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DEFIMTION, DEVELOPMENT AND


)*U"Jo.h.o,,. l- OzuECTTVES OF'' ACCOUNTING

' Thg nccessity ofbook-keeping and accountancy arose due to the fact that memory ofpersons
is limited and one cannot remember various informations for ever and secondly the proprietors
or owners of business ara eager to lqrbw thc financial position of the business proprietors over
a particular period. Thirdly, book-kebpingrecords are also considered as evidencein the courts
to^prove claims or t6 defcnd in casq ofclaims made againstthe person concerned regar:ding debts,
ctc. Thansactions relatcd to business have become so importait that their proper recording
bccamc a pr:imc requirement of any business and this recording of business transactions is
rcgardcd as book-kec4lr8 h the field of accounting.
DEVELOPMEAIIT OF AC COUIVTING
Lucas F. Pacioli, a rcsident of Venice (Italy), is regarded as the founder of book-ke'efing. His
book'I)e Computiset Scripturise' was published in 1494, which is regarded as tbe first book on
book-kceping- Really speaking, it was a book on Arithmetic and book-keeping was described in iLs
onc part only. The advent of industrial revolution resulted in largc-scale pr:oduction, competition
and broadening of markct- In recent years the change in technoiogy has brought about remarkable
changes in the field of accounting. It has thus lead to formulatiori of various professional bodies and
Institutc in order to monitor:, regulatc and control accounting profession at nafional and intcrna-
tiondl lcvcl. The various'bodies have laid down various accounting policies, broad quidelines,
principles and methods at global level for r:niformity in accounting practiccs.
MEANING OF BOOK-KEEPING
Booh-keeping is itn arL as well as science of recording business transoctions of an in-d,iuidtnl.
firnL, company, corporation and other associcition of persons and instittttion.s in a certain set of boohs
reS;ularly according to prescrfbed ru.les and regulations on the basis of sotne dtfinite system f-or' .

fttl/iLment of certain objects.


It is irrrportant to n<-rte that only those transactions and events related to business arc
recordcd rvhich can of money. Book-keeping includes (i)
transactions and eve count, i.c-, journal and various subsid
(ii)classifyirrg and po ing and balancir-rgof accounts in ledgc .

beforc preparation of l,rial balance form the subject-rnatter of book-kecping. 'l:;li


DEFINITION OF ACCOTIAITIN{i
Whcrc booh'hecpirtg ertds a.ccottnting begins. Accounting refbrs to procr:ss ol prcparing and.
prcsr:nting thc ilccounts in a scientific and systernatic manner. According to Anrerir:arr Jnstitute
of Oerrtificd PLrblic Accountants (AICPA), Ar:<'ott.nting rs th.e ort ctf rcr:ctrclirtSl, clossifyin.g uttd
surtt.ttturi.sirtg i.tt a si.gtLificatt.t n1o.]7net- and in t.r:rnts ctf ntoncy, tran.sor:t.iorts ctrt.<i trt<:rtl.s tLthi.r;lt u.rc
of u lirtarrcictl c]Laractcr uttd irtLerprel:.ttg Llu: n:sults tlrcreof.
Accounting is thc Lungttage of busi.ness because it is througli ..rcrcounting iirat verrious
tnonotary l:ratt,crs lel:rt,cci u'ith busincss :trrr contmunicatcd IIcncc, :rccorrnling is nriu,' corr-
sid<rrcd asa.:nirtfirnt.ct(.ictrt st,sl.t'rlr rvhich aicls lrtrsiness aud its u-^ers ilr t:tiiiirr;ctrlrr(.'nli(j decisions
SAHI TYA BHAWAN PUBLICATIONS

ACCOUNIING

Recording rneasured Classifying & Aralysis &


Tlansactions & Events transactions & events in Surnmarising Interpretation &
proper books ofaccount tralsactions & events Communication of
(i.e.,I-cdger & Final Financial Statement
Accounts)

Decision Makers
(Investor, Creditor,
Supplier)

I T\Dtn I -

Fig, 1. Accounting as an Infonnation System for Decision Making Process


Accountancy refers to the application of scientific and systbmatic knowledge of accounting.
It emphasizes on why and how to prepare books of accounts and summarize it in order toprovide
information to it end ,,rse.". It also includes interpretation aspect of the recorded
^""ot-ting
information.
An analysis of the definftion of Accounting can be examined as :
L. Science aindArt: Accountarpyis Jcience becauseithas some definite objects tobefulfrlled.
In order to fulfil the objectives their are certain accounting rules and principles which are to be
adhered. It is art because it prescribes the process through which the objects can be achieved.
2. Busintss transactions and euents of financial nature : Recording of all transactions is not
Accounting, only business transactions and events and that too offinancial nature only form
the subject-matter of accountancy. Atransaction refers to exchange of goods or services betweerr
two parLies in which one of the participant is the rcceiver and the other the giver. An event is a
happening of a certain event which is related to the business entity whether internal or external.
3. fn furms of money : Only those transactions which are expressed in terms of money arc
recorded. If there are transactions which cannot be expressed in terms of money, they will not
fall under Accounting.
4. Recording: It refers to writing of business transactions and events ueasured in monetary
tcrms in an or.derly manner in journal or in subsidiary books of journal like Cash Book. Sales
Book, Purchases Book, etc.
5. Classifyin.g : It refers to the process of classilicafion of recorded transaction of similar
uature and type at one particular place. This rvork of classification is done in the book termed
as "Ledger" \Vbcre valious accounts are opened and tr:ansaction of sirnilar nature arcr grouped I
I
at onc place.
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6. Su;nrrLurisi.n.g: It re{'crs to preparalion of trial balance, tradingaccount, p,-ofit and loss I
:rccount and balanct: shclet.. Preparation of trading account, profif & loss account and balance (-

sheet is collectir,<:l_"- irnou'n as 'Final Account.s or Financial Statcrnents'. Balance shct:t is the L
I

slirllrDary cl'wholo o1 thc accountanc.r' record,


i
'/. !nttrprctcttiott -. T.nLe,i preLittioir refirrs to cler-iving ct>ncltrsiorts front accrrunting lccorrls, ur (,
l rnilnner- uscful to thtr t:itd riser-'s in oi-der to milke rneaning5lhl jtrrJgerur:nt and rJr:cisions ab<iut
r'lrt-. f rnanci:.1 Positior rurd pltifltnbility of the btisiness actir.'ities carrr'ed out cluring t]-rc financial
i
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I

i} I T.' FTtr R]! C-- E IlE T1VEE N BO OK - KE E FING AN}} A{] CO UNTI N TJ
f
A,:crrLint,ing br:iins *'irr:r.c' book-keeping cnc.!s lSooli-keeping differs lrc,ir accc-,trniing on -l

f<,llii,,r iri:g gi'c,ir;ri!i :


lr
DE TTINITION. D E\TELOPI\4INT .{ND OBIECTN'ES OF ACCOUNTING
__3
Basis
1:- Book-lzeeping Accounting
Recording of transactions in the To examine these transac-
books of original entry. tions in order to find out their ac-
,-I
-l curacy.
-:^- t-
--J! q |

-"i.- nf
I
:
Posting 'lb makc posting in ledger. To examine this posting in order to
i
find out its accuracy.
i Total and Balances 'fo make total of the amounts in 'lo prepare trial'balance with the
journal and accounts of ledger. To help of balances of ledger accounts.
-: find out balances in all the accounts
and ledgers.
'=a:]a '
Objective Torecord transaction in orderlyand To deterrrrine profit & loss and
systematir manner. financial position of tl.e business
concern.
Tllding, P. and L. Ac- Prcparation of1lading, Profit and heparation of Tlading, Profit and
corrntlqd Balance Sheet Loss Account and Balance Sheet is Loss Account and Balance Shect is
-i
TPUT J

not book-keeping. included in it


; Records re- garding Ad- These are not included in Book- Th6se are included in Accounting.
rccounting.
justments & Errors & keeping.
'their rectification
: to provide
Nature of Job The job of book-keeping is ro-utine The job of accounting is anal;rtierl
Le recorded
and clerical in nature. in nature.
Stage Book-keeping is primary stage. Accounting is secondary stage. It
Jt begins where book-keeping ends-
befulfilled. Special knowlcdge arlh It does not require special It requires specia-l knowledgeand
ch are to be ability knowledge and ability as in ad- ability.
vanced cduntr'ies this work is done
: achieved. by machines.
:tions is not Liability A book-keeper is not liable for ac- An accountant is liable for the work
e only form work.
les between ACCOfIAITING CYCLE
-R.G.Williarns -slbeek-EeeP* ----- i

n event is a In the broad sense accounting cycle refers to ;


-
or external. 1. Recording oftransactions injournal or in its subsidiary books.
f money arc 2. 'Io post them in ledger.
trey will not 3- To prepare final accounts-
Thus, an accounting cycle begins'uvith recording oftransactions and ends with the prepa-ratiou
in monetary ofthe final accounts. The steps involved in accounting cycle or process ofaccounting are ;
Book. Sales Firsi; Process : Recording of l.ransactions in books of original entries is the first process of
Accounting.
rn of similar Seconcl Proccss : Recorul oi
book t,errned joun-ral and other subsidiarl' Recording of transactrons
lrrc'grorrpt--d books is irtpu.t for ledger. On tl,'e, Subsidiav Book
irr .loLrlrral or-

brrsis ofthis rccord. postings iirc' l-,\'*Lrn*t


'ofit and loss nradc in lcdgcr irr vltiious irc -
I lrrtc: ple tation
and balanctr crlunts. Eaclr rrccount is f
sihecl is the balani:ed at thc end of'a cer-trin
1rc'r'iocl arid thr:st: baIant:cs irrc
rg rt)cords, ill orr.t1tir t o{ lt'clge,i- I l';eparation of ltinal .{ccounts.
c;isions about T'h,in! Prcress - f'r'elriirl | ' l r':rrii Irg. Pr r' fi I 1' | .r rs-. \ r
thi: tinarrci al tton ol'.1\'ral Balzrncc is thc thild 1 ,t liulirtec Slrecr . _ _
l)rocc.ss of irccc;urrting- Bil!rlrrcr's
liorn lerdgcr iirc lrarl.sfcrrcrl t,r,
( ('Ourltrllg (tl: T\-ial I-llianr.-r,. hr:r'rcc 1]rc..;ir
[;rilanr'r's :\i'.' ittlri.ll firr tlrc 1.ri:li f i,;" 2";tcrr;uiltrng (-!ij (rz" !r'r'o<:es.s q>f ,4ccrrti:+tir:r zi
SAHITYA BIIAWAN PUBLICATIONS

balance. Total ofdebit balances in trial balance should be equal to total ofcredit balances in trial
balance.
Fourth Process: Preparation ofFinal Accounts is the fourth process ofAccounting. Record
of trial balance. is input for final accounts. Final Accounts refer to Tlading Account, Profit and
Loss Account and Balance Sheet. Some balances of Tbial Balance are transfe.rred to Thading
Account and some balances of Trial Balance are transferred to hofit and Loss Account while
remaining balances of Tlial Balance are transferred to Balance Sheet. The balance of Tlading
Account in the form ofgross profit (loss) is transferred to Profit and Loss Account and the balanie
of Profit and Loss Account in the form of net profit (loss) is transferrOd to Balance Sheet. Thus, ll
Balance Sheet is the summary of whole of the accountancy record which is the output of'the
fourth process.
el
Fifth Process : Analysis and Interpretation is the fifth process ofaccounting. Final Accounts al
' are inputs for this process and on the basis of analysis of Final Account's, interpretations are
made. Tlaese interpretations are the output of the last process of accounting.
tn
Afber one financial year or a accounting period for'which accounting record is made, again ar
journal, ledger and final accounts are prepared. Thus, tbis cycle goes on for the whole period of mi
business in yearly cycles or the cycles ofthat period for which accounts are prepared. The above O.C'
can be figured as :
OBJECTfIIES OF ACCOIJNTING fin
I. Mqin objects are : (l)To know profit or loss ofthe business. (ii) To know the worth of assets
and liabilities of the business at a particular date. (iii) To know about the progress or downfall pat
of business. (iv) To know as to whht amo}nt is to be paid to a particular person or what emount
arc
is to be received from a certain pelson oh a particular date. (v) In the case ofthe companies to bus
comply the provisions of the Companies Act, 1956 as under this Act it is necessary for the
companies to maintain accounting record.
earl
II. Other Objects: In addition to the main objects described above, following are other objects and
: (i) To know about the position ofgoods stocks. (ii) To know the position of cash. (iii) To know about
Ltnl(
the errors and ftauds of tJre employees. (iv) To have detailed information about capital employed
indt
in the business. (v) To satisfy the taxation authorities. (vi) To know the financial and other
requirements of business at a particular period of time.
In short object of book-keeping is medsurerLent of wealth and financial heqlth.
MERITS OE BOOK-IGEPING AND ACCOUI{TING
F'or the sake of convenience these merits are grouped as irnder :
(A) Merits to Businessman; (B) Merits to Employees; (C) Merits to the Persons Concerned;
(D) Merits to Government; (E) Merits to Consumers; (F) Merits to Research Scholars; (G) Merits
to Nfanagement; (H) Merits to Investors; (I) Merits to Competing Concerns, (J) Merits to New
Entrepreneurs; (K) Merits to Political Parties P
(A) Merits to Businessntatl: (1) It helps in ar:quiring financial infbrmations about the o
business. (2) It help.s in buving and sellingprocess of business. (3) Comparison of the accounts
of vzrrious years assist.s in gettingvarious beneficial infornrations. (4) Properly kept accounts Intcr
act as a goori proof in a court of lau'- (5) Acrcounting records provides great help in assessment
,rf various djrect and Indiret:t taxcs. (6) It helps in acquiring loan. (7) It helps in deterrnining the
itrct
amount of goodu.ili. (.3) Accorrnting is a necessitl, in large-scale productic.n (9) It helps in c(

contr<.,1ling the enployecs. (i0) If the businessmall rvants to get hjniself dcclared as insolvent, (

accriuntingrecr>rci is r-rl'gr-e.rt lieJp in making his u'eak financial position clear in this re:gard lbllou
(B) Merits t.o Empl.ot't't,i; :Accour-rting rc;corcl helps t,he employees in all matters relatedto (

ihoir u'a.4es, salaries. bonris. r.rl-c (

(C\ X,[erits to titc Pl,rsttns ()ortt'trrrcr] :All the persons, u'ho are clircrtl-y or indirectly fbllot,
coircerrrecl u'it.h thr: busines-." rir-tr benefitted b-v it" a.s it rernoves dorrbts about thc anrotrrrts tobc (
r-cr:cived or pnid. Thc irer-soirs u'hc acivancc Ioair-* c,r suppl-t, r-ilrv nrrrtct-ials on c:r'llii to thc ilcl i\,1
br;sincsrs. gt:1 ruirxirriurir :r,i',':::'rt ltgc fi-otn ai:crtttntitrg rerc'ot'rl i.toit lt
DEFrNrrIo.N'DEVnLoPMEli!4lP_,oilE9TrvEF_qIAcjgqrypq
qs in trial (D) Merits to Gouernitent :(l) Finalcial assistancb is prowided by the Government on thc
basis of aocounting record. (2) Country's industrial progress cal be judged on its basis. (3) It
g Record helps iir making assessment of total income for thc purpose of determining taxes. (4) It helps in
?rofit and providing licenses. (5) Sometimes these records help in making amendments in prevailing
, Tltding business laws.
unt while (E) Merits to Consumcrs : Correct cost prices and sales prices are fixed on the basis of
f Tbading accurate accounting record, hence consumers can get goods and services at reasonable price.
re balance (F) Merits to Research Scholars : Research scholars can give suitable suggestions, for
>et. Thus, improving accounting system after studying accounting record of various units.
tut of the
tG) Merits to Managernent : Management always remain keen in knowing the result of its
efforts which is indicated by accoulting record. It is on this basis that they frame new policies,
Accounts
alter existing methods and formulate new schemes and control busincss activities.
rtions are
(El) Merits to Inuestors: If some one wants to purchase the shares ofthe company or is eager
to make investment by other means in the business unit, he becomes eagerto know the past
rde, aggin
and present financial position, earning capacif, liquidity position of the unit concerncd. He also
period of
r
makes an interpretation about the future growth of the unit and all this he does on tlre basis of
lhe above accounting record.
(I) Merits to Competing Concerns: Competing concerns always remain keen to know the
financialposition of all those units whom they regard as thcir competitors.
h ofassets
(J) Merits to New Entreprenezrs : The entrepreneurs, who want to start business in a '
r downfall
particular line wa).t tor\Fow the earning capacity and financial position of those units rvhich
at amount
are carrying on busindss of that line. It helps them in deciding whether to start that type of
rpanies to
business or not.
ry for the (K) Merits to Political Parties: These days in India political parties also want to know the
lrer objects earning capacity and financial position of various business units in order to assess their working
low about and their affect on the employees and outsiders. In many cases they represent various tradc
employed unions and coin issues for their political platform on the basis of accounting record of big
and other industrial units.
USERS OF ACCOUNTING INFORMATION
I"ollou'ing chart inclicates various types of users of accounting information :
{Jsers of Accounting Inforrnation
t__
I

