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Financial
Accounting (Mgt-101)
VU
Vehicle
Account
Vehicle
Account
Code 05
Date
No.
Narration
Dr.
Rs.
Date
No.
Narration
Cr.
Rs.
03-01---
04 Furniture
purch.
50,000
0
50,000
Balance
50,000
50,000
50,000
Name
Of The Organization (Ali
Traders)
Trial
Balance As On ( January 31,
20--)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
35,000
Bank
Account
02
130,000
Capital
Account
03
200,000
Furniture
Account
04
15,000
Vehicle
Account
05
50,000
Total
54
Financial
Accounting (Mgt-101)
VU
Purchases
Account
Purchases
Account
Code 06
No.
Narration
Cr.
Rs.
Date
No.
Narration
Dr.
Rs.
Date
05-01--- 05
Goods purch.
50,000
10-01---
10,000
08 Purchase
return
20,000
08-01---
07 Goods
purch.
70,000
10,000
Balance
60,000
70,000
70,000
Name
Of The Organization (Ali
Traders)
Trial
Balance As On ( January 31,
20--)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
35,000
Bank
Account
02
130,000
Capital
Account
03
200,000
Furniture
Account
04
15,000
Vehicle
Account
05
50,000
Purchases
Account
06
60,000
Total
55
Financial
Accounting (Mgt-101)
VU
Mr. A
(Supplier)
Mr. A
(Creditor)
Account
Code 07
No.
Narration
Cr.
Rs.
Date
No.
Narration
Dr.
Rs.
Date
10,000
05-01---
05 Goods
purch.
50,000
10-01---
08 Purchase
return
25,000
21-01---
11 Paid to
Mr. A
35,000
50,000
Balance
15,000
50,000
50,000
Name
Of The Organization (Ali
Traders)
Trial
Balance As On ( January 31,
20--)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
35,000
Bank
Account
02
130,000
Capital
Account
03
200,000
Furniture
Account
04
15,000
Vehicle
Account
05
50,000
Purchases
Account
06
60,000
Mr.
A (Creditor)
07
15,000
Total
56
Financial
Accounting (Mgt-101)
VU
Sales
Sales
Account Code 08
No.
Narration
Cr.
Rs.
Date
No.
Narration
Dr.
Rs.
Date
18-01---
10 Sales
return
5,000
06-01---
06 Goods
sold
60,000
40,000
12-01---
09 Goods
sold
5,000
100,000
Balance
95,000
100,000
100,000
Name
Of The Organization (Ali
Traders)
Trial
Balance As On ( January 31,
20--)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
35,000
Bank
Account
02
130,000
Capital
Account
03
200,000
Furniture
Account
04
15,000
Vehicle
Account
05
50,000
Purchases
Account
06
60,000
Mr.
A (Creditor)
07
15,000
Sales
08
95,000
Total
57
Financial
Accounting (Mgt-101)
VU
Mr. B
(Customer)
Mr. B
(Debtor) Account Code
09
Date
No.
Narration
Dr.
Rs.
Date
No.
Narration
Cr.
Rs.
12-01---
09 Goods
sold
40,000
18-01---
10 Sales
return
5,000
20,000
25-01---
12 Received
from B
40,000
25,000
Balance
15,000
40,000
40,000
Name
Of The Organization (Ali
Traders)
Trial
Balance As On ( January 31,
20--)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
35,000
Bank
Account
02
130,000
Capital
Account
03
200,000
Furniture
Account
04
15,000
Vehicle
Account
05
50,000
Purchases
Account
06
60,000
Mr.
A (Creditor)
07
15,000
Sales
08
95,000
Mr.
B (Debtor)
09
15,000
Total
58
Financial
Accounting (Mgt-101)
VU
Salaries
Salaries
Account
Code 10
No.
Narration
Cr.
Rs.
Date
No.
Narration
Dr.
Rs.
Date
31-01---
13 Salaries
paid
5,000
0
5,000
Balance
5,000
5,000
5,000
Name
Of The Organization (Ali
Traders)
Trial
Balance As On ( January 31,
20--)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
35,000
Bank
Account
02
130,000
Capital
Account
03
200,000
Furniture
Account
04
15,000
Vehicle
Account
05
50,000
Purchases
Account
06
60,000
Mr.
A (Creditor)
07
15,000
Sales
08
95,000
Mr.
B (Debtor)
09
15,000
Salaries
10
5,000
Total
59
Financial
Accounting (Mgt-101)
VU
Expenses
Expenses
Account
Code 11
No.
Narration
Cr.
Rs.
Date
No.
Narration
Dr.
Rs.
Date
31-01---
14 Exp.
accrued
20,000
20,000
0
Balance
20,000
20,000
20,000
Name
Of The Organization (Ali
Traders)
Trial
Balance As On ( January 31,
20--)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
35,000
Bank
Account
02
130,000
Capital
Account
03
200,000
Furniture
Account
04
15,000
Vehicle
Account
05
50,000
Purchases
Account
06
60,000
Mr.
A (Creditor)
07
15,000
Sales
08
95,000
Mr.
B (Debtor)
09
15,000
Salaries
10
5,000
Expenses
11
20,000
Total
60
Financial
Accounting (Mgt-101)
VU
Expenses
Payable
Expenses
Payable
Account
Code 12
No.
Narration
Cr.
Rs.
Date
No.
Narration
Dr.
Rs.
Date
31-01---
14 Exp.
accrued
20,000
0
20,000
Balance
20,000
20,000
20,000
Name
Of The Organization (Ali
Traders)
Trial
Balance As On ( January 31,
20--)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
35,000
Bank
Account
02
130,000
Capital
Account
03
200,000
Furniture
Account
04
15,000
Vehicle
Account
05
50,000
Purchases
Account
06
60,000
Mr.
A (Creditor)
07
15,000
Sales
08
95,000
Mr.
B (Debtor)
09
15,000
Salaries
10
5,000
Expenses
11
20,000
Expenses
Payable
12
20,000
Total
330,000
330,000
61
Financial
Accounting (Mgt-101)
VU
PROFIT
AND LOSS ACCOUNT (ACCOUNT
FORM)
Name
of the Entity (Ali
Traders)
Profit and
Loss Account for the
Month Ending January 31,
20--
Debit
Credit
Particulars
Rs.
Particulars
Rs.
Cost
of Sale (Purchases)
60,000
Income
95,000
Gross
Profit
35,000
(income
Cost of Sale)
Total
95,000
Total
95,000
Admin
Expenses
25,000
Gross
Profit
35,000
Salaries
5,000
Expenses
20,000
Net
Profit
10,000
(gross
Profit expenses)
Total
35,000
Total
35,000
PROFIT
AND LOSS ACCOUNT (EPORT
FORM)
Name
of the Entity (Ali
Traders)
Profit and
Loss Account for the
Month Ending January 31,
20--
Particulars
Amount
Amount
Rs.
Rs.
Income
/ Sales / Revenue
95,000
Less:
Cost of Goods
Sold
(60,000)
Gross
Profit
35,000
Less:
Administrative Expenses
(25,000)
(25,000)
Net
Profit
10,000
Rules
of debit & credit
·
Any
account that obtains a benefit is
Debit and
·
Anything
that will provide benefit to
the business is Credit.
·
Both
these statements may look
different but in fact if we consider
that whenever an
account
benefits as a
result of a transaction it will
have to return that benefit
to the business then both
the
statements
will look like different
sides of the same picture.
Rules
of debit & credits can
also be explained like:
62
Financial
Accounting (Mgt-101)
VU
·
EXPENDITURE
o Increase
in Expenditure is Debit
o Decrease
in Expenditure is Credit
·
INCOME
o Increase
in Income is Credit
o Decrease
in Income is Debit
·
ASSETS
o Increase
in Asset is Debit
o Decrease
in Asset is Credit
·
LIABILITY
o Increase
in Liability is Credit
o Decrease
in Liability is Debit
Now we
will explain these rules
with the help of the following
illustration:
No.
Date
Particulars
01
Jan
01
Mr.
Rizwan invests Rs. 100,000
to commence his
business.
02
Jan
03
He
opened an account with bank &
deposited Rs. 30,000.
03
Jan
05
He borrows
Rs. 50,000 from Mr.
Saleem at 12% per
annum.
04
Jan
07
He
purchased furniture worth
Rs. 20,000 for
cash.
05
Jan
09
He
purchased goods (for resale)
worth of Rs. 10,000 from
Mr. Afzal
on
credit.
06
Jan
10
He
sold goods for cash
Rs. 5,000
07
Jan
12
He
sold goods for Rs.
5,000 to Mr. Naeem on credit
basis.
