2nd Semester Accounting Dec2014

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Financial Accounting-II Page-27-

Figure 1Mashal University

Accounting-II

Source person: Kamran KhanM.Com, B.ComLecturer at Mashal University

Mashal University, Shar-e-new Park, KabulChapter No: 01 Special Journals

Special Journal or Sub-Division of JournalWhen the business is small or the number of transactions are less, all the transactions are recorded in one journal called General Journal but when the business becomes large or the number of transactions are more it is not possible to record all of them in one journal, so this situation several books are used for the recording of the business transactions, this division of journal is called as special journal or sub-division of journal. Here separate book is used for similar transactions.Purposes and Advantages of the special journalThe main purpose of the special journal is to divide the work load among various officials when it becomes impossible for one person to record all such transactions. This division gives the following advantages. Division of work is done Efficiency of the staff and skill of the staff is improved It is easy to check the record of similar nature Posting in ledger becomes easy Record of vouchers and documents can be easily maintainedSpecial JournalsSpecial journals are used by the business according to its size and needs. However, a business may use the following special journals.a. Special journals for purchase and sale of merchandise Purchases Journal Purchases Returns and Allowances Journal Sales Journal Sales Returns and Journal

b. Special journals for cash transactions Cash receipts Journal Cash payment Journal Petty cash book/ JournalNote: special journals for cash transactions will be discussed in a separate chapter.

1. Purchases Journal

In this book all the purchases of merchandise are recorded. It is also called as Invoice Inward Journal. From this journal entries are posted in Accounts Payable Ledger and General Ledger. It should be remembered that only credit purchases are recorded in purchases journal. Cash purchases are not recorded here; they are recorded in cash payment journal.Format and example of Purchases JournalExample:Brevet Company received the following invoices for the month of January, 2011.Jan 1st Merchandise purchased from Asad Company $30000 vide Invoice No.010Jan 10th Invoice No. 0034 received from 3-D computers company for $35000Jan 15thPurchased merchandise worth $15000 from Betalian Company Invoice No.0111Jan 25th Purchased merchandise from Ahmad Company $10000 for cash.

Brevet CompanyPurchases JournalDateAccounts CreditedInv.No.Ref.Amount

Jan 011015Accounts Payable-Asad CompanyAccounts Payable-3-D CompanyAccounts Payable-Betalian Company

01000340111300003500015000

Note: Transaction of 25th January is not recorded in the purchases Journal because it is cash transaction. It is recorded in the cash payments journal.2. Sales Journal

In this book all the sales of merchandise are recorded. It is also called as Invoice Outward Journal. From this journal entries are posted in Accounts Receivable Ledger and General Ledger. It should be remembered that only credit sales are recorded in sales journal. Cash sales are not recorded here; they are recorded in cash Receipt journal.Format and example of Sales JournalExample:Comsat Company had the following transactions for the month of January, 2011.Jan 1st Merchandise sold to Akram Company $20000 vide Invoice No.A-10Jan 10th sold merchandise to Baram Company Invoice No. B-012 for $25000Jan 24th Sold merchandise to Ramz Company $10000 for cash.Jan 30th sold merchandise for $350 on Maliam Company on account invoice No M-123.

Comsat CompanySales JournalDateAccounts DebitedInv.No.Ref.Amount

Jan 011030Accounts Receivable-Akram CompanyAccounts Receivable -Baram CompanyAccounts Receivable -Maliam Company

A-10B-012 M-12320000250003500

Note: Transaction of 24th January is not recorded in the sales Journal because it is cash transaction. It is recorded in the cash receipts journal.3. Purchases Return & Allowances JournalWhen merchandise is purchased is recorded in the purchases journal, but when the merchandise is defective or not according to the buyers requirement, they are returned to the seller called purchase return. Such purchases returns are recorded in a book called purchases return & Allowances Journal. Sometimes the seller may grant an allowance and the merchandise are not returned to the seller. This allowance is also recorded in the purchases return & allowances journal. Format and example of Purchases Return & Allowances JournalExample:February 1st Merchandise value $250 returned to Asad Company Inv.No.011.5th Returned merchandise worth $300 returned to 3-D Company Inv.No.0035.10th Betalian Company gave an allowance of $500 as the merchandise purchased was defective.

