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I.Com Part I Notes

Accounting Syllabus for I.com Part I
Chapter No 1: Journal, Ledger, Trial and trial balance
Chapter No 3: Bill of exchange
Chapter no 3: Bank Reconciliation Statement
Chapter no 4: Final Account
Chapter no 5: Capital and Revenue
Chapter no 6: Rectification of error

Bill of exchange
Chapter no 2
Define bill of exchange?
A bill of exchange is an instrument in writing containing an unconditional order by one person (seller) to
another person (purchaser) signed by the both parties having fixed amount payable after fixed future
Time.
How many parties involves in bill of exchange?
There are three parties involve in bill of exchange

Drawer

Drawee

Payee

Define drawer, drawee and payee?

Drawer: the person who writes/draw the bill of exchange. He is the seller/Debtor.

Drawee: the person to whom the bill is drawn

Payee: the person who receives the amount of bill is called payee. He may be drawer,

bank or endorsee.
Difference between inland bill and foreign bill
Inland bill are drawn in a country upon person same country.
Foreign bill is drawn in a drawn in one country and payable in another country.
Define promissory notes?

An instrument in writing containing an unconditional promise by the maker (purchaser) to pay a certain
sum of money only to other person (seller) after fixed future time period.
How many parties involves in promissory notes?
They are two parties to a promissory note.

The maker (purchaser)

The payee (seller)

Tenor
Tenor is period of time after which a bill becomes payable, also called duration of bill.
How many kind of acceptance?
There are two types of acceptance
General acceptance when accept the bill without any condition.
Qualified acceptance when accept is accept with condition/qualification (time, place).
Define bill receivable and bill payable?
When a bill is written then a bill from the view of drawer is bill receivable
When a bill is written then a bill form the view of drawee is called bill payable
Define grace days
It is customary to allow three days of grace to the drawee to pay the amount in the case of a term bill.
Holder of the Bill
Holder of a bill means that Drawer, Endorsee and bank whole is entitled to receive the payment on due
date.
Define discounting a bill
If the holder of a bill is in need of money before the due date of bill he may sell it to the bank. The bank
will give cash after deduction of some charges.
e.g A draw the bill on B, A is drawer and B is drawee. When A Discount the Bill form Bank is Called
discounting of Bill.
Define the endorsement of a bill
Endorsement of the bill means when drawer transfer the bill to his creditor for settlement of debts.
A draw the bill on B, A is drawer and B is drawee. When A endorsee Bill to C. C is Endorsee.
When a bill become dishonored
When Drawee fail/refuse to make the payment on the due date is called dishonour of bill
e.g A draw the bill on B, A is drawer and B is drawee. When B Fail to Make the Payment is called
Dishonoured of Bill.
Notary Public
Notary Public is an officer who maintains record of then Dishonour Bills.
Define noting charges
In case of bill dishonored the notary pubic will charge a small fee from the holder of the bill This fee is
known as noting charges.
What is meant by retiring of a bill
Retiring a bill means making payment before of maturity of the bill
e.g A draw the bill on B, A is drawer and B is drawee. When B make the payment before date.
Define Trade Bill
Trade bill is drawn and accept on Credit purchase and sale of goods.
Define accommodation bill.
accommodation bill drawn to help or to accommodate someone for certain period.
Insolvency

Insolvency mean the on the due date of the bill, the person is unable to pay the whole the bill.
Renewal of bill
Drawee request the drawer to issue new bill with condition to cancel the old bill before due date by paying
some interest.

Drawer/Creditor/Seller
This process start from credit sales

Drawee account/Debtor/Purchaser

Sales account
Drawee account
Now draw a bill
Bill receivable
Drawee account

Purchases account
Drawer account

XXX
XXX
XXX
XXX

Drawer account
Bill Payable

XXX
XXX
XXX
XXX

Here drawer has four options

1. Retain the bill till due date
2. Discounting the bill from bank
3. Bank for collection
4. Endorsement
1.Retain the bill till due date
Drawer/Creditor/Seller
Drawee account/Debtor/Purchaser
Cash account
Bill payable
Bill receivable
Cash account
2.Discounting the bill from bank
Here make sure of two things that first transaction is between bank and drawer because drawer
discounted the bill from bank and then between bank and drawee
Drawer/Creditor/Seller
Drawee account/Debtor/Purchaser
Bank
Bank account
Bill receivable
Discount account
Cash a/c
Bill receivable
Discount a/c
Bill Payable
Cash account
Cash account
Bill receivable
3.Bank for collection
Here case is different because you people are just giving the bill to bank for collection but not giving the
possession of bill so following entries is passing
Drawer/Creditor/Seller
Drawee account/Debtor/Purchaser
Bank
Bank for collection
No entry
Bill receivable
When bank collect the bill just bank charges from that money
Bank account
Bill payable
Cash account
Bank charges
Cash account
Drawer account
Bank for collection
Bank charges
4.Endorsement

