaries | Salaries Ale Nominal A/e Debi Outstanding Personal A/c Credit Salaries A/c (A) | Telephone charges paid | Telephone Charges Ale | Nominal Ale Debit Cash A/c Real A/c Credit () | Paid to Suresh Suresh Personal Ale Debit Cash A/c Real A/c Credit @) | Received from Mohan |] Cash Ale Real Ae Debit (the proprietor) Capital A/e Personal A/e | Credit (| Lighting Lighting Ale Nominal Ave Debit Cash A/c Real A/c Credit The journalising of the various transactions is explained now with the help of the following illustration: Tusreanion 4.2. Ram starts a business with capital of %20,000 on January 1, 2011. 4m this case there are wo accounts involved. They are: () The account of Ram, (#) Cash Account, Sowwrion: |. Ram is natural person and, therefore, his account is a Personal Acco, i ral unt, Cash Account ible asst and, therefore, it is a Real Account, As Per the rules of Debit and Credit, applicable to Personal Accounts Ram is the giver and, therefore, his account, 4, Capital Account should be credited. Cash is coming in tht business and, therefore, as per the rules applicable to Real A, ‘ a : now be entered in the Journal as follows: ‘counts, it should be debited. The transaction Journal To Capital Account (GBeing commencement of business)Journalizing Transactions 3.73 The words put within brackets “Being commencement of business” constitute the narration for the entry passed, since, they narrate the transaction. : 2. He purchased furniture for cash for 5,000 on January 5, 2011. The two accounts involved in this transaction are the Furniture Account and the Cash Account. Both are Real Accounts. Furniture is coming in and, therefore, it should be debited while cash is going out and. therefore, it should be credited. The Journal entry will, therefore, be as follows: Journal Particulars ce] Dae | a z £ Furniture Account Dr. 5,000 To Cash Account 5,000 (Being purchase of furniture) 3. He paid rent for business premises %2,000 on January 10, 2011 In this transaction, two accounts involved are the Rent Account and the Cash Account. Rent Account is Nominal Account. It is an expense and, therefore, it should be debited. Cash Account is a Real Account. It is going out of the business and, therefore, it should be credited. The joumal entry will, therefore, be as follows: Journal Particulars Jan. 10 | Rent Account To Cash Account (Being payment of rent) 2,000 4. He purchased goods on credit of %2,000 from Suresh on January 20, 2011. The two accounts involved in the transaction are those of Suresh and Goods. The account of Suresh is a Personal Account while that of Goods is a Real Account. Suresh is the giver of goods and, therefore, his account should be credited while Goods are coming in the business and, therefore, Goods Account | should be debited. Journal Particulars Jan.20 | Goods Account Dr. 2,000 To Suresh 2,000 (Being purchase of goods on credit) the business for resale. Goods purchased by the business may be returned back to the supplier. Similarly, goods sold by the business to Its customers can also be returned by the customers back to the business due to certain reasons. In business, it is desired that & separate record be kept of all sale, purchase and return of goods. Hence, Goods _ Accounts can be classified into the following categories: (0 Purchases Account The account is meant for recording all purchases of goods. Goods “come in” on purchasing of goods and, therefore, the Purchases Account is debited on purchase of goods. . | | | Classification of Goods Account The term goods include articles purchased by1.74. Journalizing Transactions ‘ding of selling of goods, i t The account is meant for recor ep w Secor ollie of goods, and therefore, on sale of goods, the Sales Acad Pee is meant for recording ret itt eturns Account The account is meant foi ng return of “ ee bs maa “go out” on returning of goods to the suppliers and, 2% the account should be credited on returning goods purchased. oy ; unt The