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Financial Accounting

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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
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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
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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
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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
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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
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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
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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
Table of Contents:
  1. Introduction to Financial Accounting
  2. Basic Concepts of Business: capital, profit, budget
  3. Cash Accounting and Accrual Accounting
  4. Business entity, Single and double entry book-keeping, Debit and Credit
  5. Rules of Debit and Credit for Assets, Liabilities, Income and Expenses
  6. flow of transactions, books of accounts, General Ledger balance
  7. Cash book and bank book, Accounting Period, Trial Balance and its limitations
  8. Profit & Loss account from trial balance, Receipt & Payment, Income & Expenditure and Profit & Loss account
  9. Assets and Liabilities, Balance Sheet from trial balance
  10. Sample Transactions of a Company
  11. Sample Accounts of a Company
  12. THE ACCOUNTING EQUATION
  13. types of vouchers, Carrying forward the balance of an account
  14. ILLUSTRATIONS: Ccarrying Forward of Balances
  15. Opening Stock, Closing Stock
  16. COST OF GOODS SOLD STATEMENT
  17. DEPRECIATION
  18. GROUPINGS OF FIXED ASSETS
  19. CAPITAL WORK IN PROGRESS 1
  20. CAPITAL WORK IN PROGRESS 2
  21. REVALUATION OF FIXED ASSETS
  22. Banking transactions, Bank reconciliation statements
  23. RECAP
  24. Accounting Examples with Solutions
  25. RECORDING OF PROVISION FOR BAD DEBTS
  26. SUBSIDIARY BOOKS
  27. A PERSON IS BOTH DEBTOR AND CREDITOR
  28. RECTIFICATION OF ERROR
  29. STANDARD FORMAT OF PROFIT & LOSS ACCOUNT
  30. STANDARD FORMAT OF BALANCE SHEET
  31. DIFFERENT BUSINESS ENTITIES: Commercial, Non-commercial organizations
  32. SOLE PROPRIETORSHIP
  33. Financial Statements Of Manufacturing Concern
  34. Financial Statements of Partnership firms
  35. INTEREST ON CAPITAL AND DRAWINGS
  36. DISADVANTAGES OF A PARTNERSHIP FIRM
  37. SHARE CAPITAL
  38. STATEMENT OF CHANGES IN EQUITY
  39. Financial Statements of Limited Companies
  40. Financial Statements of Limited Companies
  41. CASH FLOW STATEMENT 1
  42. CASH FLOW STATEMENT 2
  43. FINANCIAL STATEMENTS OF LISTED, QUOTED COMPANIES
  44. FINANCIAL STATEMENTS OF LISTED COMPANIES
  45. FINANCIAL STATEMENTS OF LISTED COMPANIES