08
Jan
15
Cash
deposited in bank Rs.
5,000
09
Jan
16
He
purchased stationery fore Rs.
3,000.
10
Jan
18
He
purchased office equipment for
Rs. 10,000 and paid by
cheque.
11
Jan
19
He returned
defective goods to Mr. Afzal
worth Rs. 1,000.
12
Jan
25
Goods
are returned by Mr. Naeem
Rs. 500 to the
business.
13
Jan
30
Cash
paid to Mr. Afzal Rs. 9,000
in full settlement of his
claim.
14
Jan
31
Cash
received from Mr. Naeem
Rs. 4,500 in full settlement
of his
account.
15
Jan
31
Cash
withdrawn from the bank Rs.
500.
Now
first document that we prepare in
accounting is the voucher. We will book
first entry in voucher,
i.e.
Name Of
Company
Type
Of Voucher
Date:
1-1-02--
No:
01
63
Financial
Accounting (Mgt-101)
VU
Description
Code
Debit
Credit
Amount
#
Amount
Cash
01
100,000
Capital
02
100,000
Total:
100,000
100,000
Narration:
Capital
Introduced in Cash by Mr.
Rizwan.
Prepared
By:
Checked
by:
Same
entry is presented in simpler
form:
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
01-01-2002
Cash
A/c
01
100,000
Capital
A/c
02
100,000
Capital
Introduced in Cash by
Mr.
Rizwan
In this
case, cash account is debited
because cash account has
obtained benefit and Capital account
is
credited
because business has obtained
benefit because of capital
account.
This
statement can also be
interpreted like
this:
As
cash is an asset and it is
increased in this case, so cash is
debited. Capital is a liability and
increase in
liability
is credit. In this case capital is
increased, hence it is
credited.
64
Financial
Accounting (Mgt-101)
VU
ENTRY
# 2
First, we
will book this entry in
voucher.
Name Of
Company
Type
Of Voucher
Date:
3-1-02--
No:
01
Description
Code
Debit
Credit
Amount
#
Amount
Bank
03
30,000
Cash
01
30,000
Total:
30,000
30,000
Narration:
Deposited
cash in bank.
Prepared
By:
Checked
by:
Again,
the same entry in simple
form
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-01-2002
Bank
A/c
03
30,000
Cash
A/c
01
30,000
Deposited
cash in bank.
Again,
bank account is debited because bank
account has obtained benefit
and Cash account is
credited
because
business has obtained benefit
because of cash
account.
This
statement can also be
interpreted like
this:
As bank is an
asset and it is increased in this
case, so bank is debited. Cash is an
asset and decrease in asset
is
credit. In this
case cash is decreased,
hence it is credited
From
now onward, we will present
entry in simple
form.
65
Financial
Accounting (Mgt-101)
VU
ENTRY
# 3
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
05-01-2002
Cash
A/c
01
50,000
Loan
A/c
04
50,000
Obtained
loan from Mr. Saleem.
Cash
account is debited because cash
account has obtained benefit
and Loan account is credited
because
business
has obtained benefit because of
Loan account.
This
statement can also be
interpreted like
this:
As
cash is an asset and it is
increased in this case, so cash is
debited. Loan is a liability and
increase in liability
is credit. In this
case Loan is increased,
hence it is credited
ENTRY
# 4
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
07-01-2002
Furniture
A/c
05
20,000
20,000
Cash
A/c
01
Purchased
furniture for cash
Again,
furniture account is debited because
furniture account has obtained
benefit and Cash account
is
credited
because business has obtained
benefit because of cash
account.
This
statement can also be
interpreted like
this:
As
furniture is an asset and it is
increased in this case, so furniture is
debited. Cash is an asset and
decrease in
asset
is credit. In this case cash is
decreased, hence it is
credited.
ENTRY
# 5
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
09-01-2002
Purchases
A/c
06
10,000
Mr.
Afzal(Creditors) A/c
07
10,000
Purchased
goods from Mr. Afzal
on
credit
Purchase
account is debited because purchase
account has obtained benefit
and Creditors account is
credited
because
business has obtained benefit
because of Creditors account.
This
statement can also be
interpreted like
this:
As
purchase is an expense and it is
increased in this case, so purchase is
debited. Creditors are liabilities
and
increase
in liability is credit. In this case Creditors
are increased, hence it is
credited.
66
Financial
Accounting (Mgt-101)
VU
Creditor
is any third person or organization, to
whom business has to pay in
future.
ENTRY
# 6
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
10-01-2002
Cash
A/c
01
5,000
Sale
A/c
08
5,000
Sold
goods for cash
Cash
account is debited because cash
account has obtained benefit
and Sale account is credited
because
business
has obtained benefit because of
Sale account.
This
statement can also be
interpreted like
this:
As
cash is an asset and it is
increased in this case, so cash is
debited. Sale is an income and
increase in income
is credit. In this
case income is increased,
hence it is credited
ENTRY
# 7
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
12-01-2002
Mr.
Naeem(Debtors) A/c
09
5,000
Sale
A/c
08
5,000
Sold
goods to Mr. Naeem on
credit
Debtors
account is debited because Debtors
account has obtained benefit
and Sale account is
credited
because
business has obtained benefit
because of Sale
account.
This
statement can also be
interpreted like
this:
As
Debtors is an asset and it is
increased in this case, so debtors
account is debited. Sale is an income
and
increase
in income is credit. In this case income
is increased, hence it is
credited
Debtor is
any third person or organization,
from whom cash is receivable
by the business.
67
Financial
Accounting (Mgt-101)
VU
ENTRY
# 8
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
15-01-2002
Bank
A/c
03
5,000
Cash
A/c
01
5,000
Cash
deposited in bank
ENTRY
# 9
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
16-01-2002
Stationery
A/c
10
3,000
Cash
A/c
01
3,000
Stationery
purchased for cash
Stationery
account is debited because stationery
account has obtained benefit
and Cash account is
credited
because
business has obtained benefit
because of Cash
account.
This
statement can also be
interpreted like
this:
As stationery is an
expense and it is increased in this
case, so stationery is debited. Cash is an
asset and
decrease
in asset is credit. In this case Cash is
decreased, hence it is
credited
ENTRY
# 10
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
18-01-2002
Office
Equipment A/c
11
10,000
Bank
A/c
03
10,000
Office
equipment purchased by
cheque
Office
Equipment account is debited because
Office Equipment account has
obtained benefit and Bank
account
is credited because business has obtained
benefit because of Bank
account.
This
statement can also be
interpreted like
this:
As
Office Equipment is an asset
and it is increased in this case, so
Office Equipment is debited. Bank is
an
asset
and decrease in asset is credit. In this
case bank account is decreased,
hence it is credited
68
Financial
Accounting (Mgt-101)
VU
ENTRY
# 11
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
19-01-2002
Mr.
Afzal(Creditors) A/C
07
1,000
Purchase
return A/C
12
1,000
Creditors
account is debited because Creditors
account has obtained benefit
and Purchase return account
is
credited
because business has obtained
benefit because of Purchase
return account.
This
statement can also be
interpreted like
this:
As Creditors is a
liability and it is decreased in this
case, so Creditors is debited. Purchase
return is an
expense
and decrease in expense is credit, So it
is credited.
ENTRY
# 12
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
25-01-2002
Sales
return A/C
13
500
09
500
Mr.
Naeem(Debtors) A/C
Goods
returned by Mr.
Naeem(Debtors)
Sales
return account is debited because
Sales return account has
obtained benefit and Debtors is
credited
because
business has obtained benefit
because of Debtors
account.
This
statement can also be
interpreted like
this:
As
sales return is decrease in
income and decrease in
income is debit, so it is debited.
Debtors account is
decreased
and decrease in asset is credit, so it is
credited.
ENTRY
# 13
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
30-01-2002
Mr.
Afzal(Creditors) A/C
07
9,000
Cash
A/C
01
9,000
Cash
paid to Mr. Afzal(Creditors)
69
Financial
Accounting (Mgt-101)
VU
ENTRY
# 14
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
31-01-2002
Cash
A/C
01
4,500
Mr.
Naeem(Debtors) A/C
09
4,500
Cash
received from Mr.
Naeem(Debtors)
ENTRY
# 15
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
31-01-2002
Cash
A/C
01
500
Bank
A/C
03
500
Cash
withdrawn from bank
CASH
AND BANK BOOK
·
Ledger
is a book that keeps
separate record for each
account;
·
The
Account or Head of Account is a
systematic record of transactions of
one type; and
·
Like
other things, a separate account is
also required to record the movements in
cash (usually called
cash
in hand) and bank account
(usually called cash at
bank).