I
)oncerned;
(G) Merits lnternal Ext,,rrrral Ust,rs
'its to Neu' t --'
i

l1
f'ropliet.or Enry>io;'ees
l;Il
l,ru"'.tnr. i ()r,,ditors Go'r,cnrrnr:n{
abor,rt the
r, accouni,s
,'r ( h.. nr':s I

l'r r.-]g, e.s


r
rt
Rt searcL'Sclrol:. rs (-)tlrel PJrsons
t accounts !ntc:r;ral t].eer.s
ts s(:ssment
'll-:t: orvners lrnd 1>et'srins rvor-liinli ilr tlre organisalion iri nr:rr-ragcri:rl lr,r.els ancl cnrplo_r,r:es
nrining the
irt r, ,,,rnsid('r-ei as irrternltl usnr-s o1'lrct:orrnting inforniel.iorr
Il helps iri
t.7 ) I'roitrictrtrs/Otlrrrrs. -Acc:oturtinrg irrfbrnratirln hr:l1ls tlrt
. insr;lven1. JrltiPr-ictor/ orvners to krrr;w tlre
. regard {irl!ot,inls
.; rcrli;t,errl to l:t) llitrrrrrtg ()irPec:itl': (lr) l'.jnlrrtr:rrrl I'ositior-r' atrcl (t:) ["rr{ irr'<' l'rusyrct:ts o1 lhc r'rrtt,r 1,n*,'
t'2) trtunogt:ntrttl ..\trc:ount,it.ll-inlirrriralion is o{'glirirl l.lcvlin(r(, 1(r tlrc rir.rna.qt'rrrcrrl irr 1h.
inclirt't'tl1 lirllou'irrg irsprr:ts :

lrrrrt.s t,o bc (it I'lirirnrng. (ii)()rganisin.g, (iii)()o-orcliirating. (ir') Ilrrds'-rtirrg. (r') (-lontrollinS bLrsrncss
t,dit Jo tht' il(irvitit's.tti)lleci.1,,r') rnlrl<ing l'hrrs. nlilnilllenlenl c:rrrinrl;i'olcthct{licit:nr:.v.irrcr-c,irscPr-orlu,-r
iic!' ;lrri iiri ii,:,se 1:l'r1i1ir[rilii.ir lrt usirrt rrr'<'ounting.irr{irl rli:ii'rir irr :rrr rrlr1rlo1-,;i6f s l]lutr)('1
SAHITYA B IIAWAN PUBLICATIONS

(3) Employees : Employees always feel that proprietor makes huge profrt while their
b remunerations are limited, this doubt is removed by accounting information. On the basis of
profit and loss account ofthe current year, they can know current year's profit and can ccmpare
F
it with the profit of the previous year.In case the profitability is higher, th'ey can may make a
demand for bonus, increase in remuneration and retirement benefrt schemes etc.
Employees are also eager to know about the continuance of the organisation in future for
unlimited period because it will result in the continuance of their services, therefore, on the
basis ofbalance sheet they can ascertain theirjob security and stability.
External Ljsers
The persons who are neither proprietor nor employees, but somehow have interest in the
business activities and their operational result are called externa-l users. They use accounting
information for various pufposes according to their requirements-
(L) Creditors: Persons who supply goods on credit or provide long-term finance are termed as
creditors- They need information to deterrnine whether the concern will be able to pay their principal
and interest (if any) as dnd when due.
(2) Inuestors: It is only after knowing the profitability and sound financial position that
potential investors take decision about making investment and present investors (shareholders)
io continue investment in an enterprise. Accounting information is of great use to them in this
connection specially in making judgement for their reiurns on investnents.
(3) Consumers : Consumers are interested in the prices of the goods and services rendered
by q. enterprise. This p?ice decision is based on cost of productionplus estimated margrn of
profit, hence consumers are intdrestpd in accounting information with which an idea of price
structure can be made.
(4) Gouernment : Accounting information is used by the government for the following
purposes :
(i) Fixation oftax rates and introduction ofnew taxes.
(ii) To assess whether the unit is going to become sick.
(iii) To compute national income.
(iv) To prepare national accounts.
(v) To know industrial growth of Jhe country.
(5) Research Scholars : Researches are being made in various universities, industries and
in govei.nment departments. Accounting information of vatious entcrprises is of great use to
research scholars.
(6) Foreigners : These days the entire n'orld has become one market due to rapid growth of
means of transport and communications. Soine foreign rnarket players a!-e eager to know the
profitability and financial position ofcertain enterprises engaged in certain industries. On the
basis of this information they may makc an opinion about import,, export and also about merger
and business takeovers,
(7) Other Pcrsons: Many olhel-persolrs i1l'e also inlerested in accor.rnting jnformation for
utstance :

(i) Etr.trcprcilettr: An entreprenerur is ca61er to l<nrxr, lhe profitability and financial


position of tlrosc enterprises u'hich arer ailead-y in an inc{us!r-,'. It is only after
kni;ri,ing their posltion ire r.r.iii mirkc' up l-iis rlind u'hether to st:ii't similrrr enlelpris.'
or not.
(it) TrLxa/.ittti ,4tt.ilnri tics. Taxriion arrthorities needs and accorrnt.irrg inlirlnratilrn tfi
deicrnrining i,:riiotrs tax lirrbilities, i c , incorue i,ax, sreles tax. etc:,
(,rii) CotnTtcti.tot-s . The yrr:i-sorrs *hr; rvant tt: cornpcte rvilli a partir:uiirr c.illoif ris,'. \\,:1rrt
to knorv it,s po-<itiorr on the basis oi- its 'ar:cortniing record'.
tivJ 'I)'adr: Assocrolrs.'l'ircse iissociations r:iimpai'e the perfbrmarce of l.ircjr nienibcrs"
unit-q lrnrl 1l,err if ncc:cl bc- clerrnz.rnd concosslons or-r:xemptiorrs fioln tlrr: (loi r:r-rrrrrclrf
il tli'-;riit'.r lrtrri tttitei' :rlrlri'r'a i'
DEFINITION, DEVELOPMENT AND OBJECTMES OF ACCOU]\ITING

rhile their @) Stock Exchanges: Tlrey require accounting information in connection with listing
'rhe basis of ofsecurities and other spheres connect6d with various dealings in stock exchanges.
:a;r compare (vt) Media : Media specially related with econornics and finance need sccounting
nay make a inforrnation of various units for bringrng them to the notice of rnasses dnd govern
ment.
in future for (vri) Political Parties: These days political parties use accounting information in placing
rfore, on the their views in the Parliament, in the legislative assemblies and before the masses.
. FUNCTIONS OF ACCOUNTING
' 1- To record business transartions : The main and primary function of accounting is to keep
terest in the systematic record of business tr:ansactions which can be expressed in terms of money.
r accounting 2. Tb indicote earning capacity and financial position: Only recordingoftransaction is not
the function of accounting, preparation of final accounts which include trading, profit and loss
re termed as account and balance sheet is also a function of accounting. It is on this basis that the earning
reirprincipal capacity and financial position of the unit concerned can be found out, which-may be of great
use to the owner and various other parties.
oosition that 3. To satisfy Gouernment Agencizs: One of the functions of accounting is to satisfy various
hareholders) Government agencies. fn Income-tax, tax is charged on net profit and net loss is allowed to be
them in this carried forward for writing it offout of the income of future years, hence it is through accounting;
that reliable information regarding profrt or'loss may be obtained and this may provide
ces rendered satisfa-ction to the taxation authorities.
ed margin of 4. Tb cornply lega{requiremcnts: In case ofregistered companies and other specific business
idea of price where turnover ofbu$ness exceeds Rs. 40 lakh, auditing is compulsory. Auditingis not possible
without accounting, hence accounting has to be made of such a staldard as to comply with the
:he following legal requirements. In addition to it various documents, returns and statements are also to be
frled at various places, and in this respect too accoulting is made use of.
5. To assist Management : Accownting provides valuable information which is of great
importance for the management in performing various.management functions uiz., planning,
organising, controlling, co-ordinating, decision-making etc. Decision-making of management is
mainJy based on the results disclosed by accounting.
6. To protect assets: Accountant always remain keen to see that unauthorised use of asseis
rclustries and should not be made, hence such a system of accounting is devisecl which can check this
['great use to unauthorised use. If accounts are properly kept, assets will be used on-ly in the interest of the
bnterprise- Without receipt of adequate amount, the assets will not be disposed of. All this is
,pid gr-owth of pcissible through proper accounting.
r to larow the 7. To depict true financial positiott: Last function of accounting is to depicttrtre frnancial
stries. On the position of the business as a rvhole.
about rncr[Jer- LMTITATIONS OF AC COTINTINC
Accounting has the following linritations :

,fornratroit for 7 No rccorcl. of ncttt-rnonctary tnr.nsaction . Tlte trar.rsactions u'hich cannot bt: cxpressed in
t.erms of rnoney are not rccorded in accorrnting. IJence, accounl.irrg is liuiited only upto rnonctary
i,ind linancial trirnsactions
is oillv aficr 2. Lt';1u1. restricLions: ln cirse olc:ompzrnit.s various provisions of'the Companies Act, 1956,
Lllrl cnit:r-pliscr ar e to lrc complied u'ith and hence t:ertain limitations are impr.rscd b-y lau' on accounting s)/st(,m,

1!!rrn (itr
i: l{otct'ordof'cltorr.gitrglsric:t:/ctrr'1 :(lostconceptisadoplcdirr:rcr:orrrrting.Chzrngirrgprices
ii 1;11r
itrc riol r:oi-isirlelct-I. 1Yri.s is verrl'strong lirnitation of accounting.
-1 lJo rccctrrl of irnnrcttt't iaL irtfot rn.atictrts : (lonr'<r;rtion ,rf- ruatcrialitv is vr,.r,v in'f iortzurt i;r
1rr-pr ist., rvrinl-
ar;corintir.rg Al accoru-rt has t,o nralie il distinction betrveen mal,erizJ and imnraterirrl itenis..All
nrat.r'r-i;,rl itcrns musi bc clisc,lo.-qcd in financial stat,ernents IIenc<:, rr.ratcrial itcn is tlrr,' lirnitation oi
Irt,ir- rtrembet s'
rl<:cotrnlilr{ ,{ S 1'';lrril A Si 5 crnphrsizr: on this ir.sprrcl
rr i ioi i,r ittirctti
.\..S ,\,'qr,1111jj11u St:::rtlalrl j,rr-:triti;:terl irr irtrlr I lrr, I(].{J
SAHIIYA BIIAWAN PUBLICAT] ONS

5. No record of p-rospectiue profits : In accounting provision is made for prospective losses


like provisigl {or bad and doubtful debts but no provision is made for prospective profits. This r
is another limitation of accounting which is based on the concept of conservation and it is t
recognised inA.S. 1.
6. No application.of_objectiuity factor: Accounting policies are framed by the accountant
a
according to his .oyn jndlvidual judgement, hence it is-the subjective factoithat prevails in
O1
accounting and objective factor is ignored.
SYSTEMS .OF FINANCIAL ACCOUNTING
p{
I. Cash System: Cash system of Accounting is used in those concerns where only cash re
transactions tbke place and the object of the is not to make profit.
2. Single Entry System: Under this system"on"Jtn
in case of some transactions only one aspect is In
recorded while in case of some transactions both the aspects are recorded and some transactions
ac'
are not at all recorded.
. 3. Double Entry System: IJnder this system both debit and credit aspects of a transactions Stt
are recorded according to certain prescribed rules.
4- Indian System of Accounts : Long Bahies are used under this system. Re-cords in these
oft
Bahies dre made in Indian Language like Hindi or Murhia. This system is also based on Double
Entry System- , :
res
rec(
, ACCOUInING METHODS
There are two recognised methods of Accounting: --
rDg,
L. Mercantile Methad of Accounti4g : This mbthod is commonly adopted by business van
concerns. When accounts are prepdred oir the basis of accrual concept, tlie metiod oflccounting
is called mercantile accounting method. It is also called accrual system of accounting. Accrual part
revenue and accrual expcnditure are the basis for accounting under this system. cont
2. Cash Method of Accounting : This method is adopted only in those concerns where on-ly
cash transactions take place. 1-
q
F'INANCIAL STATEMENTS
Financial statements include tading Account, Profit and Loss Account and Balance Sheet
4.
of an enterprise- Thading Account is a part of Profit and Loss Account- This account indicates
the profit or loss of the enterprise, i.e., earning capacity of the enterprise, while Balance Sheet
indicates financial position of the enterprise.
Tlpes of Financial Staternents
7 General purposc Financial staternents: These statements are prepared to satisfy the
needs of proprietors, cleditors, investor.s. employees, etc.
2 Spccial Purpose FincLn.ci'al Sto.tements: These statements are Prepared for the satisfa<:-
tiop of Taxation Authorities or other-government officers.
According to Arnerican Institute of Certified Public Accountants, basic object ol financial
statenrents is "to proviclc quantitative financial infbrmation aborrl a blsiless enterltrise thtrt is
r.rserftri 1rl s1 atemenl. trscrs Particrrlarlli o\vners and crcditors, in rnaking econornic clecisjons "
FI.YBRII} SYSTET/I oF AC COTINTIN{;
'lhis is ir systent ttf a:cc:o',rlltirlg iti rvhich
some itenrs of incorne are tal<cn on cash basis vvhilc:
otlrct-s alrr tal<eit ott rtr:t:t-ual irasis Sont,.r expenses are accoulrecl o6 c,sh bersis r,i,hile, mosi.rj-the
e-\pensc'-qarr-e take-n oit acci'ttal l;asis. 'I'his s1'stem o{'accou'tirg is mostly folloi,ved by professional
Irersons. This is iilso ktrori'tr ils inix(-'(l s.1's1etl. beciruse botlt cash and aic'rral lrasis-,ti^i.c.*'1ing
ar c usecl in it.
BRA] -\TCF{E S OF' AC {] OUNTE N G OR'fYtr}' S OF AC C OUN:T'ING
ill ]i!rt.ctti.titt.l Ai:crtitnliti,t.' : r\lt Itt'cc.rttntingtvhich lelates uith thtr ar-ral.ysis anrl rt'c:urding rrf'
ir-rrnsactirltts 01'firl:rtrcjill tlrriitr't'. tlrciI classificittion. tl-ie prc'ptrlatitirr oi'lirrrrnc:ial st:itt:rlrgnl.s rtrrrl
rlrt,ir ;*i:,ir.ii rrrtil rrrlr';1', 'i:li',li l= lr'r',ri,,ti ri:riiirrrrtr.i;rt ri,.,:,,rri,ii;:
DEFINITION DEVELOPMENT AND OBJECTTVES OF ACCOUNTTING

..bctive losses (2) Manugement Accounting : The accounting which is prepared exclusively for the use of
iprofrts. This management is called Management Accounting. Managel''ent prepares plans and budgets on
:lion and it is the basis of this accounting. Management accounting has been defined as :
I "Managernent Accounting is the application of th.e Professional Information in such a uay
bhe accountant as to assist the management in the forrnation of policies and in the planning and control of
ir.Lt prevails in operdfions of the undertahing." of Cost and Manogemznt Accountants, London
-lvstitute
(3) Cost Accounting: The accounting which helps in.ascertainment of total cost ald'cost
per unit of goods and services is called Cost Accounting. It helps in cost coritrol ald cost
here only cash reduction.
(4) Tax Accounting : The accor:nting which is used for tax purposes is called Tax Accounting.
ly one aspect is Incohe-tax, sales-tax and othei direct and indiiect taxes are calculated on the basis of this
re tra:rsactions accounting.
(5) Gouernment Accounting :Tt,e accounts which are mainfained by Central Government,
'a transactions
State Governments and Local Governments dre called Governmer-.t accounts and the system
ofrecording is called Government Accounting.
ecords in these (6) IIuman Resource Accounting : Accoulting which is exclusively related with hrman
ased on Double
resource is called human resource accounting. Costs and values of human resorrrces are
recorded in this accounting system. It is ofimmense use for a business enterprise.
(7) Social Respflsibility Accounting : Social responsibility accounting deals with identify-
ing, measuring and c.ommunicating social activities carried out by the entity for the benefrt of
rd by business various segm.ent of tft society.
d of accounting (8) Enuironment Accounting : Accounting for environment and ecology preservation is a
rnting. Acerual part of environment accouhting. It deals with the accounting of natural resources, pollution-
control and prevention etc.
rns where only THEORETICAL QUESTIONS
l. Write histoiy, meaning and aims of Book-keeping and Accountancy,
2. Distingr-rish between Book-keeping and Aciountancy and desbribe their advaatages
3. Discuss the objcctives of Accoulting-
Balance Sheet 4. Writ-e short notes on
:
:ount indicates (i) Accounting;
Balance Sheet (ii) Objectives of Accounting

I to satisfl'the

or the satisfac-

r:ct of financial
terprisc that. is
''
t: dec:isions

rslr l-.esis rtlril<.


rile rnost o1 thc
bv plofi:ssionaI
s ol act:orttttittll

rirl r r:t:rrrtlinra t,i


;1lltenrr'nts rrirri
h'-r" $ u""-lt-

BASIC CONCEPTS, PRINCIPLES,


POSTUT,ATES AND CON.VENTIONS
OF"ACCOUNTTNG
Nature of Accounting
Knowlidge of Accounting Principles can be derived on the basis of its hist"ory and its
relaf,ion with human knowledge- Its relation with historical events is very limited and only
few events of the subjects related with human knowledge have intimate relationship with it,
but this relationship indieates the nature ofAccounting. Accounting is based on some definite
principles. f1
a
Just as it is very.necessary to have good know-ledge of grammar in order to have sufficient
control over language, in the same wa-v one must know the grammar of Accounting- This is
rvhy the knowledge of Accounting Principles, Concepts, Conventions and AssLmptions is
required. Utility of Accounting Principles is related with nature of Accounting.
ACCOUI{TING PRINCIPLE S
l
Meaning of Accounting Principles l,
(i) According to Canadian Institute of Chartered Accountants, accounting principles are tr
the body of doctrines commonly associated with the theory and procedure of account-
ing. They serve a! an explanation of current practices and as a guide for the selection A
ofconventions or procedures where alternative exists.
(ii) According to the American Institute of Certified Public Accountants, accounting
w
principle is ageneral law or rule adopted or professed as a guide to action. It is a basis
ar
of conduct or practice.
co
(i'r) Accounting principles are really speaking the rules rvhich are based on the customs,
usages and traditions and all accounting practices are based on them. These principles
are not fixed but they vary according to changes in time. If a particular problem has
been solved according to one rnethod evolved by one who solved the problem and the
samc method is approved and adopted by others, it becomes a principle.
Sorn<r accountants have u.scd the r.vord s/cndard in place of' l;rinciples. Hence, they usr:
ilit: r.-'orri accounting standar.d in place of accounting principles
{ I h :r;'aq:tcristics of Acccuntin g Principles
If ircc'ounting principle possc.sses the lbllor.r'ingcharar:tt'ristic':;, it is acccl;Led by ail :

1 Ob.icctiuif-r' : It inr:st I;e lras,-rd on thcts and impartial attitude c,rrght to have lrer:n irdopterl
ibr it If it is so, ti're princil.-!e. i:. s:rid to possess oblectiuity.
2. AS,,p!.irntiort : It'tlte opl,,litotion ol l,he principle is possil.ile, it. is regarded irs a soori c \tt:

1.,r'incriple. In casi'theorr:tir:r:il.r'principle is sound but its trpplicaticn is difficull., tlren tht, sol)
pr-inciJrlc hl,,s ito vzrlrrir hrr:
q/lfl I tOrnvemEcr,U I i..fincc_p\9
BASIC coNcr'prs,
/ ,
posTuLATESAND coNvENTroNS oFACCdu*"t*" ) ,,
'*TNCI'LES,
3- (Jse : The principlc should be such by whose use rtility of accounting-record is increased.
Suppose.a principle has objectivity and it is applicable also but there ib no use of this principle
in accountancy record then also the principle is useless.
'..' 4. Simplicity : The principle should have simplicity. If it is simple it will command
popularity.
GENERALI,Y AC CEPTED ACC OUNTING PRINCIPLES ( GAAP)
. Generally Accepted'Accounting Principles (GAAP) may be expressed as those rules.
guidelines and principles which are derived from experience and practice and when they are
)S, useful to accounting practice they, then become accepted as accounting principle.
If any principle possess all the above characteristics, and they are accepted by all then
}NS thcy are known as accounting principles. Therefore, theSr are called Generally Accepted
Accounting Principles.
Use of the word All' in the- above paragraph refers to the following :
(i) Professional Accountants,
(ii) Courts,
(iii) Government,
(iv) tsusindss Executives,
;tory and its (v) Management Accountants, and
ted and only (vi) Taxation Experts, etc.
rship with it, These accounting principles have been developed by various agencies, out of which most
;ome definite important are variousrbgdies related with accounting. Institute of Chartered Accountailts of
various countries of tlie-world have done commendable work in this respect as Institute of
ave sufficient Chartered Accountants of India, American Institute of Certified Public Accountalits-(AfCPA)
rting- This is and Institutb of Charterted Accountants of EngTariil-
sumptions is ACCOUNTING COI.I\IEI{IIONS AND CONCEFTS
It has been pointed out earlier that accounting is the language of business. Just as
knov.'ing of grammar is essential for understanding and rnaking correct interpretation of
Ianguage, in the sarne way it is necessary to know certain accounting conventions and concepts
rrinciples are Lo understand the language of trusiness namely accounting
re of account- All accounting conventions and coircepts fall under accounting principles.
'the selection Accounting Convcntions
Meanin,g : Accountanc), is based on usag'es and custom-s. Custom or usa6ie is a practice
s, accounting rvhich is in use since long l.Iaturally accountants have to adopt that usage or custom. Ttrese
n. It is a basis trrei termed as conventions in accounting. Conueniions are also known as doctrint:s [{a3or
conventions are used in picparation offinal accounts also.
the custorns,
Tlpes of Accounting Conventions
ese principles
^ problem has
lLli
I _I
rbiern ancl thc :----l
lr'tt r

l{lon.se}-vafisiEr i l}i.scloscn I iCon-si.stency II


i Materiality
'l'tC9"'.h.r" Ltst'
r,i
l,i
ti
it;*-iu.,, ait i
ili..li'o,itiriJar
l"'^""''"^'-"'ii ici or I ttt"t.',li,-.i
' .qll l"at:ts I

j bu rtii l,osisl's lrrrt


l,csisl's lrttt iJrrtcliirl
1!'llltcr'lftl ;I .{c, r,vp11l1g l]
.Ac, rrup11l1g I l'a(ris
\rrl-ici1:atr. Ne r I'i oili I lnlirlnatiorr i lt'r'rt ticc,' R(: l.rl,.l.r' ] i Rr:crrr-rlcri
Irct'rr ariopted i

I. (l,ru,.*.'rta{i.*nl F'r:irir',,,r,,,,.,,rt,,itr '1'1,,,1rg11 iir) r'slirt,,,t,'tnrrt !r,-rr'}arlc:rl)otit lirittt'r'


ieri :rs a goc'd (r\,(llltS:rilrlrit'i'ittnStl.l)C;msfrrtur't:lr'it'lrJltlrlectcel-t'airlt1.irll-rrrsit.csls.ilct.,ct,
rrll tlicrr t hi' :iru)lc nt liililcrtrell i)r- Pl'o', rsiilit is irtado to nrct:t lut trr-t: rtncer{,ai tttics J]t,t-rt-., sno()t"ii
i;itsiittrs,sru'ri) ;tt:',lic>r iir! i,srl lr)siSc:r iur(l iltlrt sotne gtt'ovis:!on frrt'ii. i;: ril;trit
irrtlr-ic o'l lirtrrlt
t2 SAHITYA BIIAWAN PUBLICATIONS

Businessmen mostly ignore the items offuture profit. This tendency is term'ed as conservatism
and it is very natural tendency and is in existence since long hence it is a convention. Saving
of money by people and depositing it for using it to meet future conting,encies is conservatism;
hence nearly all people apply this principle of conservatism. The valuation of stock or inventory
at a lower of co'st or net realisable value, making provisions for doubtful debts, discount on
debtors are the applications of this principle-
One should be careful in making provision for future losses, as more or less provision than
necessary will create adverse affect on the business and accounting record will alsb not indicate
true and fair position. Hence, in nutshell, conserwatism states as "anticipate no profit, and
provide for all possible.losses".
2: Discloser ; \4{hile making accounting record, care should be taken to disclose all
material information and not conceal informations and facts. Here, emphasis is only on
material ii'form to benefit the proprietor
and all those outsiders who are. directly or indirectly interested in assessing the final accounts
of the business unit. This is why forms of Balance Sheet and Profrt ariJ Loss Account are
prescribed in Schedule VI of the Companies Act, 7956.If there is some material information
which cannot be included in proper Balance Sheet, it is shown by way of footnote, so that
correct opiniep may be made about the financial position of the business unit.
Full discloser of all relevant and reliable facts in accounts is the necessity in order to
mak'e accounting record useful for the users. It is not a new thing, but is based on convention.
in thetr personal affairq hence wh.en accounting
th and in fuII was incorporated in accounts too.
p in accurate assesEment of financial position

actice has been adopted in one accounting year,


same should be continued in other iuture years also. Continuance of one practice in number of
yearsindicatesconsistgncy.Ifanassetisdepreciatedoe
@fdepreciationbeadoptedinotheryearsalso.Thisisconsistency.It
does not in the least mean thrrt once a method has been adopted, it can never be changed. If
better method is found out on the basis of research etc., it must be followed and by following
a better method, consistency convention is not an hindrance, but a note with proper reasoning
for making a change must be made in the accounts so that the person dealing with accounting
record inay know about the change.
Adopting of same practice over and over again is an old convention. At the time of birth
and death both, certain formalities arc adopted and these are adopted in ea-ch and every case,
hence there is consistency in religicus and social customs also and the same has been adopted
in accountancy. So consistency is a convention
The most important advantage of it is, that it help.rs in intra-firm, inter-firm and pattern
cornparison oi one year's accounts rvith other year easily. It gives reliable results and is oI'
great help to the management in the matter of planning-
4, Materiality: Accounting lecord should be made of all nraterial facts and immaleriirl
iterns tntr.y eithel be mixed rvith rnaterial items and then recorcled or these may be igrored.
T'his is a coru't:ntion. From verl, 6]61.'rr tirnes people ialk about such mattcrs and consider thern,
rvhicir has atr effect on forming opinion. Thus, matcrjality is vet--y irnportant convention rvhich
occupics rrot only zr key positiolr irr accounting but {brms zr base ft>r accounting. Accountant,r; o{'
all tltr count.ries of the s'orld trrc ncJopting tJris t:onvelrtion.
Accounting Con<:epts
Tlrcrc ilre sor)]c asstunptictri.s on ri'hich accrLunting is basecl,'l]rescr assurlptions are lrrost
rrattrral ancl at'e rrot f?>rced ortr:-. Tirc'sc are ge:nera.l motions ltirrtcc tl-rey nre called conccltts
f'hes,-, c<ilceJ;ts i:rc als0 l<rtOYir' as JtO.tl ttl.o.tt,.sbct:arist'Dirsittlat,es'roo rt|r'Ilecessal-v lrssrrni])ti,r|.
BAS I C CONC EPTS, PRINC IPI,E S, PO STULATES
AND CQNVENTIONS OF ACCOUNTING 13

pnservatism
.rrtion. Saving F-l-
I €E E
oc
.c.o
rp6
6q
o c6 9:
Fe er=
o ALP c, 6
co
o
o

conservatism;
kor inventory
-. discount on
I I
&.E
F
= <'=
o@
cd
F

-oo
L=-@

g
lQrx 9-= 8_
rrovision than cE r!
;o not indicate
no profit, and o)5
_E'f5
E6
;o disclose all .Eg
;is is onlY on
the proPrietor 69?:c,
@

final accounts '--@ @

s Account are
.E€€"tr E
-==--
9
il information
,tnote, so that

ty in order to
tn convention.
U)
F
A
$ "F
Len accounting f-l
O
t accounts too.
rncial position
z
O
P--E fr
"=E.E
C) Egco-E
(5 = f
counting year,
e in number of
z
me-TE-ocl-in one
consistency. It
z
E-r

be changed. If O
C)
d by following c)
)peI'reasonrng
ith accounting
6coLrm
e time of birth =cEee
.nd every case, .E -€
; bcen adopted E3 H
E=s
rn und pattern
o5 o.q
;ults and is of' s€e E--
nd irnmaterial
E€ 6EF
ir1' be ignorerrl
F,f;,F=
consider theur, EEE (tt-sL. -... i',.. il l.D-
rvention which :@
:io
d3(-)
CL
tr=E€E ffl o l-n r,.-
I

Account,atrts of' E E.-#


cfi

rtrons arc titttst


rllr:d conr:cpf s
,lsslinpt-i{)!ls.
L4 SAIIITYA B HAWAN PUBLICATIONS

A concept is a self-evident proposition, 1.e., something taken for granted. Concepts are also can I
terrned as ground rules that g'overn accounting. fn accountancy following concepts are quite forrr
popular: of rez
1. Accounting Period Concept : Every businessman wants to know the result of his
investment and efforts aft,er a certain period. Usually one year period is regarded as an ideal
for this purpose. It may be of 2years 6 months or 3 months also. This period is called arcounting
i
busin,
period. It depends on the natute of business and object of the proprietor of business'. 5
Real income of business can be found out only when the business comes to an end, but transa
this period is usually too long and no businessman can wait for such a Iong period for knowing On thr
its profit or loss, therefore the accounting period is mostly one year. contrit
Frorn taxation point of vie'w one ye€rr period is necessary as income-tax is payable every therefc
year. FYom April 1st of the current year to March 31st of the next year may be accounting Thus, 1
year. (ii) bus
Effects of this Concept : results
(i) Financial position of one year may be compared with alother year. Eft
(ii) Earning capacity of one year may be bompared with another year. (i)
(iii) These cornparisons help the management in plarrning and increasing the efficiency of (ii)
business. 6.(
(iv) Proprietor and outsiders can also derive varioud conclusions according to their they are
quernes. not appe
2. DuaI Aspect Concept : Accounting concdpt is thdt every transaction affects two annual d
accounts. This is why double endry s;lstem of book-keeping came into existence. All business ualue.is ,

transactions are recorded on the ba3is of this concept. No tralsaction is complete without burqql"
double aspect. This concept is the foundation on which the entire systern of booh-heeping and dies, ther
accountancy is based. no cost hr
Effects of this Concept .: Effec
(i) Ifone aspect ofa transaction is recorded and other is ignored, the a.ccountancy record (i) r
will not indicate true position, hencc this concept is of great help in indicating true p
position of the business- rii T
(ii) During recent period when production has become very fast due to techni:logical al
advances and complicated affdir in large-scale industries, this concept is of utmost AI
use. 7- Goi
(iii) This'concept helps in detecting the errors of employee-s ancl in having strict control tlrc bttsines
over thern. ofcourse it
3- Money Measurement Concept : Only those transactions are recorded in books of price offix
accounts which can be expressed in money. Those transactions u'hich cannot be expressed i1 outstandin
money fall beyond the scope of accounting. One serious shortcoming of this concept. is that tht: continue. I
noney value of'th:rt date is recorded on rvhich transaction has takon placc, rrnil later grr due rlrltt, er,cn
to inflation rvhen chang-es in noney value take place, these changes ar-e not considercrd smilli trans
Effects of this Cortcept : 'fhi.s is thc
(i) In ihe :rbsencr-. of this concept, it rvould havcr not becn possiblg tr.r aclcl var-ious Effcc:ts
posscssions. F'crr,:xarnpie a propricl,or'has 400 chairs, 10 praclrincs. 500 acrc of'lanrl (r) \1t;
and 200 tablc-s He cannot add tJiorn. but b-r,fipding o.t tlrt,ir r.rrlLr.s irr rnone.y, totii.l o1't
anrount ol-ailthese possessir,ns can casill bc fbund orrt I ii r \l'ir
tii) Ability' ol tlrr: l;oard of direcl.ors, clrralitv o1'the alt,icles ir-pclgr:1.tl 21cl c:lllcieinr:','of :isll
u'orkers t:itnnot lte l'ccor-dcd as tht,se;u-r,rroi, e.xltrt:ssecl in trrgper l-ltrrs. t lris crrrrccPl tiiit Aec
has both nrerit,s ancl derrncrits. \{'rl
4" Realisation Corrcept: E'"'c:11. busir-rt:ss rrnit sltr:nds p)opc.), tp ltirrr.ir:rs<,g99rls <i;19 [i. Ac:co
rrralr.rl'ttcturt:.{otttls 1or s:rle. Proiits cannot l-le earlted trrril, lr.t'r1a1rr{irct,rrrc,. s3lc 61 goorls t,ither- of asscls. ht'
f r;i t:aslt r). ol ( i'r..rlit is cssr,;riiitl to nralic: t-l-il'ninq \'Vj1.[1Lrt lgir'lislttisit 6i :,rr]e
Jrr-s1'r,i,cls. tlt.r. I,r0l)t)r,l()r ir
BASIC C ONCEPTS, PRINCIPI;E S, PO STTII.ATES AND C ONVENTIONS OF ACC OUNTING 15

rpts are also can be no profit. Revenue may be realised either for increasing an asset or it may be in the
ipts are quite form of extinction of an existing liability. Thus, whole of accountancy is based on this concept
t of realisation. All efforts in business are made to make utmost realisation.
ie result of his Effects of this Concept :
led as an ideal Without realisation, no €iarnings can be made by the business unit. The very existence of
lled accounting busines s .beco'mes useless without realis ation.
ii:ess. 5. Separrate Entity Cgncept : Business is treated separate from its owners- All the
to an end, but transactions are iecorded in the books ofthe business and not in the books ofthe proprietor.
rd for knowing On tbe basis of this concepf the proprietor is treated as a creditor for the business. Whenhe
contributes capital, he is treated as a person who has invested his amount in the business and
payable every therefore, capital appears in the liability side of balance sheet of the proprietor's business.
be accounting Thus, this concept thus requires to make a distinction between (i) personal transactions and
(ii) business transactions of the entity in order to ascertain financial position and operating
results of business entit',.
Effects of this Concept :
(i) Financial position of the business can be easily found out-
re efficiency of (ii) Earning capacity of the business can be easily ascertained
6.C -r.gqorde{ 7t_the price atwhich
ding to their they are eet, however, these z:ssets do'
not appe systeimatically it is reduced by the amount of
n affects two annual depreciation anfl thus they appear at the amount which is cost /ess depreci ation. This
. All business pt, all such events are -ignorg_d- w-hich affect .the
plete without uioit active, importarit and influencial director
r,-heeping and ftl e business wiil be affected, but,this event Liai
no cost hence it will not be recorded in account books.
Effects of this Concept: ---'
rtancy record (i) Due to cost concept, market price is ignored and balance sheet indicates financial
dicating true position on cost and expired cost basis-
(ii) This concept is mainly for frxed assbts, current assets are not affected by it. They
technological appear i.r 6da.r"e sheet at coit oiinarket price, lvhichever is lower, though they two
is of utmost are acquired at cost price.
7. Going Concern Concept : This concept relates with th.e indefinite long economical l.ife of
strict control the business. The assumption is that business will continue to exist for unlimited period unless
of course it is dissolved due to some reason or the other. This is why in bal ance sheet, market
I inbooks of price of fixed assets is not considered- When final accounts are prepared, record is made for
expressed in outstanding expenses and prepaid expenses because of the assuuiptior.r that business will
ci is that the continue. If the condition of business is depreciated to such an extent that it is to be closed
later on due down, even then accountant's concept is that business is to continue and bc records all big and
idered. smali transactions, he never stops making record on the possibility of closing down of business,
This is the best quality of accountant which is based on tlris concept of going concern,
adrl various Effects of this Concept :
ac:r+ of ltrrrci (i) Working life of asset is taken into consideration for u'riting off de,preciation bec-arrse
nrotre.1., totzrl '
of thi:s concept.
(ii) Whatever bad position of thc business may be, it does not afI'ect, or.r the accounting
e.rJllt ic'rrcl, of as1:erc't of the business
this c,'trcclrr (iri) Accountant alrvays remains hopclLl aboul, c<-rnt,inuity of business :rnd he dor:s not st.op
lvriting trarr.sactions even though the condjtion of business tleteriorating
goorls 0
' Li, L Acc:ounting Equivalence Concept : The proprietor provine.s the funds for actluisitioir
goorls eitJr or ol asscts, hence the assets owned by the business inust be equal l,o the lirnds provi.Jcd L.y thr:
rrr'or ls. the'rt-. lrroJiriet<,.r- rvhicli is technicially called'EcTrtitt'- rI/hatever propertiers or tlri.r-igs arr: t)rvned l;i'the
16 SAHITV\ B HAWAN PUBLICATIONS

proprietor, they are-termed as assets of the proprietor. Hence, accounting equivalence concept o

IS: b
Assets = Equities
These days in addition to own funds, money is borrowed which is known as liability.
Hence, assets are acQuired through equity and liability. Therefore, accounting equation.
is: A=E
AsSets = Owrer's Equity + Liabilities or Outsiders' equities
Effects of this Concept : pr
Any busi4ess transaction can be recorded on the basis of this concept. Really speaking, du
the principle of double entry system that every debit has a corresponding credit is based on ex
this co.ncept. It will be discussed in detail later on in this book.
All the business transactions are covered by the following six combinations ;
1. Increasb in owner's equity, 2. Decrease in bwner's equity, 3. Increase in liabilities,
4. Decrease in liabilities, 5. fncrease in assets, and 6. Decrease in assets.
Each transaction is recorded in such a way that'thi accounting equation continues. Thus,
the two aspects of a trarisaction are recordecl in such a way that their effects balance each
other and equation is maintained. Had this accounting equivalence concept not been there,
double entry system of bobk-keeping would have never come into existence.