Drawer/Creditor/Seller
Endrosee a/c
Bill receivable

Drawee account/Debtor/Purchaser

Bill payable account

Endorsee
Bill receivable
Drawer a/c

Cash account
Cash account

Bill receivable

Journal entries for dishonored of bills

Retain the bill till due date

Drawer/Creditor/Seller
Drawee account
Bill receivable
Discounting the bill from bank

Drawee account/Debtor/Purchaser
Bill payable
Drawer account

Bank
Drawer account
Bill receivable

Drawer/Creditor/Seller
Drawee account
Bank account
Bank for collection

Drawee account/Debtor/Purchaser
Bill payable
Drawer account

Bank

Drawer/Creditor/Seller
Drawee account
Bank for collection
Endorsement
Drawer/Creditor/Seller
Drawee account
Endorsee account

Drawee account/Debtor/Purchaser
Bill payable
Drawer account

Drawee account/Debtor/Purchaser
Bill payable
Drawer account

No entry
Endorsee
Drawer account
Bill receivable

When noting charges are paid then only cash is shown in the accounts of party which has paid
these charges so these entries in aspects of noting charges are as follow but these charges are
received by drawee in future and drawee gives the name of trade expenses.

Retain the bill till due date

Here cash is paid by self because bill has been retained by drawer himself
Drawer/Creditor/Seller
Drawee account/Debtor/Purchaser
Drawee account
Bill payable
Bill receivable
Trade Expenses
Cash account
Drawer account

Discounting the bill from bank

Here charges are paid by bank so
Drawer/Creditor/Seller
Drawee account/Debtor/Purchaser
Drawee account
Bill payable
Bank account
Trade expenses
Drawer account
Cash account
Bank for collection
Drawer/Creditor/Seller
Drawee account/Debtor/Purchaser

Bank
Drawer account
Bill receivable

Bank

Drawee account
Bank for collection
Endorsement
Drawer/Creditor/Seller
Drawee account
Endorsee accont

Bill payable
Drawer account
Drawee account/Debtor/Purchaser
Bill payable
Drawer account

When first time bill is drawn

Drawer/Creditor/Seller
Drawee account
Bill receivable
On request of drawee a new bill is drawn
Pass the journal entry for interest
Drawee account
Interest or cash account
Then pass here a simple journal entry as above
Drawee account
Bill receivable

Retain the bill till due date

Drawer/Creditor/Seller
Cash account
Rebate account
Bill receivable

No entry
Endorsee
Drawer account
Bill receivable

Drawee account/Debtor/Purchaser
Bill payable
Drawer account

Interest or cash account

Drawer account
Bill payable
Drawer account

Drawee account/Debtor/Purchaser
Bill payable
Cash account
Rebate account

Journal, Ledger and Trial balance

Chapter No.1
What is accounting?
Accounting is act of Recording, classifying, Summarizing and interpreting the monetary transactions in
the books of accounts
What is bookkeeping?
Book keeping is the act of Recording Monetary transactions in the books of account.
Define business?
Any legal activity undertaken for the purpose of earning profit is called business
e.g General Store, Book shop.
Define proprietor
The owner of business who actually invest money in business.
e.g Mr. ASAD started a business, Mr. ASAD is Proprietor of the business.
Define capital?

Investment by the owner to Start the business is Called Capital

e.g Mr. ASAD started a business with Rs.100000, Rs. 100000 is his Capital.
What is drawing?
The cash or goods taken away by the proprietor from the business for personal and private use is called
drawings
What is transaction?
Any dealing between two or more persons is called transaction
Mr. ASAD sales goods to Mr. Ishaq at certain price is called transaction between Mr.ASAD and Mr. Ishaq
Define double entry system?
A system in which we consider both aspects (Dr and Cr) of transactions is Called Double Entry System.
What is trade discount?
A Trade discount is allowed by Seller to Purchaser on the list price/Retail price of goods
What is cash discount?
Cash Discount is Deduction which is allowed by the seller to the purchaser at the time of Payment is
called cash Discount.

