Transcript 4 Recording transactions 1 -Journal
Slide 1
Recording of Transactions-I
Samir K Mahajan
Slide 2
SOURCE DOCUMENTS
Source documents are the evidences of business transactions which provide information about the
nature of the transaction, the date, the amount and the parties involved in it. Transactions are recorded
in the books of accounts when they actually take place and are duly supported by source documents.
These supporting documents are the written and authentic proof of the correctness of the recorded
transactions. These documents are required for audit and tax assessment. They also serve as the legal
evidence in case of a dispute. The following are the most common source documents(Vouchers)
• Cash Memo
• Invoice or Bill
• Receipt
• Debit Note
• Credit Note
• Pay-in-slip
• Cheque
Bills receivable, bills payable, wage sheet/salaries pay acquaintance, correspondence etc., also serve as
the source documents. Thus, there must be a source document for each transaction recorded in the
books of accounts
Samir K Mahajan
Slide 3
SOURCE DOCUMENTS
Voucher: It is a written document in support of a transaction. It is a proof that a particular transaction has
taken place for the value stated in the voucher. It may be in the form of cash receipt, cash memo, invoice,
bank pay-in-slip etc. Voucher is necessary to audit the accounts.
Samir K Mahajan
Slide 4
SOURCE DOCUMENTS
Cash Memo: When a trader sells goods for cash, he gives a cash memo and when he purchases goods for
cash, he receives a cash memo. Details regarding the items, quantity, rate and the price are mentioned in
the cash memo.
Samir K Mahajan
Slide 5
SOURCE DOCUMENTS
Receipt: Receipt is an acknowledgement for cash received. It is issued to the party paying cash. Receipts
form the basis for entries in cash book. When a trader receives cash from a customer, he issues a receipt
containing the date, the amount and the name of the customer. The original copy is handed over to the
customer and the duplicate copy is kept for record.
Samir K Mahajan
Slide 6
SOURCE DOCUMENTS
Invoice or Bill: When a trader sells goods on credit, he prepares a sale invoice. It contains the
information relating to name and address of the seller and the buyer, the date of sale and the clear
description of goods with quantity and price. The original copy of the sale invoice is sent to the
purchaser and its duplicate copy is kept for making records in the books of accounts. Similarly, when a
trader purchases goods on credit, he receives a credit bill from the supplier of goods.
Samir K Mahajan
Slide 7
SOURCE DOCUMENTS
Cheque: A cheque is a document in writing drawn upon a specified banker to pay a specified sum to the
bearer or the person named in it and payable on demand. Each cheque book has a counterfoil in which
the same details in the cheque are filled. The counterfoil remains with the account holder for his future
reference. The counterfoil forms the source document for entries to be made in the books of accounts.
Samir K Mahajan
Slide 8
SOURCE DOCUMENTS
Pay-in-slip: Pay-in-slip is a form available in banks and is used to deposit money into a bank
account. Each pay-in-slip has a counterfoil which is returned to the depositor duly sealed and
signed by the bank official. This source document relates to bank transactions. It gives details
regarding date, account number, amount deposited (in cash or cheque) and name of the account
holder.
Samir K Mahajan
Slide 9
Debit Note: A debit note is prepared for purchase return and it contains the date of the goods returned, name of
the supplier, details of the goods returned and reasons for returning the goods. Each debit note is serially
numbered. A duplicate copy or counter foil of the debit note is retained by the buyer. On the basis of debit note,
the suppliers account is debited in the books.
Samir K Mahajan
Slide 10
Credit Note: A credit note is prepared sales return and it contains the date on which goods are
returned, name of the customer, details of the goods received, amount of such goods and reasons for
returning the goods. Each credit note is serially numbered. A duplicate copy of the credit note is
retained for the record purpose. On the basis of credit note, the customer’s account is credited in the
books.
Samir K Mahajan
Slide 11
Books of Original Entry
The books in which a transaction is recorded for the first time from a source
document are called Books of Original Entry or Prime Entry or journal. The source
document is required to record the transaction in the journal.
This practice provides a complete record of each transaction in one place and links
the debits and credits for each transaction. The process of recording transactions in
journal is called journalising.
Samir K Mahajan
Slide 12
Books of Original Entry contd.: Category
Journal /general journal/all-purpose journal
Other subsidiary books/special purpose books/special journal
Subsidiary Books - Non-cash Transaction
o
o
o
o
o
o
Purchase (journal) book
Sales (journal) book
Purchase return book
Sales return book
Bills receivable books
Bills payable books
Subsidiary Books - Cash Transaction
o Cash Book (Cash Book is used for recording only cash transactions i.e., receipts and payments
of cash)
Journal Proper
Samir K Mahajan
Slide 13
Books of Principal Entry
After the debits and credits for each transaction are entered in the journal, they
are transferred to the individual accounts called ledger account. The process of
transferring journal entry to individual accounts is called posting. The ledger
account as the Principal Book of entry.
Samir K Mahajan
Slide 14
JOURNAL
Journal is one of the books of original entry in which transactions are originally recorded in a chronological (day-to-day)
order according to the principles of Double Entry System. I other words, Journal is a date-wise record of all the transactions
with details of the accounts debited and credited and the amount of each transaction.
Journal
Date
Particular
L.F.
Debit
Amount (Rs)
Credit
Amount (Rs)
Note: L.F. is ledger folio . All entries from the journal are later posted into the ledger accounts. The page number or folio
number of the Ledger, where the posting has been made from the Journal is recorded in the L.F column of the Journal. Till
such time, this column remains blank.
Samir K Mahajan
Slide 15
JOURNAL : EXPLANATION
1. Date :In the first column, the date of the transaction is entered. The year and the month is written only once, till they
change. The sequence of the dates and months should be strictly maintained.
2. Particulars :Each transaction affects two accounts, out of which one account is debited and the other account is
credited. The name of the account to be debited is written first, very near to the line of particulars column and the
word Dr. is also written at the end of the particulars column. In the second line, the name of the account to be credited
is written, starts with the word ‘To’, a few space away from the margin in the particulars column to the make it distinct
from the debit account.
3. Narration :After each entry, a brief explanation of the transaction together with necessary details is given in the
particularscolumn with in brackets called narration. The words ‘For’ or ‘Being’ are used before starting to write down
narration. Now, it is not necessary to use the word ‘For’ or ‘Being’.
4. Ledger Folio (L.F):All entries from the journal are later posted into the ledger accounts. The page number or folio
number of the Ledger, where the posting has been made from the Journal is recorded in the L.F column of the Journal.
Till such time, this column remains blank.
5. Debit Amount :In this column, the amount of the account being debited is written.
6. Credit Amount :In this column, the amount of the account being credited is written.
Samir K Mahajan
Slide 16
STEPS IN JOURNALISING (Accounting Equation Approach)
Step 1 Determine the two accounts which are involved in the transaction.
Step 2 Classify the above five accounts under asset, capital, liabilities, expenses/loss and income/gain.