·
If the
volume of transactions is high
then we can separate books
for cash and bank
account.
·
These
separate books for cash and
bank account are called cash
book and bank book
respectively.
·
The
Cash Book records all the
movements in the cash
account.
·
A cash
book would look like
one of the two samples shown
here
70
Financial
Accounting (Mgt-101)
VU
Cash
Book
Account
Code 01
Receipt
Side
Payment
Side
Date
No. Narration /
Ledger
Receipt
Date No. Narration / Ledger
Payment
Particulars
Code
Amount
Particulars
Code Amount
OR
Cash
Book
Account
Code 01
Date
Voucher
Narration
/
Ledger
Receipt
Payment
Balance
Number
Particulars
Code
Amount
Amount
Dr/(Cr)
THE
CASH BOOK
·
In the
first format / presentation,
receipts (Debits) are written on
left hand side of the page
and
payments
(Credits) on the right hand
side.
·
In the
second presentation, instead of
using two pages, we use
two columns on the same
page.
·
Both
these presentations are
correct.
·
In the
second format, we have an
additional facility of knowing the
balance of the account after
every
transaction.
·
Whereas
in the first one, we have to
add up the receipts and
payments every time we need to
know
the
balance.
·
Moreover,
the second format utilizes
less space, therefore, we
will use this format in our
future
discussions
THE
BANK BOOK
·
The
Bank book records all the
movements in the bank account.
·
The
format of the bank book is the same as
that of cash book axcept
for an additional column
for
Cheque
Number.
·
Again,
we can use either two pages
OR two columns to present the bank
book.
71
Financial
Accounting (Mgt-101)
VU
Bank
Book (Bank Account
Number)
Account
Code 02
Date
Voucher
Chq.
Narration
/
Ledger
Receipt
Payment
Balance
Number
No.
Particulars
Code
Amount
Amount
Dr/(Cr)
·
As you
can see that except
for a few minor differences,
the formats of Cash and Bank book
are
almost
similar to that of the General
Ledger.
·
The
differences are explained
here:
·
The
title of debit and credit
columns has been changed to
receipt and payment
respectively. It is not
necessary
to make this change. But, it is done to
simplify things as we know that in
case of cash and
bank,
debit side would signify
receipt and credit side
would represent
payment.
·
There is an
additional column titled ledger
code. In this column, we write the code
of the other head
of
account that is affected by the
transaction. This helps in understanding the
complete transaction
at a
glance.
·
There
may be a column for cheque number in the
bank book.
·
It may
be noted that in case the organization
operates more than one bank
account, separate
ledger
accounts
will be opened in bank book
for each account.
Now we
will summarize all cash
transactions in both two
page cash book & one
page cash book for
the
convenience
of the reader.
Two
page cash book will be
presented asunder:
Cash
Account
Account
Code 01
Receipt
Side
Payment
Side
Date
No.
Narration
/
Ledger
Receipt
Date
No.
Narration
/
Ledger
Payment
Particulars
Code
Amount
Particulars
Code
Amount
Jan-1
Capital
introduced
02
100,000
Jan-3
Deposited in
bank
03
30,000
Jan-5
Loan
received
04
50,000
Jan-7
Furniture
purchased
05
20,000
Jan-10
Goods
sold
08
5,000
Jan-15
Deposited in
bank
03
5,000
Jan-31
Received
from
09
4,500
Jan-16
Stationery
purchased
10
3,000
debtors
Jan-31
Cash
drawn from
03
500
Jan-30
Paid
to creditors
07
9,000
bank
72
Financial
Accounting (Mgt-101)
VU
Same
record will be presented in
two column cash book
now
Date
Voucher
Narration
/
Ledger
Receipt
Payment
Balance
Number
Particulars
Code
Amount
Amount
Dr/(Cr)
Jan-1
Capital
introduced
02
100,000
100,000
Jan-3
Deposited in
bank
03
(30,000)
70,000
Jan-5
Loan
received
04
50,000
120,000
(20,000)
Jan-7
Furniture
purchased
05
100,000
Goods
soGoods sold
ld
08
5,000
105,000
0
Jan-10
5,00
(5,000)
Jan-15
Deposited in
bank
03
100,000
(3,000)
Jan-16
Stationery
purchased
10
97,000
(9,000)
Jan-30
Paid
to creditors
07
88,000
Jan-31
Received
from debtors
09
4,500
92,500
Jan-31
Cash
drawn from bank
03
500
93,000
Now,
we will present Bank entries in bank
book.
Bank
Book (Bank Account # xxx)
Account Code 02
Date
Voucher
Chq.
Narration
/
Ledger
Receipt
Payment
Balance
Number
No.
Particulars
Code
Amount
Amount
Dr/(Cr)
Jan-3
Cash
deposited
01
30,000
30,000
Jan-15
Cash
deposited
01
5,000
35,000
Jan-18
Off.
Equip.
11
(10,000)
25,000
purchased
Jan-31
Cash
drawn
01
(500)
24,500
RECOMMENDED
READING
After
reading this lecture, you
will be able to read
· Chapter
# 2 of business accounting by Frank
Woods
· Chapter
# 2, 3 of accounting by M. Arif &
Sohail Afzal
73
Financial
Accounting (Mgt-101)
VU
ILLUSTRATION
Nawab
Sons started their business
in the month of March, 2002.
Following are their
transactions for the
month.
Pass journal entries,
prepare ledger accounts, and
make their profitability
analyses.
No.
Date
Particulars
01
Mar.
01
Started
business with Rs.
150,000
02
Mar.
05
Purchased
office furniture for cash
Rs. 2,000
03
Mar.
07
Purchased
goods for cash Rs.
9,000
04
Mar.
10
Paid
carriage on purchases Rs.
250
05
Mar.
12
Purchased
goods from Saleem &co.
Rs. 7,000
06
Mar.
13
Sold
goods for cash Rs.
12,000
07
Mar.
15
Sold
goods to Usman & Sons
Rs. 25,000
08
Mar.
21
Received
cash From Usman & Sons
Rs. 25,000
09
Mar.
21
Paid
cash to Saleem &co Rs.
7,000
10
Mar.
23
Paid
salaries for the month Rs.
2,500
11
Mar.
25
Paid
rent Rs. 3,000
12
Mar.
29
Purchased
stationery Rs.2,000
13
Mar.
31
Utility
bills are accrued Rs.
5,000
JOURNAL
ENTRIES
ENTRY
# 1
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-01-2002
Cash
A/c
01
150,000
Capital
A/c
02
150,000
Started
business with cash.
74
Financial
Accounting (Mgt-101)
VU
ENTRY
# 2
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
01-05-2002
Office
Furniture A/c
03
2,000
Cash
A/c
01
2,000
Purchased
office furniture
ENTRY
# 3
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-07-2002
Purchases
A/c
04
9,000
Cash
A/c
01
9,000
Purchased
goods for cash.
ENTRY
# 4
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-10-2002
Carriage
on purchase A/c
05
250
Cash
A/c
01
250
Paid
carriage on purchase.
ENTRY
# 5
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-12-2002
Purchases
A/c
04
7,000
Salim
& co.(Creditors)
06
7,000
Purchased
goods on credit
75
Financial
Accounting (Mgt-101)
VU
ENTRY
# 6
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-13-2002
Cash
A/c
01
12,000
Sale
A/c
07
12,000
Goods
sold for cash.
ENTRY
# 7
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-15-2002
Usman
& Sons(Debtors) A/c
08
25,000
25,000
Sale
A/c
07
Goods
sold on credit.
ENTRY
# 8
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-21-2002
Cash
A/c
01
25,000
Usman
& Sons(Debtors A/c
08
25,000
Cash
received from Usman &
Sons
ENTRY
# 9
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-21-2002
Salim
& co.(Creditors) A/c
06
7,000
Cash
A/c
01
7,000
Paid
cash to Salim &
co.
76
Financial
Accounting (Mgt-101)
VU
ENTRY
# 10
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-23-2002
Salaries
A/c
09
2,500
Cash
A/c
01
2,500
Started
business with cash.
ENTRY
# 11
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-25-2002
Rent
A/c
10
3,000
Cash
A/c
01
3,000
Paid
rent..
ENTRY
# 12
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-29-2002
Stationery
A/c
11
2,000
2,000
Cash
A/c
01
Stationery
purchased.
ENTRY
# 13
Date
Particulars
Code
#
Amount(Dr.)
Amount(Cr.)
Rs.
Rs.
03-31-2002
Utility
Bills A/c
12
5,000
Accrued
Expenses A/c
13
5,000
Accrual of
utility bills for the
month..