account is meant for recording return of goods (i) Sales Returns Accoi i by the customers. The goods “come in” and, therefore, the Sales Returns Acony should be debited on return of goods, The above classification of Goods Account can be shown in the form of the followin chart: F Goons account L _ Jt >. T I 43 — F rerchases Ale) Sateg Me '' "Purchases Returns A/é’* Sales Returns At Goods come in * Goods go out “| Goods go out . Goods come in ™ a) a) : (Cr) om J COMPOUND JOURNAL ENTRY Sometimes there are a number of transactions on the same date relating to one particule account or of one particular nature. Such transactions may be recorded by means of: single journal entry instead of Passing several journal entries, Such entry regarding recording a number of transactions is termed as a “Compound Journal Entry”. It maybe recorded in any of the following three ways: (@ One particular account may be debited while several other accounts may be credited. (i) One particular a (iii) Several accounts may be debited and several other accounts may also be credited This has been explained in the foll . lowing illustration: [Luusteamion 4.3. Pass a compound journal entry in each of the following cases: 1. Payment made to Ram 21,000, He allowed a cash discount of %50, 2. Cash received from Suresh %800 and allowed him %50 as discount. 3. A running business was Purchased by Mohan with the following assets and liabilities: Cash %2,000; Land 74,000; Fumiture 1,000; Stock %2,000; Creditors 1,000; Bank Overdraft €2% Jou To Cash Alc To Discount Alc. (Being payment made 10 Ram 1,000 and he allowed *50.a9.] discount)Journalising Transactions 4.79 Cash Ae Discount A/c Dr. To Suresh a cash received from Suresh €800 and discount allowed 750) ‘Cash A/c Land A/c Furniture A/c Stock A/c To Creditors To Bank Overdraft To Capital A/c (Being commencement of business by Mohan by taking over @ running business) 450 Dr. Dr. Dr. Dr. 1,000 2,000 6,000 Notes: 1. The total of payment due to Ram was 71,050. A payment of 1,000 has been made to him and he allowed a discount of %50. This means by paying 21,000, a full credit for 1,050 has been obtained, The account of Ram is a Personal Account, and therefore, it has been debited as he is the receiver. The cash has gone out of the business and, therefore, Cash Account being a Real Account, has been credited. Discount Account is a Nominal Account; getting discount is a gain to the business and, therefore, it has been credited, . Suresh was to pay sum of 8850. He paid %800 and he was allowed a discount of 850. It means by paying 800 only, Suresh could get a full credit of 850, The Cash Account is a Real Account and, therefore, it has been debited since cash is coming in. Discount Account is a Nominal Account; it has been debited since it is a loss to the business. Suresh is the giver. His account being a Personal Account, it has been credited by 850. . It is not necessary that a person should start business only with cash. He may bring the assets into the business or he may purchase a running business, Mohan in the present case has purchased the assets of some other business. The net assets (i.e. assets-liabilities taken over) will be the capital of Mohan. The business is getting various assets and, therefore, the assets accounts have been debited. The business creates certain liabilities in the form of creditors, bank overdraft, and, therefore, these accounts have been credited. Mohan’s Account, i.e., his Capital Account has been credited by the balance since it represents the capital brought in by him. Tuustration 4.4, Joumnalize the following transactions for the month of Dec. 2011. Also state the nature of each account involved in the Journal entry. 1. Dec, 1: Ajit started business with Cash %40,000, 2. Dec. 3: He paid into the Bank %2,000. 3. Dec. 5: He purchased goods for cash 715,000. 4. Dec. 8: He sold goods for cash %6,000. 5. Dec. 10: He purchased furniture and paid by cheque %5,000. 