Brevet CompanyPurchases Return & Allowances Journal

DateAccounts DebitedInv.No.Ref.Amount

Feb. 01510Accounts Payable-Asad CompanyAccounts Payable-3-D CompanyAccounts Payable-Betalian Company

0110035 _250300500

4. Sales Return & Allowances JournalWhen merchandise is sold is recorded in the sales journal, but when the merchandise is defective or not according to the buyers requirement, they are returned to the seller called sales return. Such sales returns are recorded in a book called sales return & Allowances Journal. Sometimes the seller may grant an allowance and the merchandise are not returned to the seller. This allowance is also recorded in the sales return & allowances journal. Format and example of Sales Return & Allowances JournalExample:February 1st Merchandise value $700 returned by Akram Company Inv.No. A-115th Returned merchandise worth $630 returned by Baram Company Inv.No. B-01310th Maliam Company gave an allowance of $150 for the defective merchandise M-124Comsat CompanySales Return & Allowances Journal

DateAccounts CreditedInv.No.Ref.Amount

Feb. 01510Accounts Receivable-Akram CompanyAccounts Receivable -Baram CompanyAccounts Receivable -Maliam Company

A-11B-013 M-124700630150

Chapter No: 01 Special JournalChapter End Exercises

Exerciser No. 01

The following transactions were completed by 3- Stars Company during January 2011.1st Purchased merchandise from Khan Company for $900invoice no KC-12nd Purchased merchandise from Bren Bore Company $2400. Invoice No. BBC-13rd Sold merchandise to X-Smith $1500 invoice no. XS-14th Purchased goods from Y-John & John for $4500 invoice no YJ-15th Sold merchandise to X-Smith $3400 invoice no. XS-26th Sales return by X-Smith $500 credit note no. XS-17th Returned merchandise to Bren Bore Company $300 being defective debit note no BB-18th Merchandise were sold on Amjad $ 19000 on account invoice no Am-1-20119th Amjad received an allowance for $200 for damaged merchandise credit note no Am-1-2011 10th Merchandise returned to Y-John & John for $500 debit note no YJ-1

Required: Record the above transactions into a. Purchases Journal b. Purchases Return and Allowances Journal c. Sales Journal d. Sales Return and Allowances Journal

Exerciser No. 021. Purchased merchandise from Jan for $1300 invoice no-12. Sold merchandise to Karim $2100 invoice no 013. Purchased merchandise from Naseem for cash $ 289994. Purchased merchandise from Naseem for $3500 invoice no 0015. Sold merchandise to Kamal for $3590 invoice no 00016. Sold merchandise to Qamar for $56792 invoice no 00127. Returned merchandise to Jan $300 debit note no 18. Returned merchandise by Naseem $300 credit note no 19. Allowance given to Qamar for defective merchandise $92 credit note no 2Required: Record the above transactions into a. Purchases Journal b. Purchases Return and Allowances Journal c. Sales Journal d. Sales Return and Allowances Journal

Exerciser No. 031. Sold merchandise on account to Mr. Tariq for $2000 invoice no-12. Purchased merchandise from Rizvi for $7000 subject to 10 trade discount invoice no-13. Sold merchandise to Akmal $4000 invoice no-014. Purchased merchandise from Idrees $12500 invoice no-ID15. Mr. Tariq returned merchandise $500 credit note no 16. Returned defective merchandise to Rizvi $1300 debit note no 17. Purchased merchandise from Naseem $9000 invoice no-N18. Sold merchandise to Mr. Barakatt for $15500 invoice no-B0019. Returned inferior merchandise to Naseem $4500 debit note no 210. Granted an allowance of $50 to Mr. Akmal credit note no 2Required: Record the above transactions into a. Purchases Journal b. Purchases Return and Allowances Journal c. Sales Journal d. Sales Return and Allowances Journal