L
which is increasing by leaps and bounds due to large-scale production. When all purchases
and sales were made by the sole trader himself, verification of accounting record was not of
much importance, though in Great Britain this concept occupies key position since the
beginning. (:

Effects of this Concept :

(i) Accounting record is made on the basis of various vouchers and documents etc.
(ii) These vouchers, etc. also help a lot in auditing accounting record.
(iii) Accountant remains mentally free due to existence of vouchers, etc. Accor
10. .Capital Concept : Ttris concept is that record for capital be made separately. 1

Proprietor may contribute capital either in cash or in goods or partly in cash a-nd partly in \
goods. In sole trading and partnership concerns profit ofeach accounting pcriod is transferred
to capital account but in case of limited companies, profit is not transferred to capital account.
A
Accountant must keep this concept in vier.r' rvhile recording capital and profit.
truths
Effects of this Concept :
(i) This concept helps to ascertain the errrning capacity of busines.s easily. for g:':
(ii) It also helps in comparing the earning capacity of various pcriods and thus efficienc.y P
L:OiLCep
ofbusiness can be ascertained.
11" Matching of Cost and Revenue Concept : Everl' businessman is eager to makc
rrrzrximum prr-rfit at minimum cost. Ifence. in :ln accounting period namely onc year, he tries
lo find out revenue and cost of'this year and compares it with t and thus tltose l
hdca nfott. "*a,,lJ-rk" l'evcnue stotent'
rrre terrned as cost aircl the positive results of thcse cfforts arc termccl as revenue, in all c
?lris concept is also knorn'n as collcctrtt. of cfforts ancl accotnplislt rttt,rtt. Exces;; ol policics
riccc,ruplishments ovcr efforts is proiit. The olrject of accounting is that accounting rccord be (ixanrpl
urarle in such a nanner that cost rna-y be comparc'd r',,ith rcvenrte In case acc,lunting nrcthod enterllr
rlces not facilitatc this conipirrison tl.ren account.ing rncthod is rcgirrtled as'.rnsali.slirctor.y.'lhis --l
i: i. iir an accorrr'rr.z:r'r't i't:i'rir-ris all t,xplenst,s o{ il vca;' ri'hl:l lit'r- thr,'y' llr-r' llii<i in laslr o}' zir(l
(l* {l
"A*

Cegh M
alc

fl '-r+--
i] u.o Lo rr cs-c-h-a-d --u:ltL'
^,i.1
D-*+-€;API..,

ri
g' t\S-rqlte-*: -tYs'L'--..-t-J
n-
/^
(-aa r-L--
r)-ffx-\

).
'-Ji: -.. t_
I

" .i t:
i-.t_1 -ir i:r,"lil".i;:_ j,.\l i .'^ ,

i-,i'-
.l ta N,l-l .,--r I
I

,l
_ ij
-i.,.-
' t ' i.; r,- .v_'-
i:
\
a,
:":
L,-* L ruv,v,
h4 co;do*f-4!
IL

fr*_ 6^^
*..^u .q_ _e.l
fl

b*t,-- t'4 ale;, _.,j _rt^,-

J*
in
ett;

.i.frifI

,.i
I \reLr \(:):4\ I vLL\t
M bA '- -T S e^n\ slirn- \v_r:,J \tl_,( \-{_.r.

,4,--$-n lr,tn-^-nars- uNrr* r


lytical columns. Impresl $*
Rs.
I
r touring salesman l3
evening newspaper l5
I by registered post
les 6
table
ger
3
13
5
TRIAL BAIITNCE
Box o

.Trre third process ,' 1 refers to preparation


12.
^""o#H:::tffi"ffi:fchaptur
of Thial Balance, Preparation of Tl-ial Balance is the first step of summarisation.(refer to
accounting definjtion in Chapter 1) in this direction. THal balance is a statement in which debit
rnal :
and credit balalces of all the accounts of ledgbr includi',g cash and bank balances (taken from
Rs cash book) are shown to test the arithmetical accuracy of the books of accounts. As'every debit
r Mohan 200 has a corres-po{rding credit, hence total of debitbalances oftrial balance is alwdj's equal to total
Lyam 200 of its credit balanbes.
rrish f00 Bnhs of accounts are dosed at the end ofthe yea4 but they may be dosed at any tirie acconding
t 200
to the requirerirents oftle businessman. Whenever books are dosed balances arefound out in various
'able from Kailash 200
o Bulaki 800 a@unts and then these balances are recorded in a statement which has four columns, narnely,
iulaki 800 parlicula::s, ledgrer fo[o, debit bdlances and credit balbnces, this statement is ca]led hial balance.
); Sales Retum Book 790; Tbial Balance is a statement or list of Debit balalces and Credit balances of the acrcounts
of ledger or of Debit totals and Cretlit totals of the accounts of ledger or of both balarices and
totals of accounts of ledger. It is prepared at a certain interval of period which is mostly one
the books of Sudhir and financial year.
OBJECTS OF PREPARING A TRIAL BAI,ANCE
Rs.6,000: Machirery Rs. 1. Financial Statements (Final account) namely trading account, profit and loss account
500.
0-
and balance sheet are prepared on the basis oftrial balance.
2. To check the arithmetical accuracy of books of accounts.
\
o. The balalce of any account of ledger cal be easily and conveniently known by it.
4. If trial balance does not tally, it means that their are some errors in recordilg, posting
rpany: or balancing of accounis. The steps are taken to locate and rectify errors to tally the
Rs. Rs trial ba-lance before preparing finaacial statements.
r,000 5. Miscellaneous : Through trial balance, books of accounts are tested and it is only afber
1,000
9,000 this test that final accounts are prepared. Just as-before grving a driving'licence. test
500 is necessary, before life insurance, mcdical test is necessary, before selection for
300 representing in Olympic games, fitness and qualifying test is necessary, before
2,O00 prescribing medicines, blood test and other tests are necessary in some cases, id the
400
1,500 sarne way test ofaccount books is necessary before preparation offinal accounts, whiclr
3,000 is done through trial balance.
5-000 IlIETHODS OF PREPARATION OF TRIAL BAI,ANCE
250
r00 Their are four methods for preparing a trial balancc which are as follows :
150 l. Total Method: Under this method debit total and crcdit total of each account of ledger
300 are recorded in tria-l balance.
r00 2. Balance Method : Under this methoC, only balance of cach account ofledger is recorded
t00
i 5,000
in trial balance Some accoturts may have debit balance and the other may ]ravc crcdit
9,200 balance. All these debit and credit balances are rccorded in it,
ls ?1,590 2LF99 3 Total and. Bolance Method: Tiris is the combination of abovr: two nrethods, i.c., under
this method both debit aiid credit total of eaclr account and also balances of cach
account. alc recordcid
86 SAMTYA BIIAWAN PUBLICATIONS

4. Elimination of Equal Totals Method.: Those accounts whose debit totals are equal to
credit totals i.e., the accounts which have no balances are eliminated. Such accounts
are not recorded in trial balance. Jan. I
f lhrstration 1 Feb- 20
From the following transactions pass necessary journal entries in the books of Sudhir and Company, Jrne 28
post them into ledger and prepare trial balance according to all the methods :
2003 : Jan. 1, Sudhir commenced business with cash Rs. 40,000; Feb. 5, Purchased goods Rs. 25,000;
Feb. 20, Sold goods Rs. 30,000, May 10, Purchased goods from Sohan Rs. 18,000; May 2p, Sold goods to
Ramesh Rs. 20,000; June 15, Cash given to Sohan Rs- 18,000; J;ur;.e 28, Cash received from Ramesh Rs.
2O,OOO; Aug.2, Purchased goods for cash filom Dinesh Rs. 19,000; Aug.,29, Withdrew fo4 personal use Rs.
500; OcL 10, Purchased goods from Dinesh Rs. 17,000; Nov. 20, Paid cash to Dinesh Rs. 16,980; allowed
discount by him Rs. 20; Dec. 31, Paid salaries Rs. 500.
Solution I Journal Enf,ries in the Books of Sudhir and Company
Date Particulars L o I e31,,, Cn
Amodnt
2003
Jan. 1 CashA/c . . . Dr.
To Capital A./c
(Being cash brought in for capital)
Feb. 5 PurchasesA./c . - - Dr. 2003
Tb Cash A,/c Feb. 5 To Cas
fn"iog goJ" furcha"edfor cas'h) May 10 To Soh
Feb. 20 CashA./c 1 . . . Dr" Aug 2 To Cas
To Sales A/c ' Oct. 10 ToDin
(Being sale ofgoods for cash)
May. 10 PurchasesA./c .. . Dr.
i Balance ofPurd
To Sohan
(Being purchase of goods from Sohan)
May 25 Ramesh ...Dr. 2003
To Sales A./c Dec. 31 To TYar
(Being sale of goods to Ramesh) (Bala
June 15 Sohan Dr
To Cash A./c
(Beinp cash paid to Sohan) r Ralance of Sales
June 28 Cash A/c Dr
To Ramesh
(Being cash received from Ramesh)
A,tg 2 Pulchases A./c Dr
To Cash A./c
(Being purchase of goods for cash fi-orn l)inesh)
A.rg 29 Llraq'inss A/c
| 'lo Cash A./c 500
] tBerng caslr wilhdrau lr lirr Jr.rsorr3l
I

( )t t i(; Purclrases A./c r 7,000


] r', Di'esh 17,000
] f B"-g goods pulchased lion-. I)inesh )

Ir,,r lii Dincslr Dr 17.000 To Cas


1 To Cash A/c t6,9S0
I ro I)iscount :Vc 20 To Balz
i (Berng cash paid to the e::tcnt ol Rs 1ij,fl8O and djsccunt o!'Its 2(l
i "llp\S4\ Dtnesh) _ - -loo3--[-__-
';,., .1I Srrlari,.s fu, 1)r.
Tu {-rrsl' i"/c Nov 20 | 'l'c Oasl
J 1B1ulg
Salalr !r'4) Nor' 20 I ']'o lrr".
(iran'.-l 'lblrii
. -.- --.,-- -- =,: -r -l!s 1,4.-2;r
-
f_

TRIALBALANCE a7

lsare equal to CashAccount


, . Such accouDh Rs.
Jart. To CaPitaI A./c
1 By Purdrases A,/c 2i5,000
Feb.2O To Salgs A/c By Sohan 18,000
rrdhir and Company, June28 To Ramesh By Purchases A,/c .19,000
By Drawings A./c 500
By Dinesh 16,980
ed goods Rs. 25,000;
By Salaries A/c 500
ay 25, Sold goods to
By Balance c/d
--dfrom Ramesh Rs. 90
foq personal use Rs,
Rs. 16,980; allowed
Capital Account
2003 Rs 2003 Rs.
Dr Ct:.
lmount Atnount Dec.31 To Balance dd 40-000 Jan. I By Cash A,/c 4 0
Rs. 2004
40,000 Jan. I Bv Balance b/d
40,000
Purchases Account
25,O00 Rs. 2003 Rs.
25,O00 Feb. 5 To Cash A./c 25,000 Dec. 31 By TladingA./cr 79,000
May 10 To Sohan 18,000 (Balance transferred)
Aug. 2 To Cash A/c I 19,000
30,000 J?
30,000 Oct. 10 To Dinesh 17.000
Total Rs. 79_000 Total Rs.
18,000 out gross profit
18,000
r Balance of Purchases Account is always transferred to Trading Account which is prepared to hnd
Sales Accounf
20,ooo Rs.
20.000 Dec.3l To TladingA/cr Feb.20 | ByCashA/c 30,000
(Balance transferred) May 25 | By Ramesh 20
18,000 T<rtal iRs. 50,000
18,000
r Balance ofSales Account is always transferred to TYadingAccount
20,ooo Sohan
20"ooo 2003
Jtrne 15 To Cash A/c I3yPulchases A,/c
lR'
i 18,000
19,000
19,000
Ramesh
2003 Rs.
May 25 To Sales ,+/c uv t;,rsh ruc 20,000
| June 28 j
f)raw'ings 1!.ccount
2003 l
Its
17,1)00 o;;;,?"j t t;ast': a/c 500
16,980
'20 Jan I i lc' Ilirlirncc b/ri 50t)

;rllU 2003 i

ir0t) Nov 2(t I 'f,r Oash A.icr


Nor, 20 j 'fo I)iscount A/c
'lirt
.r.|l-t,,,l ?-2!,gqq., l a I
88 SAHITYA BTIAWAN PUBLICATIONS

DiscountAccount
2003 Rs. 2003 Rs.
Dec. 3l To P. & L. Ncl 20 Nov 20 By Dinesh 20
(Balance Tlansferred)

r Balance of Discourit Account is transferred to P. & L. Nc.


Ct
Salaries Account
C;
2003 Rs. 2003 Rs. Pr
Dee 31 To Cash A./c 500 Dec. 31 ByP & L. Ncr 500
Se
(Balance transferred)
Sc
r Balance of Salaries Account is transferred tn P. & L. Nc. R:
FIRST METI{OD (i.e.,TOTN' METHOD) Dr
Trial Balanc,e (as at 37st December;20O3) Di
Cn Di
Ledger Accounts tLnount
Sa
Rs. Rs.
Capital A./c 40,000
Cash A./c 90,000 7g,g8ol
Purchases A./c 79,000
Sales A,/c 50,000
Sohan 18,000 18,000
Ramesh 20,000 20,000
Drawings A,/c 500
Dinesh 17,000 17,000
Ca
Discount A/c 20
Ca
Salaries A/c 500
000 Pu
Sal
t The amount of Rs. ?9,980 is the real total of credit side of cash accormt-
Nctte:In tlils method, the total of debit and credit side of trial balarce is same as of total of debit and credit side of Dr:
Journal on the basis ofrvhich the trial balance has been prepared. Dir
SECOND METHOD (i.e., BALANCE METHOD) Sal
Tlia] Balance (as at SIst December,2003)
Dr- Cr.
Led.ger Accounts
Amounl Arnount Notp: A
Rs. Rs. D
(Japital A/c 40,000 [;i
(,lasli A./c 10,020 Illustr
l:'ur-chase.s A_/c 79,000 T]
Sales A,/c A:
Drarvings A./c Lt
50c
Fr
l)iscount A/r: Its il,0(
Sirlirrtr:s A/c 500 Its l(),
I
ltade r
90.020 in lull
Jtrn. 3 J
,\i,/,, .1* 1.h,,r. lii-e no bai;rncc,: in tl;e-;rtcnr:rtts of Solra:'r ]i;rnresh rr.rrri l)irti:slr lrr:nce thev lravr: :rot becrr rt'toirleci iii P
tlrr. :t lr,,r'i. trnl b:rl:nte 't\-ial B

%_-
F.
F'

Fl

TRIALBAT,ANCE ao

THIRD METHOD (1.e., TOTALAND BALANCE METHOD)


Thial Balance (as a! SLst December,2003)

I*Qger Acaunts Dn Cn Dr- Cr


L. F.
Tbtal Tbtal Balance Balnnce
Rs. Rs. Rs. Rs.
Capital Nc 40,000 40,000
CashNc 90,000 79,980 L0,o20
Purchases A,/c 79,OO0 79,000
Sales A./c 50,000 50,000
Sohan 18,000 18,000
Ramesh 20,000 20,000
Drawings Nc 500
Dinesh 17,000 17,000
Cn 20 20
Discount A-lc
Amount
Rs. Salaries A/c 500

40,000 Total Rs. 2,25,000 2,25,00O 90,o20 90,020


,00 79,980I
r00 FOURTH METHOD (i.e., ELIMINATING ACCOIINTS OF EQUAI TOTALS) -,'
50,000 $Trial Balance (as at SLst December,2OOB)
r00 18,000 Cr
Ledger Accounts
)00 20,000 Arnount
;00
Rs.
)00 17,O00
Capital A./c 40,000
20
Cash A./c 90,000 79,980
;00
)00 2,25,000 Purchases A./c 79,000
Sales A./c 50,000

a:rd credit side of


Drawings A.ic
Discount A./c 20
Salaries A./c
Total 1,70,000

Arolc : A suspicion nray arise by seeing the above trial baiance that here also the thrcc accounts (Sohan, Ranesh and
Dinesh) have bcen rgnored, rvhich harr: bcen ignored in the sccond method, but rt nrust be noticed thal this tria.l
4 0,000 lrulirncc indicates totals and not bnlances of accourts
)20 illustration 2
)00 The foll,rrving balzincers appealcd in the books of Ashok as on 1st January.2004:
50,0(x) A-sscls : Cash Rs 50.000; Stock Rs. 30,000; Debtors Rs 50,000; N{irchjnery Rs 60.000
i00 Liobiliti t,s : Creditors-Rrrjcsh lts. 30,000.
Follou,i rrg ti-n nsactions t,ooli place in Januar y 2004 . ,J att 4, Sold goocl s lbl cash Rs, ? tl00 :-r nd on cr t'riit
,
2o R-s :i.(X,0 tr; iirini; .lan 6, Runr r etulr)cd good-. for'lis, 1.000: J:ur 10, l)urcha.scd goods lirxr Rajcsh li..-t
Plice
lts 10,0()r) r'rtlrrcd at Rs t),00(,r; .-lan 15, Bought got-,ds of'thc list plict'cf lis I5.000 fronr Jiake.sh lcss l09i
'l)'adc
d;:crtrrrl nnd 5'il, C;rsh rlis<rr.runt. irncl pnid 409/o price inrmedirrtcl.l.'1 "-lart 20,1'aid to lt:rje,sb R.s il6.{j0t)
in ltrll scttlenrenl of his account: Jart 25, paicl Rs 500 lor Lhe Lilir In.stu.rrncr: I,\.cllium of tirr, pr.oPrir.tor-.
.Ian, lll,Il.ct:eivt'rl lor r:omnrission ]ls. 2,000
lt:tss.iortt'trtl rntrr'c's fiir the above transacl iorrs ltost into lt'rlger'. Rzrliinct. llre uccouni iurd prcp;rr-,r li
'iiii'rj j-::rl;.,r,,
90 SAHITYA B}IAWAN PT-IBLiCATIONS

Solution 2 IN THE BOOK,S OFASHOK


cfou.rzral Entries
Date ParticuJars Arnount
Cn
2004 Rs. Rs
Jan. I Cash A/c Dr. 50,000
StochA/c Dr. 30,000
Debtors A./c Dr. 50,000
MachineryA./c Dr. 60,000
To Rajesh 30,000
To Capital A./c 1,60,000
ing balances of asset! and liabilities recorded)
Jan.4 CashA./c 2004
Ram Dr.