Step 3 Find out the rules of debit and credit for the above two accounts.
Step 4 Identify which account is to be debited and which account is to be credited.
Step 5 Record the date of transaction in the date column. The year and month is written once, till they change. The
sequence of the dates and months should be strictly maintained.
Step 6 Enter the name of the account to be debited in the particulars column very close to the left hand side of the
particulars column followed by the abbreviation Dr. in the same line. Against this, the amount to be debited is written
in the debit amount column in the same line.
Step 7 Write the name of the account to be credited in the second line starts with the word ‘To’ a few space away from the
margin in the particulars column. Against this, the amount to be credited is written in the credit amount column in the same
line.
Step 8 Write the narration within brackets in the next line in the particulars column.
Step 9 Draw a line across the entire particulars column to separate one journal entry from the other.
Samir K Mahajan
Slide 17
JOURNAL: ILLUSTRATION (Accounting Equation Approach)
Example 1: January 1, 2013 – Saravanan started business with Rs. 1,00,000.
Analysis of Transaction
Step 1
Step 2
Step 3
Step 4
Determine the two accounts involved in
transaction
Classify the accounts assets, expenses, loss and
liabilities, income/revenue and profit
Find out rules of debit and credit
Identify which account to be debited and which
account to be credited
Cash
account
Asset
account
Debit as
asset
increases
Cash a/c is to
be debited
Capital
account
Liability
account
Credit as
liability
increases
Capital a/c is
to be
credited
Samir K Mahajan
Slide 18
Journal: Illustration contd.
JOURNAL: ILLUSTRATION (Accounting Equation Approach)
Date
Particular
L.F.
Debit
Amount (Rs)
Credit
Amount (Rs)
2013
January 1
Cash A/C
To
Capital A/C
Dr
12
45
100000
100000
( The amount invested in the business)
Samir K Mahajan
Slide 19
CASH AND CREDIT TRANSACTIONS
On 8 May 2014 purchased goods for Rs 18000
On 10 May 2014 purchased stationaries from Saha Enterprise for Rs 10000
On 11 May 2014 sold goods to Rajababu for Rs. 1500 on cash
On 11 May 2014 sold goods to Himjhuri for Rs 2800 on credit
Samir K Mahajan
Slide 20
Journal
Date
Particular
8 May
L.F.
Purchase A/C
To Cash A/C
Dr
Debit
Credit
Amount (Rs) Amount (Rs)
18000
18000
(Purchased goods on cash)
10 May
11 May
11 May
Stationaries A/C
Dr
To Saha Enterproises
( Purchased goods from Saha Enterprise on
credit )
Cash A/c
Dr
To Sales A/C
(Sold goods to Rajajababu for Cash)
Himjhuri A/C
Dr
To Sales A/C
10000
10000
1500
1500
2800
2800
( Sold goods to Himjhuri on credit)
Samir K Mahajan
Slide 21
BANK TRANSACTIONS
Bank transactions that occur often in the business concerns are cash paid into bank, cheques
and bills received from customers paid into bank for collection, payment of cheques for
expenses and cheques issued to suppliers or creditors. When a cheque is received treat it as
cash. When a cheque is received and immediately deposited in bank, treat it as bank balance.
Journalise the followings:
January 18, 2004 – Opened a current account with Indian Overseas Bank Rs.10,000
Feb 3, 2004 – Rent paid by cheque Rs. 5,000.
March 5, 2004 – Received cheque from Elavarasan Rs.20,000.
March 15, 2004 – Cheque received from Santhosh Rs.30,000 and immediately banked.
Samir K Mahajan
Slide 22
BANK TRANSACTIONS contd.
Journal
Date
Particular
2014
January 18
Feb 3
March 5
March 15
Bank
A/C
To Cash A/C
L.F.
Dr
(opened a current account in Indian Overseas
Bank)
Rent A/C
Dr
To Bank A/C
(Paid rent by cheque no. )
Cash A/c
Dr
To Elavarasan A/C
(Cheque received but not paid into bank)
Bank A/C
Dr
To Santhosh A/C
Debit
Credit
Amount (Rs) Amount (Rs)
10000
10000
5000
5000
20,000
20,000
30,000
30,000
(Cheque received and immediately banked)
Samir K Mahajan
Slide 23
carried forward (c/f) from or balance brought down (b/d) from : past to present
brought forward (b/f) to or balance carried down (c/d) to : present to future
Samir K Mahajan
Slide 24
Example 1: Journalise the following transactions:
On 1 April 2014, Mr Mohan brings in Rs 1000000 as his capital
On 2 April 2014, Mr Mohan purchases land for Rs. 350000 for cash
On 30 April 2014, paid Rs. 150000 on completion of building constructed by contractor
On May 3 2014 purchased furniture foe Rs. 400000
On 8 May 2014 purchased stock for Rs 180000
On 10 May 2014 deposited bank account in the name of the business for 150000
On 11 May Purchased goods form Bright and Co. on credit for Rs 30000
Samir K Mahajan
Slide 25
Example 1 contd.
Date
Journal
Particular
2014
April 1
April 2
April 30
May 3
L.F.
Debit
Amount (Rs)
Cash A/C
Dr
To Capital A/C
(Amount invested in business by Mohan)
Land A/C
Dr
To Cash A/C
(land Purchased for cash)
1000000
Building A/C
Dr
To Cash A/C
(Paid to contractor for completion of
building)
Furniture A/C
Dr
To Cash A/C
(Furniture Purchased for cash )
Balance c/d (Or b/f)
150000
Credit
Amount (Rs)
1000000
350000
350000
150000
400000
400000
1900000
1900000
Samir K Mahajan
Slide 26
Example 1 contd.
Journal
Balance c/f (or b/d)
8 May
10 May
11 May
Purchase A/C
To Cash A/C
(goods purchased in cash)
1900000
Dr
180000
180000
Bank A/C
Dr
To Cash A/C
(Cash deposited in newly opened bank account )
230000
Purchased A/C
Dr
To Bright and Co. A/C
(Goods purchased on credit from Bright and Co)
30000
Total
1900000
230000
30000
2340000
2340000
Samir K Mahajan
Slide 27
Example 2: Journalise the following transactions:
On 1 April 2014, Gaurav started business by investing Rs 40,00,000
On 1 April 2014, Deposited Rs 3,00,000 in the bank account in the name of the business
On 3 April 2014, purchased furniture for Rs. 48, 000 payment made by cheque
On 8 April 2014, purchased goods costing Rs. 76, 000 against payment made by cheque
On 10 April 2014, purchased goods from Honest Trader on account for Rs 56, 000
On 12 April 2014 , sold goods to M/S Hira lal for Rs. 18, 000 (costing Rs. 14, 200) on credit.
On 15 April 2014, paid to Honest Traders Rs. 36,0000 by cheque
On 18 April 2014, Goods sold for Rs. 23,800 (costing Rs.19000) on cash
On 22 April 2014, Received cheque for 18, 0000 from Hira Lal
On 26 April 2014, paid the balance amount (rs. 20000) to M/S Traders by cheque
Samir K Mahajan
Slide 28
Example 2 contd.