Chapter No: 02Cash book

Introduction In this chapter we shall learn how to record cash receipts and cash payments transactions in to the cash book.Recording of cash transactionsSmall businesses settle the receipts and payments through cash; while large businesses settle the receipts and payments through checks. There are two methods of recording cash transactions.1. Cash Book, it is maintained by small businesses2. Cash Journals, this is maintained by large businessesCash BookIn small businesses the volume of cash transactions is small; only one person is enough to record the receipts and payments of cash. In such situation only one book is used for recording of cash receipts and payments. This book is called as Cash Book. Every page of cash book is divided into two sections. The left hand side for recording the receipts and the right hand side for payments of cash.A business concern may use any one of the following cash book.1. Single Column Cash Book This is the simplest form of cash book. It is also known as Simple Cash Book and used by those businesses that neither have any bank account nor allows or receives any discount. It is used by very small businesses.Specimen and example of recording in single column Jan 1st. Cash in hand $ 1500006. Purchased merchandise for cash $ 200010. Received cash from Smith Company $300018. Paid cash to Glaxo Company $100020. Cash sales $400025. Paid salary $ 10030. Paid cash for rent $5030. Purchased Furniture $1500

Cash BookDateVr.NoDescriptionRefAmountDateVr.NoDescriptionRefAmount

Jan 1st1020

BalanceA/R-Smith Co.Sales 1500030004000Jan 0618253030Purchases A/P-Glaxo Co.SalaryRentFurniture Balance 2000100010050150017350

Total 22000Total 22000

2. Two Column Cash BookA cash book which contain two columns one for cash and the other for discount. It is used by those organizations which receives allowed discount as custom of trade. Discount allowed is recorded on the debit side and discount received is recorded on the credit side.Specimen and example of recording in Two column Cash BookJan 1st Cash in hand $2000.02. Received cash $1500 from Asad Company, discount allowed $100.05. Cash sales $1000.10. Paid kamal $485, discount received $15.15. Purchased merchandise for cash $300.20. Received from Amjad company cash less 5% discount in $2000.25. Paid Hanif Company $450.27. Bought furniture for cash $150.29. Paid salary $700.30. Received cash from sale $1500.

Receipts Two Column Cash Book PaymentDateVr.NoDescriptionRefAmountDisc-ntDateVr.NoDescriptionRefAmountDisc-nt

Jan 1252030BalanceA/R-Asad Co.Sales A/R-Amjad Co.Sales

20001500100019001500100

1001015252730A/P-Kamal PurchasesA/P-HaniFurniture Salary

Balance 485300450150700

581515

Total 7900200Total 790015

3. Three Column Cash BookIn todays business world every business organization keeps a bank account. Three column cash book is a cash book in which there are three columns for cash, bank and discount. The cash deposited into the bank is recorded on the receipts side of the cash book. Any cash payment from the bank account is recorded on the payments side. At the end of the month the cash book is balanced.In three column cash some transactions are recorded on the both sides of the cash book. Such entries which are passed and are recorded on the both sides of the cash book are called as contra entries.Specimen and example of recording in Three column Cash BookOn 1st March 2010 Stravo Company had cash $10000 and balance at bank $18900.02. Purchased computers for cash $3000.03. Cash Sales $1200.4. Deposited cash into bank $300.05. Received check from Hamza $ 3500 and deposited into the bank account, Discount $ 200.06. Paid check for merchandise purchased $ 550.07. Received check from Kamal & Bro. $ 770. 08. Paid cash for supplies $450.09. Paid salary by check $ 2550.10. Deposited check received from kamal.

Receipts Three Column Cash Book Payments

DateV.DescriptionRef.CashBankDisctDateV.DescriptionRef.CashBankDisct.

No.No.

1/1/2010Balance10000189002/1/2010Computers3000

3/1/2010Sales12004/1/2010Bank300

4/1/2010cash3006/1/2010Purchases550

5/1/2010A/R-Hamza35002008/1/2010Supplies450

7/1/2010A/R-Kamal7709/1/2010Salary2550

10/1/2010cash77010/1/2010Bank770

Balance745020370

Total1197023470200Total11970234700

Chapter No.02Cash BookChapter End Exercises

Single-Column Cash Book ExercisesRequirement: Record the following transactions into Single-Column Cash BookExercise No. 01 See Dee has the given transactions for February, 2011

11. Started business with cash $50000.12. Purchased merchandise from Jan for cash $1300.13. Purchased machinery for cash $ 28999.14. Paid rent for one month $2000.15. Purchased office equipment for $3000.16. Cash taken by the owner $3900.17. Bought office furniture for cash $690.18. Paid for tea and food expenses $1450.19. Given cash as charity $10.20. Paid cash on account $5900.21. Received cash from commission $1250.Exercise No. 02Opening balance of cash $17800. The following transactions were completed.