Jan.6 Sales.Returns A./c D.


1,000

Jan. l0
9,000

Jan. 15 Purchases A./c I


To Cash A./c -
t 5,130
To Discount A/c , ' 270
To Rakesh 8,100
ased and discount received)
Jan.20
To Cash A,/c
To Discount A./c
(Being cash paid and discouat received)
Jan.25 DrawingsA/"
(Being life insurance premiurn paid)
C'ashA,/c
I To Comrnission A./c 2.000
(Being commission received)

LEDGEROFASHOK
CashAccount 2004
- Dale Partibulars Amount Jan. I0 T(
Rs. 2004 Rs. Jan. 15 11
'Io Ba-lance b/d 50,000
Jarr. 15 T(
Jan. 15 By Purchases A./c 5.130
lb Sales,A./c
Jan. 15 T(
7,000 Jan.2O By Rajesh 38,600
'lo (.lomnission A-lc - 2,000 Jan.25 By Drawings A./c 500 Tc
Jan. 31 By Ilalance c/d 14,7 7 0
59,000 59,000
r ] Tt, Ralancc b/ri
StockAccount

-b--__,_-_
EJ
E
F,

E.

TRIAL BAI-ANCE 91

Account
'Rs. 2004 Rs.
Jan. I To Balance b/d AO OOO Jan. 3l By Balance dd
60-oo0
To Balance b/d 60.000

Tb Cash A./c By Balance b/d 30,000


To DiscountA./c By Purchases A/c

talAccount
-2004 Rs. 2004 Rs.
Jan. 31 To Balance cy'd 1.60.oo0 Jan. I By Balance Vd 1
l-60-rno
Feb. I BvBalance Vd 160

Rs.
Jan. 4 To Sales A./c ," , Jan. 6 BySalesReh-rryrsA/c 1,000
Jan. 31 By Balance c/d 000

To Balance b/d
Sales Account
2004 Rs. 2004
Jan.31 To Balance cy'd 10,000 Jan.4 By Cash A./c 7,000
Jan.4 By Ram 3-OO0
10,000 10.000
Feb. 1 Bv Balance Vd 1
Sales Returms Account.
2004 Rs. 2004 Rs.
Jan. 6 To Ram 1,000 .Ian.3l By Balance dd r.000
1 ono
Feb. I lb Balance b/d 1.0
Purchases Account
2004 Rs. 2004 R.s.
Jan. 10 'fo Rajesh 9,000 ,Ian 31 By Balant:e dd 22,500
,Ian 15 To Cash A./c 5,130
Jan 15 'lo Discount A/c 270 I
5, I 3(J
Jar i lr 'I'cr Rakesb 3.100
tJ8,000
2
50(l !-cb I l'o Ralancc b/d I
22.500 I
14,770 :]--" Rakesh
I
I
59,000 - 2004 I
-
- lls.
t .llrn ;il r 'ilr lllrianctr c'ti s, r00
8. r00
Il:rlrrnr:t: b/d
I).-
I\S
-10i,{ -l Discou-ut Ac<:o';rt
;J().000 ---T- Rs.
30_,00() .Jrin ll I I 'i',, lillance r:/d I
270
I

I
.100
(i7 0
(J70
-.
92 SAHITYA B I{AWAN PUBLICATIONS
--t

Accoun Solution 3.
Rs.
-..-
2004 Rs. 2004
Jan.25 To Cash A/c 500 Jan 31 By Balance dd 500 Mohan's
500 500 MoI"an's
Feb.'1 To Balance Ud 500 Leasbho
ComrnissionAccount Sales
.
Rs. 2004 Rs- Due fror
2004
To Balance dd 2_000 Jan.31 By Cash A/c Ptrchas,
Jan.31
2.000 Purchas,
Feb. 1 Bv Balance by'd 2 Loan fro
Creditor
Trial Balance on Slst
Balance Tlade an
Particulars Cr Cash at.
CashA/c L4,770 Bills Pay
StockA/c 3o;000 Salaries
Debtors A/c 50,000 OPening
60,000
MachineryA./c Rent & 1
CapitalNc 1,60,000
Sales Re
2,OOO
Ram
10,000
Sdles A./c
Sales Returns A./c 1,000
Purchases A,/c 1t
'22,500 Illustration
8,100 The foll
Rakesh
670 form.
DiscountA./c
DrawingsA./c 500
000

Illustration 3
Mohan is not vcry efficient in Book-Keeping. He has prepared the following trial balance and has
requested you that if it is conect accept it and if it is wrong colTect it and plepare it again : Sundry D
Balances Sundry C
Particulars Dr. Cr . Opening {
Purchaser
Rs. Rs.
Purchaser
Mohan's Capital r,556
Cash in h
Mohan's Drawings 564
Machiner
Leasehold Premises 741
Goodwill
Sales 2,756
Sales
Due fron Customers 530
Sales Ret'
Purchases 1,268
Loan frorr
Pru-chases Retulns 264
25()
Bills Rece
Loar-r from Bank
Capital
Creditors 528
Life Instu
Ttade and Office Expenses 784
I

142
Calriage
ilash ar. Bank I
Advertise
Bills l'ayable 100
598 t)iscount, .

Salarics & Wages I

')c I I nvestntet
Opening Stock I
Ir:t,ert:st o
iicnt and 'laxes. ertc.
I lntei-est cr
Sale:s liclurns I 9b
tis I

= J.!t!=

E-*-.
___ ,_
E
p

TRIALBAIANCE 93

Solution 3 Corrected Tbial Balance


L"n Rs. Rs.
Mohan's Capital L,556
Mohan's Drawings 564
I,easehold Premises 741
Sales 2756
Due from Customers 530
Purchases 1,268
Purchases Returns 2;
Loan from Bank 250
Creditors 528
tlance Ilade and Office Expenses 784
Dr Cash at Bank 142
Bills Payable 1;
Salaries and Wages 598
Opening Stock . 264
Rent & Thxes, etc. 465
1,60,000
Sales Returns 98
10,000
I,000
22,500 Illustration 4
8,100 The following i, mdril.i3alance prepared by an Inexperienced Accountant. Redraft itin a correct
670 form.
Tbial Balance
ina SLst March, 2OO4)

i,400

,000
,400
600

E00
000

Tot.rl
94 SAHITYA B}IAWAN PUB LICATIONS

Solution 4 Tlial Balance


(as on SLst March, 2004)
Balance
Particulars
Cr
Rs. Rs.
Sundry Debtors 24,400 Stock (1.4.i
18,400 Purchases
Sundry Creditors
SaIes
Opening Stock 3L,200 Wages
Purchases 1,07,000 Salaries
Purchases Returns 4,200 Repair Cha
22,000
Returns In'
Cash in hand Returns Ot
Machinery 80,400 Cariageln
Goodwill 20,o00 CaniageOt
L,72,400 Commissior
Sales
Sundry Det
Sales Retdrns 15,600
Sundry Cre
Loan from Ram 40,000 Capital
Interest on Ram's Loan 6,000 Drawings
L2,800
l'urniture
Bills Receivable Motor Car
Capital 1,14,000 Cash in han
,t1 Bank Overd
Life Insurance Prenium ( 10
t,200 Investments
Carriage
Interest on I
Advertisement 5,000
Discount Received 3,000
Investments r6,000
Interest on Investments If there
Suspense A-lc 2,000 creditors are
list appears
Total 3,53,600
in trial balar
Illustratian 5
Prepare a lYial Balance from the following balances as on 31st March,2004 : Is trial
Particulars Particulars Atnottttt question is tJ

Rs. Rs. because ther


Stock 1.4.2003 57,600 Capital r,80,000 trRR(
Purchasis t,64,OOO l)rau'ings B,800 I'ollou'ir
Sales 3,20,000 Fr-rrnitur-c 24,000 known as Lit
Wages 32,320 Motor Car 1,60,000 (L) Erro
Salaries 12,800 Oa.sh in hand 9,400 irccounting pr
R,epair Charges 1,000 Bark OverdrafL 50.800 lules iirid reg
Retr,rrns Inu,alii 15,000 Ln'estnents 40,000 meri:hant pu
Ilc Lurns Llutrvarcl tl,200 Intercst on ln..'estmcnts 4,800 iiccount iras
pnnciple. it r
llirrliag€j Inu'ard 3,260
ditures c:rpit
i)arriage Ou'rrv:rrd 6,400
retgarded :rs a
(lonlnri ss icn lil.r:ceiteri 1,60tl
(2) Errot
Sunciry Debtors 48,400
subsidiiirl, l;o
liundrv Ci-edilor-t r J 6i)o
as urr-oi-s cf c,
traitsnciir;:r il;
TRIALBAI-ANCE

Solution 5 thial Balance


(as on SI.st March,2004)
tlance Balance Balance Bolance
Dr Cn Particulors L.F
Dn Cr
I Rs- Rs. Rs. Rs.
,4,400 Stock(1.4.2003) 57,600
Purchases 1,64,000
18,400
Sales 3,20,00o
37,200 Wages 32,320
.,07,000 Salaries 72,800
Repair Charges 1,000

22,O00 Reiurns Inward 15,000


Returns Outward TT,2OO
80,400 Carriage Inward
20,000 Carria4e Outward
1,72,400 Commidsion Received 1,600
'
Sundry Debtors
15,600 Sundry Creditors L4,600
40,000 CaPital 1,80,000
6,000 Drawrngs
Furniture
r2,800
Motor Car
1,14,000 Cash in hand I
10,000 Bank Overdraft ,t lt 50,800
7,200 Investments
Interest on Investments 4,800
5,000
Total I 5.83.000
3,000
16,000 LIST OF DEBTORS AND CREDITOR,S
1,600 If there are many accounts of debtors and creditors, then a list of debtors and a list of
creditors are prcpdred. Total ofdebtors'list appears as debtors'balance and total ofcreditors'
Iist appears as creditors'balance in trial balance. The lists ofdebtorS and creditors are annexed
,53,600 3,53,600
in trial balance, so that as per need they may be referred.
TRIAL BALANCE AND ACCURACY OF BOOKS OF'ACCOUNTS
Is trial balance a conclusive proof of the accuracy of books of accounts? Ansrver of this
Antounl question is that it may or may not be the conclusive proof of the accuracy of books of accounts,
Rs. because there are certain errors which are not disclosed by the trial balance even ifit tallies.
r,80,000 EITRORS NOT DISCLOSED BY TRIAL BAI.ANCE EVEN ON ITS AGREEMENT
8,800 Following errors are not disclosed by a Tlial Balance even whcn it tallies. Thcse irrt: alsc
24,000 kroq'n as Lirnitations of Tlial Balance.
1,60,000 (l) Errors of Principle : Sometimes errors arc made due to insufficient knowle<lge of
9,400 accounting principles. I{ence. when errors arc created due to violation of'accounting prirrciples,
ir0.800 rules and rcgulations, then such errors are terrned as etror.s of I'rinciples. For c.g .if a cloth
J 0,000 rnerchant p'.rrchases machinery-, hcre rnachinerl' 3s6'.rnt is to be clebited, but if'ptrrt:hasr:s
'i.800 accouut, ha.s beeir debited even then trial balancc will tally, irut 1.herc remains a rnistakr, ol
1u'Jncipic It int'ans that a clear distinction nust be rnade betu,eeir capital and revenur) cxl)crl
dituie's, ca1;itiii riird revcntrc receipts and capital irnd rcveirue Jtlssi s lf it is nr.rt riorrr,. it is
rcgar-dcd :1sr i'ln errol- ol prrnciptre,
(2') Erior s of {)trttsst.o;r : \Vhen I}o cntry is ;rrlde lbr a transirctir.,rt in joulrriil ol in its
I sui;sidiary books or posting in ledger, thcn also, trial balance rvill 1allv, Srrch ()r-rors arc linos,n
l r:is efl'oi-s o{ r'nrission. Such er}-ors are not discl{rsed by trial balance. Ilrxvcver, ilt}rer pos;1inq.af
lirtt-is,:rctiri:=. rs i.rttJi.r.onitted it r.vili certain-11'tr{Teci thc Lr-ir;l i;alanr:t: fit,ln berin::- talli..,r!
96 SAHITYA BT{AWAN PUBLICATIONS

(3) Compensatory Errors: If one account in ledger-is debited with Rs. B0O less and other r
account in ledger is credited with Rs. 300 less, then alsoirial balance will tally. Such errors are
called compensatory errors and they are not disclos d by trial balance.
(4) Errors of Commission : When business tra
manner then sudr errors are refeired to as errors ofc
of wrong amoult in the subsidiary books, posting an
of an aciount, wrong totalling etc. Errors of commis
the agreement of trial balance. For e.g-, wrong tota
posting of wrong amoirnt, w:rong balancing.
. (5)_Errors of Dupliration : If an entry is made twice in Journal and its posting is also made
twice, the trial balance will tally, but such'error will not be disclosed.
ERRORS DISCLOSED BY TRIAL BAII\NCE
when there are soine errors, then trial balance will not tally. Following errors are disclosed 6-
by the trial balance :
(1) Whilepostingfrom journaltoledger:, oTissionofpostingofsome.accorurtis made,e.g., 7. i
furnitu{e purchased for cash Rs. 500. In this case Rs. 500 are recorded in the deiii g. I
side offurniture accoult e credit side ofcash account.
(2) while making posting in I9 I
s recotdd in one account, e.g,, instead
of posting Rs- 105 in the unt Rs. 150 have been posted
(3) Ba-lalce of cash boo(is not recorded in trial balalce. 10. s
(4) Slhile making total of subsidiary books, like Sales Boo\ Purchases Book, etc. mistakes 11. S
are made, in such cases Sales and purchases account in ledger will be posted with r
wrong amounts and trial balance will not tally.
(5) Sometimeb total of one subidiary book like sales book is posted in the account ofother 72. C
subsidiary book like pur-chases book- p
(6) some error is committed at the time of balancing a ledger account. 13. E
(7) Correct balance has been recorded in the accounts of ledger, but while writing these q(

balances in trial balance, error has been comrnitted, either of the amount or of the side. 74. If
(8) Error is made i! totdling the trial balance. tr
(9) Error is made at the time of preparing lists of debtors and creditors. SU
(10) E{ror is made in carrying forward the total ofone page ofsubsidiary book or accounf
onrthe olher page.
(11) Somebalances of ledger accounts have not been recorded in trial balance. If ther
(72) One amcunt has been posted trvice in the ledger account. hence, wrong balance is e.,'cn a{1er
transferred to trial balance. is transferr
undue de.la
11trET'I{ODS OF' TALLYII"{G TIIE TRIAL BAI,ANCE the errr-irs t
0r balancc tal
LOCATION.ANE COF{RECTION OF ERRORS F'oR TALI-ITF{G TIIE T'RIAL BAi-ANCE
trf the trial balaoce does not tally, follorving methods should be adopted to 1aliy' it. :

I Recheck thc totals of debit and credit balances oftrial balahce again t. \\ iir, is
2. If'the total-" of riebit and credit are correct,, then u,rite the differencc o{'thesr: totals ou I lt., t

separ atci..r,. 2. \\rtrat is


-q TFy to scc t.hat, sonc baiance of leclger rna.v be equal to this di{Jirrenee ancl ir. pighl J \\'lr:ti r.

have uot been ;-;r;sted. a( cil rrnl

l+ ft{ake half of the i'r}}r{rlir}t oi'ciiffereni:e':rnri see lhat this anrount is not rercoi<leci in thl I \\'ir,:i is
\lrionB si.le oltriai iralance 5. ilral B
5. Make L/9 at Lhe toieri as it may be possiLrle LhaL z.era is adciecl ol zoi'o is le{t out iir strn,,r C" \\:r ite th
balancc by rui-silrkc If zero is added 1.he amount, i.r,il] becomr: tc:n tiures anri ilZCit; is i ' .'\g11'6'-
ieft out the z;*ror:ir*,,.i'iil become l/70.1n sur-.h cases ciiffere'ce r.vill riell.it.ely b<, ciivisible (.rrrt,(111
b_i' !! I.'clio.,,.'i:-ri: i,,:lr;::t!c *,ill nake tirr:: i;oini r.lenr. :

-k,,+*_
V
F.
F
ll TRIAL BALANCE oa
il

,s and other i Tlial Balance (as at. . . . - )


,ch errors ar'e i Dr Cr
,
Rs. Its.
i FirstAccount 50 60
; SecondAccount 70 40

ofan accbunt, Third Account 80 100


200 200
rg is also made ' If by mistake the debit balance of first account is recorded 5 instead of 50, then total
of debit balances will be (5 + 70 + 80) or Rs. 155 while total of credit balances is Rs.
difference'of these two i.e., 200 and 155 is Rs. 45 which is divisible by 9.
2OO, tlr,.e