6. Dec. 12: He sold goods to Arvind %4,000. 7. Dec. 14: He purchased goods from Amrit 210,000, 8. Dec. 15: He returned goods to Amrit %5,000. 9. Dec. 16: He received from Arvind %3,960 in full settlement. 10. Dec. 18: He withdrew goods for personal use 71,000. 11. Dec, 20: He withdrew cash from business for personal use %2,000. 12. Dec. 24: He paid telephone charges 71,000. 13. Dec. 26: Cash paid to Amrit in full settlement %4,900. 14. Dec. 31: Paid for stationary £200, rent %500 and salaries to staff %2,000. 15. Dec. 31 + Goods distributed by way of free samples %1,000.Journal Dec. 1] Cash Ale Dr. | Real A/c To Capital Ac Personal A/c (Being commencement of business) Dec. 3} Bank A/c Dr. | Personal A/c To Cash A/c Real A/c (Being cash deposited in the bank) Dec. 5] Purchases Ale Dr. | Real A/c To Cash A/c Real A/c (Being purchase of goods for cash) Dec. 8| Cash A/c Dr. | Real A/c To Sales Ale Real A/c (Being goods sold for cash) Dec. 10] Furniture A/c Dr. | Real A/c To Bank Alc Personal A/c (Being purchase of furniture, paid by cheque) Dec. 12] Arvind Dr. | Personal A/c To Sales A/c Real A/c (Being sale of goods) Dec. 14] Purchases A/c Dr. | Real Ale To Amrit Personal A/c (Being purchase of goods from Amrit) | Deine purchase of goods from Amrit) | Dec. 15] Amrit Dr. | Personal A/c To Purchases Returns A/c Real A/c/ (Being goods returned 10 Amrit) Dec. 16] Cash Ale Dr. | Real A/c Discount A/c Dr. | Nominal A/c To Arvind Personal A/c (Being cash received from Arvind in full settlement and allowed him %40 as discount) Dec. 18] Drawings A/c Dr. | Personal A/c To Purchases A/c Real A/c (Being withdrawal of goods for personal use) Dec. 20] Drawings A/c Dr. | Personal A/c To Cash A/c Real A/c (Being cash withdrawal from the business for personal use) Dec, 24] Telephone Expenses A/c Dr. | Nominal A/c To Cash Ale Real A/c 4-9: 59] (Being telephone expenses paid) : k 2,000 15,000 6,000 5,000 4,000 10,000 5,000 3,960 40 1,000 2,000 1,000 2,000 15,000 6,000 5,000 4,000 10,000 5,000 4,000 1,000 1,000ee Journalizing Transactions 1.77 13. |Dec. 26 Amrit ° Dr. | Personal A/c 5,000 fo Cash Ale Real Alc 4,900 To Discount A/c Nominal A/c 100 (Being cash paid to Amrit and he allowed %100 as discount) 14, | Dec.31 | Stationery Expenses Dr. | Nominal A/c 200 Rent Ale Dr. | Nominal A/c 500 Salaries A/c Dr. | Nominal A/c 2,000 To Cash A/c Real A/c 2,700 (Being expenses paid) , 15, |Dec. 31| Advertisement Expenses Ac Dr. | Nominal Ale 1,000 To Purchases A/c Real A/c 1,000 (Being distribution of goods by way of free samples) TOTAL 1,21,700 . Notes: Transaction 9. Ajit was to receive 4,000 from A\ He accepts only %3,960 in full settlement. It means, he allows £40 as discount to him, The journal entries will be: (i) Cash Ale Dr. 3,960 To Arvind 3,960 (ii) Discount Ale Dr. 40 To Arvind 40 in place of two entries stated above. Cash is a Real Account and, therefore, Nominal Account and, therefore, it should also be debited. The account of ed to get a full credit of %4,000 by paying only €3,960. His A single entry may be passed it should be debited. Discount is a ‘Arvind is a Personal Account and he is entitl account should, therefore, be credited by %4,000. It may be remembered that cash or bank account an¢ debited, the discount account should also be debited. In case 1 also be credited. This is because when cash is received, discout Account and, therefore, it should be debited by the amount ‘of cash actually received. The discount account is lowed, this is a loss which should be 2 Nominal Account and, therefore, on receipt of cash when discount is debited. Similarly, when cash is paid, discount is earned from the creditors. On payment of cash, therefore, Cash Account should be credited (since ‘cash is a Real Account and it is going out of the business) and Discount Account should be credited (since Discount Account is @ Nominal Account and discount received is 4 gain to the business). ‘Transaction 10. When goods are withdrawn by