Journal
Date
Particular
2014
April 1
1
3
8
Cash A/C
Dr
To Capital A/C
(Capital invested in business by Gaurav )
Bank A/C
Dr
To Cash A/C
(cash deposited in newly opened bank account)
L.F.
Debit
Credit
Amount (Rs) Amount (Rs)
Rs 400000
Rs 400000
300000
3000000
Furniture A/C
Dr
To Bank A/C
(Furniture purchased and payment made by cheque )
48000
Purchase A/C
Dr
To Bank A/C
( goods purchased on payment of cheque )
76,000
Balance b/d
824000
480000
76,0000
824000
Samir K Mahajan
Slide 29
Example 2 contd.
Journal
10
12
15
18
Balance c/d
Purchase A/C
Dr
To Honest Traders A/C
( Goods purchased on credit for Honest Traders)
Hira Lal A/C
To Sales A/C
(sold goods to Hira Lal on credit )
M/S Honest Trader A/C
To Bank A/C
(Cheque given to Honest Trader )
Dr
56,000
56,000
18000
18000
Dr
Cash A/C
Dr
To Sales A/C
(Goods purchased on credit from Bright and co)
Balance b/d
S
36000
36000
23000
23000
957000
957000
Samir K Mahajan
Slide 30
Example 2 contd.
Journal
Balance c/d
22
26
Cash A/C
To Hira Lal A/C
( Received cheque from Hira Lal )
M/S Honest Trader A/C
To Bank A/C
(Cheque given to Honest Trader )
Total
957000
Dr
957000
18,000
18,000
Dr
20000
20000
995000
995000
Samir K Mahajan
Slide 31
CAPITAL AND DRAWINGS
All transactions of the business have to be analysed from the business point of view and not from
the proprietor’s point of view. The amount with which a trader starts the business is known as
Capital. The proprietor may withdraw certain amounts from the business to meet personal expense
or goods for personal use. It is called Drawings
Samir K Mahajan
Slide 32
CAPITAL AND DRAWINGS contd.
1. If cash is withdrawn,
Drawing A/C
To Cash A/C
Dr
2. If balance is withdrawn from bank
Drawing A/C
To Bank A/C
Dr
3. If goods are used for personal use
Drawing A/C
Dr
To Purchase A/C
Samir K Mahajan
Slide 33
CAPITAL AND DRAWINGS contd.
Example: January 31, 2004 – Saravanan withdrew for personal use Rs. 20,000.
Journal
Date
Particular
2004
Jun 1
Drawing A/C
To Cash A/C
L.F.
Dr
Debit
Credit
Amount (Rs) Amount (Rs)
20,000
20,000
(The amount withdrawn for personal use)
Samir K Mahajan
Slide 34
COMPOUND JOURNAL ENTRY
When two or more transactions of similar nature take place on the same date, such transactions can
be entered in the journal by means of a combined journal entry is called Compound Journal Entry.
The only precaution is that the total debits should be equal to total credits
Samir K Mahajan
Slide 35
COMPOUND JOURNAL ENTRY
Example 1: June 1, 2004 – Anju contributed capital Rs. 50,000
Manju contributed capital Rs. 70,000
Journal
Date
Particular
2004
Jun 1
Cash A/C
L.F.
Dr
To Anju’s Captal A/C
To Manju’s Capital AC
Debit
Credit
Amount (Rs) Amount (Rs)
1,20,000
50,000
70,000
(The amount invested by Anju & Manju)
Samir K Mahajan
Slide 36
COMPOUND JOURNAL ENTRY
Example 2 : July 1, 2004 – Ajay contributed capital – Cash Rs. 90,000 and Furniture Rs. 20,000
Vijay contributed capital – Cash Rs. 50,000 and Stock Rs. 70,000
Journal
Date
Particular
2004
July 1
Cash A/C
Furniture A/c
Stock A/c
L.F.
Dr
Dr
Dr
To Ajay’s Capital A/C
To Vijay’s Capital AC
Debit
Credit
Amount (Rs) Amount (Rs)
1,40,000
20,000
70,000
110,000
120,000
(Capital introduced by Ajai & Vijay)
Samir K Mahajan
Slide 37
COMPOUND JOURNAL ENTRY
Example 3 :July 13, 2003 – Received cash Rs.24,700 from Shanthi in full settlement of her account of
Rs.25,000.
July 14, 2003 – Paid cash to Thenmozhi Rs.14,500, in full settlement of her account of Rs.15,000.
Journal
Date
Particular
2003
July 13
Cash A/C
Discount A/C
L.F.
Dr
Dr
Debit
Credit
Amount (Rs) Amount (Rs)
24,700
300
25,000
To Shanti A/C
July 14
(Shanti Settled her account
Thenmozhi A/C
Dr
Cash A/C
Discount Received A/C
(Settled Thenmozhi’s account )
15000
14,500
500
Samir K Mahajan
Slide 38
Journal Proper
Journal proper or Journal Residual is used for making the original record of such transactions
which do not find place in special journals. The usual entries that are put through this journal is
explained below.
Opening Entries : Opening entries are used at the beginning of the financial year to open
the books by recording the assets, liabilities and capital appearing in the balance sheet of
the previous year.
Samir K Mahajan
Slide 39
Journal Proper contd.
Closing Entries or Transfer entries: Closing entries are recorded at the end of the accounting year
for closing accounts relating to expenses and revenues which are not balanced at the time of
balancing.
Drawing account is transferred to capital account at the end of the accounting year.
Accounts relating to operation of business such as Sales, Purchases, Opening Stock, Income, Gains
and Expenses, etc. and drawing are closed at the end of the year and their Total/balances are
transferred to Trading and Profit and Loss account by recording the journal entries.
Samir K Mahajan
Slide 40
Journal Proper contd.
Adjusting Entries: In order to update ledger account on accrual basis, such entries are made
at the end of the accounting period.
Such as Rent outstanding, Prepaid insurance, Depreciation and Commission received in
advance. These are needed at the time of preparing the final accounts.
Rectifying Entries: Rectifying entries are passed for rectifying errors which might have committed
in the book of accounts.
To rectify errors in recording transactions in the books of original entry and their posting to
ledger accounts, this journal is used.
Samir K Mahajan
Slide 41
Journal Proper contd.
Other entries: recording of the following transaction is done in the journal proper :
a.
At the time of a dishonour of a cheque the entry for cancellation for discount received or discount allowed
earlier.
b. Endorsement, renewal and dishonour of bill of exchange which cannot be recorded through bills
book.
c. Credit purchases and credit sale of assets which cannot be recorded through purchases or sales
book Other adjustments like interest on capital and loan, bad debts, reserves etc
d.
e.
f.
g.
h.
Goods withdrawn by the owner for personal use.
Goods distributed as samples for sales promotion.
Endorsement and dishonour of bills of exchange.
