Financial Accounting with journal entries

Full text

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Financial Accounting

Financial Accounting

Intr

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Accounting

Accounting

American Institute of Certified Public

American Institute of Certified Public

Accountants

Accountants

Accounting is the art of recording, classifying and

Accounting is the art of recording, classifying and

summarizing in a significant manner and in terms

summarizing in a significant manner and in terms

of money; transactions and events which are, in

of money; transactions and events which are, in

 part

 part at

at least,

least, of

of a

a financial

financial character

character,

, and

and

interpreting the results thereof.

interpreting the results thereof.

American Accounting Association

American Accounting Association

Accounting is the process of identifying,

Accounting is the process of identifying,

measuring

and

communicating

economic

measuring

and

communicating

economic

information to permit informed judgments and

information to permit informed judgments and

decisions by users of the information

(3)

Accounting

Accounting

American Institute of Certified Public

American Institute of Certified Public

Accountants

Accountants

Accounting is the art of recording, classifying and

Accounting is the art of recording, classifying and

summarizing in a significant manner and in terms

summarizing in a significant manner and in terms

of money; transactions and events which are, in

of money; transactions and events which are, in

 part

 part at

at least,

least, of

of a

a financial

financial character

character,

, and

and

interpreting the results thereof.

interpreting the results thereof.

American Accounting Association

American Accounting Association

Accounting is the process of identifying,

Accounting is the process of identifying,

measuring

and

communicating

economic

measuring

and

communicating

economic

information to permit informed judgments and

information to permit informed judgments and

decisions by users of the information

(4)

Accounting Process

Accounting Process

Financial T

Financial T

ransact

ransact

ions or Eve

ions or Eve

nts

nts

Recording

Recording

Journal Journal 1 1.. CCaassh h BBooookk 2 2.. PPuurrcchhaasse e BBooookk 3 3.. SSaallees s BBooookk 4 4.. PPuurrcchhaasse e RReettuurrn n BBooookk 5 5.. SSaallees s RReettuurrn n BBooookk 6 6.. BBiilllls s PPaayyaabblle e BBooookk 7 7.. BBiilllls s RReecceeiivvaabblle e BBooookk

Classifying

Classifying

(Posting into Ledger)

(Posting into Ledger)

Summarizing

Summarizing

Analysis

Analysis

&

&

Interpretation

Interpretation

Communicating

Communicating

to the Users

to the Users

(5)

Characteristics

Characteristics Of Accoun

Of Accounting

ting

Identification of financial transactions &

Identification of financial transactions &

Events

Events

Measuring the identified transactions (Money)

Measuring the identified transactions (Money)

Recording (Journal)

Recording (Journal)

Classifying (Ledger)

Classifying (Ledger)

Summarizing

Summarizing

Analysis & Interpretation

Analysis & Interpretation

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Branches Of Accounting

• Journal • Ledger • Trial Balance • Final Accounts Financial Accounting • Cost Sheet

• Job & Contract Costing • Operating Costing

Cost Accounting

• Ratio Analysis

• Break Even Point Analysis • Standard Costing

• Analysis of Financial Statement

Management Accounting • Sales Tax • Income Tax • Wealth Tax • Excise Duty Tax Accounting • Budget • Consolidated Fund Government Accounting

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Objectives of Accounting

Record of financial

transactions & events

Determine profit or loss

Determine financial

 position

Assisting the

Management

Communicating

Accounting Information

to Users

(8)

Functions Of Accounting

Maintaining Systematic Accounting Record

Preparation of Financial Statements

Meeting Legal Requirements

Communicating the Financial Data

(9)

Advantages Of Accounting

• Recording of transactions • Replacement of memory • Provides Information • Availability of net results

• Knowledge of Financial Position • Reference in future

• Comparative Study

• Check on errors & frauds • Helpful in management

• Helpful in the sale of business

Advantages to Businessmen

• Proper price • Quality goods

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Advantages Of Accounting

• Financial assistance

• Knowledge of financial position of the country • Granting License

• Tax Assessment

• Settlement of disputes

Advantages to the Government

• Increase in Salary & Bonus Advantages to Employees

• Helpful in planning

• Helpful in decision making • Helpful in borrowing

• Determination of goodwill • Helpful in partnership • Assessment of progress Other Advantages