What is sale?
The act of selling goods or service at specific price to Customer is called sale
e.g when books sold by book shop to students
Types of Sale
1. Cash Sale
The act of selling goods or services at specific price to Customer on Cash is called Cash sale
2. Credit Sale
The act of selling goods or service at specific price to Customer on credit is called Credit Sales
What is sale return/return inward?

Sale Return Occurs when customers return defective, damaged, or otherwise undesirable
goods to the seller
What are purchases?
When goods are purchased by business for selling purpose is called purchases
e.g books purchased by book shop for sales.
Types of Purchases
3. Cash Purchases
When goods are purchased by business for selling purpose on Cash is called Cash Purchases
4. Credit Purchases
When goods are purchased by business for selling purpose on credit is called Credit Purchases
What is purchases return/return outward?
When Goods returned by Business to supplier due to any defect is called purchases return
What is account?
A summarized record of business transactions relating to a person or a thing.
What are assets?
Assets are Economic resources of business are called assets of business.
(Cash, Land, Building and Machinery)
Define liabilities?
Any kind of debts of business is liabilities

e.g (Bank Overdraft and Loan)

What is account equation?
Assets = Liabilities + Capital (Owners Equity)

Define debtors or Account Receivables?

A Person who purchase good on credit from Business and has to Pay the Amount to business is Called
Debtor, it is consider as assets of the business
e.g Mr. B Purchased Goods from Business (Bookshop) for Rs. 10000, B is Debtors from Business Point
of View.
Define creditors or Account Payable?
A Person who sold the goods on credit to business and has to receive the Cash from business, it is
consider as Liability of the business
e.g Mr. A Sold Goods to Business for Rs. 10000, A is Creditors from Business Point of View.
What is commission?
It is a form of remuneration for services rendered by one person to another
What is difference between double entry system and single entry system?
A system in which we follow two folded aspects (debit and credit) of entry is called double entry system
one is debit (Dr) and other is credit (Cr)
A system in which we follow only one aspect (debit or credit) is called single entry system. It is only
partial record of small business
What are dual aspect concepts?
Dual aspect concepts may be stated as for every debit there is a credit, and for every credit there is
a debit.
How many kinds of account?
The two types of account

Personal account

Impersonal account

Real account or property account

Nominal account
What are personal accounts?
Accounts relating to person or firms are called personal accounts.
e.g Like ahmed account, bank alfalah.
What are real accounts?
All those account which keep record of properties or things owned by a trader are called real accounts.
e.g building account, furniture account
What are nominal accounts?
Nominal accounts which keep record of income, expenses, gains and losses
e.g such as Discount account, Salaries, Rent, Repair account.
What is journal/Book of original entry?
The book of accounts in which business transactions are originally recorded in chronological order is
called journal. It is also called book of original entry
Define narration?

A short explanation of each transaction in journal is written at the end of each entry which is called.
What is journalizing?
The act of recording transaction in journal is called journalizing.
What in Simple entry?
The entry which involve only one debit and only one credit is called simple entry.
What in compound entry?
The entry in which more than one account is debited or credited is known as compound entry.
What is ledger? A book in which business transactions are finally recorded in summarized and classified
form is called ledger.
Explain the term balancing?
The process of equalizing the two side of account is known as balancing.
Sketch the standard form of ledger account?
Dr
Cr

Date

Particular
s

Folio

Amount

Date

Particular
s

Folio

Date

Define zero balance?

If the two sides of an account are equal the account will show zero balance.
Define Debit balance?

Debit balance mean where total of debit side exceeds than credit side is written on credit side
of account.
Define Credit balance?
Credit balance mean where total of credit side exceeds than debit side is written on debit side

of account
What is trial balance? An accounting schedule which contains the ledger account balance where total
of debit balances is equal to the total of credit balance.
Define the term merchandise?
Merchandise are the Goods purchased by business for selling.
e.g Books purchased by Shopkeeper are the Merchandise for the business.
What is inventory?
Goods on hand those remaining unsold at the end of the year is also called stock.
e.g Book Remain unsold at the end of the year called stock or ending inventory.
Define bank?