10. Sold merchandise to Mr. Tariq for cash $2000 .11. Purchased merchandise from Rizvi for cash $7000.12. Paid cash for computers purchased $1200.13. Sold merchandise to Akmalfor cash $4000.14. Purchased merchandise from Idreesfor cash $12500.15. Received cash from an accounts receivable $5600.16. Paid salary for the month $5000.17. Received commission for $13200.18. Paid telephone bill $120.19. Paid cash to an account payable $2300.Exercise No. 031. Cash on hand $ 23500.2. Received cash from See Jee company $35000 less 10% discount.3. Received payment from Gee T Company $2500 .4. Paid rent for one month $450.5. Paid for supplies $300.6. Cash sales $6700.7. Paid cash on account $5800.8. Received interest from Jan & Jan $34009. Cash taken by the owner $150.

Tow-Column Cash Book ExercisesRequirement: Record the following transactions into Two-Column Cash BookExercise No. 01Zahid and Wajid completed the following transactions in the month of February, 2011.1. Started business with cash $40000.2. Purchased office equipment for $10000.3. Received cash from an account receivable $2500 and discount allowed $100.4. Purchased merchandise for $20000.5. Sold merchandise for cash $13000 and allowed trade discount $100.6. Received cash from interest $1340.7. Paid cash on rent $590.8. Paid cash on account $1500 and 5% was discount.9. Cash withdrawn by the owner $500.10. Paid salaries $5900.11. Received cash on sale of merchandise $5800.12. Utility bills were $380.Exercise No.02 TT Company has the following transactions for the month of April, 2011.1. Received cash from See Jee company $35000 less 10% discount.2. Received payment from Gee T Company $4500 after deducting 5% discount.3. Paid rent for one month $450.4. Paid for supplies $300.5. Cash sales for $6700.6. Paid cash on account $5800 and 4% were the discount.7. Received interest from Jan & Jan $3400.8. Purchased shares of a corporation $580.9. Sold shares for $670.10. Received cash before due date $12500 less 50 discounts.Exercise No. 03 GeeCee Companys transactions are as follows.1. Received cash from repair services $2400.2. Received cash from Bashir Ahmad for $18000.3. Purchased repair equipments for $1590 and trade discount were $10.4. Repaired a motor car for $250 and received the amount in cash.5. Paid wages to employees $1200. 6. Paid cash for food expenses $1400.7. Paid rent for the month $600.8. Repaired one motor cycle for $40 and the customer was charged.9. Received commission for selling Z-Companys repair parts $3500.10. Paid utility bills $1000.

Three-Column Cash Book ExercisesRecord the following transactions into Three-Column Cash BookExercise-1Jan 1st 2011 Opening balance of Cash $12000 and Bank $15000.1. Purchased furniture for cash $2000.2. Purchased machinery by check $3000.3. Purchased merchandise for cash $5000.4. Sold merchandise on cash $10000.5. Received cash from Amanullah $3400 and discount allowed $100.6. Received check from Janzaib $5000 and deposited the check into the bank on the same date.7. Cash sales $ 5600 and trade discount %5.8. Paid salary $ 1000.9. Paid cash on account $4000.

Exercise-21. Started business with cash $80000.2. Deposited cash into bank $5000.3. Purchased merchandise for cash $3000.4. Received check from Qasim $2500 and discount allowed $50.5. Sold merchandise for cash $6000.6. Qasims check paid into the bank.7. Withdrawn cash from bank for office use $6600.8. Received cash from sales $12000.9. Paid electricity bill $300.10. Paid salary by check $1000.11. Cash brought by the owner $4500.12. Loan taken from Azizi Bank $6000.13. Cash taken by the owner for personal expenses $1200.14. Paid cash on credit $ 9800 less 200 discounts.15. Sold old furniture for cash $1300.