77
Financial
Accounting (Mgt-101)
VU
LEDGER
ACCOUNTS
Cash
Account
Account
code # 1
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
1-3-02
Commenced
02
150,000
5-3-02
Office
furniture
03
2,000
business
purchased
13-3-02
Goods
sold
07
12,000
7-3-02
Goods
purchased
04
9,000
21-3-02
Received
from
10-3-02
Carriage
paid
05
250
debtors
08
25,000
21-3-02
Paid
to creditors
06
7,000
23-3-02
Paid
salaries
09
2,500
25-3-02
Paid
rent
10
3,000
29-3-02
Paid
for stationery
11
2,000
BALANCE
161,250
Total
187,000
Total
187,000
Capital
Account
Account
code # 2
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
1-3-02
Cash
introduced
01
150,000
BALANCE
150,000
Total
150,000
Total
150,000
Office
furniture Account
Account
code # 3
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
5-3-02
Office
furniture
01
2,000
purchased
BALANCE
2,000
Total
2,000
Total
2,000
78
Financial
Accounting (Mgt-101)
VU
Purchases
Account
Account
code # 4
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
7-3-02
Purchased
01
9,000
goods
12-3-02
Purchased
7,000
goods
on credit
BALANCE
16,000
Total
16,000
Total
16,000
Carriage
on purchase Account Account
code # 5
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
10-3-02
Paid
carriage on
01
250
purchase
BALANCE
250
Total
250
Total
250
Salim
& co.(Creditors) Account
Account
code # 6
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
12-3-02
Purchased
04
7,000
21-3-02
Paid
cash
01
7,000
goods
BALANCE
0
Total
7,000
Total
7,000
Sale
Account Account code #
7
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
13-3-02
Goods
sold
01
12,000
15-3-02
Goods
sold on
08
credit
25,000
BALANCE
37,000
Total
37,000
Total
37,000
Usman
& sons(Debtors) Account
Account
code # 8
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
79
Financial
Accounting (Mgt-101)
VU
#
Rs.
(Dr.)
#
Rs.
(Cr.)
15-3-02
Goods
sold
07
25,000
21-3-02
Received
cash
01
25,000
BALANCE
0
Total
25,000
Total
25,000
Salaries
Account
Account
code # 9
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
23-3-02
Salaries
paid
01
2,500
BALANCE
2,500
Total
2,500
Total
2,500
Rent
Account Account code #
10
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
Rent
paid
01
3,000
25-3-02
BALANCE
3,000
Total
3,000
Total
3,000
Stationery
Account
Account
code # 11
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
29-3-02
Stationery
01
2,000
purchased
BALANCE
2,000
Total
2,000
Total
2,000
Utility
Bills Account
Account
code # 12
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
80
Financial
Accounting (Mgt-101)
VU
31-3-02
Accrued
utility
13
5,000
bills
BALANCE
5,000
Total
5,000
Total
5,000
Accrued
Expenses Account Account
code # 13
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
31-3-02
Accrued
utility
12
5,000
bills
BALANCE
5,000
Total
5,000
Total
5,000
TRIAL
BALANCE
Saeed
& co.
Trial
Balance As On ( January 31,
2002)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
161,250
Capital
Account
02
150,000
Furniture
Account
03
2,000
Purchases
Account
04
16,000
Carriage
on purchase account
05
250
Salim&
co. (Creditor)
06
0
Sales
07
37,000
Usman
& co. (Debtor)
08
0
Salaries
09
2,500
Rent
10
3,000
Stationery
11
2,000
Utility
billst
12
5,000
Accrued
expenses
13
5,000
Total
192,000
192,000
81
Financial
Accounting (Mgt-101)
VU
Saeed
& Co.
Profit &
Loss Account for the
period ended January 31,
2002
Particulars
Amount
Amount
Rs.
Rs.
37,000.
Income
/ Sales / Revenue (See Note
#1)
Less:
Cost of Goods
Sold
(16,250)
(See
Note # 1)
Gross
Profit
20,750.
Less:
Admin. Expenses
(12,500)
(See
Note # 2)
Net
Profit/ (Loss)
8,250
Note
# 1 Cost of goods
sold
Purchases
16,000
Add:
carriage on purchase
250
Cost
of goods sold
16,250
Note
# 2 Admin. Expenses
Salaries
2,500
Rent
3,000
Stationery
2,000
Utility
bills
5,000
Total
Admin. Expenses
12,500
RECOMMENDED
READING
After
reading this lecture, you
will be able to read
· Chapter
# 3 of business accounting by Frank
Woods
· Chapter
# 5 of accounting by M. Arif & Sohail
Afzal.
82
Financial
Accounting (Mgt-101)
VU
Lesson-12
THE
ACCOUNTING EQUATION
Resources
in the business = Resources
supplied by the
owner
In
accounting, terms are used
to describe things. The amount of
resources supplied by the owner is
called
capital. The
actual resources which are
in the business are called
assets. This
means that the
accounting
equation
above, when the owner has supplied all
the resources, can be shown
as:
Assets=Capital
Usually,
people, other than the owner
has supplied some of the assets.
Liabilities
are
the name given to the
amounts
owing to these people for
these assets. The equation
has now changed
to:
Assets=Capital
+ Liabilities
It can
be seen that two sides of
the equation will have the same
totals. This is because we are
dealing with
the
same thing with two
different points of view. It
is:
Resources
in the business = Resources:
who supplied them
Assets
= Capital + Liabilities
It is a
fact that total of each
side will always equal
one another, and this will
always be true no matter
how
many
transactions there may be.
The actual assets, capital
and liabilities may change,
but the total of the
assets
will always equal to the
total of capital and
liabilities.
Assets
consist of property of all kinds,
such as buildings, machinery, stocks of
goods and motor
vehicles.
Also
benefits such as debts owned by customers
and the amount of money in the bank
accounts are
included.
Liabilities
consist of money owing for
goods supplied to the business and
for expenses. Also loans
made to
the
firm are included.
Capital is
often called the owner's net
worth.
Working
capital
Working
capital of the business is the net value
of current assets & current
liabilities.
Current
assets are
the resources of the business that
are expected to be received
within 12 months in an
accounting
period.
Current
liabilities are
the amount owing to the business that is
expected to be paid within one
year in a
financial
year.
So,
working capital is the net of what is
receivable in an accounting year &
what is payable in that year
or:
Working
Capital = Current Assets
Current Liabilities
For
instance, current assets of the business
worth Rs.100,000 & current
liabilities of the business has
the
value
of Rs. 75,000. Then working
capital is Rs.
25,000.
i.e.,
(100,000-75,000).
83
Financial
Accounting (Mgt-101)
VU
STOCK
Stock
is termed as "value of goods
available to the business that
are ready for sale".
For accounting
purposes,
stock is of two
types:
· Opening
stock
· Closing
stock
Opening
stock is the
value of goods available for
sale in the beginning of an accounting
year. For purpose
of financial
reporting, opening stock is
added to the purchases for the
year to become a part of cost
of
goods
sold. As this is
available in the beginning of the year, it is
assumed that it will be
consumed in the
accounting
year. That is why; it becomes a
part of cost
of goods sold.
Stock of previous year is the
opening
stock
in present year.
Closing
stock is the
value of goods unsold at the end of
accounting year. For
purposes of making financial
statements,
it is deducted from cost of
goods sold & is shown as an
asset in the balance
sheet. As this is
the
value
of goods that are yet to be
sold, so it cannot be included in cost of
goods sold. That is why it
is
deducted
from cost of good sold. On
the other hand, its benefit
will be received in the next
accounting year,
so it is
shown as an asset in the balance
sheet.
Now,
the
contents of cost of goods
sold are:
Opening
stock
Plus:
purchases
Plus:
Freight/ carriage paid on
purchases
Less:
closing stock
For
instance, opening stock of a
business worth Rs. 15,000,
business purchased goods of
Rs. 12,000 for the
year
& also paid Rs. 1,500 as
carriage on purchases. The
value of closing stock at the
end of the year is
Rs.
10,000.
Then, value of closing stock
is calculated as under:
Opening
stock
15,000
Add:
purchases
12,000
Add:
carriage on purchase
1,500
Less:
closing stock
(10,000)
Cost
of goods sold
18,500
Ali
Traders
Trial
Balance As On January 31,
20--
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
35,000
Bank
Account
02
130,000
Capital
Account
03
200,000
Furniture
Account
04
15,000
Vehicle
Account
05
50,000
Purchases
Account
06
60,000
Mr. A
(Creditor)
07
15,000
Sales
08
95,000
Mr. B
(Debtor)
09
15,000
Salaries
10
5,000
84
Financial
Accounting (Mgt-101)
VU
Expenses
11
20,000
Expenses
Payable
12
20,000
Total
330,000
330,000
The
Accounting Equation.