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Limitations of Accounting

Incomplete information

Influence by personal judgement

Realisable value is not shown

Complete control on frauds is impossible

Manipulations in accounts

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Users of Accounting Information

External Users

•Lenders •Shareholders •Governments •Consumer Groups •External Auditors •Customers

Internal Users

•Managers •Officers •Internal Auditors •Sales Staff •Budget Officers •Controllers

(13)

Users of Accounting Information

External Users

Financial accounting provides

external users with financial

statements (shareholders, lenders,

etc.).

Managerial accounting provides

information needs for internal decision

makers (officers, managers, etc.).

(14)

Accounting Terminology

Account:- Account is a statement in which all

transactions for a definite period relating to a

 particular person or particular assets are

recorded.

Date Particulars J.F. Amount Date Particulars J.F. Amount

(15)

Assets:-

An assets is anything that is owned by a business

and with the help of which the work of the business is

carried on.

Assets are classified into the following types:

a. Fixed Assets:-

Fixed Assets are those assets which are

 purchased for long term use in the business with the

 purpose of producing goods or services and are not meant

for resale.

For examples:- Land & Building, Plant & Machinery,

Furniture.

b. Current Assets:-

Assets which are meant for sale or which

would be converted into cash within one year.

For examples:- Cash in hand, Cash at bank, Bills

Receivables, Sundry Debtors, Marketable Securities,

Stock.

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c. Tangible Assets:-

tangible assets are those

assets which have a physical existence or can

 be seen and touched.

For example:- Cash, Furniture, stock and tools

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Format of Balance Sheet

Liabilities Amount Assets Amount

Sundry or Trade Creditors --- Cash in Hand ---Bills Payable --- Cash at Bank ---Bank Overdraft --- Bills Receivable ---Employees Provident Fund --- Sundry Debtors/Book Debts ---Loans (Cr.) --- Loans(Dr.) ---Mortgage --- Closing Stock ---Reserve or ---Reserve Fund --- Loose Tools

---Capital

---Add:- Interest on Capital --- Net Profit ---Less:- Drawings ---Income Tax ---Interest on Drawings --- Net Loss --- ---Investment ---Furniture & Fittings ---Plant & Machinery ---Land & Building ---Freehold/Leasehold Land ---Business Premises ---Patents & Trademarks etc ---Goodwill

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---Golden Rules Of Accounting

Personal A/c (Name, Bank)

Debit The Receiver

Credit The Giver

Real A/c (Assets:- Cash, Goods, Machinery, furniture,

Land, Building )

Debit what comes in

Credit what goes out

Nominal A/c (Stationery, Electricity bill, telephone bill,

Discount, Carriage)

Debit all expenses & losses

Credit all gains & Income

(19)

Sold goods for cash

Personal A/c

Debit The Receiver

Credit The Giver

Real A/c

Debit what comes in

Credit what goes out

Nominal A/c

Debit all expenses & losses Credit all gains & Income

Goods

(20)

Entries

Sold goods for cash

Cash A/c………Dr.

To Sales A/c

(21)

Sold goods to Ram

Personal A/c

Debit The Receiver

Credit The Giver

Real A/c

Debit what comes in

Credit what goes out

Nominal A/c

Debit all expenses & losses Credit all gains & Income

Goods

(22)

Entries

Sold goods to Ram

Ram A/c………Dr.

To Sales A/c

(23)

Purchased Goods for cash

Personal A/c

Debit The Receiver

Credit The Giver

Real A/c

Debit what comes in

Credit what goes out

Nominal A/c

Debit all expenses & losses Credit all gains & Income

(24)

Entries

Purchased Goods for cash

Purchases A/c………Dr.