's are disclosed 6. Count all ihe aciormts ofledger and see that balances of all of them have been recorded
,
in trial balalce-
Lt is made; e.g., I
7. Recheck the totals and balances ofall the accounts ofthc ledger.
rd in the debit' 8. See that balahce ofcash book has been recorded in trial balance.
ount. l
g. See that totals ofsubsidiary books have been recorded in ledger and balance ofaccounts
rt, e.g,, instead ,
related to them have been taken to trial balance-
;ted.
10. See that corr'ect posting has been made from journal to ledger.
, etc. mistakes 11. See that balanc.cSrof last year, which have been brought forward, have been correctly
-
,e posted with recorded. '
12. Compare the heads of accounts of the current.year wrth the heads of accounts of the
:count of other prevrous year.
13. Examine thc writing of digits. Sometimes at the time of recording, digits are reverscd
as for 85, the firgrrre recorded for is 58.
writing these
, or ofthe side, i4. If after making complete checking ofjournal and ledger, mistake is not found out, then
transfer the difference to suspense account and in future when error is found out tbc
suspense account is closed.
,ok or accornt SUSPENSE ACCO{JNT
If'there is cb-fference in the total of debit column and credit column of trial balancc and
le. evcn after making efforts thesc totals do not tally, then the amount of difl'erence of these total
ng balance is is transferred temporarily to an account knorvn as Stzspense Accou.nt, so that there may not bc
undue dclay in thc pr:eparation of firral account. In fact one should make {irll cfforts to locatc
the erurrs to make the trial balancc tallv and final accounts should be prepared only vvhen trial
balancc tallies
IAJ,ANCE
'FE{E OR.ETI CAr- Q{tESTIONS
ivir:
oul lri' lnal balanr e
!' l-!rc'se {otalri
2 \\'h;rt i:: ij tri:ll irrrlancr'') \\'ltr r,; ri lrrelrar-t-il / llxl-rlerrr tlrt t'rr or s rr lriclr irt' r)ot drsclosetl by tri;rl balanct

ancl it rniglit 3. \L.hlrt r:., I trral b;rlarrrr'2 \\tlrr r:, r1 prr'p:rrecl'1 Is ngrr-c:ruer)1, a)f lriel li:rlatrct: corrt lusirr' Jrrrrof ol'actL:r;rrv r,1

lcr oturi ing?


l- \l'ir.ri r:: l,i;tl i,:r];trtr r,' I)t,.sr-r rlrt- tr i:rl br:lrrr,r r

lrir-<l<,ti i:r tir+' -'


5 li'rrl Illtla;trl rs rlol ;r (()I)clrrr:r', 1 r ltl ;rr r orrr,fs i )rr \-ou l)gr-('( ri t1]r tlrrs :.t;rl {'r)r'r I '

't out itr sonrc \\Irtl t.lrr,,,rrors rr'l:rclr ar r r)r,t rii, r Itr::c'd
and il z.r,r-o is -,\{rr:r'nrr:nt o.1'tot;rls o1 irotir ,,rrlr',. Lrl lrru,rl tlr.ri ,r, criLrlLs ;rii lrr r,llur':'r.l
lv bc. clivisibll
9B SAHITYA BHAWAN PUBLICATIONS

PRACTICAL QUESTIONS 4' The t


Preparation of Ibial Balance same \
l. Enter the following transactions in IWs Gaurav Stores journal and ledger and prepare trial Balance :
2004 Rs.2004 Rs.
July 1 Mahesh commenced business with JuIy 6 Received Commission 350
cash 3,600 Jily 7 Paid Salaries 400 OPen
July 2 Purchased goods for Cash 3,000 July 8 Gave Cash to Suresh 875 Suncl
July 3 Sold goods for Cash 2,784 July 9 SoId goods to Mbhan 3,972
_
Fixerl
July 4 Sold goods to Ramesh 500 Ju-ly 10 Gave cash to Ram 1,400
Gross
July 1l Paid Sundry expenses 300 July 12 Purchased goods for Cash 1,000
July 4 Purchabed goods from Shyam 6,000 July 14 Sold goods to Sushil for Cash 700
Retur
July 4 Gave to Diriesh 426 July 30 Gave Cash to Prem 1,800 Cari
July 5 Received Cash from Mohan 4,872 ImPo:
Ans. Total of Journal Rs. 3L,979; Total of Ilial Balance according to balance method Rs- 18,806. lVager
Amendrnent of TFial Balance Bills l
2. Prepare correct trial balalce from the following trial balance in which there are mistakes : Rent,
Dr Cr. Bank
Rs. Rs.
'Cash
Cost ofgoods sold 1,50,000
Closing Stock 40,000
Rates
Debtors 60,000
Creditors I 30,000
FixedAssets tt s 50,000 *"J"
Opening Stock 60,000 lHint. C
Expenses 20,000 It
Sales Cr
2.00,000
Capital 90,000 Followir
Cash in
Rs. 3,50,000 3,50,000
Ashok F
Ans. Total of Corrected Ttial Balance Rs 3,20,000.
Followir
[Hint. As cost ofgoods sold is given, hence, opening stock wiil not be r€corded and closing stock wil] be recorded
Jan 3, l
in debit column I 4, Depos
3. Correct the following tr-ial balance : Cash dis
Dr. Cr to him I
Nam.e of Accounls L.F. SVo CasI
Balance Balattce
Rs- Rs
Mohan r
Capital 0ommis
22.000
Cash il hald Pa ss the
2,500
Dr-awings Ans. Tot
7 500
Brils Payable 5.000 G. Prepare
Sundry Expenscs 1,000
Profit from Invesin er r f. 2,000
Oash
1.0 00
Sales RetLrrns 2.0 00 I\-avell
Sales ti, (.) (.) (l Loan
Pu rchases (i t)00
Itln
Rent Paid
(.loirmission I'airl |'rr-r lr a

Loss on flevaluatrt,i, S rr Lr:;


( lonnr rssion Receiveri
Saltrr.
Brlls Receivable (luodri'i
Electr icitl' Exp,:lsr.:;
(';lrr',lri
l"u miture
ll:btors Irc ici rt
il re d itors I'r-oi rsii
Stoc li
]r r1l,rcsl
ii,,
F
F
5

TRIAL BAI,A\TCE 99

4. The under-nrentioned Tlial Balartce of Messrs. Rastogi Brothers.has been wrongly drawn. You are to redraft the
same correctlY :
al Balance :
'Thidl Balance
Rs.
for the year ended on 3.lst Dec.,2OOs
350 Rs. Rs.
400 Opening Stock r6,590 Capital 1,O0,000
875 Sundry Debtors 20,670 Closing Sto& 20,580
3,9?2
Fixed Assets 79,000 Sundry Creditors 72,500
l,4oo '
Gross Purchases 60,920 Gross Sales 1,02,600
Lsh 1,000 i

'Cash 700 i
Returns Inward 2,400 Returns Onward 1,230
1,800 i
Carriage (on Purchases) 800 Carriage (on sales) 1,850
Import DutY 7,200 Export Duty 800
,806. I Wages 4nd SaIarY 3L,400 Bills Payable 8,000
Bil]s Receivable 15,000 Interest Paid 1,100
es: Rent Received 3,800 Commission Received 870
Dr. Cr.
Bank Overdralt 11,000 Discor:nt Allowed 760
Rs. Rs. I
Cash in hard 380
50,000
40,000 .
Rates and Taxes 7,L30
60,000 2,50,290
30,000
50,000 Ans.
60,000 IHint nal entry and posting ofclosing stock has not recorded.
20,000 , Gross SaIe, Purchase Returns, Bills Payable, Received
.

2,00,000 ' enter in the credit side.l


90,000 5. Following was the position of Rahul as on 1st Jatuaty,2004 ..

Cash in hand Rs. f ,0O,000; Cash at Banli Rs. 1,68,000, Fumiture Rs. 80,000; Stock Rs. 50,000; Debtors-
50,000 3,50,000
Ashok Rs. 10,000; .AVI Rs. 15.000; Creditors-A^'r Rs. 20,000; Anil Rs. 30,000; Iiank Loan Rs. 2,00,000
Follou'ing transactions took place duri-ng January 200
stock rvill be recorded Jan. 3, Received a cheque from Ashok i1 full settlement of his accoturi after deductiag 5?o cash discount; Jan,
4, Deposited the above cheque into bank; Ja1 6, Goods purchased for Rs. 10,000 at \\Vo Trad,e discount and 2Vo
Cash discoult payment made by cheque; Jan. 8, Received a cheque from AW for Rs. 14,500 and discor.rrt allowed
tc him Rs- 500. Clreque dcposited into the bank o1 tJre same day; Jan. 10, Cash pai<i to Arun afler deductilg
Balance Balatrce 5% Cash disr:ount; Jan. 15, Sold goods to N.fohan bf the list price Rs. 20,000 at a Ttade discount 70Vc; Jat 20,
Mohan returned goods of the list price Rs 5,000: Jan 25, Ban-k charged Rs 100 for Bank charges; Jan 31,
Comrnission received from Ram.Rs 500.
'2.500 Pass the necessary Jotrrnal Entries in the Joumal, post Urcm in liis Ledger and prepare Ttial Balance
A''s-'l'otal oJ-Jounral
Rs. 5,09.600: capital Rs. 1.71J.000:'Iyjal Balancc Rs. 4,21,6g0.
PrePareal\-ialBalancefronrthefollou'ingbalancestakenon3Istl\Iarch,200.l U-seSuspenseAccountifneeded
1.000
Rs Rs.
2,OOO
4 000 C)a s) r
13 000 Crr:ditols iio.000
tl 5.0i)0 Olfice }!x1r .1..1 00
8.()00 lient
z0 000 3.000
G.0 00
\\/a ges x 200
| 000
.){)l) Pur-chases iielu trts
Lt)0 S;rles lipi irrrr r
ir00
:()t)
) 000 l,lnrl
{ l(1ilil il r:t:t,)rl
la t)(.)( )
Stirtilqrcl \
'2\(
1.gq(L_ I
i.1.500 I l,;Jl )
l i)r:l11 lr-s
loo SAIIIIYA B IIAWAN PUBLICATIO NS

Following are the totals of accounts of the ledger of D. Prepare trial balance according to balance method. 9. l
?.
Rs. Rs.
\
Capital: 30,000
A 30,000 10,000
B 20,090 r8,000 Capi
c 25,000 30,000 BnI,
Purchases 30,000
Inan
Sales 40,000
Cred
Returns 2,000 3,000
Discount Wagr
1,000 2,000
Commission 2,000 1,000 Salat
Vehicles 60,000 40,000 Macl
Machinery 30,000 26,000 Banl
Rent
PurcJ
Ans. Total of Tlial Balance by Balance Method Rs. 77,000.
Sales
8. The following Tlial Balance has been prepared by au irexperienced accouatant. Bedraft it in a correct forrn :
Draw
Itial Balance
(es on 31st Morch,20O4)
Cn
Nqme of Accounts Ans. 1l
Balance
Rs- Rs.
Opening Stock 50,000
Purchases 30,000
Purchases Returns 15,000
Cash 5,000
Sales 44,000
Sales Returns 2,000
Creditors 97,000
Cariage Inward 1,000
Wages 4,000
Salary 2,OOO
Debtdts 2L,O00
Carr-iage Outll'ard 4,D00
TYavelling Expeieses 1,500
Rent Received 800
Loarr on Mor[gage 30,000
i{otor Cal 50,000
Investrneuts 10,000
Sundry Expenscs I,500
Land and Buildiug 18.000
Drau,ings 3.200
O:rpital
B/R
Repairs 2.ti00
L]lt, 8,000
Ir rsurance 1,200
'l\,peruriter 4,700
[):rtcrrt 3.100
Bird Debts l E00
l'l ilr: t and Matrhincil' I ?,2 r)0
Strrt,ionerv 1.800
I:ls .?,19.'sqo-l 2.3 9.E00
:l
l\,1 $ A .- -I, gEM. \\ anda lV\erhechuoat-i
Cc-o u-n 0.t PRINCIPI-ES OF DOTIBI,E ENTRY SYSTEM

.iiie Double Entry v Aecounting Structure at a Glance


il-or both may
._ UNIT-J- Tbansactions

,dited. It does not


be
"^^? J
I. Journal or its Subsidia:ry Books

are certain rules


rbits are made on Purchases Sales Purchases Sales Bills Bills Cash Journal
Book Book Returns Returns Receivable Payable Book Proper
rdited, therefore,
, out arithmetical

II. Classifipation (Ledger)


J
rarlier under the III. llia] Balance
J

debit and credit.


r one aspect, one
J------], Profit& Loss Balance Sheet
Manufacturing Tlading Account
icult but teasing Account Account
rntains such two
the accountancy
,/
:oper familiality \---t-.,/--

V. Analysis 6nd Interpretation


IMPORTANT WORDS USED IN ACCOUIVIING
Assefs : The usin€ss entit5r in its.na'ne are
called assets. In entity has to receive, are also
eary book called trcated as assets the business.
Thus, recording
is also known as
P":!*ss : Aly activity or service or work which is carried with the object of making profit
is called business. ft must be understood that the object should be to make profit, the resrili may
be either profit or loss.
rd in a ciassified ': Capital: Any account ofmoney or goods with which business is commenced is called capital.
ically known as Itis treated as lihbility of the brr.inessl
: Entry System- Qledit9l: A person llom whom goods or services have been purchased on credit, is called
a creditor. The person to whom payment is to be made, is called a creditor.

.ransferred to a Drawings : Any amount of money or goods which is withdrawn from the business by the
proprietor/ounrer of busi'ess for personnel use is called drawings.
the third stage
Debtor: A person to whom goods or services have been sold on credit is called a debtor. The
person from whom amount is to be r:eceived, is a debtor.
ccounts include
turrng concern, Liabilities : Whatever amount is payable by the business, is the liability of the business.
Any amount which business owes, is iti liabillty
manufacturing
stage of Double Liucstoch : Horses, bullocks and other animals w,hich are used in business, are called
[,ir','stock of that business.
Tangible Assels : Such assets which have physical existence , i.e., they can be seen, touched
rtzrtion of these ttnd felt are called tangible assets narnel.y, oru.hi.r".;i cash, vehicles, houses, furniture, etc,
y and financial
. Intangiblc As.sefs : Those asscts rvhjch have no ph;,sical existence, i.e. , they cannot be seen
and touched are termed as intangible assets, .ra-elji irademarks, goodwill, copynghts, etc.

-Voucher : Documentar:y e,'.idence of'a transaction is called er voucher. When goods are
p-urchased
r, triaJ balance, f(,l cash, a cash meno is given by thc seller to the buyer, this caih memo is a vouchcr.
Iru-e Ilvc|t'r''tt<'lier shorrld have, An ent.rrl ,rnrj errcry entrl,shou]d havo ,,..r,oucher.
28 SAHITYA BIIAVy'AN PUBLICATIONS
J
MEANING OFANACCOUT{T furnit
Tlansaction of a similar natule when recorded at one place is known as accounts. In other books
words, a summaqy of relejvant business transactions and events recorded at one place relating .(
to a particllarhead is called an account and the entire group ofaccounts is called a lbdger. incom
TYPES OFACCOT]IYT recor(
Tlhe accoirnts can be classified as under : If inte
( 1 ) Tladition al Accoun-ts ; as int
(2) Accounts Based on Accounting Equation. accoul

Tbaditional Accounts f;
The classification of accounts as per traditicnal approach is as below ; @:
Tbaditional Accounts E
debite,
PERSONAIACCOUNTS REALACCOIINTS NOMINALACCOLINTS
I I
I

Indiviluals, Firms, Assets-Such as Cash, Land, Expenses & Losses


Ban-ks, Corporations, Statutory Building, Patent, Goodwill etc. Incoines & Gairx
Authorities etc.

(I) Personal Accounts: The accounts which are related with real persons, artificial persons
and representafive persons are calle{ personal accounts. -.
Eramples : (i) ReaI persons : (d) Sudhir's account, Sushil's account, IGmla's account,
Prabha's account, Aruna's account, Ratna's account, Sharad'S account, etc. Bdth males and
Mc
females are included in it.
narrati,
(b) When a person starts a business, he is called proprietor. This proprietor is represented
by capital accourutfor all that he invests in brrsiness and by drawings account for all that which
he withdraws fiom business. .So, capital account and drawings account are also termed os 1..
personal accounts. commer
(11) Artificinl persons'accounts : Fir:ms' accor,rnt, Lirnited Companies'accounts, Edtrcational connect:
Institutions'account, Corporations'accounts, etc. aie known as artificial persons'accounts. to capitr
(iii) Rqresentatiue Account: If the wages for the month of March, which is the last month 2.t
of the year, are not paid to some workers, then total amount of wages to be paid to them is are acqr
regarded as outstanding rvages account. This amount represents all those workers to wborn also wh,
wages are to be paid, hence it is personal account. Thus, all accounts representing outstand.ing assets. l
erpetlses and accrued or prepaid incomes are personal accounts. corucerrle

a- R"k f", d"blt ,


gi
Itlt c uer.
journalising pcrsonal account Debit. tlte receiuer
'.