Assets
= Capital + Liabilities
Assets
= 35,000+130,000+15,000+50,000+15,000= 245,000
Capital =
200,000
Liabilities
= 15,000 + 20,000 =
35,000
Capital +
Liabilities = 235,000
We ignore the
Net Profit Rs.10000 (Net
profit is added in capital
account)
When
we added Net profit in
capital then;
Assets
= Capital + Liabilities
245000
= 210000+35000
245000
= 245000
Account
form Balance Sheet
Name of the
Entity (Ali traders)
Balance
Sheet As At (January 31,
20--)
Liabilities
Assets
Particulars
Amount
Rs.
Particulars
Amount
Rs.
Capital
200.000
Fixed Assets
65,000
Profit
and Loss Account
10,000
Furniture
15,000
50000
210,000
Vehicle
Current
Liabilities
Current
Assets
Mr.
A
15,000
Mr.
B
15,000
Exp.
payable
20,000
35,000
Bank
130,000
180,000
Cash
35,000
Total
245,000
Total
245,000
85
Financial
Accounting (Mgt-101)
VU
Report
form Balance Sheet
Ali
traders
Balance
Sheet As At January 31,
20--
Particulars
Amount
Rs.
Amount
Rs.
Assets
Fixed
Assets
65,000
Current
Assets
180,000
Total
245,000
Liabilities
Capital
200,000
Profit
and Loss Account
10,000
210,000
Current
Liabilities
35,000
Total
245,000
Treatment of
closing stock
If
closing stock is Rs.10000
then;
Name of the
Entity (Ali Traders)
Profit
and Loss Account for the
Month Ending January 31,
20--
Particulars
Amount
Amount
Rs.
Rs.
Income
/ Sales / Revenue
95,000
Less:
Cost of Goods Sold (
60,000 - 1,000 )
(59,000)
(59,000)
Gross
Profit
36,000
Less:
Administrative Expenses
(25,000)
(25,000)
Net
Profit
11,000
86
Financial
Accounting (Mgt-101)
VU
Ali
traders
Balance
Sheet As At January 31,
20--
Particulars
Amount
Rs.
Amount
Rs.
Assets
Fixed
Assets
65,000
Current
Assets (180,000
+ 1,000)
181,000
Total
246,000
Liabilities
Capital
200,000
Profit
and Loss Account
11,000
210,000
Current
Liabilities
35,000
Total
246,000
Treatment of
Depreciation
In
Profit and Loss Account it
is considered as expense and in
Balance Sheet it is deducted
from the
concerned
asset.
If
useful life of an asset is 50
month and considered that
there is no residual value
then,
·
Dividing
total cost by life of the
asset.
·
Rs.65,000
/ 50 months = Rs.1,300 monthly
charge
Name of the
Entity (Ali Traders)
Profit
and Loss Account for the
Month Ending January 31,
20--
Particulars
Amount
Amount
Rs.
Rs.
Income
/ Sales / Revenue
95,000
Less:
Cost of Goods Sold (
60,000-1,000 )
59,000
(59,000)
Gross
Profit
36,000
Less:
Administrative Expenses
25,000
Depreciation
1,300
(26,300)
Net
Profit
9,700
87
Financial
Accounting (Mgt-101)
VU
Ali
traders
Balance
Sheet As At January 31,
20--
Particulars
Amount
Rs.
Amount
Rs.
Assets
Fixed
Assets (65,000
1,300)
63,700
Current
Assets (180,000 +
1,000)
181,000
Total
244,700
Liabilities
Capital
200,000
Profit
and Loss Account
9,700
209,700
Current
Liabilities
35,000
Total
244,700
Distribution
of Profits / Drawing
Ali
traders
Balance
Sheet As At January 31,
20--
Particulars
Amount
Rs.
Amount
Rs.
Assets
Fixed
Assets (65,000
1300)
63,700
Current
Assets (181,000
- 5,000)
176,000
Total
239,700
Liabilities
Capital
200,000
Profit
and Loss Account
9,700
Drawing
(5,000)
204,700
Current
Liabilities
35,000
Total
239,700
88
Financial
Accounting (Mgt-101)
VU
Illustration
Consider
the trial balance given
hereunder:
Saeed
& co.
Trial
Balance As On ( January 31,
2002)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
161,250
Capital
Account
02
150,000
Furniture
Account
03
2,000
Purchases
Account
04
16,000
Carriage
on purchase account
05
250
Salim&
co. (Creditor)
06
0
Sales
07
37,000
Usman
& co. (Debtor)
08
0
Salaries
09
2,500
sRent
10
3,000
Stationery
11
2,000
Utility
billst
12
5,000
Accrued
expenses
13
5,000
Total
192,000
192,000
89
Financial
Accounting (Mgt-101)
VU
(This
trial balance is extracted
from the solved illustration, in
lecture 11)
Let's
say, the value of closing
stock at the end of the period is
Rs. 2,000. Then profit &
loss account will
bear
the
following change.
Saeed
& Co.
Profit &
Loss Account for the
period ended January 31,
2002
Particulars
Amount
Amount
Rs.
Rs.
37,000.
Income
/ Sales / Revenue (See
Note
16,250
2,000
(14,250)
#1)
Less:
Cost of Goods Sold
Closing
stock
Gross
Profit
22,750.
Less:
Admin. Expenses
(12,500)
(See
Note # 2)
Net
Profit/ (Loss)
10,250
Its
effect in the balance sheet is as
follows:
Saeed
& Co.
Balance
Sheet As At January 31,
2002
Liabilities
Assets
Particulars
Amount
Particulars
Amount
Rs.
Rs.
Capital
150,000
Fixed Assets
Profit and
Loss Account
10,250
Furniture
Account
2,000
160,250
Current
Liabilities
Current
Assets
Accrued
Expenses
5,000
Cash
161,250
Closing
Stock
2,000
Total
165,250
Total
165,250
This is a
practical demonstration of the treatment of closing
stock. But, we are not
mentioning the journal
entry
of closing stock at this stage. It
will be discussed in detail, when we will
study the topic of fixed
assets.
DEPRECIATION
Depreciation
is the method of charging cost of
fixed assets to the profit &
loss account as an
expense.
Fixed
Assets are those assets
which are:
90
Financial
Accounting (Mgt-101)
VU
· Of
long life
· To be
used in the business
· Not
bought with the main purpose
of resale.
When
an expense is incurred, it is charged to
profit & loss account of the
same accounting period in
which it
has
incurred. Fixed assets are
used for longer period of time.
Now, the question is how to charge a
fixed
asset
to profit & loss account.
For this purpose, estimated
life of the asset is determined.
Estimated life is the
number of
years in which a fixed asset
is expected to be used. Then,
total cost of the asset is
divided by total
number of
estimated years. The value,
so determined, is called `depreciation
for that year' and is
charged to
profit
& loss account. The same
amount is deducted from total
cost of fixed asset. The net
amount (after
deducting
depreciation) is called ``Written Down
Value''.
For
instance, an asset has a
cost of Rs. 150,000. It is
expected to be used for ten
years. Depreciation to be
charged
to profit & loss account is
Rs. 15,000, i-e. cost of
asset/estimated life. In this case, it
will be
150,000/10
= 15,000.
That
is why depreciation is called an
accounting estimate.
To
understand its accounting
treatment, consider the above mentioned
illustration
Let's
suppose the useful life of
furniture is five years.
Then, depreciation for the year
will be (2,000/5 =
400).
Now,
the profit & loss account
will show the following
picture:
Saeed
& Co.
Profit &
Loss Account for the
year ended January 31,
2002
Particulars
Amount
Amount
Rs.
Rs.
37,000.
Income
/ Sales / Revenue (See Note
#1)
Less:
Cost of Goods
Sold
(16,250)
Gross
Profit
20,750.
Less:
Admin. Expenses + Depreciation
12,500
+ 400
(12,900)
Net
Profit/ (Loss)
9,850
Balance
sheet will look like
this:
91
Financial
Accounting (Mgt-101)
VU
Saeed
& Sons
Balance
Sheet As At January 31,
2002
Liabilities
Assets
Particulars
Amount
Particulars
Amount
Rs.
Rs.
Capital
150,000
Fixed Assets
Profit and
Loss Account
9,850
Furniture
Account
2,000
Less:
depreciation
(400)
159,850
1,600
Current
Liabilities
Current
Assets
Accrued
Expenses
5,000
Cash
161,250
Closing
Stock
2,000
Total
164,850
Total
164,850
Treatment of
depreciation is practically demonstrated at this
point. Its journal entry
will be discussed in
detail, when we
cover the topic `Fixed
Assets'.