To Cash A/c

(25)

Purchased Goods from Mohan

Personal A/c

Debit The Receiver

Credit The Giver

Real A/c

Debit what comes in

Credit what goes out

Nominal A/c

Debit all expenses & losses Credit all gains & Income

(26)

Entries

Purchased Goods from Mohan

Purchases A/c………Dr.

To Mohan A/c

(27)

Cash Deposited in bank

Personal A/c

Debit The Receiver

Credit The Giver

Real A/c

Debit what comes in

Credit what goes out

Nominal A/c

Debit all expenses & losses Credit all gains & Income

(28)

Entries

Cash Deposited in bank

Bank A/c………Dr.

To cash A/c

(29)

Journal Entries

4.(i) Provide depreciation on furniture Rs 1,500 and on

machinery Rs 3,500

4.(ii) Received cash Rs 2,000 for bad-debts written off last year

Date Particulars Amount

Debit Credit (ii) Cash A/c ……….Dr 

To Bad Debts Recovered A/c (Being cash Received)

2,000

2,000

Date Particulars Amount

Debit Credit (i) Depreciation A/c ……….Dr

To Machinery A/c To Furniture A/c

(Being depreciation charged on Assets)

5,000

3,500 1,500

(30)

4.(iii) Rakesh was declared bankrupt, he owned Rs 5,000 to us.

This amount was written off as bad debts.

4.(iv) Rs 2,000 for wages and Rs 3,000 for salaries are

outstanding.

Date Particulars Amount

Debit Credit (iii) Bad Debts A/c ………Dr 

To Rakesh A/c

(Being written off bad debts)

5,000

5,000

Date Particulars Amount

Debit Credit (iv) Wages A/c ………...Dr 

Salaries A/c………..Dr  To Outstanding Exp. A/c

(Being wages and sales outstanding)

2,000 3,000

(31)

4.(v) Purchased furniture for Rs 10,000 for the proprietor and

 paid the amount by cheque.

Date Particulars Amount

Debit Credit (v) Drawings A/c ………Dr 

To Bank A/c

(Being furniture purchased for the  proprietor )

10,000

(32)

Date Particulars Amount Debit Credit 4.(i) (ii) (iii) (iv) (v) Depreciation A/c ……….Dr  To Machinery A/c To Furniture A/c

(Being depreciation charged on Assets) Cash A/c ……….Dr 

To Bad Debts Recovered A/c (Being cash Received)

Bad Debts A/c ………Dr  To Rakesh A/c

(Being written off bad debts)

Wages A/c ………...Dr  Salaries A/c………..Dr 

To Outstanding Exp. A/c

(Being wages and sales outstanding) Drawings A/c ………Dr 

To Bank A/c

(Being furniture purchased for the  proprietor ) Grand Total 5,000 2,000 5,000 2,000 3,000 10,000 27,000 3,500 1,500 2,000 5,000 5,000 10,000 27,000

(33)

7.(i) Purchased Machinery for Rs 50,000 and paid Rs 1,000 for

its carriage.

7.(ii) Received a cheque of Rs 9,500 from AVI in full settlement

of his account of Rs 10,000.

Date Particulars Amount

Debit Credit (i) Machinery A/c ………Dr 

To Cash A/c

(Being machinery purchased and  paid carriage )

51,000

51,000

Date Particulars Amount

Debit Credit (ii) Cash A/c……...………....Dr 

Discount A/c………....Dr  To AVI A/c

(Being cash received and discount allowed )

9,500 500

(34)

7.(iii) Received a first and final payment of 50 paisa in a rupee from Mohan who owed us Rs 20,000.

7.(iv) Sold goods to Rahul for Rs 20,000 at a Trade discount of 20%. Next day a cheque was received from him after deducting 5% cash discount. Cheque was immediately deposited into bank.

Date Particulars Amount

Debit Credit (iii) Cash A/c…….. ………Dr 

Bad Debts A/c………..Dr  To Mohan A/c

(Being cash received and bad debts written off)

10,000 10,000

20,000

Date Particulars Amount

Debit Credit (iv) Rahul A/c…….. ………..Dr 

To Sales A/c

(Being goods sold on 20% trade discount)

Bank A/c………..…Dr  Discount A/c………Dr 

To Rahul A/c

(Being cheque received and deposit in the bank ) 16,000 15,200 800 16,000 16,000

(35)

7.(v) Goods costing Rs 10,000 sold to Ashok at a profit of 25%

on cost less 10% trade discount.