the proprietor of the business for his personal use, he is to be charged for them since business and the proprietor are two different persons as per separate entity concept. The problem is at what price should he be charged? He cannot be charged at the selling price for the fred it wil ee be fay, He has to be charged with only the cost price of the pods withdrawn by him. It will be, therefore, appropriate to reduce the purchase of the business by the aniourt ‘of goods withdrawn by the Proprietor for his personal use as if the goods were purchased partly for the business and partly for him. The same rule applies in those cases, where the goods purchased by the business are used for the Purpose of business itself, For example, in case of a stationary ‘business, some stationery may be used for the business itself. In such case, the following journal entry wil 1d discount account go together. It means if cash is the cash is credited, the discount account should int is allowed to debtors. Cash Account is a Real II be passed:i 178 Journalizing Transactions Stationery Expenses Account Dr. To Purchases Account The same rule has been followed in case of the last entry given in ti he illustration Transaction 13, in Case of this transaction two entries could have been pas: . P SC 89 under, (i) Amrit Dr. 4,900 * To Cash A/c 4,900 (ii) Amrit Dr. 100 To Discount A/c 100 |n place of passing the above two entries a single compound entry has been passe Transaction 14. Three entries could have been based as follows: " (i) Stationery Expenses A/c Dr. 200 To Cash A/c 200 (if) Rent Alc Dr. 500 To Cash A/c 500 (iii) Salaries A/e Dr. 2,000 To Cash A/c 2,000 m place of these three entries, a single compound entry has been passed. ILiustration 4.5. 1. Ram started business by introducing the following assets: Cash %10,000 Furniture 20,000 Plant 30,000 Goods %20,000 Xv - He purchased goods of the invoice value of %10,000 at 10% trade discount from Suresh - He supplied goods costing 1,000 to Ramesh at a invoice price of 10% above cost at am discount of 5%. He installed further machinery of %20,000 and paid wages for installation %2,000, The macho was supplied by M/s Surya Brothers, 5. He purchased stationery for business purposes 500. 6. He sold goods to Sidharth for %5,000. 7. He withdrew goods for personal use costing %5,000 (ale value %6,000). 8. He distributed goods costing %2,000 (sale value %2,500 as free samples). 9. 10, M1 > Sidharth became insolvent and the whole money due from him was considered as a bad . He sold goods for cash %20,000. oot ~ Salaries paid €10,000 after deduction %1,000 as income tax, &1,500 as employee's share of « | fund but before employer's share of provident fund %1,500. 12. Amount due from Sidharth earlier written off bad debts recovered in full. 13. Amount paid to Suresh %8,500 in full satisfaction. ; 14. Income tax liability of Ram %1,000 Paid in cash. You are required to Pass the necessary journal entries for the above transactions.Journalizing Transactions 1.79 Journal on 10,000 Pumiture Ave Dr. 20,000 ee Dr. 30,000 Purchases (Goods) Dr. 20,000 To Ram's Capital 80,000 (Being commencement of business with cash and other ass) poens commencement of business with cash and other assd 2 Purchases A/c Dr. 9,000 To Suresh 9,000 (Being purchase of goods from Suresh) (Invoice price 310.000 less Trade Discount 10%) 3% Ramesh Dr. 1,045 To Sales A/c 1,045 (Being goods sold invoice price of ®1,100 less trade discount of 5%) a Machinery Dr. 22,000 To Cash 2,000 To Surya Brothers 20,000 (Being cost of machinery purchased 20,000; installation i charges incurred %2,000) 5. 