Exercise-31. Cash in hand $15300 and balance at bank $20500.2. Received from Kamal $5900 and discount allowed $100.3. Paid salaries for the month of December $2000.4. Purchased merchandise payment made by check $3200.5. Paid Majid Khan by check $8000 discount received $50.6. Withdrew from bank for office use $1000; paid rent for the month $1200.7. Cash deposited into bank $1500.8. Cash sales $9560 and $40 was trade discount.9. Purchased a motor car for business use for $4000.10. Paid wages $250.11. Received check from Jan $8900 and discount was $100.12. Sold old machinery parts $3500.13. Paid Jans check into bank.

Exercise-4On 1st December, 2011 3-Stars Company cash book shows a balance of cash $18900 and balance of Bank $35000. The following transactions were completed.1. Purchased office computers for cash $3400.2. Cash sales $5000.3. Purchased merchandise for cash $2750.4. Paid salaries by check $5000.5. Deposited cash into bank $3300.6. Received cash from Azhar $8900 and 10% discount.7. Purchased merchandise by check $6000.8. Sold goods on cash for $12300and received a check for the amount, which was lodged into the bank on the same day.9. Sold old furniture for $6000, received 3000 in cash and for the balance a check, which was deposited into the bank.10. Received a check from an accounts receivable for $880 less 400 discounts.11. Loan taken from a commercial bank for $13200 @10% monthly interests.12. Loan given to a friend for $5000 @13% monthly interests.13. Fresh investment made by the owner for $1540014. Cash taken by owner for personal expenses $170.

Exercise-5March 1st 2011. Opening balance of cash $12000 and bank overdraft was $2500.1. Salaries paid to the staff $1500 by check.2. Received from Ali $2800, discount was $200.3. Cash paid into bank $6500.4. Direct collection of cash into bank from Raza Company $10000.5. Issued a check for $1000 for electricity bills.6. Cash sales $5000.7. Paid for salaries $1500.8. Payment made from our bank account $3400.9. Received cash from customers into bank account $13900 and discount was $250.10. Purchased merchandise for cash $3000.11. Cash sales made for $9890.Exercise-6March 1st 2011. Opening balance of cash $12000 and bank overdraft was $25000.1. Salaries paid to the staff $3000 by check.2. Paid rent by cash $200.3. Received from Ali $2800, discount was $200.4. Cash paid into bank $650.5. Direct collection of cash into bank from Raza Company $10000.6. Issued a check for $1000 for electricity bills.7. Cash sales $5000 and the amount deposited into bank.8. Paid a check for salaries $2500.9. Direct payment made from our bank account $3400.10. Received cash from customers into bank account $1900 and discount was $50.11. Purchased merchandise for cash $3000.12. Cash sales made for $9890.

Chapter No: 03Cash Journals

Introduction In large business concerns all the cash received is deposited into the bank on that or on next day. Similarly all payments are made through checks. In such business concerns separate cash books are maintained for deposits and withdrawals of cash which are called cash journals. It should be noted that for all small payments a petty cash fund is maintained and all the small payments are made through that fund. A petty cash book is maintained for the record. The details of these cash journals are discussed as below:1. Cash Receipt Journal (CRJ)This is the cash journal where we record both the receipt of cash and checks. This book has two sides, the debit side and the credit side. All the receipts of cash and checks are recorded on the debit side and on the credit side there are several columns for sale, accounts receivable and other items from whom the cash has been received. Specimen and example of recording in Cash Receipt Journal (CRJ) The following transactions were completed by First Star Computers for the month of October.1st Cash received from the owner $25000.02. Cash received from sale of merchandises $4500.03. Received interest $1500.04. Akname Computer Center paid its debt $3690.05. Received cash from Saleem Computers $1580 and allowed discount $20.06. Cash sales $1900.07. Received cash from repair of computers $70.08. Received cash from sale of old computer parts $835 and trade discount was $15.09. Cash received from customer to whom 10 computers were sold on credit $7565 and cash discount was allowed 10%.10. Sold computers for cash $4980.