Date Particulars Amount

Debit Credit (v) Ashok A/c…….. ………Dr 

To Sales A/c (Being goods sold)

11,250

11,250

Working Notes (iv) Goods

Less:- Trade Discount 20% on Rs 20,000 Sales Price

Less- Cash Discount 5% on Rs 16,000 Cash Received 20,000 4,000 16,000 800 15,200 (v) Goods

Add:- Profit of 25% on Cost (Rs 10,000)

Less:- Trade Discount 10% on Rs 12,500

10,000 2,500 12,500 1,250 11,250

(36)

Date Particulars Amount Debit Credit 7.(i) (ii) (iii) (iv) (v) Machinery A/c ………Dr  To Cash A/c

(Being machinery purchased and paid carriage) Cash A/c……...………....Dr 

Discount A/c………....Dr  To AVI A/c

(Being cash received and discount allowed) Cash A/c…….. ………Dr 

Bad Debts A/c………..Dr  To Mohan A/c

(Being cash received and bad debts written off) Rahul A/c…….. ………..Dr 

To Sales A/c

(Being goods sold on 20% trade discount) Bank A/c………..…Dr 

Discount A/c………Dr  To Rahul A/c

(Being cheque received and deposit in the  bank)

Ashok A/c…….. ………Dr  To Sales A/c

(Being goods sold)

Grand Total 51,000 9,500 500 10,000 10,000 16,000 15,200 800 11,250 1,24,250 51,000 10,000 20,000 16,000 16,000 11,250 1,24,250

(37)

9.(i) Purchased business for Rs 90,000.

(ii) Purchased machinery from Mohan brothers, kolkata for Rs

15,000 on which they paid Rs 150 freight on my behalf.

Date Particulars Amount

Debit Credit (i) Business Purchases A/c ………...Dr 

To Vendor’s A/c

(Being Business purchase)

90,000

90,000

Date Particulars Amount

Debit Credit (ii) Machinery A/c ………...Dr 

To Mohan Brothers

(Being machinery purchase)

15,150

(38)

(iii) The erection charges of machinery amounted to Rs 450

which were paid in cash.

(iv) A cashier has stolen Rs 700 and now he is absconding.

Date Particulars Amount

Debit Credit (iii) Machinery A/c ………....Dr 

To cash A/c

(Being Erection Charges paid)

450

450

Date Particulars Amount

Debit Credit (iv) Loss by Theft A/c ………....Dr 

To Cash A/c (Being cash stolen)

700

(39)

(v) On claim being made for theft of cash, insurance company

 paid Rs 700.

(vi) Received an order from Dinesh for supply of goods worth Rs

2,000.

Date Particulars Amount

Debit Credit (vi) No Entry

Date Particulars Amount

Debit Credit (v) Insurance Claim A/c………Dr 

To Loss by Theft A/c (Being claim admitted)

Cash A/c………..Dr  To Insurance Claim A/c

(Being receipt of claim money)

700

700

700

(40)

(vii) Goods were supplied as per order of Dinesh and on it freight

of Rs 100 was paid.

(viii) Goods worth Rs 50 were distributed as sample free of

charge.

Date Particulars Amount

Debit Credit (vii) Dinesh A/c ………..Dr 

To Sales A/c To Cash A/c

(Being goods supplied and freight  paid)

2,100

2,000 100

Date Particulars Amount

Debit Credit (viii) Free Sample A/c………Dr 

To Purchases A/c

(Being free sample distributed)

50

(41)

(ix) Goods, the list price of which is Rs 20,000 are sold to Suresh

at 8% trade discount on list price.

(x) Goods worth Rs 150 were spoiled in transit and a claim was

made to Railway in this respect.