500 00 (Being stationery purchased for business purposes) 6 Sidharth Dr. 5,000 To Sales 5,000 (Being sale of goods to Sidharth) 7. Drawings Dr. 5,000 ; To Purchases A/c 5,000 | (Being goods withdrawn for personal use) { po eerste H 8. Advertisement A/c Dr. 2,000 To Purchases A/c 200) (Being goods distributed by way of free samples) 9. Bad Debts, Dr. 3,000 i To Sidharth 5.000 (Being money due from Sidharth written offas bad debts) | 1 10. Cash Dr. 20,000 To Sales 20,000 |_| @eing sate of goods for cash) A (Contd...)To Tax Dedusted at Source To Employees Provident Fund : (Bee paneer oo suki tier cinco of AIS ar wane an cmpvover } and emplovees coatibution 0 Provident Ewat) 5.000 12. Cash To Bad Detes Recovered Ac (Being amount cartier written off as had debts amd now recovered) 13. Suresh 9,000 To Cash ane To Discount = (Being amount paid t0 Suresh and earned %00 as cash discount) 4 1000 ATO Notes: 3. Trade discount is not recorded in the books. Goods are reconded at the net peive. 9. Goods written off for personal use are recorded at cost. The sales value has no signiticanss, 11. Employer's contribution to Provident Fund is taken as a part of Salary and debited 9 Salaries 4 Later on both the employee's and employer's contribution w provident fund are deposited wie 4 Provident Fund Authorities by the employer. 12. The money earlier written off as bad debt now recovered is to be credited (0 a separate aoual 4 bbad debts recovered account. It has not to be credited to debtor's account since it has areal closed. 14. Personal tax liability of the proprietor is taken as his drawings. OPENING ENTRY In case of a running business, the assets and liabilities appearing in the proviows balance sheet will have to be brought forward to the current year. This is doue by we of a journal entry which is termed as “Opening Entry”. All < are leit while all Liabilities Accounts ure credited. Tho excess of assots over liab proprietor’s capital and is credited to his Capital Acc is will be cloar wit |! help of the following illustration: ae eee ILusrranion 4.6. Pass the Opening taken from the business of Mr. Sunil Enury on January 1, 2011 on the basis uf the following inher (0 Cash in Hand . (ii) Sundry Debtors 2.000 (iii) Stock of Goods 6,000 (iv) Plant 4,000 (v) Land and Buildings Bee (vi) Sundry Creditors i000Journalizing Trawactions 1.81 Jeourast Dr. Jan Dr. Stock A‘c - Plat Ac Dr Land & Buildings Aic Dr. To Sundry Crednors 10,000 To Capmal A’c (balancing figure) 17.000 (Being balances brought forward from the last year) TOTAL fuucsraanos 4.7. Joumalize the following transactions in the books of a trader. Deba Balances on Jan J. 2011: 1. Jan.01 Cash in hand 75,000 Cash at Bank 25,000 Stock of Goods 720,000 Furniture 22,00 Building 16,000 Sundry Debtors: Vipy 22,000 Anil 1,000 Madhu 2,000 Credit Balances on Jan. 1, 2011: Sundry Creditors Anand 5,000 Loan from Bablu 710,000 Following were further transactions in the month of January, 2011: 2. Jan.01 Purchased goods worth %5,000 for cash less 20% trade discount and 5% cash discount. 3. Jan.04 Received 71,980 from Vijay and allowed him %20 as discount. 4. Jan.06 Purchased goods from Bharat %5,000. 5. Jan.08 Purchased plant from Mukesh for %5,000 and paid 7100 as cartage for bringing the plant to the factory and another %200 as installation charges. 6 Jan.12 Sold goods to Rahim on credit %600. 7. San.1S Rahim became an insolvent and could pay only $0 paise in a rupee. $. Jan.18 Sold goods to Ram for cash %1,000. 9% Jan.20 Paid salary to Ratan %2,000. 10. Jan.21 Paid Anand %4,800 in full settlement. a ‘1. Jan.26 Interest received from Madhu %200. 12. Jan.28 Paid to Bablu interest on loan %500. 13. Jan.31 Sold Goods for cash %500. Jan.31 Withdrew goods from business for personal use 7200.Jan. 12 Jan. 15 Journal Cash A/c Bank Ac Be Stock A/e De Fumiture Ale r Building Ave a Viiay Dr. AnilDr, Madhu ua To Anand To Bablu’s Loan A/e To Capital Ale (Being balances brought forward from last year) Purchases A/c Dr. To Cash Ale To Discount A/c (Being purchase of goods for cash worth 25,000 allowed 20% trade discount and 5% cash discount on 4,000) 1,000) Cash Ale Dr. Discount A/c Dr. To Vijay Geing cash received from Vijay, allowed %20 as cash discount) Purchases A/c Dr. To Bharat (Being purchases of goods from Bharat) Plant