DRAWING
Capital is the
cash or kind invested by the owner of the
business. Sometimes, the owner wants to
take cash
or
kind out of the business for
personal use. This is known as
drawing.
Any money taken out as
drawings
will reduce
capital.
The
capital account is very important
account. To stop it getting full of
small details, cash items of
drawings
are
not entered in the capital
account. Instead, a drawing account is
opened, and all transactions
are entered
there.
Sometimes
goods are also taken by the
owner of the business. These are
also known as
drawings.
To
understand the accounting treatment of
drawings, look into the
following trial
balance:
Saeed
& co.
Trial
Balance As On ( January 31,
2002)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
161,250
Capital
Account
02
160,000
Furniture
Account
03
2,000
Drawings
04
10,000
Profit
& loss account
05
8,250
Salim&
co. (Creditor)
06
0
Usman
& co. (Debtor)
07
0
Accrued
expenses
08
5,000
Total
173,250
173,250
BALANCE
SHEET
92
Financial
Accounting (Mgt-101)
VU
Saeed
& Sons
Balance
Sheet As At January 31,
2002
Liabilities
Assets
Particulars
Amount
Particulars
Amount
Rs.
Rs.
Capital
160,000
Fixed
Assets
Profit and
Loss
8,250
Furniture
2,000
Account
(10,000)
Account
Less:
Drawings
158,250
Current
Current
Liabilities
5,000
Assets
161,250
Accrued
Expenses
Cash
Total
163,250
Total
163,250
93
Financial
Accounting (Mgt-101)
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Lesson-13
LEARNING
OBJECTIVE
After
studying this lecture, you should be able
to:
· Understand
different types of
vouchers.
· How
to book entry in voucher.
· Carrying
forward the balance of an
account.
VOUCHER
In
book keeping, voucher is the first
document to record an entry. Normally three
types of vouchers are
used.
i-e.:
· Receipt
voucher
· Payment
voucher
· Journal
voucher
RECEIPT
VOUCHER
Receipt
voucher is used to record cash or bank
receipt. Receipt vouchers
are of two types.
i-e.
· Cash
receipt voucher
· Bank
receipt voucher
Cash
receipt voucher denotes receipt of
cash; bank receipt voucher indicates
receipt of cheque or
demand
draft.
Standard format of cash
receipt voucher is given below:
Name of the
Organization
Bank
Receipt / Cash Receipt OR
Receipt
Voucher
Date:
No:
Description
/ Title:
Cash /
Bank code:
Description
/
Code
Credit
Title
of Account
#
Amount
Total:
Narration:
Prepared
By:
Checked
By:
94
Financial
Accounting (Mgt-101)
VU
PAYMENT
VOUCHER
Payment
voucher is used to record a payment of
cash or cheque. Payment
vouchers are of two types.
i.e.
· Cash
Payment voucher
· Bank
Payment voucher
Cash
Payment voucher denotes Payment of
cash, bank Payment voucher indicates
payment by cheque or
demand
draft. Standard format of
cash Payment voucher is given
below:
Name of the
Organization
Bank
Payment / Cash Payment OR
Payment
Voucher
No:
Date:
Description
/ Title:
Cash /
Bank code:
Description
/
Code
Credit
Title
of Account
#
Amount
Total:
Naration
Prepared
By:
Checked
By:
95
Financial
Accounting (Mgt-101)
VU
JOURNAL
VOUCHER
Journal
voucher is used to record transactions
that do not affect cash or bank.
Standard format of
journal
voucher is given
hereunder:
Name Of
Organization
Journal
Voucher
Date:
No:
Description
Code
Debit
Credit
Amount
#
Amount
Total:
Narration:
Prepared
By:
Checked
by:
HOW TO
CARRY FORWARD A
BALANCE
It is
already mentioned that in `T'
account, at the end of accounting
period, if one side is
greater than the
other
side, balancing figure will
be written on the lesser side as
balance. For instance, if amount on
debit side
is
greater than the amount on credit side,
the balancing figure is written on the
credit side as balance & it is
known
as Debit
Balance. On the
other hand, if amount on the credit side
is greater than that of amount
on
the
debit side, the balance is
shown on the debit side. It is
called the Credit
Balance.
At the
start of next accounting
period, these balances are
carried forward. Debit
balance is written on the
credit
side, but it is the excess of
debit side over the credit
side, when it is carried
forward, it is written on the
debit
side. For example, ledger
account of cash is given below:
96
Financial
Accounting (Mgt-101)
VU
Cash
Account
Account
code # 1
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
1-3-02
Commenced
02
150,000
5-3-02
Office
furniture
03
2,000
business
purchased
13-3-02
Goods
sold
07
12,000
7-3-02
Goods
purchased
04
9,000
250
21-3-02
Received
from
10-3-02
Carriage
paid
05
7,000
debtors
08
25,000
21-3-02
Paid
to creditors
06
2,500
23-3-02
Paid
salaries
09
3,000
25-3-02
Paid
rent
10
29-3-02
Paid
for stationery
11
2,000
BALANCE
161,250
Total
187,000
Total
187,000
This
cash account is showing the
balance of Rs. 161,250 on the credit
side. This balance is excess
of debit
side
over the credit side and, therefore, is
called the debit
balance. When
it is carried
forward it is
written
on the
debit side because debit
side of the cash account is
greater & Rs. 161,250 is the
balancing amount of
the
debit side of cash account.
So, it is an asset & it will be
used for further expenses in
the forth coming
period.
This
is another example of accrued
expenses:
Accrued
Expenses Account
Account
code # 13
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
31-3-02
Accrued
utility
12
5,000
bills
BALANCE
5,000
Total
5,000
Total
5,000
In this
account, balance is written on the
debit side & it is called the credit
balance. As this balance
represents
excess of credit side over
debit side, when it is carried
forward it is
again written on the credit
side.
It can
also be explained like
this:
· Debit
balance when carried forward, is written
on the debit side
· Credit
balance when carried forward, is written
on the credit
side
This
is further explained with the help of the
following solved
illustration:
ILLUSTRATION
Following
is the trial balance of Saeed &
sons for the month ended
January 31, 2002
97
Financial
Accounting (Mgt-101)
VU
Saeed
& Sons.
Trial
Balance As On ( January 31,
2002)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
55,000
Accrued
expense Account
02
10,000
Bank
Account
03
25,000
Loan
Account
04
100,000
Furniture
Account
05
20,000
Office
Equipment
06
10,000
Total
110,000
110,000
In the
month of February, following
transactions took
place:
No.
Date
Particulars
01
Feb
07
They
purchased stationery worth of Rs.
5,000
02
Feb
10
They paid
their first installment of loan Rs.
10,000
03
Feb
12
They
received a cheque from a
customer of Rs. 5,000
04
Feb
17
Accrued
expenses of Rs. 5,000 are
paid.
05
Feb
20
They
purchased furniture of Rs.
1,000
06
Feb
23
Office
equipment of Rs. 2,000 is
sold
07
Feb
25
Staff
salaries are paid by cheque
Rs. 10,000
08
Feb
28
Sold
goods for cash
Rs.2,000
98
Financial
Accounting (Mgt-101)
VU
SOLUTION
The
ledger accounts of Saeed &
Sons will bear the following
changes:
Cash
Account
Account
code # 1
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
1-2-02
Balance
c/f
55,000
7-2-02
Stationery
10
5,000
23-2-02
Sold
office
06
2,000
purchased
equipment
10-2-02
Loan
paid
04
10,000
28-2-02
Sold
goods
01
2,000
17-2-02
Accrued
expenses
02
paid
5,000
Furniture
05
purchased
1,000
Balance
c/d
38,000
Total
59,000
Total
59,000
Accrued
Expenses
Account
code # 2
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
17-2-02
Accrued
01
5,000
1-1-02
Balance
c/f
10,000
expenses
paid
Balance
c/d
5,000
Total
10,000
Total
10,000
Bank
Account
Account
code # 3
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
17-2-02
Balance
c/f
01
25,000
25-2-02
Salaries
paid
10,000
12-2-02
Cheque
received
07
5,000
Balance
c/d
20,000
Total
30,000
Total
30,000
99
Financial
Accounting (Mgt-101)
VU
Loan
Account
Account
code # 4
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
10-2-02
Installment
paid
01
10,000
Balance
c/f
100,000
Balance
c/d
90,000
Total
100,000
Total
100,000
Furniture
Account
Account
code # 5
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
10-2-02
Balance
c/f
20,000
23-2-02
20-2-02
Furniture
01
1,000
purchased
Balance
c/d
21,000
Total
21,000
Total
21,000
Office
Equipment Account
Account
code # 6
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
10-2-02
Balance
c/f
10,000
Office
Equipment
01
2,000
sold
Balance
c/d
8,000
Total
10,000
Total
10,000
Balance
c/f is balance carried forward &
balance c/d is balance Carried
down.