Transaction in respect of consignment and joint venture, etc.
Loss of goods by fire/theft/spoilage
Samir K Mahajan
Slide 42
OPENING ENTRY
Opening Entry is an entry which is passed in the beginning of each current year to record the closing balance
of assets and liabilities of the previous year. In this entry asset accounts are debited and liabilities and capital
account are credited. If capital is not given in the question, it will be found out by deducting total of liabilities
from total of assets.
Example: The following balances appeared in the books of Malarkodi as on 1st January 2004 – Cash Rs. 7,000,
Bank Rs.70,000, Stock Rs.80,000, Furniture Rs.10,000, Computer Rs.50,000, Debtors Rs.33,000 and Creditors
Rs.90,000.
Date
2004
January 1
Particular
Journal
Cash A/C
Dr
Bank A/C
Dr
Stock A/C
Dr
Furniture A/C
Dr
Computer A/C
Dr
Debtors A/C
Dr
To Creditors A/C
To Capital A/C (balancing figure)
(Assets and liabilities Brought Forward)
L.F.
Debit
Amount (Rs)
7,000
7,0000
80,000
10,000
50,000
33,000
Credit
Amount (Rs)
90,000
160,000
Samir K Mahajan
Slide 43
OPENING ENTRY contd.
Example: The following balances appeared in the books of Malarkodi as on 1st January 2004 – Cash Rs. 7,000,
Bank Rs.70,000, Stock Rs.80,000, Furniture Rs.10,000, Computer Rs.50,000, Debtors Rs.33,000 and Creditors
Rs.90,000.
Journal
Date
2004
January 1
Particular
Cash A/C
Dr
Bank A/C
Dr
Stock A/C
Dr
Furniture A/C
Dr
Computer A/C
Dr
Debtors A/C
Dr
To Creditors A/C
To Capital A/C (balancing figure)
(Assets and liabilities Brought Forward)
L.F.
Debit
Amount (Rs)
7,000
7,0000
80,000
10,000
50,000
33,000
Credit
Amount (Rs)
90,000
160,000
Samir K Mahajan
Slide 44
Closing ENTRY or transfer Entry
Closing entries are recorded at the end of the accounting year for closing accounts relating to purchase, sales, purchase
returns, sales return, stock, and other account concerning expenses, losses, income, gains, and revenues. These accounts
are closed by transferring the balances to the Trading, Profit and Loss Account.
Example: Salaries paid Rs.15,000. Give the closing entry as on Dec. 31, 2003.
The entries are based upon Trial Balance and can be summarised as under.
1. For closing items appearing in the debit side of Trading A/C
2. Trading A/C
Dr
To Opening Stock A/C
To Purchase A/C
To Sales Return A/C
To Direct expenses A/C (individual by name)
Samir K Mahajan
Slide 45
Closing ENTRY
contd.
2. For closing items appearing in the credit side of Trading A/C
Sales Return A/C
Purchase Return A/C
Closing A/C
To Trading A/C
Dr
Dr
Dr
3. For transfer to Gross Profit to Profit and Loss A/c
Trading A/C
To profit and loss A/C
Dr
Samir K Mahajan
Slide 46
Closing ENTRY
contd.
4. For transfer
to Gross loss to Profit and Loss A/c
Profit and loss A/C
To Trading A/C
Dr
5. For closing items (indirect expenses and losses) appearing in the debit side of Profit and loss A/C
Profit and Loss A/C
Dr
To Indirect Expenses and Loss A/C
(Individual Expenses A/C name)
Samir K Mahajan
Slide 47
Closing ENTRY
contd.
6. For transfer
to income and gains
Individual and gains A/C
To profit and loss A/C
Dr
7. For transfer net income
Profit and loss A/C
Dr
To Capital A/C (in case of proprietorship and partnership)
0r to Profit and Loss Appropriation A/C (in case of company)
Samir K Mahajan
Slide 48
Closing ENTRY
contd.
7. For transfer
net loss
Capital A/C
Or
Profit and Loss Appropriation A/C Dr
o Profit and loss A/C
Samir K Mahajan
Slide 49
Adjusting Entries
To arrive at a correct figure of profits and loss, certain accounts require some adjustments. Entries
for making such adjustments are called as adjusting entries. These are needed at the time of
preparing the final accounts.
Example: Provide depreciation on furniture Rs.1,00,000 @ 10% per annum. Give adjustment entry
as on Dec. 31, 2003.
Journal
Date
Particular
2003
Dec. 31,
Depreciation A/C
L.F.
Dr.
To Furniture A/c
(depreciation of furniture written off)
Debit
Amount (Rs)
10000
Credit
Amount (Rs)
1,0000
Samir K Mahajan
Slide 50
TRANSFER ENTRIES
Transfer entries are passed in the journal proper for transferring an item entered in one account to
another account.
Example : When the proprietor takes goods Rs.5,000 for personal use. Give transfer entry on Dec.
31, 2003.
Journal
Date
Particular
2003
Dec. 31,
Drawings A/c
To Purchase A/c
(goods for withdrawn personal use )
L.F.
Dr.
Debit
Amount (Rs)
5,000
Credit
Amount (Rs)
5000
Samir K Mahajan
Slide 51
RECTIFYING ENTRIES
Rectifying entries are passed for rectifying errors which might have committed in the book
of accounts.
Example : Purchase of furniture for Rs.10,000 was debited to Purchases Account. Pass
rectifying entry on Dec. 31, 2003.
Journal
Date
Particular
2003
Dec. 31,
Furniture A/c
To Purchase A/c
(Wrong debit to purchases account rectified)
L.F.
Dr
Debit
Amount (Rs)
10000
Credit
Amount (Rs)
10000
Samir K Mahajan
Slide 52
BAD DEBTS
When the goods are sold to a customer on credit and if the amount becomes irrecoverable due to his insolvency or for
some other reason, the amount not recovered is called bad debts. For recording it, the bad debts account is debited
because the unrealised amount is a loss to the business and the customer’s account is credited.
Example: Jamuna who owed us Rs.10,000 is declared insolvent and 25 paise in a rupee is received from her on 15th July,
2003.
Journal
Date
Particular
2003
Dec. 31,
Cash A/c
Bad debt A/c
To Jamuna A/C
(25 paise in a rupee received on Jamuna’s
insolvency)
L.F.
Dr
Dr
Debit
Amount (Rs)
2,500
7,500
Credit
Amount (Rs)
10000
Samir K Mahajan
Slide 53
BAD DEBTS RECOVERED
Some times, it so happens that the bad debts previously written off are subsequently recovered. In such case, cash account
is debited and bad debts recovered account is credited because the amount so received is a gain to the business
Example: Received cash for a Bad debt written off last year Rs.7,500 on 18th January, 2004
Journal
Date
2004
18 January
Particular
Cash A/c
To Bad debt recovered A/c
(Bad debts recovered)
L.F.