A/c Dr. To Mukesh To Cash (Being purchase ofplant for &5,000 and, | Weing salary paid) 4s cartage and %200 as installation charges) [payment of 2100 | Rahim To Sales Ale ' _ (Being sale of goods to Rahim) Cash A/c Dr, Bad Debts A/c Dr To Rahim . (Being cash received from Rahim afer his being dec «an insolvent, 50% of the amount due has Been receheacnt the rest has been taken as a bad debty Cash Ale To Sales A/c (Being cash sales) Salary A/c To Cash 4,000 1,980 20 600 300 300 2,000dournalizing Tranvactions WAS Anant Ww Cast Yo Viscount (Benny ash paid to Anand and he allowed @00 as disconny Cash Ve Vo Interest MvipL of interest) Jan. 26 200 (Be Interest on Loan Yo Cash (Being payment of interest on loan) Jan, 28 500 Cash Ae ‘To Sales Ave (Being goods sald for cash) 500 14. Jan. 31 | Drawings Ave Dr. To Purchases Ale (Being goods withdrawn for personal use) [rome | | 96,900 | 96,900 Tuvestration 4.8. Joumalize the following transactions: 1. Purchased goods trom Mukesh & Co, on credit 10,000. 2 obtaining delivery of goods, it was found that the goods have been damaged to the extent of 1,000. 3. Mukesh & Co. admitted the claim for breakage to the extent of %800. 200 SoLuTion: Purchases A/e To Mukesh & Co. 10,000 (Being goods purchased from Mukesh & Co.) 2. Loss in Transit A/c Dr. To Purchases A/c 1,000 (Being damage to the goods purchased in transit) 3. Mukesh & Co. Dr. 800 To Loss in Transit A/c ; (Being claim admitted for loss in transit by Mukesh & Co. Note: The entries show that against a loss of €1,000, Mukesh & Co. has admitted a claim of only %800. The loss of 2200 will have to be suffered by the proprietor of the business. He will transfer this loss to the Profit and Loss Account at the end of the accounting year. .é E é c CO 8.12 ACCOUNTING PROCESS : JOURNAL AND LEDGER All the columns, except the Ledger Folio column, are completed at the tj, journalising. The Ledger Folio column is filled in at the time of posting" The following steps are involved in journalising : First Ascertain what accounts are affected by a transaction, Second Ascertain which account is to be debited and which account is credited. 10 be Third + Ascertainthe amount by which the accounts are ‘to be debited and. credited, Fourth Fifth Record the date of the transaction in the ‘Date’ column. Record in the ‘Particulars’ column the name of the account to be debited Along with the name of the account abbreviation ‘Dr is also written in trong wine against the name of the account. Write the amount te debited in the ‘Debit Amount’ column. ‘Sixth + Record in the ‘Particulars’ column the name of the account to be credited. The name of the account to be: credited is written in the next line preceded by the word ‘To’. The word ‘To’ is written towards right after leaving blank space for about three letters of alphabet. Write the amount to be credited in the ‘Credit Amount’ column. Seventh : Record a brief description of the transaction starting from the next line in the ‘Particulars’ column. ‘The brief description of the transaction is called narration. Eighth : Drawalineacross the ‘Particulars’ column to separate one journal entry from the other. ILLUSTRATION 4. Record the following transactions in the Journal of Ashok for the month of April, 2016 1 Ashok started business with & 2,00,000. Purchased goods for cash ® 50,000. Purchased furniture for cash % 40,000. Sold goods for cash & 10,000. Purchased goods on credit from Birbal ® 20,000. 11. Purchased goods for cash ® 80,000. 15. Sold goods on credit to Chander ® 15,000. 19 Cash deposited in bank ® 10,000. 22 Cash paid to Birbal € 5,000. 23 Received cash from Chander 8 10,000. 25 Paid wages € 1,000. 