100
Financial
Accounting (Mgt-101)
VU
Lesson-14
We
have demonstrated the carrying
forward of balances in lecture-13.
Another solved example is
given
below:
ILLUSTRATION
Following
is the trial balance of Rahil & co.
for the month ended January
31, 2002.
Rahil &
co..
Trial
Balance As On ( January 31,
2002)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
30,000
Accrued
expense Account
02
10,000
Bank
Account
03
50,000
Loan
Account
04
100,000
Furniture
Account
05
20,000
Office
Equipment
06
10,000
Debtors
account
07
12,000
Creditors
account
08
10,000
Sales
account
09
20,000
Purchase
account
10
18,000
Total
140,000
140,000
During
the month, following entries
took place:
No.
Date
Particulars
01
Feb
07
They
purchased stationery worth of Rs.
3,000
02
Feb
10
They paid
their first installment of loan Rs.
12,000
03
Feb
12
They
received a cheque from a
customer of Rs. 5,000
04
Feb
13
They paid a
cheque of Rs. 8,000 to a
creditor
05
Feb
15
Purchased
goods of Rs 6,000 & paid through
cheque
06
Feb
17
Accrued
expenses of Rs. 5,000 are
paid.
07
Feb
20
They
purchased furniture of Rs.
2,000
08
Feb
21
Sold
goods for cash
Rs.5,000
09
Feb
22
Purchased
goods on credit Rs.
5,000
10
Feb
23
Office
equipment of Rs. 5,000 is
Purchased
101
Financial
Accounting (Mgt-101)
VU
11
Feb
25
Staff
salaries are paid by cheque
Rs. 15,000
12
Feb
28
Utility
expenses of Rs. 3,000 are
accrued.
Leger
accounts of Rahil & co. during the
month will show following
picture:
Cash
Account
Account
code # 1
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
1-2-02
Balance
c/f
01
30,000
7-2-02
Stationery
10
3,000
21-2-02
Sold
goods
09
5,000
purchased
10-2-02
Loan
paid
04
12,000
17-2-02
Accrued
expenses
02
paid
5,000
Furniture
05
2,000
purchased
23-2-02
Office
equipment
06
5,000
purchased
Balance
c/d
8,000
Total
35,000
Total
35,000
Accrued
Expenses Account
Account
code # 2
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
17-2-02
Accrued
01
5,000
1-1-02
Balance
c/f
10,000
expenses
paid
Expenses
accrued
3,000
Balance
c/d
8,000
Total
13,000
Total
13,000
Bank
Account Account code #
3
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
Balance
c/f
50,000
13-2-02
Paid
to creditors
08
8,000
12-2-02
Cheque
received
15-2-02
Goods
purchased
10
6,000
07
5,000
25-2-02
Salaries
paid
11
15,000
Balance
c/d
26,000
Total
55,000
Total
55,000
Loan
Account Account code #
4
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
102
Financial
Accounting (Mgt-101)
VU
10-2-02
Installment
paid
01
12,000
Balance
c/f
100,000
Balance
c/d
88,000
Total
100,000
Total
100,000
Furniture
Account
Account
code # 5
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
10-2-02
Balance
c/f
20,000
23-2-02
20-2-02
Furniture
01
2,000
purchased
Balance
c/d
22,000
Total
22,000
Total
22,000
Office
Equipment Account
Account
code # 6
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
Balance
c/f
10,000
23-2-02
Office
01
5,000
Equipment
purchased
Balance
c/d
15,000
Total
15,000
Total
15,000
Debtors
Account
Account
code # 7
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
Balance
c/f
12,000
12-2-02
Cheque received
03
5,000
Balance
c/d
7,000
Total
12,000
Total
12,000
Creditors
Account
Account
code # 8
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
103
Financial
Accounting (Mgt-101)
VU
13-2-02
Paid
to creditors
03
8,000
Balance
c/f
10,000
22-2-02
Goods
purchased
10
5,000
Balance
c/d
7,000
Total
15,000
Total
15,000
Sales
Account Account code #
9
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
Balance
c/f
20,000
21-2-02
Goods
sold
01
5,000
Balance
c/d
25,000
Total
25,000
Total
25,000
Purchases
Account
Account
code # 10
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
Balance
c/f
18,000
15-2-02
Goods
03
6,000
purchased
07
5,000
22-2-02
Goods
purchased
Balance
c/d
29,000
Total
29,000
Total
29,000
Salaries
Account
Account
code # 11
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
25-2-02
Salaries
paid
03
15,000
Balance
c/d
15,000
Total
15,000
Total
15,000
Stationery
Account
Account
code # 12
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
104
Financial
Accounting (Mgt-101)
VU
25-2-02
Stationery
01
3,000
purchased
Balance
c/d
3,000
Total
3,000
Total
3,000
Utility
Expenses Account
Account
code # 13
Date
Particulars
Code
Amount
Date
Particulars
Code
Amount
#
Rs.
(Dr.)
#
Rs.
(Cr.)
Accrued
utility
02
3,000
28-2-02
expenses
Balance
c/d
3,000
Total
3,000
Total
3,000
The
trial balance at the end of the
month is as follows:
Rahil &
co..
Trial
Balance As On ( January 31,
2002)
Title
of Account
Code
Dr.
Rs.
Cr.
Rs.
Cash
Account
01
8,000
Accrued
expense Account
02
8,000
Bank
Account
03
26,000
Loan
Account
04
88,000
Furniture
Account
05
22,000
Office
Equipment
06
15,000
Debtors
account
07
7,000
Creditors
account
08
7,000
Sales
account
09
25,000
Purchase
account
10
29,000
Salaries
Account
11
15,000
Stationery
Account
12
3,000
Utility
Expenses Account
13
3,000
Total
128,000
128,000
Difference
between expenses &
Purchases
· If
business purchases items for
its own use (items
that are not meant to be
resold) are charged
to
expense
account.
· If
business purchases items for
resale purposes are charged
to purchases account.
STOCK
105
Financial
Accounting (Mgt-101)
VU
·
Stock
is the quantity of unutilized or unsold
goods lying with the
organization.
·
Stock
is termed as "the value of
goods available to the business
that are ready for
sale". For
accounting
purposes, stock is of two
types
Type
of Stock
·
In
trading concern, Stock
consists of goods that are
purchased for the purpose of
resale, but not
sold
in that accounting period.
Trading concern is that organization,
which purchases items
for
resale
purposes.
·
In manufacturing
concern(an organization that converts
raw material into finished
product by
putting
it in a process), stock consists
of:
o Raw
material
o Work
in process
o Finished
goods
Raw
material
Raw
material is the basic part of an item,
which is processed to make a
complete item.
Work
in process
In manufacturing
concern, raw material is put
in a process to convert it into
finished goods. At the end
of
the
year, some part of raw
material remains under process.
i-e. it is neither in shape of raw
material nor in
shape
of finished goods. Such
items are taken in stock as
work in process.
Finished
goods
Finished
goods contain items that are
ready for sale, but could
not be sold in that
accounting period.
Stock
Account
·
Stock
Account is Debited
with
the Value
of the Goods
Purchased
·
Stock
account is Credited
with
the Purchase
Price of the Goods Sold /
Issued for Production.
·
Stock
Account shows the cost /
purchase value of unsold
goods.
106
Financial
Accounting (Mgt-101)
VU
In
manufacturing concern, entries
for stock are:
Purchase
of stock
Debit:
Stock
Account
Credit:
Cash/Supplier
/Creditors Account
When
the stock is purchased, stock
account gets the benefit, so it is
debited & cash or supplier
account
provides the
benefit, so it is credited.
Payment
to creditors
Debit:
`
Supplier /
Creditors account
Credit:
Cash
account
Consumption
of goods
Debit:
Cost
of goods sold
Credit:
Stock
Account
Cost
of goods sold
Cost
of goods sold is different in
both form of organization
· In
trading concern, cost of
goods sold is the value of
goods unsold(goods stands
for the items
purchased
for resale purpose)
· In
manufacturing concern, cost of goods
sold is the value of raw
material consumed plus any
other
manufacturing
cost. e.g., salaries of
labour cost of machinery
etc.