Dr
Debit
Amount (Rs)
7,500
Credit
Amount (Rs)
7,500
Samir K Mahajan
Recording of Transactions-I
Samir K Mahajan
Slide 2
SOURCE DOCUMENTS
Source documents are the evidences of business transactions which provide information about the
nature of the transaction, the date, the amount and the parties involved in it. Transactions are recorded
in the books of accounts when they actually take place and are duly supported by source documents.
These supporting documents are the written and authentic proof of the correctness of the recorded
transactions. These documents are required for audit and tax assessment. They also serve as the legal
evidence in case of a dispute. The following are the most common source documents(Vouchers)
• Cash Memo
• Invoice or Bill
• Receipt
• Debit Note
• Credit Note
• Pay-in-slip
• Cheque
Bills receivable, bills payable, wage sheet/salaries pay acquaintance, correspondence etc., also serve as
the source documents. Thus, there must be a source document for each transaction recorded in the
books of accounts
Samir K Mahajan
Slide 3
SOURCE DOCUMENTS
Voucher: It is a written document in support of a transaction. It is a proof that a particular transaction has
taken place for the value stated in the voucher. It may be in the form of cash receipt, cash memo, invoice,
bank pay-in-slip etc. Voucher is necessary to audit the accounts.
Samir K Mahajan
Slide 4
SOURCE DOCUMENTS
Cash Memo: When a trader sells goods for cash, he gives a cash memo and when he purchases goods for
cash, he receives a cash memo. Details regarding the items, quantity, rate and the price are mentioned in
the cash memo.
Samir K Mahajan
Slide 5
SOURCE DOCUMENTS
Receipt: Receipt is an acknowledgement for cash received. It is issued to the party paying cash. Receipts
form the basis for entries in cash book. When a trader receives cash from a customer, he issues a receipt
containing the date, the amount and the name of the customer. The original copy is handed over to the
customer and the duplicate copy is kept for record.
Samir K Mahajan
Slide 6
SOURCE DOCUMENTS
Invoice or Bill: When a trader sells goods on credit, he prepares a sale invoice. It contains the
information relating to name and address of the seller and the buyer, the date of sale and the clear
description of goods with quantity and price. The original copy of the sale invoice is sent to the
purchaser and its duplicate copy is kept for making records in the books of accounts. Similarly, when a
trader purchases goods on credit, he receives a credit bill from the supplier of goods.
Samir K Mahajan
Slide 7
SOURCE DOCUMENTS
Cheque: A cheque is a document in writing drawn upon a specified banker to pay a specified sum to the
bearer or the person named in it and payable on demand. Each cheque book has a counterfoil in which
the same details in the cheque are filled. The counterfoil remains with the account holder for his future
reference. The counterfoil forms the source document for entries to be made in the books of accounts.
Samir K Mahajan
Slide 8
SOURCE DOCUMENTS
Pay-in-slip: Pay-in-slip is a form available in banks and is used to deposit money into a bank
account. Each pay-in-slip has a counterfoil which is returned to the depositor duly sealed and
signed by the bank official. This source document relates to bank transactions. It gives details
regarding date, account number, amount deposited (in cash or cheque) and name of the account
holder.
Samir K Mahajan
Slide 9
Debit Note: A debit note is prepared for purchase return and it contains the date of the goods returned, name of
the supplier, details of the goods returned and reasons for returning the goods. Each debit note is serially
numbered. A duplicate copy or counter foil of the debit note is retained by the buyer. On the basis of debit note,
the suppliers account is debited in the books.
Samir K Mahajan
Slide 10
Credit Note: A credit note is prepared sales return and it contains the date on which goods are
returned, name of the customer, details of the goods received, amount of such goods and reasons for
returning the goods. Each credit note is serially numbered. A duplicate copy of the credit note is
retained for the record purpose. On the basis of credit note, the customer’s account is credited in the
books.
Samir K Mahajan
Slide 11
Books of Original Entry
The books in which a transaction is recorded for the first time from a source
document are called Books of Original Entry or Prime Entry or journal. The source
document is required to record the transaction in the journal.
This practice provides a complete record of each transaction in one place and links
the debits and credits for each transaction. The process of recording transactions in
journal is called journalising.
Samir K Mahajan
Slide 12
Books of Original Entry contd.: Category
Journal /general journal/all-purpose journal
Other subsidiary books/special purpose books/special journal
Subsidiary Books - Non-cash Transaction
o
o
o
o
o
o
Purchase (journal) book
Sales (journal) book
Purchase return book
Sales return book
Bills receivable books
Bills payable books
Subsidiary Books - Cash Transaction
o Cash Book (Cash Book is used for recording only cash transactions i.e., receipts and payments
of cash)
Journal Proper
Samir K Mahajan
Slide 13
Books of Principal Entry
After the debits and credits for each transaction are entered in the journal, they
are transferred to the individual accounts called ledger account. The process of
transferring journal entry to individual accounts is called posting. The ledger
account as the Principal Book of entry.
Samir K Mahajan
Slide 14
JOURNAL
Journal is one of the books of original entry in which transactions are originally recorded in a chronological (day-to-day)
order according to the principles of Double Entry System. I other words, Journal is a date-wise record of all the transactions
with details of the accounts debited and credited and the amount of each transaction.
Journal
Date
Particular
L.F.
Debit
Amount (Rs)
Credit
Amount (Rs)
Note: L.F. is ledger folio . All entries from the journal are later posted into the ledger accounts. The page number or folio
number of the Ledger, where the posting has been made from the Journal is recorded in the L.F column of the Journal. Till
such time, this column remains blank.
Samir K Mahajan
Slide 15
JOURNAL : EXPLANATION
1. Date :In the first column, the date of the transaction is entered. The year and the month is written only once, till they
change. The sequence of the dates and months should be strictly maintained.
2. Particulars :Each transaction affects two accounts, out of which one account is debited and the other account is
credited. The name of the account to be debited is written first, very near to the line of particulars column and the
word Dr. is also written at the end of the particulars column. In the second line, the name of the account to be credited
is written, starts with the word ‘To’, a few space away from the margin in the particulars column to the make it distinct
from the debit account.
3. Narration :After each entry, a brief explanation of the transaction together with necessary details is given in the
particularscolumn with in brackets called narration. The words ‘For’ or ‘Being’ are used before starting to write down
narration. Now, it is not necessary to use the word ‘For’ or ‘Being’.
4. Ledger Folio (L.F):All entries from the journal are later posted into the ledger accounts. The page number or folio
number of the Ledger, where the posting has been made from the Journal is recorded in the L.F column of the Journal.
Till such time, this column remains blank.
5. Debit Amount :In this column, the amount of the account being debited is written.
6. Credit Amount :In this column, the amount of the account being credited is written.
Samir K Mahajan
Slide 16
STEPS IN JOURNALISING (Accounting Equation Approach)
Step 1 Determine the two accounts which are involved in the transaction.
Step 2 Classify the above five accounts under asset, capital, liabilities, expenses/loss and income/gain.
Step 3 Find out the rules of debit and credit for the above two accounts.