Date Particulars Amount

Debit Credit (x) Insurance Claim A/c………Dr 

To Spoiled in Transit A/c (Being claim admitted)

150

150

Date Particulars Amount

Debit Credit (ix) Suresh A/c………Dr 

To Sales A/c

(Being goods sold at 8% trade discount)

18,400

(42)

(xi) Rs 150 were received in cash from railway in the payment of

claim.

Date Particulars Amount

Debit Credit (xi) Cash A/c…………..………Dr 

To Insurance Claim A/c (Being claim money received)

150

150

Working Notes (ix) Goods

Less:- Trade Discount 8% on Rs 20,000

20,000 1,600 18,400

(43)

Date Particulars Amount Debit Credit 9.(i) (ii) (iii) (iv) (v)

Business Purchases A/c ………...Dr  To Vendor’s A/c

(Being Business purchase) Machinery A/c ………...Dr 

To Mohan Brothers

(Being machinery purchase)

Machinery A/c ………....Dr  To cash A/c

(Being Erection Charges paid)

Loss by Theft A/c ………....Dr  To Cash A/c

(Being cash stolen)

Insurance Claim A/c………Dr  To Loss by Theft A/c

(Being claim admitted)

Cash A/c………..Dr  To Insurance Claim A/c

90,000 15,150 450 700 700 700 90,000 15,150 450 700 700 700

(44)

Date Particulars Amount Debit Credit 9.(vi) (vii) (viii) (ix) (x) (xi)  No Entry Dinesh A/c ………..Dr  To Sales A/c To Cash A/c

(Being goods supplied and freight paid) Free Sample A/c………Dr 

To Purchases A/c

(Being free sample distributed)

Suresh A/c………Dr  To Sales A/c

(Being goods sold at 8% trade discount) Insurance Claim A/c………Dr 

To Spoiled in Transit A/c (Being claim admitted)

Cash A/c…………..………Dr  To Insurance Claim A/c

(Being claim money received)

2,100 50 18,400 150 150 1,28,550 2,000 100 50 18,400 150 150 1,28,550

(45)

7(i) Business commenced with a capital of Rs 6,00,000.

(ii) Rs 4,50,000 deposited in a bank account.

Date Particulars Amount

Debit Credit (i) Cash A/c ………...………...Dr 

To Capital A/c

(Being Business Started with capital)

6,00,000

6,00,000

Date Particulars Amount

Debit Credit (ii) Bank A/c ………..………...Dr 

To Cash A/c

(Being cash deposited in bank)

4,50,000

(46)

(iii) Rs 2,30,000 plant and machinery purchased by paying Rs

30,000 cash immediately.

(iv) Purchased goods worth Rs 40,000 for cash and Rs 45,000 on

account.

Date Particulars Amount

Debit Credit (iii) Plant & Machinery A/c ………...Dr 

To Cash A/c To Creditors A/c

(Being plant and machinery  purchased)

2,30,000

30,000 2,00,000

Date Particulars Amount

Debit Credit (iv) Purchases A/c ………...Dr 

To Cash A/c To Bank A/c

(Being goods purchased)

85,000

40,000 45,000

(47)

(v) Paid a cheque of Rs 2,00,000 to the supplier for plant and

machinery.

(vi) Rs 70,000 cash sales (of goods costing Rs 50,000)

Date Particulars Amount

Debit Credit (v) Creditors A/c ………...Dr 

To Bank A/c

(Being paid to supplier of plant and machinery)

2,00,000

2,00,000

Date Particulars Amount

Debit Credit (vi) Cash A/c ………...Dr 

To Sales A/c

(Being sold goods for cash)

70,000

(48)

(vii) Withdrawn by the proprietor Rs 35,000 cash for personal

use.

(viii) Insurance Paid by cheque of Rs 2500

Date Particulars Amount

Debit Credit (vii) Drawings A/c ………...Dr 

To Cash A/c

(Being cash withdrawn by the  proprietor)

35,000

35,000

Date Particulars Amount

Debit Credit (viii) Insurance A/c ………...Dr 

To Bank A/c

(Being paid insurance by cheque)

2,500

Figure

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References

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