Cash Receipt Journal (CRJ)Date Accounts CreditedRef.DebitCredit

CashDiscountSalesA/RSundry

Oct 1st Owner Equity2500025000

2Sales45004500

3Interest15001500

4A/R-Akname Com.36903690

5A/R-Saleem Com.1580201600

6Sales19001900

7Computer Repair7070

8Sale of Computers835835

9A/R-6808.5756.57565

10Sales49804980

50863.5776.564001783527405

2. Cash Payment Journal (CPJ) In large business concerns all the payments are made through checks. These payments are entered in a cash journal called Cash Payment Journal or Cash Disbursement Journal. Here all the checks issued and paid are entered. These checks are issued for making payments to creditors, payment for expenses, cash purchases, purchase of assets etc. Specimen and example of recording in Cash Payment Journal (CPJ) Record the following transactions into cash payment journal 01 Paid cash for merchandise purchased $1000, check no 00012345602 Paid cash to Abdu Rahman $1867, check no 00012378903 Purchased stationery $550, check no 00012345404 Paid Amjad Khan $9865, discount was 15 check no 00032145605 Purchased merchandise for cash $1730, check no 00012325806 Paid rent for the month $850, check no 00012889607 Cash paid to creditor $425, check no 00745345608 Cash paid as salary $3560 and to owner $1000, check no 012365478

Cash Payment JournalDate Accounts DebitedRef.CreditDebit

CashDiscountPurchasesA/PSundry

Oct 1st Purchases10001000

2A/P-Abdu Rahman18671867

3Stationery550550

4A/P-Amjad9865159880

5Purchases17301730

6Rent 850850

7A/P425425

8Salary35603560

8Drawing 10001000

10

Total 20847152730121725960

3. Petty Cash BookIn large businesses all the cash and checks are deposited into the bank and all the large payments are made through bank. For small type of expenses we cannot issue checks for which the payments are made on the spot. For example, payment for travelling, entertainment, envelops, internet expenses etc. For such payments we maintain a fund known as Petty Cash Fund and a book in which the entries are recorded is called as Petty Cash Book.Procedure of Petty Cash Fund The following procedure is used for creating and using the petty cash fund.a. An amount is fixed for petty cash expense, keeping in view of one month cash requirements of the organization. This system is called Imprest System.b. A check is drawn for petty expenses and is recorded in the petty cash book.c. All the petty expenditures are recorded in the petty cash book.d. At the end of the month the book is balanced and the fund is reimbursed at the beginning of the next month.

Specimen and example of recording in Petty Cash BookJamal business maintained petty cash fund with an imprest system of Rs. 100, completed the following transactions during the month of June.1. Paid for postage charges $10.2. Paid for telegram $5.3. Paid for travelling $8.4. Paid for stationery $9.5. Paid for tips to peon $10.6. Paid for tea offered to a customer $15.7. Paid for postage $6.8. Paid for Motor fare $4.9. Paid for papers purchased $3.10. Paid for postage charges $2.11. Paid for printing $1.12. Paid for taxi fare $2.13. Paid $5 to owner.Jamal businessPetty Cash BookDateDescriptionTotalPostagePrintingStationeryTravellingEntertianmentMiscellaneous

1-Jun-11Received in Fund=100

2Postage1010

3Telegram55

4Travelling88

5stationery99

6Tips to Peon1010

7Tea for Customer1515

8Postage66

9Motor Fare44

10Papers33

11Printing pages11

12Texi Fare22

13Drawing55

Total7821013141515

Balance= 22

Received in Fund= 78

100100

Chapter No: 03Cash Receipt and Payment JournalsChapter End Exercises

Exercise No. 01

The following transactions were completed by Murry Repair Services, during January 2011.11. Received cash from repair services $2400.12. Received cash from Bashir Ahmad for $18000.13. Purchased repair equipments for $1590 and trade discount were $10.14. Repaired a motor car for $250 and received the amount in cash.15. Paid wages to employees $1200. 16. Paid cash for food expenses $1400.17. Paid rent for the month $600.18. Repaired one motor cycle for $40 and the customer was charged.19. Received commission for selling Z-Companys repair parts $3500.20. Paid utility bills $1000.

Required: Record the above transactions into Cash Receipts Journal and Cash Payment Journal

Exercise No. 02 See Dee has the given transactions for February, 2011

22. Purchased merchandise from Jan for cash $1300.23. Purchased merchandise from Naseem for cash $ 2899924. Purchased merchandise from Naseem for $3500 cash. 25. Paid rent for one month $2000.26. Purchased office equipments for $3000.27. Cash taken by the owner $3900.28. Bought office furniture for cash $690.29. Paid for tea and food expenses $1450.30. Given cash as charity $10.31. Paid cash on account $5900.Required: Record the above transactions into Cash Payment Journal

Exercise No. 03Opening balance of cash $17800. The following transactions were completed.