A bank is a financial institution which deals with deposits and advances and other related
services. It receives money from those who want to save in the form of deposits and it lends
money to those who need it.
.What is cheque?A cheque is unconditional order in writing drawn by customer on his bank, requesting
to pay certain sum of money on demand.
How many kinds of cheques?
Bearer cheques is one on which bearer is written after the name of payee. It is payable to bearer.

Order cheques

is one on which order is written after the name of payee. It is payable to person
whose name is written before order.

Crossed cheques when two parallel line are drawn on the side of cheque is payable only through a
collecting banker and not directly at the counter of the bank.

What is bank draft?

A bank draft is a written order for transferring money from one place to another
How many functions of bank.
Primary function is to borrow and lend money.
General function is to issue important documents, and keep valuable things in safe custody.
Agency function is bank collect and pay cheques and realizes interest and dividend on customer behalf.
How may kinds of accounts?
Current accounts in this case the customer can deposit or withdraw money any time within banking
hours. Bank does not pay any interest or Profit/Loss.
Saving account customer deposits its saving into the bank and bank will share profit and loss with
customer.
Fixed Deposit account in which money is deposit for fixed time period, Banks Pay very high interest
rates.
Pay in slip a printed form which is filled in when money is being deposited in a bank.
Cheque book A booklet of cheques which enable holder to draw money from his/her account deposits.

Bank pass book issued by a bank to record deposits, withdrawals and balance in Account holder
account.

Date

Particular

Deposits

withdrawals

Balance

initial of
officer

Bank Overdraft
Any Excess amount withdrawn from bank by the account holder is called bank overdraft
Accounting Cycle
1. Transaction

3. Ledger

2. Journal

4. Trial Balance

5.Final Account

Journal, Ledger and Trial balance

Chapter No.1

Introduction of accounting and its basic concepts

Accounting is act of Recording, classifying, Summarizing and interpreting the
monetary transactions. What is bookkeeping? Book keeping is the act of Recording
Monetary transactions in the books of account. Define business? Any legal activity
undertaken for the purpose of earning profit is called business e.g General Store, Book
shop. Define proprietor The owner of business who actually invest money in business.
e.g Mr. ASAD started a business, Mr. ASAD is Proprietor of the business. Define
capitalInvestment by the owner of business to start a business e.g Mr. ASAD started a
business with Rs.100000, Rs. 100000 is his Capital. What is drawing? The cash or
goods taken away by the proprietor from the business are called drawings. What is
transaction? Any dealing between two persons or things is called transaction Mr.
ASAD sales goods to Mr. Ishaq at certain price is called transaction between
Mr.ASAD and Mr. Ishaq Define double entry system? A system in which we consider
both aspects (Dr and Cr) of transactions.
Kinds of discount trade discount? A Trade discount is allowed by the manufacturer or
the wholesaler on the list price/Retail price of goods or services from one party to
other party. Cash discount? Any Deduction which is allowed by the seller to the
purchaser at the time of Payment is called cash Discount.
Sales, Purchases, Sales Return and Purchases Return
What is sale? When goods are sold to customer at specific price called sale e.g when
books sold by book shop to students. What is sale return/return inward? When goods
are returned by customer to Business recorded in sales return book. What are

purchases? When goods are purchased by business for selling purpose are called
purchases e.g books purchased by book shop for sales. What is purchases
return/return outward? When Goods returned by Business to supplier is called
purchases return due to any defects are purchased return.
Types of Purchases
1. Cash Purchases
When goods are purchased by business for selling purpose on credit are called Cash
Purchases
2. Credit Purchases
When goods are purchased by business for selling purpose on Cash are called
Credit Purchases

Account equation, assets and Liabilities ?

Assets = Liabilities + Capital (Owners Equity) What are assets? Assets are Economic
resources of business are called assets of business. (Cash. Account receivable and
debtors). Define liabilities? Any kind of debts of business is liabilities
e.g (Account Payable, creditors)
Account, Debtor and creditor account?
A summarized record of business transactions relating to a person or a thing. Define
debtors or Account Receivables? A Person to whom goods are sold on credit, it is
consider as assets of the business e.g Mr.A Sold Goods to B for Rs. 10000, B is
Debtors from A Point of View. Define creditors or Account Payable? A Person who
sold the goods on credit and to whom Money is Payable (Due), it is consider as
Liability of the business e.g Mr.A Sold Goods to B for Rs. 10000, A is Creditors from
B Point of View.
Difference between double entry system and single entry system?
A system in which we follow two folded aspects (debit and credit) of entry is called
double entry system one is debit (Dr) and other is credit (Cr) A system in which we
follow only one aspect (debit or credit) is called single entry system. It is only partial
record of small business. What are dual aspect concepts? Dual aspect concepts may
be stated as for every debit there is a credit, and for every credit there is a debit.
Kinds of account?