Exantple : Head office is at Kanpur and it has one branch at Chennai and another ai
Mumbai. Gc.ods are transferred flom Chennai branch to Mumbai branch under insl.ructions
and. Cr
9 3.4
and u'he
relates t
can be a
liabi.lity
frorn head office. In this case whilc rnaking entry in the head office books, Mumbai branch is
concernet
<jol,,i'-r:.r.i 'oeca,-t',e ii js recejr.ing goods and Chennai branch is credited because this branch is
giving goods. 4. Ar
(2) Reo.l Accounts : F-ea! accounts are of two types, 1.e., tangible real accounts and intangiblc sen/1ces r
real irccounts. Buiiding, Furniture, Cnsh, Machinery, etc are examples oI'to.ngible real ccc:out'tts, it decreas
to tlrc con
because these can be seen, touched and felt and they have a ph1'sical e>jstence There are somc
intangrble real accoutrts, these cannot bc toucht:d because they have no physical shape such as or gq.Ln a(
tradenrarl<s and goodrviii, etc. 5A(
r-cvenuc,
t Rult' for debtt. &. c:reclit r;r journ.olising rco.l accotnt| Dabi.l., ulrut. (:onl.es in Crcdit. tultat 'i

of expcnt
lgrtrs ou.t l
PRINCIPLES OI.- DOUBLE ENTRY SYSTEM 29

d for cash. Here furniture is received (purchased), hence


is going (paid) out, hence cash account is credited in the
]unts. In other
bplace relating (3) Nominal Accou.nts: Every businessman has to incur some e{penses and he makes some
ed a ledger. income also. Some name is given to the'head under which these rixpenses'and incomes are
recorded, e.g., when wages are paid, cash goes out but the name for this head is wages account-
If interest is received, cash comes in, but the head, under which the cash is recorded, is nsrnsd
as interest account. Therefore, the nernes of heads of e>penses and income are called nominal
accounts. Exarnples are wages account, salaries account, commission account, re-nt account,.etc.
RuIe for debit & credit or journalising nontinal atcount : Debit all losses and expenses
and credit all gains and incotnes.
Exomple: Wag'es paid. Here arrrount of wages is an expenditure, hence wages account is'
debited. Interest received in cash, here interest is income, hence interest account is credited.
Rules
CCOTINTS

Personal Accourit t
t the receiuer\ a.ccount and (Debit the aicount of erpenSes and
credit the payer's account) Iosses and credit the account of
incom.e and gains)
tificial persons I RealAcco'nt
1l (Debit the account of what tomes in
mla's accourtt, and credit the account of what goes out)
rth males and Narration: Briefdescription aftereachjournal entryis given. This briefdescription is called
narration.
is represented
CLASSTFICATTON OF ACCOU rTS BASED ONACCOUNTTNG EQUAIION
all that which
,.Iso termed as I. Accounts related with Capitol'-- Wh-at-e-vofl amouna E--invested by the proprietor lbr
commencement of business, is called capital of the business. Rule of debit and credit in this
;, Educational connection i s-pssTsqse in capital is d.ebited. to capital account and increasi in capitdt is credited
r'accounts. io capital account.
,he last month ' 2. Accounts relcted utith Assets : Whenever business is started, some assets or properties
rid to them is a.c'ucqr-hred, properties are also acquired even during the period of business. Asseti aie sold
kers to whorn also whenever such sale is deemed necessary. The assets may be tangible or intangible real
g outstanding assets. The rule for debit and credit in this connection is-Increase in asset is debited. to the
concerned asset accottnt and decrease in qsset is creditcd to the conccrned asset q.ccount.
3. Accounts related uith Liabilities : When money is bor-rowed, there is increase in liability
and and whcn this borroq'ed money is paid, there is decreasc in liability. Thus, accounts which
relates to financial obligations of a business entity tou'ards outsiCers is termed as liabilities It
rd irnother ar cirtr tre a slrort-ter-m liabilit-y or long-terrn liability. The rtrle in this respect is-Decrease in
r instructions li.abilitl, is d.ehited. to tltc conc.crned liability account and increase in tiability is credited to tlrc
Lbai branch is conccrrLe d. Ii o;bility account.
liis branch is
4. Acccstutis rel.ated u;ith. Reuutuz.s.' Ttrese accourrts relate to amount charged for goods sold or-
stltvices rendered. Whenever incoure increases, concerned income account is credited and whenever
nd intangible it deci-cases, concerned incorne accoturt is debited, hence the rule i.s--Der:rease i.n incom.e is dcbi.tcd
.tal. accotutts
to thc con.ccrtted incornc ()r gein uct(tunt and i.n.crcasc in. i.ncornc i,s t:rL-d.ited to the concer-ncd in.contc
Ier€r are son)c t)r genl eccott.nt.
rirlpe suclr as
5. Accottrtf s reLated rui.th I')rpait.scs : Whenever any expeiiditure rs inctrrred for gencrating
revenuc. concerncd exper.rditur-e accorurt is debitcd and u,hcnever sornc portion of the arnour.rt
radit, uthat o{ cxpendit,urc (.r-hich has allcrad-y ller:n incur-red) is carrierri fonvarr'l to thc next- year, thr,'
30 SAHITYA BHAWAN PUBI,ICATIONS

concerned expenditure account is credited with the amount carried forward. Hence, the rule
is-fncrease in upnditure or loss is debited to the corcerned upend.iture or loss accor.mt and decrease
in expnd.iture or loss is credited to the concemed upnditure or loss account.
fhe frat rule is that when there is any increase in any account, the said account is debited
if it is a debit account in nature and credited if the same is a credit account in nature and
similarily if there is any decrease in an account the said account is credited ifit is debit account
in nature and debited ifit is a credit account in nature.
'ison of Under Tbaditional Approach & Accounting Equation
Tladitionol Accounting Equation
Personal Accounts :
(a) Those accoints traving a debit balance but not relating to owner. Assets Accounts -

(b) Those accounts having a credit balance but not relating to owner. Liabilities Accounts
(c) Those accounts related to owner. Capital Accounts.
Nominal Accounts : Va.
(a) Relating to revenue'(income & gains) RevenueAccounts busines
(b) Relating,to expenses (expenses & losses) Ercpenses Accouats
(1)
RealAccounts Assels Accounts
PREPARATION OF PBRSONAL ACCOIJNTS FROM NOMINAL ACCOUT.ITS Thi
Nominal Account Personal Account
immedir
Prepaid Rent A./c
it. This
Rent Account Rent Recd. in Advairce A"rt day but
Outstanding Rent A/c records :

,l Prepaid Salary A,/c


Salary Account Salary Recd in Advance A/c Ttre
t Outstanding Salary A/c is the bo,
Prepaid Interest A,/c are recor
Interest Recd. in Advance A/c place, it
Interest Accoult Interest Accrued A./c systemar
Interest Eamed A,/c Ajo
Interest Outstanding A./c transactr
Discor:nt Received in Advance A,/c and even
Discounb Account
t Unexpired Discount A/c
i Rebate on Bills Discounted A/c
Premium Account Outstanding Prem ium A./c Date
Premium Received il Advance A,/c
0laims Account Outstanding Claim A/c
Prepaid Commission A-lc
C)utstandjng Commission A./c
(lommission Account Commission Rt:cd i;r Advancr: A/c
Lln*xpired Co'nlnission .A/c
Su bscriptior-r Account Subscription Recd il Adr amce ,Vc
Outstandut g Su bsr:ription A,/c The'
TIIEORETI CAL QIJESTIONS Do.t.c
I. \\'irat tio urdet stmti lrr rlorrble r:nt11 st'stent? \\/rite its t.ules aurl ntcriLs
1'ou prcpilr(,d
.)
Explairt rn detail tlio Dotrble l'}rtr-v S)'stem olBook-keeping a:rrl Act:rrrrntarrLy:trrri give its aclr.antagt:: Part'
.t. 'Thcre should alt erltral tredit fbr evely dr:bit and arr etlual deLiI lor cr.r:rv crcr]it " Jn t]re liglit of this sl;rLt'rrcnt recorded
t,x1;lain thrr chief chalacttrisLics of f)or-rblc Etrtry S_r,stt1r crl l;,oli keepit.ig and alr;o girr: its advatrl_agcs sanre linc
t. Dellnc Capital. Assets, l,ir:biLrties and Drau'urgs creditcd i
\\rhaL is Double lJnt-- S}sLt'rrt? I)iscuss tLu adr':rnt:iges lind rnrl;ortarrct t,f Doulrlt Ifrtr-r, S-vsterr
account '
(;. 'Everydebi!entryllasitsccrrcsllondingcredii,errtr-r'alr,lt'vervcreditc:ntryhasitseorrespor;dilgdobitcr,lrl
Prove this statement u'ilit r:xanr1>les next line
'1
\Vrito the t1'pes and :ri:cottntitrg rrrlcs ol ilccoll)ts writing tl
ll \\'hat art' Porsonal. l).i,al lrrrri Nortrtral .,\rtoLrr.rts') jour-rral t'r
BOOK OF ORIGINAL RECORD :
JOI'RNAL
yondns iJ.Fs or book6 dr. used hy bNn.ssD.n lor a@lniins
hu6irc$fouNinsbooLs are Eo6dyurctl:
tl ) Meddredun Bmt, lvasle Bmk r R.uri BdL (r) Jdrnrl, (3)

This bodL ir srso .dlod wisle bodk o. rougb book. whea tla.saclion uke! plaic, it s
im.diably reco.ded ia ,\h bdl cilho. br pd or pmcil s thdt btsm€$heD Eit rd forrai
rL 'IrrB boor tu hp. hy .hGe h&ru r sarl lenhdl! h.ve .un,b.r or (dnse.iotrs r
dry Llr or v.ry mall lDort. Maintcnmcc dfthk book 'bo
js Dot Deccssnry lt h.lp. in nlulins
...,'dsDJourlrl thq^ + a no ru h. rir n,]dDi r.co-d jn n m.r^nds, Lool
ths {ord joE al h.s b.cn ddiv€d fiDn Frerc} qord ,our', wb,d nems dirr/. Joun'.j
oforisrnal snlry i! wlic]r lElibindr reord diboih arpdcG or d busile$ baDsi.tion
is rhc boo}
aE reorded in ord€r h whid tl.y ms, i c.. in cl'ronologidl ordBi \rtrbcnov.. hanlacrior takcs
dae, n F ,lorded diFcilr u .Jli! b6& b.{h tlF trsFcts ot rhc rrinsdion ah rc.orJctl
'rd
srsbhnijcalN jh ihe orde.r wh,ch fttrnFnchonr takeD,f,.c.
4 ronrnnr is .allcd rs blols ol orisinDl acord q a boor o| prn,c qt{ b(qtrF. nll rlr
rden nrs. m thE Look. Tl[ tsodss oa tud,rdnL' kaGr..oni
,d ovunc E d Dumal is adl6d Jouzoliri's ric aoDot qrrdrnil js qiv( ns b.l*

Tl,, kansrdk,r.redortldrtrjonn,rrhr x(t,r,!q rt hrro\ej,u ! rPl "trd,


a/( In Lllo ddr onD!, fi^l rl'p !.ar ii, N nn,Rl ri,. $
r,.ri'qr oJ rl! n ndnrl,.nd{r.r chnrylo!tra/ddor
Itfr{,/l/r rn rhn dturr. rn
r.qnlo tid! ilx. kf turq ol ihc r li!\'l{r nllL,nn Md L' rll qrtrrn,.tr|L. rnp| i J r
D s l! rl,. f, rr Lifr. rh. xLl rd $hirh ," , l)
.nrltr.d N \rnru L.nr ! r.N rFa t.dn'rqtrd('l
lcn L\ rnfiring lrd ln r n'rr! Dni,' rtn
'rhh errlrnrru' r tlrrlrs )ur
"r"il
5nn\jrh.n.-,{rrrn{ rsl,(lnr-r\(rr,n'nf(nrDlrtrolt'n",\Lr6,,idr.n,\q .i Llr
t, E (Izd4ct lbhd :'rnis 6lrun is no. u*d wh'lejou'nolEing Lhc hdlsocrion bD. is used
wlen the llroces or'?osrt!s' ih. !.rrsactton i! ledser x ddnc. n recor& rt'o prst n@bor or
l.dFr L@L vlrdc th€ .cicvut oalub ,r. oFned,
i'ou'r D!6l Thtu cdhEn E@rds t]'e !'oDnt ld r4 dcb.ed .son lo nL s,t'ch I's
,1nouu r c.rdr : Trns slunD reords irrc oDo@r b hc aedrbd dshirrr rhe reuni vhich

cat'2.Ututd,.b (all ib6 hhsadionsorjdrml har


llmrd, 6151 of dnouna olumn orjouhal is ood. d sdr
woni mried fo d'd arer€od.d ll.ad rhx rel aDou line
*hcn lltis aEount ol toral * recorded md ,r. -ords 'B.olglrr FoR&d o. E.ousht Do{n' arc
6.dcd berorc uns 6t l anMunl.
on lJle abdc L,a€n a rtus.bon wtrm Fo.dd !n Jouh,l will ,pFar Ds toDtr, r.or c e
Mac}ino Durddsed wo.tn Ra. 5,oo0 on 6i! J'b , 2003.

' lluN${cTroNs aNAYsrs


M.ouagafB" tc Itahor'rcii Ev"-y b Ines d.J rins E h.( h caD r,. n.--u6d.nm.ncy
lnd wlich lapncbrk caliral or ascLs or liDbitftid! or oDc r Eore otrhM D lhr
arYccG
l,$iNs is cailcd busineF6 bansaeon ltErodcdoD mar eilhcr bc r d.o.l4! , lE.\.ccn Fr$ns
$ 6'su.ss d.Lu j tt nnt tnDalu.tt1uqe afEeds o. x rces,.r r4tit and polwnt d
^
l1'En.]funEcorTon+l''l6crtfrULccxchq.oIknDstirolsood
(2rt<ilurr'.5: For n binsadionrhcrenrusrr*Notsdics on4 dcer ihs.hc beudir.nd
fl!. dr,n padin( r t. brr (hc fdn ! le. djrc(tr or indr{nr
(3r]1rcnvnd! 1lle( r o !$rslEcL$jrrrch kMsrdioD

!tlj.1, letxh. \ ,!.\l,r,ans.LdtoD It,,!


,.*1, r n(Nn 4 Fur ir rr, D, 'h,ishdcxfnssh
nyi/ r Dd F{F,F'j r, .'
r nuc.l r Hooro!1,
'!,r l!'Rrrdi'L
r,^n!ri, r uur
, r: Prnr,rs.d (ar)- lroD hr
'' , Prlnn4r lirt $l,crD.,rPn llirr,r
scoF 46 rogards 4oF. hDsdd i@ E!" be dlsird 'i D,hmol or eftrcoj
tdctn.' lrchu an : Th. u!.s'rtjon s\ici t Lu s ej'l' lho dcprd'don of ho.hrlry
i6 d inbm.r ir.,rg.dn. Ary rr@crjm sbcf, is 6n.cme.I {ith lhe .cnvirr Qiutin n'o
cnk4.ise is o inb..l inns'dior
E h dl rftnsttian Eai.mal tres.tior k one *Ilich is.Dbrcd inb Lclweh tlo
busm.. otc.pris€ and the duEid. prnt d r.[ac or nlcnincry ltu Mr x orMuhbsi
EahMEp naBrtioa .\q@ \atud @ d.r'ssed bclween rwo q Doro psd:8. it is rn
.xcbdgb i:ssa.iron, ror i$bncc, sm& olRs. 500 ue cxdrinsed fd! ruhitur. orns. 600 witlt

'tretf.r Tc@non : If nL. @dnr i6 hn't E6d fmD one lco


i3 cdl.d o i.atufe. lrunsacl.ion
Eddcn *ssaio^ : I Eoods fo. Xs. 30o n pu.haE.d &oE B on crdiL D has o@ptld
ll. 790 m turl md ,in,i $iuenm. ofhE bdd6. Ilcre Moqr ofll€ lo is t s.r€d a3 dk@u.,
*hjcrr $ hidile! bui mtry fo. is. ro will be !s .d Su.h hslaciion! eo cailed hddcn

AbwtutTlMnon ljsc dueb s.d4.lc4 nd& tud dftusnk, .L arc duDolrul


irinsadions ln LIr saDe say lo$ dlc h tte,r md hbberv, .!c lr .lso ablmrd f'nridions
A hy hin *ndjor wllcb j. bdyond sFcbiidn in il)e lomal circuD s tdn ccs is .nll.d 3 i hno.ns]

Caapuln. Toa gtia| r"^.in 'ne dd F!.ltr m lFqad by rI


ftM acdons n ldkdqrn!u.h,b
Mieit@ors rruttudio6 SoDcUhB bGirsmcn hay. b sirt .dne .lrnty or
donattotu. Tlre] llso sFnd sde tr'o..y on rcltsDlE ccrcDDnies, s.t p€rromans if'puia
(edrsl,ip) on r e{ ycut dor elFn isJI PqjdD' ( o!8hip or ldolc or Ac.ou6) bk.+ Dia@
SDrcnno@c are 6p.Di on Euch occlsion'. $eds ir. also distibul.d ll such.En$riiory
&'ctDoql os risellans0u 6an3dDns
,!ar '"roaid.ron. sdch h in6Ruiid5 lncn iDvolv,A erd,r'ud o, pods/sedieN ue lrN n as
bre trnsidons Eaner uuedioN bdude th. roUdn.g
i') Ex.hoFcordhndd ics aorotModilies,
(r) ExdMnso ot .oDn,odililF for scnic.6
lrii) Ex.haDs'o d io!qr!modjtic€,
scrviceF
I !i jtxchanse ol rp5 ntr padlr olm'xliric atrl Fndlr srtu&i
onnod
rv) l:a.Iansp df scFi(c! r,rr,1l] sed'ir$ iDd Drnlr.omDonn,ri, and
Lr ) lrxsl,rngo.dlscrvicos lbr k^rces
l!o/,lra/rs's or. Ttor qx rdi F is lDdcr
r" \\'h in rh. r!, isr.ds Ll r rmn,ldiiDl
1rr rU'rL are tIr s.(ouDF to $)ncl, thp{ trsp(rB rdar./
lni' \11.t is rhr rFe ofrcoun
P \\1,nh rul, orDotrbh EDtt,. b l" rDplrd,i'.{(rr,'f rrrcs. n(oun'ri
'. fid\ o n,olc rdn n rc!,!d or r,4ks!fi(ounr?
r\i \rlirl, trushdiors Lrycbe,x' di r'd lilo )r.o,tlr
r!r \!lrrt hrniidDns j'ar. brcn
",onllv icunt.d'l
,Otr(h'loior hrloor rotlr r. sNsr htrth'( t's,r r(ddd
rhaLooh,nrrunr
D
! ls hrr! r,tnsalDn \ljLdr h h llrpd i,r rhxl orlr ,tr rh rr!,ls rl
'y ^lrn.il
a1,. "in..r.,,tr'\. 'ar \.,11,. ,
a..,i,,t,.r,,.1
I

t'rDri,i.hc r,Ns 1!r r,,,


'i.'
chplete and Fliahte netMths Iutdihdndtuutionanobas prcui.t'sasaundfaunniti.ntat solut

The beil'od ofreo.ding tansortion rjournal on fio bais orrures ordouble eni.v svsbh

A b siDessnan cones in cdnh.r wiur Pdsons lte h3s to kcep soDe pblenv llc incEs
3dne dpebses and mekcs sode in@Ee ?l1c.eforo, aD t)ro F@sdioG ora b$iDcss m
(1) T@sadiidft reratins to pssmd eoDls, (2)
Eroured ud& ihe th.ss headilgs, l]delv :
tansacuoc relnnr o r ^s) acounB, md ' rrmle { o - relar! e noE 'n3rartduB Th re
c,
Mc sN,k ruhs ro rlFso(ruBdisds"d cein h chapbr 3 dn Lnr b3'G or wnrd @+
drD sspccE orbans tion is ro@.&d injdural
R.cotdi'E .f baMtiot nldtod la pDrrubr : WIm n or.ierd or il
busiGs ly;koducins epital, $e ac@ut ofthe proprietor is ndt dp*d bui itis rcPrsmisl bv
capibl ;uq . s., M;he dnnenea bEin6 *ith xs. 2,000 Fdllowing jomal eDirr is Dado

sohan obDrDed hGD"b l':tl' tu 2,000 6so bou Mth so d. Jr fts s,000 6oU^ rts
iodrnrlenid E nadc fdr tListudlmon

r&!r e$ rii sdis 6uidl D 6r o)


,r,uizg' raolzr when Droreior orbusiiess b'l'cs Mtlrd.ne alt lioE butitDs cthfl
.
n.ashor eo&. ].hcs Fs.ctjons aE no!raudld throush @Fii.l
'csr.i,
buidra{inss
trc.duthoDened.!.,?Fnnebr-iibddEodsorRsB00anddsroaRst,000lionbusircss
EornrrntcnLD n nd. ror,!.