Stock
and cost of goods sold in
manufacturing concern
Raw
Material Stock
Other
Costs Accounts
Work
in Process Account
Finished
Goods Account
Cost
of Goods Sold
Account
In manufacturing
concern, Raw material stock
is put into process. For
accounting purposes, all
value of
stock
and other manufacturing costs
are charged to work in
process account. When the
process is completed
and
the goods are prepared, all
the value of work in process is
charged to finished goods
account. The
business
sells finished goods for the
whole accounting year. At the
end of the year, goods that
are unsold are
deducted
from cost of goods sold
account.
107
Financial
Accounting (Mgt-101)
VU
Lesson-15
STOCK
Stock
is termed as "the value of
goods available to the business
that are ready for
sale". For accounting
purposes,
stock is of two
types:
· Opening
stock
· Closing
stock
Opening
stock is the
value of goods available for
sale in the beginning of an accounting
period.
Closing
stock is the
value of goods unsold at the end of the
accounting period.
Journal
Entries
(In
Case of Trading
Concern)
Journal
entries for those goods
which are bought for
resale purposes are as
follows:
Purchase
of goods:
Debit:
Stock/Material
Account
Credit:
Cash/Bank/Creditor
Consumption of
goods
Debit:
Cost
of goods sold
Credit:
Stock
Payment
in case of credit purchase
Debit:
Creditors
Account
Credit:
Cash/Bank
( In
Case of Manufacturing
Concern)
·
In
case of manufacturer there
are at least two types of
Stock Accounts:
o Raw
Material Stock
Account
o Finished
Goods Stock Account
Raw
material
Raw
material is the basic part of an item,
which is processed to make a
complete item
Finished
goods
Finished
goods contain the items that
are ready for sale,
but could not be sold in
that accounting
period.
Work
in process
In manufacturing
concern, raw material is put
in a process to convert it into
finished goods. At the end
of
accounting
period, some part of raw
material remains under process.
i-e. it is neither in shape of
raw material
nor in
shape of finished goods.
Such items are taken in
stock as work in
process.
Flow
of costs
108
Financial
Accounting (Mgt-101)
VU
Raw
Material Stock
Other
Costs Accounts
Work
in Process Account
Finished
Goods Account
Cost
of Goods Sold
Account
In manufacturing
concern, Raw material stock
is put into process. For
accounting purposes, all
value of
stock
and other manufacturing costs
are charged to work in
process account. When the
process is completed
and
the goods are prepared, all
the value of work in process is
charged to finished goods
account. The
business
sells finished goods for the
whole accounting year. At the
end of the year, goods that
are unsold are
deducted
from cost of goods sold
account.
Journal
Entries (Manufacturing
Concern)
Purchase
of raw material
Debit:
Stock/Material
Account
Credit:
Cash/Bank/Creditors
Other
direct costs incurred
Debit:
Relevant
cost/Expense Head
Credit:
Cash/Bank/Payables
Raw
material issued and other
costs allocated to production of
units
Debit:
Work
in process
Credit:
Stock
Material Account
Debit:
Work
in process
Credit:
Relevant
Expense Head Account
When
production is completed
Debit:
Finished
Goods Stock Account
Credit:
Work
in process account
Entry
for Cost of sale
Debit:
Cost
of Goods Sold Account
Credit:
Finished
Goods Stock Account
Entry
for sale of goods
Debit:
Cash/Account
receivable Account
109
Financial
Accounting (Mgt-101)
VU
Credit:
Sales
Account
Return of
purchased material
There
are two options for
recording purchase material
return
· Option
1
Debit:
Goods
Return Account
Credit:
Stock
Material Account
AND
Debit:
Cash/Bank
Account
Credit:
Goods
Return Account
OR
If our
supplier supplies us some other
material in exchange of material
returned. Then:
Debit
Raw
Material Stock
Account
Credit:
Goods
Return Account
In the
first case above, cash is
received in return of goods. In the
second case, defective goods
are
exchanged
with quality goods. That is
why, we debited our stock account.
Both entries are correct
for
return
of purchased items.
Option
2
Debit:
Cash/Creditor
Account
Credit:
Stock
Account
Example
1
· Record
the following transactions:
1.
Purchased goods for cash
Rs. 10,000
2.
Purchased goods on credit from
ABC Co. Rs.
25,000
3.
Sold goods whose cost
was Rs. 20,000
4.
Returned goods to ABC Co.
that originally cost Rs.
5,000
5.
Paid to ABC Co. Rs.
15,000 through cheque
6.
Sold goods whose cost
was Rs. 5,000
·
Answer
following questions.
1.
What is the cost of goods
sold?
2.
What is the value of closing
stock?
3.
What amount is payable to ABC
Co.?
1
Purchased goods for cash
Rs. 10,000
Cash
Account
Code
--
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
1
Purchased
goods for cash
10,000
(10,000)
110
Financial
Accounting (Mgt-101)
VU
Stock
Account Code --
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
1
Purchased
goods for cash
10,000
10,000
2
Purchased goods on credit from
ABC Co. Rs.
25,000
ABC
Co.
Code
--
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
2
Purchased
goods from ABC
25,000
(25,000)
Stock
Account Code --
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
1
Purchased
goods for cash
10,000
10,000
2
Purchased
goods from ABC
25,000
35,000
111
Financial
Accounting (Mgt-101)
VU
3
Sold goods whose cost
was Rs. 20,000
Cost
of Goods Sold
Code
--
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
3
Goods
sold
20,000
20,000
Stock
Account Code --
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
1
Purchased
goods for cash
10,000
10,000
2
Purchased
goods from ABC
25,000
35,000
3
Goods
sold
20,000
15,000
4
Returned goods to ABC Co.
cost Rs. 5,000
ABC
Co.
Code
--
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
2
Purchased
goods from ABC
25,000
(25,000)
4
Returned
goods to ABC
5,000
(20,000)
Stock
Account Code --
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
1
Purchased
goods for cash
10,000
10,000
2
Purchased
goods from ABC
25,000
35,000
3
Goods
sold
20,000
15,000
4
Returned
goods to ABC
5,000
10,000
112
Financial
Accounting (Mgt-101)
VU
5
Paid to ABC Co. Rs.
15,000 through cheque
ABC
Co.
Code
--
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
2
Purchased
goods from ABC
25,000
(25,000)
4
Returned
goods to ABC
5,000
(20,000)
5
Paid
to ABC
15,000
(5,000)
Bank
Account Code --
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
5
Paid
to ABC
15,000
6
Sold goods whose cost
was Rs. 5,000
Cost
of Goods Sold
Code
--
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
3
Goods
sold
20,000
20,000
6
Goods
sold
5,000
25,000
Stock
Account Code --
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
1
Purchased
goods for cash
10,000
10,000
2
Purchased
goods from ABC
25,000
35,000
3
Goods
sold
20,000
15,000
4
Returned
goods to ABC
5,000
10,000
6
Goods
sold
5,000
5,000
113
Financial
Accounting (Mgt-101)
VU
Q1
What is the cost of goods
sold?
Cost
of Goods Sold
Code
--
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
3
Goods
sold
20,000
20,000
6
Goods
sold
5,000
25,000
Q2
What is the value of closing
stock?
Stock
Account Code --
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
1
Purchased
goods for cash
10,000
10,000
2
Purchased
goods from ABC
25,000
35,000
3
Goods
sold
20,000
15,000
4
Returned
goods to ABC
5,000
10,000
6
Goods
sold
5,000
5,000
Q3
What amount is payable to ABC
Co.?
ABC
Co.
Code
--
Date
No.
Narration
Dr.
Rs.
Cr.
Rs.
Bal.
Dr/(Cr)
2
Purchased
goods from ABC
25,000
(25,000)
4
Returned
goods to ABC
5,000
(20,000)
5
Paid
to ABC
15,000
(5,000)
Example
2
·
Using the
following data calculate the
Cost of Goods Sold of XYZ
Co.
Stock
levels
Opening
Rs.
Closing
Rs.
Raw
material
100,000
85,000
Work
in process
90,000
95,000
Finished
goods
150,000
140,000
Purchase
of raw material during the
period Rs. 200,000
Paid
to labour Rs. 180,000 out of
which Rs. 150,000 used on
production.
Other
production costs Rs.
50,000
O/S
100,000
Raw
Material Account
114
Financial
Accounting (Mgt-101)
VU
Purch.
200,000
WIP
215,000
Labour
Account
C/S
85,000
Cost
180,000
Charge
150,000
Total
300,000
Total
300,000
Total
180,000
Total
180,000
Work
in Process Account
Other
Costs Account
O/B
90,000
Paid
50,000
Charge
50,000