Step 4 Identify which account is to be debited and which account is to be credited.
Step 5 Record the date of transaction in the date column. The year and month is written once, till they change. The
sequence of the dates and months should be strictly maintained.
Step 6 Enter the name of the account to be debited in the particulars column very close to the left hand side of the
particulars column followed by the abbreviation Dr. in the same line. Against this, the amount to be debited is written
in the debit amount column in the same line.
Step 7 Write the name of the account to be credited in the second line starts with the word ‘To’ a few space away from the
margin in the particulars column. Against this, the amount to be credited is written in the credit amount column in the same
line.
Step 8 Write the narration within brackets in the next line in the particulars column.
Step 9 Draw a line across the entire particulars column to separate one journal entry from the other.
Samir K Mahajan
Slide 17
JOURNAL: ILLUSTRATION (Accounting Equation Approach)
Example 1: January 1, 2013 – Saravanan started business with Rs. 1,00,000.
Analysis of Transaction
Step 1
Step 2
Step 3
Step 4
Determine the two accounts involved in
transaction
Classify the accounts assets, expenses, loss and
liabilities, income/revenue and profit
Find out rules of debit and credit
Identify which account to be debited and which
account to be credited
Cash
account
Asset
account
Debit as
asset
increases
Cash a/c is to
be debited
Capital
account
Liability
account
Credit as
liability
increases
Capital a/c is
to be
credited
Samir K Mahajan
Slide 18
Journal: Illustration contd.
JOURNAL: ILLUSTRATION (Accounting Equation Approach)
Date
Particular
L.F.
Debit
Amount (Rs)
Credit
Amount (Rs)
2013
January 1
Cash A/C
To
Capital A/C
Dr
12
45
100000
100000
( The amount invested in the business)
Samir K Mahajan
Slide 19
CASH AND CREDIT TRANSACTIONS
On 8 May 2014 purchased goods for Rs 18000
On 10 May 2014 purchased stationaries from Saha Enterprise for Rs 10000
On 11 May 2014 sold goods to Rajababu for Rs. 1500 on cash
On 11 May 2014 sold goods to Himjhuri for Rs 2800 on credit
Samir K Mahajan
Slide 20
Journal
Date
Particular
8 May
L.F.
Purchase A/C
To Cash A/C
Dr
Debit
Credit
Amount (Rs) Amount (Rs)
18000
18000
(Purchased goods on cash)
10 May
11 May
11 May
Stationaries A/C
Dr
To Saha Enterproises
( Purchased goods from Saha Enterprise on
credit )
Cash A/c
Dr
To Sales A/C
(Sold goods to Rajajababu for Cash)
Himjhuri A/C
Dr
To Sales A/C
10000
10000
1500
1500
2800
2800
( Sold goods to Himjhuri on credit)
Samir K Mahajan
Slide 21
BANK TRANSACTIONS
Bank transactions that occur often in the business concerns are cash paid into bank, cheques
and bills received from customers paid into bank for collection, payment of cheques for
expenses and cheques issued to suppliers or creditors. When a cheque is received treat it as
cash. When a cheque is received and immediately deposited in bank, treat it as bank balance.
Journalise the followings:
January 18, 2004 – Opened a current account with Indian Overseas Bank Rs.10,000
Feb 3, 2004 – Rent paid by cheque Rs. 5,000.
March 5, 2004 – Received cheque from Elavarasan Rs.20,000.
March 15, 2004 – Cheque received from Santhosh Rs.30,000 and immediately banked.
Samir K Mahajan
Slide 22
BANK TRANSACTIONS contd.
Journal
Date
Particular
2014
January 18
Feb 3
March 5
March 15
Bank
A/C
To Cash A/C
L.F.
Dr
(opened a current account in Indian Overseas
Bank)
Rent A/C
Dr
To Bank A/C
(Paid rent by cheque no. )
Cash A/c
Dr
To Elavarasan A/C
(Cheque received but not paid into bank)
Bank A/C
Dr
To Santhosh A/C
Debit
Credit
Amount (Rs) Amount (Rs)
10000
10000
5000
5000
20,000
20,000
30,000
30,000
(Cheque received and immediately banked)
Samir K Mahajan
Slide 23
carried forward (c/f) from or balance brought down (b/d) from : past to present
brought forward (b/f) to or balance carried down (c/d) to : present to future
Samir K Mahajan
Slide 24
Example 1: Journalise the following transactions:
On 1 April 2014, Mr Mohan brings in Rs 1000000 as his capital
On 2 April 2014, Mr Mohan purchases land for Rs. 350000 for cash
On 30 April 2014, paid Rs. 150000 on completion of building constructed by contractor
On May 3 2014 purchased furniture foe Rs. 400000
On 8 May 2014 purchased stock for Rs 180000
On 10 May 2014 deposited bank account in the name of the business for 150000
On 11 May Purchased goods form Bright and Co. on credit for Rs 30000
Samir K Mahajan
Slide 25
Example 1 contd.
Date
Journal
Particular
2014
April 1
April 2
April 30
May 3
L.F.
Debit
Amount (Rs)
Cash A/C
Dr
To Capital A/C
(Amount invested in business by Mohan)
Land A/C
Dr
To Cash A/C
(land Purchased for cash)
1000000
Building A/C
Dr
To Cash A/C
(Paid to contractor for completion of
building)
Furniture A/C
Dr
To Cash A/C
(Furniture Purchased for cash )
Balance c/d (Or b/f)
150000
Credit
Amount (Rs)
1000000
350000
350000
150000
400000
400000
1900000
1900000
Samir K Mahajan
Slide 26
Example 1 contd.
Journal
Balance c/f (or b/d)
8 May
10 May
11 May
Purchase A/C
To Cash A/C
(goods purchased in cash)
1900000
Dr
180000
180000
Bank A/C
Dr
To Cash A/C
(Cash deposited in newly opened bank account )
230000
Purchased A/C
Dr
To Bright and Co. A/C
(Goods purchased on credit from Bright and Co)
30000
Total
1900000
230000
30000
2340000
2340000
Samir K Mahajan
Slide 27
Example 2: Journalise the following transactions:
On 1 April 2014, Gaurav started business by investing Rs 40,00,000
On 1 April 2014, Deposited Rs 3,00,000 in the bank account in the name of the business
On 3 April 2014, purchased furniture for Rs. 48, 000 payment made by cheque
On 8 April 2014, purchased goods costing Rs. 76, 000 against payment made by cheque
On 10 April 2014, purchased goods from Honest Trader on account for Rs 56, 000
On 12 April 2014 , sold goods to M/S Hira lal for Rs. 18, 000 (costing Rs. 14, 200) on credit.
On 15 April 2014, paid to Honest Traders Rs. 36,0000 by cheque
On 18 April 2014, Goods sold for Rs. 23,800 (costing Rs.19000) on cash
On 22 April 2014, Received cheque for 18, 0000 from Hira Lal
On 26 April 2014, paid the balance amount (rs. 20000) to M/S Traders by cheque
Samir K Mahajan
Slide 28
Example 2 contd.