Ajourar d,!! o, bc orrN0 t{ri r;


rn]snn),le,r,rtr ll|fry,
irirc,hronrr Jlunx,l Dn.:v
(r)s,ri'r(rif,d/r ry \lrl,d dnj hro {rud! in,xffesed orn^nrrerl'ntr.iluadiu,
Lh! d,trr Li$d ro: rrnlrud' !n+,!drD rl $l1,rl r siq,l..FUn)rJ orn
l

,,1

ls,h.'.1""*ii-'.F..
(ni, d. rNtri oir;!
'D4hr

'rh" nr!r.d' Lhcsinc Jsieorn ih


lLchir.d d (,.1' - \ !x!f .lur h,o. cnkr rr$ql lo) r..odnrF tho rurs!6! is 4lled
!, rrDdnr,,ia .1r: r'ollo\i'rc dc.fr rtrur niirE r1 dcr
rl{1,,1 NrL,i\ed sDds ror rlsL' b, lts :/,0r,1J a, Jin J 2001
"r n0o0 hln s,h,r |!lh\nr(.in!u, q'f{ b
rq 200{ ShlDi U.tdin &ld sbods ad..ash A.. 4,ooo and Eotd sodds ro surond.,
-{ii)OnJd
torn6 6,000 CoEpoud atre is Dsde s bdo' 6. il

rq000 ,.61
(iii) on Jm, 4, 2004 Jdoph pudas.d e.o& dJi.c tud fifotu'e fEb sobtu fulr riEr
R' 3md tine fd Rs. 6,000
for pddr
1,000, Lbird liD. fo.It . ,olrrd fi! rE h. R3. 500. FoItflrns
mlound enbr i! Eads for ; 'hd
Jar , GmdsA/. (I

i! Lh. h.qkl oaPmklsL Brc ;


2001 JD r r' $L og'DcE.d' turG 6rl od tu c,ooo aid c..d
cd 916 R! J,mo.Jm 3 s.rdsood!bMohuRrrmdJahg
*D .cdliqibr6Eb& i.dooJan r1.caq.id6rj,;^-hn 50o.

!!
t
I

r;-n
vil,
(BcbFAdsfuthedeiddudL{&6LdcdjeEd

or! laqoLj4 pDTerl d re 6{ 6r


"rre,-4gt..... _ _ .
(lrPuthesLaa nt: \\+'4 Eaods are plrclssed, ii is bc.b. t dcb{lurdascs aEoul
jn ptaco ofg@d8 acoiini
'?rsolesn.Lrt !vn.n srods r.sdld.r Fh?rF. roq€di( sdles s,oudr,o plaeofE@;s

PtrchEes rctumt u.au t : W}]en slods pua\ased *d rcilnsd, i t G b.rtcr id cradit


l3)
pdd$es returns acounr or rotu.ru outwa.d aNunt
(4)SdlesrctufnsdeauaL l,+,cn slods sold n htlned by cusLomes, n k heiLr !o debi!
€01* reims 360uDt 0. rctus hwfd acoult
tS) Steh ceoLnl : Whaievcr gmds reDain usold at ihe dd or ihe y€a4 fiey oE
r'nsfazed b stuk ac@ul
(ctosins)

G) Caoas e an.on ;ieNra ddd,,! : !!lre soods ft


sent b o ag4Lfor sellDsit on
b.Ialrand ;3L oathe trcpneb4 then coo& are said b have boon
tni6 casc coo.ls enr on ondcMent a(oun! h qeJit€d ed Md

(1) DEouzr . Discouri is a cdocesio! axoped by ure selcr b $e huye. in iLc pice io be
prid by hiE. Ir is or .wo fi;ds : (i) rrade dis@unt, o,d (t) casL disobl.
(i) ftade DsoLnr : This dis@uli is all@cn hJ tne solbr r! a buyer vho d$15 iD lhc sds
goods as tbar of ihe serler ftdd, dBiunt tB rct ncatdia in th2 baoer a7 accau,, becanse rt is
shom as dodnciio. t! tha receipt dr invoi€ The mouni *hich raEains !fter deddcrion of
- rade d is.ou ni is rccodcd i n b@ks o raccd tr. r-q A d auulddursr nanulac tuEs an 3fri clc for rs
R-- 60 ILg IisLpricc is hs r00. Hc sold ii1o ine lholcsaler a{ 209, trade dtsounL,;.(., ai Rsi s0
ID ihkcase, n,Dufaciure.b,snade a rrofii dfrrr.20 r. , tc 30,Rs 60 The wnolAatd s.ld
i.b reiail }ader at 10%i.ade di3au4!r,-o'tlsi Dr!qi... hcsld jta! Irs I00 Rs. r0rz.,
nF.90 NN dF wh.brirq d,kes a ptufiidfns r! h,rs 90- Rs.30. fie rehit ridc. sord
{ ai Rr. r0o dn(l tl!\- be mod! a profit olRs I0
(iDc4sh Di$uQr nns djscouniis a oNcd io those buyes wLdnn'trcprynrrrduringa
D esribcd pofid ,y,i.\ dis.oui i s aluots Intdd t boahs ot deold ltrus .'sh di*otrnl s'
ran.cd bra srpplcr lor mrL.s pro,Dp( prlhoni oa Lhe tr)voE rrho r considenr.rr. 'llE

i.tr L sdd;, D,r!r i.,


.: . -:-:---
(i Mthdtou.ll ol eood. L! tL. ptupri.tat tm th. bsiaes tot , ts pcr&tr,t bc j \trcn ilo
p@pned oI i}lc buses w'thdra,6
.DrrinF adDt" G delj icd and
.Pu
purs}*e pncc
{he s@ds ar
si,,n 6 dneq : son.iiEcs, rL
(ii) Go.ds
dm chanty Acouilr is deribd {il}l ilie pu
(nn DisrnbuLol olEoods ds frce sdnptrs
ibe adveni6enent ol his coods dhtributes eods as sMplc lree oa@sr. In thjs 6su, ,AdvcdisF
beni anrl Plbliciiy a/c -itr bG debibd rv h rhe l]u.dlac plie ofrldr coods md purttr ascs ./c

lirlissafcaodsolthdt di.g
so.ns de desroycd o.los! du ding
loss.h ths dse, "lass on dd
'Pu.hae. ARount qU b c,, dr.d br pL'chcr Fio or rhat eood

!.::t" .
'i Ror' D.bF : lr b 's,nces, after I
rcarGed or.@uni of dcdii s'io, th@ ihe anoui lor Eat*od is iredbd ss Bi,t Dobrs. tor
ihG a" will ll. debirld pdsonal .couij ofrtrc ore.n6d Debi.s
wirl ^nd
G no ho6; oi rercvetuc rroa lhs d"b-;; .n rhis
'n" 'DoDr
lr) Bdd Debk Ee.auead : Wl\6 any ldaD dr rdvanm iE k€arcd rd be ddecwcred a.d is
dlb,l€d to .B3d Debr acmmr".nd lator on rlo Lrd debts 0oan or advaD.c) is.ocwcrcd, D
thi s si Lu tion 'casL accounc w bc debt rcd md 'B id Dcb Ls Reco"ered a(ounf sill be c.cni t€d,
Lc.a$c Lhis is trcaLcd snbuslncssptufirILEtua6 asprotiibecau*,debtors3r.nnicanicr

(\;iion tNohrrLt ata r\htot:\\t\cn rdeLb!Gdedrredjnsotvunr,jii,Dosithnoihi4


ni ! L..,.c:r! r ri,r !. j,..
ledis hrahdas urd Dcbts 3ndi

tn Etu., rttnrh! t,..ni or b'rr?r. on p*rpr of& order o, on Dt..ns s! ordc. or

t \L-t -11 .. ,1.-L r,,'r,,1,.i". /1.,p..;,,,,


i,, La.r J.,,,.-. dr"..er.n.c.,fl
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\n &rnGtN. ca) ro! t Eaatti
-- -dl'

Puichrsr!

No Jod enty n Edc lau€ lq!


Noonf,vill}.F$edh.cdurhdo
Mol.iEl's4d.i!DgofiE!@don

nouDL4 G!G 2,uod00


t0 ) PuchaFJ n Dnrr ldr br lrl R
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r8e er6bD rivid&44!r9

rBsre4ro:l41!I o-g-+d !lls-]!Igr.:gdl


!@#!)=6m0.3,0"n" 6,
ouGbdirywlsE/l^

63,o.ol
l&,,@'!od..fu:d2@
ol tu
'l'3qtu ' 's!@j]B 'M
. ,,9!LL0 . ," .^"
".

,Dl)edq b $e l,oldo lhed or rb. cnJ df $4


y.r hK rd b- bouct" torusrd rn rrtu TDis pme6 r5 dom by pdsins a purDl
!truy o rh.6ft! d'y oI6. Dw \06 Th! jolmet
'he.menr s!r, tu bm,d 6. Jtsaxs.rrD w1d"
pu"ingr' ql,cning cnrry €rr aek drbi.ed a.doirti'bJ:r.! 6rd c'pibraa"un'.
'Fuk 're ;

,0o0, Dobh jrs 6o,mq Madho? R. m,00ir


l,;,rritrd: €redibc. n i6h Rl io,m

'0oo',ah@diI|!i'oootr'tm
Irqiry k, Aiddsqnrh i<ic, lfm LF ric.tu atu! ruJ-!R e.do
,hNI!15&4h.Rd,orLhrj
,hnqr4 D Ped bnqj4t R isj
iorNl

&jesh

rn i.dats mbndciar wo.Jd a sound BanlliEs srsreF has its Mn spedfic inpotun€ ,IIc
d @nncrcial od indushd prosiess oaaqv .ouDky der,ends
uDon th rdiv! coD#bution orihc Ba,*s. aantr provnd randE t'!€s dtscryi*s and foohhes
bve;ous cat sones ofpoplc.'ftqctorc, yitl itre purrdse oflaking lho advelaF all lErsons
or'Qrous caicsoics and insLihriiobs op€n ac.dtrDG in Bank. I]e
aNunt.nh to live i],. kno*lcdgc olb!,Hnst.ansaciiors
lii nank mainly Lhree irFs oraeounh ire orenod : (jl clFe.i Ac@uni, (ii) Savjiss Bmk
nrcdun rnd I'n ) Axcd Dclo$r A.eun t. corr.llr 5 LulDcssE@ q bDsjncs orsDladdn
opo'sr dFcn! acsunt in.hc nrne oltsiirms dnc 6 vlious bcDcfib orcurrcnrmcobi in
L'trsnrc$ !vo.ld. curcDi rcolni rs knor a5 llmk ac.ou . ftssodtoff r.llbd h dcposii or
Niil)driwrlor nouDt rroni curcntacouDI arc prssed rlrouEh .I]b( Accoun I .
$1u.4!r 0dEachoNfc dcollwitll brnk, aorrocordinsthen rn Jo
r,o*nl"nlf prs0nrtrcs r. t.[. nnc otjournalrns ep€
, (.!i]a, ,n!r fc(tir llo
Flu on rhc bNs ot thrs rdl., I'r rc(HinF a&h n2r sr.ijon mjou.xl,
rhc DrLur?oriLob.Dk finsadn,n. nlfth!r rl,e na,ll(,s rl,!
,Nqn11 d rr 3(ouni o' ii. srr? ridn L'rntt rh. nrdv.r dt
rh! r,rr1 rli.rllstrkA..!rir\rJrh.ddlnLdandLl{oitrcrisj4!iufrtru.frNadid's,[1,.
's
drdn,Lncb rkisdr4r.rof.lF{n!i'ni.ihclrliok !!{rnl
,r.i.-.r't,

, ... , ., ,, .,. ,n.t . I .,, ,


12) lxpoeu'E th. ch.qu irt! Eazli , Ir budne*, v.nou6 .r6to4os .o!!rdd p.'hcDr ib
chequcbettorihanincash.Ia.rychquab.ecdvddfroDacu dEc. and ir ;6i ro. cottocrioq
thc 6ms ir iho Lsk, ilh Btur.k 4/c eill b€ debibd lnd psni.Dlu cusroncrt Jc witt b€
"t"4rjd.
lf a .heque nce,vcd coD a cus.oDc! ji nor senl for oltedion on tho sane day, b ii js
.oni o! lonrs other d3y tnr6 ryjD of tran.diim will uo recordsd rei.e k., (t ard, s,hcn rtc
chque B E.ei"ed ii h t cabd .s osh drcn "Cash a/l ir debibd and 'CustoDcr,s Pq'dlj ar'c
is sedncd (ii) scd'd, wieD ihjs .hquc iE dctseLei in t}le Lonl tuc oLh.r dar', $en ,Bank
i/c is debir.d md c,3h ,/c js crcdded a. i. is donc i' ll)e qupl! bclow i
frorarlc oD r.r J!D".200,, Mal""lr rGrv.d sclccL.h"urbBb Ra.600 frcE Moh{D
wh r h rrc d.p0sr d inlo his bonk ,r.dunr on Ln u., 2004 Mlh.sh kitt pB dc rd,td6A
"

6t at Mtpr of ch.q@;:

-(

t1hr l
-l
o, busDlB ruryf. rL.
6u.i ,re U lE deb'Ed nod.Br.r a/1
will oDar u6e froD baDk trED
8,tu \. witL.rs.!!.d t' ,)mrnr. ,nr. ,,.pydiD.d
rouetr dp4tr., ,?uclaesrd
'Expense! i/r',Nill h. dcbraed Bnnka/c;willL:rcdtcd
/dasser a/i $ tx d.Liled
i d B6rt t,/! sill Lc (rcdiLcd 'h.D
ta)rao"latnLorhtLon\ba,DbaDlsa'kenDdi,tbrclironrA rudrrs jrR.Lovrrdrdti
o. rlrrougr,(isrj ddrl |o. crcir ryF oltos.lffer.rr mfrisEsdd
tjl')r,t h ot iro,I o.r.dnlt: wld l,trs'i65D.b $lrhdrNi ox.css rhdrEr rtDr hF
dullsrs. rhdr dns N rl,rl.d .s.Brnl o\ crdrrn rrc FmN6ro! ror Nithdra\ f,.\er! nronc,
dn,nrrld'unt'snrk.DyL,rkonth.l,as!orpnrFl?tor'sgDod\ill I'r rhG usc n. sn( fir
l,uun rqn,ol i5 rquNlb licorun.d Tli. chL'1 *ill l,e s l;llurv.
.L]';
dcha tbe pc.soDal aEounl orihe ndibr
(Rceivgr orc[equc) md cndrt tb€ pe6on'] kcount
oarbs tsrsdn srdns tlc cheqDe.
@ 16) Ctuque depd.d inb bdnA bd du,l,,D@d : r
tbe deqre &pasit d iDl,o krh;
J dislonoded, ,1., bak reiEA to pay .he honcy of rhc dtque, ilo d
@ivils tls inlmaiioD
rFrdj.s rlG]lonou of.heque, tle pl]rcml ouurt ot Gr person vbo savc the cheque wiU he
qu b
d! b,Fd md 'Bad< o/d .rsd ihd
. (l)tsued ch.qu b k thentsel a/c
di.h.nouEd: Irissued.neque is dishonocd by tnc
Fir)D. d.bLkdMdlh p"rsDnalacornrolrhJ' Fcrsnqilbcn.qi(dbkhom rhc!hlcr!i.
'o a'*s-,hus"a 6 dsuibtubEnE e,d
'e,a. le6 whrch s loM s! Sanl .hrce On r(cJrr ol tlr"
info@hon fbn bpnk 'Ba.l< Cbarses tc h debtt€d abd ts'nh '/c'E reailed, bemue ilr
rusonor ollhc b3nft does nol By the onoDt in cash, hft in. bak itsclfdqdud! rh oou

\9 |tupdotLu.db!A h Baolt \h"D rflidos intcr. onthed.posisrr bdk. lh€n


'
,hGioJoda'oo jsovobDcartornrholderbyrb.btnk Or iicrqcF' of rhlinfoms.io
'sa.r dd i! dcbihJond 1;h6. dc iscftdi'ed i .' :
4 l1a) Inbrti chitp.d b1 Bd* Bdnl lndn : Wh.n bak cn*E
hrered,/dis dcbircd Md Bmk a/c is @diied.

Lrb u ldrE r on" l rrjodiJdsu"droswi"ql-qr


'rr 'allov'€
tuds.d sdE or qlh Il" 5,000 J h 5, sold go.& b A'j!n tu
ru. t0 r8idashrobutqruli
r00: @cnonejull.10o:Jatr
20'sold&odsbMohhfu,2'000'JM'2r"Moh'nh0F!dg!d5Rs-

r;l

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''exdn4{b'Jou)dl?h.E&&dl@diEfult6dru
PMCIICAL AIJEfl'ONS

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ffiun'in! 3r a ro liE a yidq ntrilg b dc sbj4l

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:n.do'Lbkorrutm' nlortrcv dl l.ads or'mrFoenr rr d.unin! de@[EjLr
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