The two types of accounts

Personal account (Accounts relating to person or firms are called personal
accounts.e.g Like ahmed account, bank alfalah.
Impersonal account
Real account or property account (All those account which keep record
of properties or things owned by a trader are called real accounts.e.g building
account, furniture account
Nominal account are for those that record income, expenses, gains and
losses e.g such as Discount account, Salaries, Rent, Repair account.
Journal/Book of original entry, Ledger and Trial Balance?
The book of accounts in which business transactions are originally recorded in
chronological order is called journal. Define narration? A short explanation of each
transaction in journal in written end of each entry which is called. What is
journalizing? The act of recording transaction in journal in called journalizing. What
in compound entry? The entry which involve only one debit and only one credit is
called simple entry. What in compound entry? The entry in which more than one
account is debited or credited is known as compound entry. What is ledger? A book in
which all the transactions of a business concern are finally recorded in the concerned
accounts in summarized and classified form is called ledger.
Sketch the standard form of ledger account?
Dr
Cr
Date

Particulars Folio

Amount

Date

Particulars Folio

Date

What is trial balance? An accounting schedule that lists the ledger account balance at
a point in time and total of debit balances is equal to the total of credit balance.
Balance, Zero Balance, Debit Balance and credit balance
The process of equalizing the two side of account is known as balancing.Define zero
balance? If the two sides of an account are equal the account will show zero balance.
Define Debit balance? Debit balance meant where total of debit side exceeds than credit side is written on
credit side of account. Define Credit balance? Credit balance meant where total of credit side exceeds
than credit side is written on debit side of account.

Define the term merchandise? Merchandise are the Goods which are purchased by
business for selling. e.g Books purchased by Shopkeeper are the Merchandise for the
business. What is inventory? Goods on hand those remaining unsold at the end of the
year is also called stock. e.g Book Remain unsold at the end of the year called stock or
ending inventory.What is commission? It is a form of remuneration for services
rendered by one person to another.

Bank and its important terms

A bank is a financial institution which deals with deposits and advances and other
related services. It receives money from those who want to save in the form of
deposits and it lends money to those who need it. Bank Overdraft Any Excess amount
withdrawn from bank by the account holder is called bank overdraft.
Cheque and its kinds
A cheque is unconditional order in writing drawn by customer on his bank, requesting
to pay on demand certain sum of money. How many kinds of cheques? Bearer
cheques is one on which bearer is written after the name of payee. It is payable to
bearer. Order cheques is one on which order is written after the name of payee. It is
payable to person whose name is written before order. Crossed cheques when two parallel
line are drawn on the side of cheque is payable only through a collecting banker and
not directly at the counter of the bank. What is bank draft? A bank draft is mean of
transferring money from one place to another, is a written order in the form of a check
instructing the payment of money to the individual named on the bank draft.
Functions of bank.
Primary function is to borrow and lend money. General function is to issue important
documents, and keep valuable things in safe custody.Agency function is bank collect
and pay cheques and realizes interest and dividend on customer behalf.
Kinds of accounts?
Current accounts in this case the customer can deposit or withdraw money any time
within banking hours. Bank does not pay any interest or Profit/Loss.
Saving account customer deposits its saving into the bank for specific period,Bank
will share profit and loss with customer.
Fixed Deposit account in which money is deposit for fixed time period, Banks Pay
very high interest rates.
Important banking documents
Pay in slip a printed form which is filled in when money is being deposited in a bank.
Cheque book a booklet of cheques which enable holder to draw money from
his/her account deposits.
Bank pass book issued by a bank to record deposits, withdrawals and balance in
Account holder account.
Date

Particular

Accounting Cycle
1. Transaction

Deposits

withdrawals

Balance

initial
officer

of

2.
3.
4.
5.

Journal
Ledger
Trial Balance
Final Account (Trading and Profit and Loss, Balance Sheet)