Journal
Date
Particular
2014
April 1
1
3
8
Cash A/C
Dr
To Capital A/C
(Capital invested in business by Gaurav )
Bank A/C
Dr
To Cash A/C
(cash deposited in newly opened bank account)
L.F.
Debit
Credit
Amount (Rs) Amount (Rs)
Rs 400000
Rs 400000
300000
3000000
Furniture A/C
Dr
To Bank A/C
(Furniture purchased and payment made by cheque )
48000
Purchase A/C
Dr
To Bank A/C
( goods purchased on payment of cheque )
76,000
Balance b/d
824000
480000
76,0000
824000
Samir K Mahajan
Slide 29
Example 2 contd.
Journal
10
12
15
18
Balance c/d
Purchase A/C
Dr
To Honest Traders A/C
( Goods purchased on credit for Honest Traders)
Hira Lal A/C
To Sales A/C
(sold goods to Hira Lal on credit )
M/S Honest Trader A/C
To Bank A/C
(Cheque given to Honest Trader )
Dr
56,000
56,000
18000
18000
Dr
Cash A/C
Dr
To Sales A/C
(Goods purchased on credit from Bright and co)
Balance b/d
S
36000
36000
23000
23000
957000
957000
Samir K Mahajan
Slide 30
Example 2 contd.
Journal
Balance c/d
22
26
Cash A/C
To Hira Lal A/C
( Received cheque from Hira Lal )
M/S Honest Trader A/C
To Bank A/C
(Cheque given to Honest Trader )
Total
957000
Dr
957000
18,000
18,000
Dr
20000
20000
995000
995000
Samir K Mahajan
Slide 31
CAPITAL AND DRAWINGS
All transactions of the business have to be analysed from the business point of view and not from
the proprietor’s point of view. The amount with which a trader starts the business is known as
Capital. The proprietor may withdraw certain amounts from the business to meet personal expense
or goods for personal use. It is called Drawings
Samir K Mahajan
Slide 32
CAPITAL AND DRAWINGS contd.
1. If cash is withdrawn,
Drawing A/C
To Cash A/C
Dr
2. If balance is withdrawn from bank
Drawing A/C
To Bank A/C
Dr
3. If goods are used for personal use
Drawing A/C
Dr
To Purchase A/C
Samir K Mahajan
Slide 33
CAPITAL AND DRAWINGS contd.
Example: January 31, 2004 – Saravanan withdrew for personal use Rs. 20,000.
Journal
Date
Particular
2004
Jun 1
Drawing A/C
To Cash A/C
L.F.
Dr
Debit
Credit
Amount (Rs) Amount (Rs)
20,000
20,000
(The amount withdrawn for personal use)
Samir K Mahajan
Slide 34
COMPOUND JOURNAL ENTRY
When two or more transactions of similar nature take place on the same date, such transactions can
be entered in the journal by means of a combined journal entry is called Compound Journal Entry.
The only precaution is that the total debits should be equal to total credits
Samir K Mahajan
Slide 35
COMPOUND JOURNAL ENTRY
Example 1: June 1, 2004 – Anju contributed capital Rs. 50,000
Manju contributed capital Rs. 70,000
Journal
Date
Particular
2004
Jun 1
Cash A/C
L.F.
Dr
To Anju’s Captal A/C
To Manju’s Capital AC
Debit
Credit
Amount (Rs) Amount (Rs)
1,20,000
50,000
70,000
(The amount invested by Anju & Manju)
Samir K Mahajan
Slide 36
COMPOUND JOURNAL ENTRY
Example 2 : July 1, 2004 – Ajay contributed capital – Cash Rs. 90,000 and Furniture Rs. 20,000
Vijay contributed capital – Cash Rs. 50,000 and Stock Rs. 70,000
Journal
Date
Particular
2004
July 1
Cash A/C
Furniture A/c
Stock A/c
L.F.
Dr
Dr
Dr
To Ajay’s Capital A/C
To Vijay’s Capital AC
Debit
Credit
Amount (Rs) Amount (Rs)
1,40,000
20,000
70,000
110,000
120,000
(Capital introduced by Ajai & Vijay)
Samir K Mahajan
Slide 37
COMPOUND JOURNAL ENTRY
Example 3 :July 13, 2003 – Received cash Rs.24,700 from Shanthi in full settlement of her account of
Rs.25,000.
July 14, 2003 – Paid cash to Thenmozhi Rs.14,500, in full settlement of her account of Rs.15,000.
Journal
Date
Particular
2003
July 13
Cash A/C
Discount A/C
L.F.
Dr
Dr
Debit
Credit
Amount (Rs) Amount (Rs)
24,700
300
25,000
To Shanti A/C
July 14
(Shanti Settled her account
Thenmozhi A/C
Dr
Cash A/C
Discount Received A/C
(Settled Thenmozhi’s account )
15000
14,500
500
Samir K Mahajan
Slide 38
Journal Proper
Journal proper or Journal Residual is used for making the original record of such transactions
which do not find place in special journals. The usual entries that are put through this journal is
explained below.
Opening Entries : Opening entries are used at the beginning of the financial year to open
the books by recording the assets, liabilities and capital appearing in the balance sheet of
the previous year.
Samir K Mahajan
Slide 39
Journal Proper contd.
Closing Entries or Transfer entries: Closing entries are recorded at the end of the accounting year
for closing accounts relating to expenses and revenues which are not balanced at the time of
balancing.
Drawing account is transferred to capital account at the end of the accounting year.
Accounts relating to operation of business such as Sales, Purchases, Opening Stock, Income, Gains
and Expenses, etc. and drawing are closed at the end of the year and their Total/balances are
transferred to Trading and Profit and Loss account by recording the journal entries.
Samir K Mahajan
Slide 40
Journal Proper contd.
Adjusting Entries: In order to update ledger account on accrual basis, such entries are made
at the end of the accounting period.
Such as Rent outstanding, Prepaid insurance, Depreciation and Commission received in
advance. These are needed at the time of preparing the final accounts.
Rectifying Entries: Rectifying entries are passed for rectifying errors which might have committed
in the book of accounts.
To rectify errors in recording transactions in the books of original entry and their posting to
ledger accounts, this journal is used.
Samir K Mahajan
Slide 41
Journal Proper contd.
Other entries: recording of the following transaction is done in the journal proper :
a.
At the time of a dishonour of a cheque the entry for cancellation for discount received or discount allowed
earlier.
b. Endorsement, renewal and dishonour of bill of exchange which cannot be recorded through bills
book.
c. Credit purchases and credit sale of assets which cannot be recorded through purchases or sales
book Other adjustments like interest on capital and loan, bad debts, reserves etc
d.
e.
f.
g.
h.
Goods withdrawn by the owner for personal use.
Goods distributed as samples for sales promotion.
Endorsement and dishonour of bills of exchange.
Transaction in respect of consignment and joint venture, etc.