30 Cash withdrawn by Ashok for personal use & 2,000. OO ene a TAXMANN'ACCOUNTING PROCESS : JOURNAL AND LEDGER SOLUTION JOURNAL — Date Particulars LE 8.13 Amount Debit @) Credit @) 2016 April 1 | Cash Account To Capital Account (Being business started with cash) Dr 3 | Purchases Account To Cash Account (Being goods purchased for cash) Dr 5 | Furniture Account To Cash Account (Being purchase of furniture for cash) Dr 7 | Cash Account To Sales Account (Being goods sold for cash) Dr. 9 | Purchases Account To Birbal Account (Being goods purchased from Birbal) Dr 11 | Purchases Account To Cash Account (Being goods purchased for cash) Dr 15 | Chander Account To Sales Account (Being credit sale to Chander) Dr. 19} Bank Account To Cash Account (Being cash deposited into bank) 22 | Birbal Account To Cash Account (Being cash paid to Birbal) Dr 23 | Cash Account To Chander Account (Being cash received from Chander) Dr. 2,00,000 50,000 40,000 10,000 20,000 80,000 15,000 10,000 5,000 10,000 2,00,000 50,000 40,000 10,000 20,000 80,000 15,000 10,000 5,000 10,000 a raxann® | ; } } IE o z. Cc q 8.14 ACCOUNTING PROCESS : JOURNAL AND LEDGER * 25] Wages Account Dr. 1,000 To Cash Account 1,000 (Being cash paid for wages) » 30] Drawings Account Dr. 2,000 To Cash Account 2,000 (Being withdrawal of cash forpersonal use) ILLUSTRATION 5. Record the following transaction in Journal : (i) Goods worth ® 5,000 given as charity. (ii) Received & 2,900 from Deepak in full settlement of | (iii) Paid % 960 to Chander Shekhar in full settlement of his account for 1,000. (iv) Received first and final dividend of 75 paise in a rupee from Daya Shanker, who owed us € 1,000. his account for ® 3,000. SOLUTION Particulars L.E.| Debit Credit . ‘ ®@ @ @ [Charity Account Dr. 5,000 5,000 To Purchases Account (Being goods given as charity) Date (i) | Cash Account Dr 2,900 Dr. 100 Discount Account a To Deepak Account 3,000 (Being amount received from Deepak and discount allowed) (iii) | Chander Shekhar Account* To Cash Account To Discount Account (Being payment to Chander Shekhar and discount received) (iv) | Cash Account Dr. 750 Bad Debts Account Dr. 250 To Daya Shanker Account (Being 75% received from Mr. Daya Shanker in full settlement of account) | “Name of the account may be Chander Shekhar instead of Chander Shekhar Account: TAXMANN® Dr. 1,000 sé aSS : JOURNAL AND LEDGER B15 gLUSTRATION 6. © Revered ash for « baad debe written off last wear € 500, - Pend © 1.500 om cash as wages on installation of mackin wad © L100 given as cherire nt paid she amount bs cheque. SOLTTION F Date a Cash Accomm To Bad Debts Recovered Account ane : Being cash received on account of recovery ofbad debt which was previously written off) @) ; Machinery Account eee 1,500 1,100 1,100 8,000 8,000 8,000 8,000 8,000 8,000 NUsnemon 7, we, ss to B for & 20,000 on January 24, 2016. On the same date A draws bil of Neato tac 0 Parable vo mont afer date Bacepsitandreturns ito AB illo dive date, ite, March 27, 2016. Pass journal entries in the books ~ TAXMANN®ae ACCOUNTING PROCESS : JOURNAL AND LEDGER ‘SOLUTION Books of A JOURNAL Nic Jan 4 Bs Ac Dr 20,000 | TeSaks Ac 2000 (Being the goods sold on credit to B) Jan. 24 : Bills Receivable Arc Dr. 20,000 ToBsAc 20000 : (Being the acceptance of the bill received) Mar 27 Cash Ac Dr. 20,000 To Bills Receivable A/c 20,000 (Being payment of bill received) Books of AB JOURNAL Date [ Particulars LF| Debit | Credit ew a 2016 Jan. 24 | Purchases A/c Dr. 20,000 To As Ac , 2000 | Being the purchase of goods on credit | from A) Jan. 24| Ks Alc 20,000 | To Bills Payable A/c | 2000 (Being the acceptance of bill given) | Mar. 27| Bills Payable A/c Dr. 20,000 | To Cash Alc oe (Being our acceptance paid) 4 Notes : 1. According to Section 5 of the Negotiable Instruments Act, 18814 5 ie exchange is an instrument in writing, containing an unconditional order. eS ee ad| ACCOUNTING PROCESS : JOURNAL AND LEDGER 8.17 i maker, directing a certain person to pay a certain sum of money only to, or to the order { of a certain person or to the bearer of the instrument. — writing (not being a bank note or a currency note) containing an unconditional under. \ taking. signed by the maker, to pay a certain sum of money only to, or to the order of. a certain person or to the bearer of the instrument. 