Loss of goods by fire/theft/spoilage
Samir K Mahajan
Slide 42
OPENING ENTRY
Opening Entry is an entry which is passed in the beginning of each current year to record the closing balance
of assets and liabilities of the previous year. In this entry asset accounts are debited and liabilities and capital
account are credited. If capital is not given in the question, it will be found out by deducting total of liabilities
from total of assets.
Example: The following balances appeared in the books of Malarkodi as on 1st January 2004 – Cash Rs. 7,000,
Bank Rs.70,000, Stock Rs.80,000, Furniture Rs.10,000, Computer Rs.50,000, Debtors Rs.33,000 and Creditors
Rs.90,000.
Date
2004
January 1
Particular
Journal
Cash A/C
Dr
Bank A/C
Dr
Stock A/C
Dr
Furniture A/C
Dr
Computer A/C
Dr
Debtors A/C
Dr
To Creditors A/C
To Capital A/C (balancing figure)
(Assets and liabilities Brought Forward)
L.F.
Debit
Amount (Rs)
7,000
7,0000
80,000
10,000
50,000
33,000
Credit
Amount (Rs)
90,000
160,000
Samir K Mahajan
Slide 43
OPENING ENTRY contd.
Example: The following balances appeared in the books of Malarkodi as on 1st January 2004 – Cash Rs. 7,000,
Bank Rs.70,000, Stock Rs.80,000, Furniture Rs.10,000, Computer Rs.50,000, Debtors Rs.33,000 and Creditors
Rs.90,000.
Journal
Date
2004
January 1
Particular
Cash A/C
Dr
Bank A/C
Dr
Stock A/C
Dr
Furniture A/C
Dr
Computer A/C
Dr
Debtors A/C
Dr
To Creditors A/C
To Capital A/C (balancing figure)
(Assets and liabilities Brought Forward)
L.F.
Debit
Amount (Rs)
7,000
7,0000
80,000
10,000
50,000
33,000
Credit
Amount (Rs)
90,000
160,000
Samir K Mahajan
Slide 44
Closing ENTRY or transfer Entry
Closing entries are recorded at the end of the accounting year for closing accounts relating to purchase, sales, purchase
returns, sales return, stock, and other account concerning expenses, losses, income, gains, and revenues. These accounts
are closed by transferring the balances to the Trading, Profit and Loss Account.
Example: Salaries paid Rs.15,000. Give the closing entry as on Dec. 31, 2003.
The entries are based upon Trial Balance and can be summarised as under.
1. For closing items appearing in the debit side of Trading A/C
2. Trading A/C
Dr
To Opening Stock A/C
To Purchase A/C
To Sales Return A/C
To Direct expenses A/C (individual by name)
Samir K Mahajan
Slide 45
Closing ENTRY
contd.
2. For closing items appearing in the credit side of Trading A/C
Sales Return A/C
Purchase Return A/C
Closing A/C
To Trading A/C
Dr
Dr
Dr
3. For transfer to Gross Profit to Profit and Loss A/c
Trading A/C
To profit and loss A/C
Dr
Samir K Mahajan
Slide 46
Closing ENTRY
contd.
4. For transfer
to Gross loss to Profit and Loss A/c
Profit and loss A/C
To Trading A/C
Dr
5. For closing items (indirect expenses and losses) appearing in the debit side of Profit and loss A/C
Profit and Loss A/C
Dr
To Indirect Expenses and Loss A/C
(Individual Expenses A/C name)
Samir K Mahajan
Slide 47
Closing ENTRY
contd.
6. For transfer
to income and gains
Individual and gains A/C
To profit and loss A/C
Dr
7. For transfer net income
Profit and loss A/C
Dr
To Capital A/C (in case of proprietorship and partnership)
0r to Profit and Loss Appropriation A/C (in case of company)
Samir K Mahajan
Slide 48
Closing ENTRY
contd.
7. For transfer
net loss
Capital A/C
Or
Profit and Loss Appropriation A/C Dr
o Profit and loss A/C
Samir K Mahajan
Slide 49
Adjusting Entries
To arrive at a correct figure of profits and loss, certain accounts require some adjustments. Entries
for making such adjustments are called as adjusting entries. These are needed at the time of
preparing the final accounts.
Example: Provide depreciation on furniture Rs.1,00,000 @ 10% per annum. Give adjustment entry
as on Dec. 31, 2003.
Journal
Date
Particular
2003
Dec. 31,
Depreciation A/C
L.F.
Dr.
To Furniture A/c
(depreciation of furniture written off)
Debit
Amount (Rs)
10000
Credit
Amount (Rs)
1,0000
Samir K Mahajan
Slide 50
TRANSFER ENTRIES
Transfer entries are passed in the journal proper for transferring an item entered in one account to
another account.
Example : When the proprietor takes goods Rs.5,000 for personal use. Give transfer entry on Dec.
31, 2003.
Journal
Date
Particular
2003
Dec. 31,
Drawings A/c
To Purchase A/c
(goods for withdrawn personal use )
L.F.
Dr.
Debit
Amount (Rs)
5,000
Credit
Amount (Rs)
5000
Samir K Mahajan
Slide 51
RECTIFYING ENTRIES
Rectifying entries are passed for rectifying errors which might have committed in the book
of accounts.
Example : Purchase of furniture for Rs.10,000 was debited to Purchases Account. Pass
rectifying entry on Dec. 31, 2003.
Journal
Date
Particular
2003
Dec. 31,
Furniture A/c
To Purchase A/c
(Wrong debit to purchases account rectified)
L.F.
Dr
Debit
Amount (Rs)
10000
Credit
Amount (Rs)
10000
Samir K Mahajan
Slide 52
BAD DEBTS
When the goods are sold to a customer on credit and if the amount becomes irrecoverable due to his insolvency or for
some other reason, the amount not recovered is called bad debts. For recording it, the bad debts account is debited
because the unrealised amount is a loss to the business and the customer’s account is credited.
Example: Jamuna who owed us Rs.10,000 is declared insolvent and 25 paise in a rupee is received from her on 15th July,
2003.
Journal
Date
Particular
2003
Dec. 31,
Cash A/c
Bad debt A/c
To Jamuna A/C
(25 paise in a rupee received on Jamuna’s
insolvency)
L.F.
Dr
Dr
Debit
Amount (Rs)
2,500
7,500
Credit
Amount (Rs)
10000
Samir K Mahajan
Slide 53
BAD DEBTS RECOVERED
Some times, it so happens that the bad debts previously written off are subsequently recovered. In such case, cash account
is debited and bad debts recovered account is credited because the amount so received is a gain to the business
Example: Received cash for a Bad debt written off last year Rs.7,500 on 18th January, 2004
Journal
Date
2004
18 January
Particular
Cash A/c
To Bad debt recovered A/c
(Bad debts recovered)
L.F.
Dr
Debit
Amount (Rs)
7,500
Credit
Amount (Rs)
7,500
Samir K Mahajan