3. According to section 6 of the same Act, a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. ILLUSTRATION 8. j A draws a bill on B for ® 10,000 against sale of goods on 24th January. 2016 pavable after two months. B accepts it on the same date. A endorses the bill to C. Pass journal entries in the books of A. SOLUTION Books of A JOURNAL Date Particulars LE. | Debit @)| Credit R) 2016 j Jan. 24 | Bis Alc Dr. 10,000 To Sales A/c 10,000 (Being the sale of goods on credit.) Jan. 24 | Bills Receivable A/c Dr. 10,000 To Bs Alc 10,000 (Being the acceptance of bill received) Mar. 27 | C's Alc Dr. 10,000 To Bills Receivable A/c 10,000 (Being the bills endorsed in favour of C) ILLUSTRATION 9. A bill for 2 5,000 is drawn by Aon Bon January 1, 2016 and is payable after three months. The bill is discounted by A on January 4, 2016 @ 12% per annum. Make journal entries in the books of A.| JOURNAL AND LEDGER ACCOUNTING PROCESS SOLUTION LE| Debit Date Particulars @ 2016 Bills Receivable A/c Dr. 5,000 To B's Alc (Being a bill drat Jan. 4 | Bank Alc Discount on Bills A/c To Bills Receivable A/c (Being the bill discounted with the banker at 12% pa.) Jan. 1 wn on B for 3 months) 4,850 150 89 ILLUSTRATION 10. Cred e) 016 and is payable after three month: ‘A bill for ® 5,000 is drawn by A on Bon January 2 ity, i.e. April 4, 2016. Make journal enn: The bill is dishonoured by Bon the date of maturity, i.e. in the books of A. SOLUTION Date Particulars LE] Debit | Credit @ @ 2016 Jan. 1 | Bills Receivable A/c Dr. 5,000 To B's Alc a (Being the bill received from B) April4 | Bis Alc Dr. 5,000 To Bills Receivable A/c a (Being the bill dishonoured at maturity) | ILLUSTRATION 11. Mr. Subhash’s position on April 1, 2016 is as follows : ’ “Assets : Land and Buildings © 5,00,000, Furniture & 1,00,000, Stock of Goods © anes ‘Sundry Debtors € 3,00,000, Cash at Bank ¥ 80,000, Cash in Hand & 20,000. Liabilities : Loan ® 2,00,000, Sundry Creditors ® 5,00,000. Record opening entry in the books of Subhash. acaetas sari SNNIsMISaE AEST TTETETSD vanuan@ i Baw@cuw = @& mo ee oo aeACCOUNTING PROCESS : JOURNAL AND LEDGER 8.19 SOLUTION JOURNAL OF SUBHASH "Bate ia Particulars t LE] Debit | Credit yighans @ | @ 2016 April 1 | Land and Buildings A/c Dr 5,00,000 Fumiture Ale Dr. 1,00,000 Stock of Goods Ale Dr 9,00,000 Sundry Debtors A/c Dr. 3,00,000 Cash at Bank A/c Dr 80,000 Cash in Hand A/e Dr. 20,000 To Loan A/c 2,00,000 To Sundry Creditors A/c 5,00,000 To Capital Account (Balancing figure) 12,00,000 POSTING OF TRANSACTIONS IN LEDGER Meaning of Ledger Transactions are recorded in the Journal. After recording the transactions in the Journal, they are posted to the relevant account in the Ledger. Ledger is the principal book where accounts are opened to which the transactions recorded in the books of original entry are posted. A Ledger may be in the form of a bound register or separate sheets may be maintained in a loose leaf binder or it may be kept in the form of floppy diskettes, where computer is used. Ledger is the principle or main books of account. As all the transactions relat- ing to a particular account for a particular period are recorded at a particular place or page in the ledger, the balance of any account can be found very easily. For example, if it is desired to know ona particular date the amount due from a certain customer or amount due to a supplier it can be ascertained only in the ledger. Accounts are kept in the ledger in a certain order so that it is easy to locate them. Meaning of Posting The process of transferring the trai entry to the ledger account is call Periodically depending upon the convenience For posting entries from the Journal to the ledger, followed : 1. Locate in the ledger, the account to be debited. Ax ANN®S eee nsactions recorded in the books of original led posting. Posting may be done daily or and requirements of the business. the following procedure is