20. Sold merchandise to Mr. Tariq for cash $2000 .21. Purchased merchandise from Rizvi for cash $7000, subject to 10% trade discount.22. Paid cash for computers purchased $1200.23. Sold merchandise to Akmal $4000.24. Purchased merchandise from Idrees $12500.25. Received cash from an accounts receivable $5600.26. Paid salary for the month $5000.27. Received commission for $13200.28. Paid telephone bill $120.29. Paid cash to an account payable $2300.Required: Record the above transactions into Cash Receipts Journal and Cash Payment Journal

Exercise No. 04 Zahid and Wajid completed the following transactions in the month of February, 2011.13. Started business with cash $40000 and deposited the cash into Azizi Bank.14. Purchased office equipments for $10000.15. Purchased merchandise for $20000.16. Sold merchandise for cash $13000 and allowed trade discount $100.17. Received cash from interest $1340.18. Paid cash on rent $590.19. Cash withdrawn by the owner $500.20. Paid salaries $5900.21. Received cash on sale of merchandise $5800.22. Utility bills were $380. Required: Record the above transactions into Cash Receipts Journal and Cash Payment JournalExercise No. 05 Que Bee completed the following transactions in the month of July, 2011.

10. Received cash from See Jee company $35000 less 10% discount.11. Received payment from Gee T Company $4500 after deducting 5% discount.12. Paid rent for one month $450.13. Paid for supplies $300.14. Cash sales for $6700.15. Paid cash on account $5800 and 4% were the discount.16. Received interest from Jan & Jan $3400.17. Purchased shares of a corporation $580.18. Sold shares for $670.19. A check was received from Ahmad for $3900 and paid into the bank on the next day $3800.Required: Record the above transactions into Cash Receipts Journal and Cash Payment Journal

Exercise No. 06 Wajid Compnay uses petty cash fund under the Imprest System by issuing a check of $100 on 1st December, 2011. The following transactions were completed during the month.December01, Paid for Pean for Tea $10.December 05, Paid for postage $10.December 10, Paid for carbon papers $9.December 12, Paid cash for registration of Parcels $ 12.December 15, Paid for Taxi fare $10.December 17, Cash taken by the owner $4.December 19, Given cash as charity $3.December 21, Paid for electricity bills 15. December 25, Paid for cartage $5.December 30, Paid for gums papers $5.Required: Record the above transactions into Petty Cash JournalExercise No.07 Shahid Compnay uses petty cash fund under the Imprest System by issuing a check of $400 on 1st January, 2012. The following transactions were completed during the month.Jan 01. Paid for refreshment of customer $20.Jan 05, Paid for postage stamps $ 37.Jan 10, Paid for stationery $30.Jan 15, Paid for travelling expenses $50.Jan 18, Paid for electricity bill $50.Jan 23, Paid for registered parcels $12.Jan 25, paid advance to sweeper $15.Jan 28, Paid for tea of staff $ 25.Jan 31, Paid for invitation cards and envelops $ 25.Exercise No.08 A Company has cash for petty cash fund $200 for the month of February, 201. A Company maintains Imprest system for petty cash fund.

Purchased typewriter ribbon and carbon paper $20.Paid for rikshaw fee $15.Paid for telegram $11.Paid for cart hire $8. Paid for tea to customer $10.Paid for postage stamps $8Paid for registration of parcel $6.Paid for repair of typewriter $18.Paid for cartage $5.Advance to gatekeeper $15.Cash given to the owner $12.

Chapter 04Bank Reconciliation Statement

Introduction to Bank Reconciliation StatementA business organization having regular cash transactions with the business want to know its cash balance at the end of a specific time period says a month. When the balance as shown by the bank record is equal to the balance as shown by the depositors record, there will be no problem but in most of the cases it is not equal. In order to make it equal and correct, a statement is prepared that is called Bank Reconciliation Statement.Bank BalanceThe balance as shown by the depositors record is called as bank balance. How to ascertain Bank Balance?Bank balance as per cash is ascertained in the following manner.a. In case of Cash Book: All the deposits in the bank are shown in the bank column on the receipt side of cash book. Similarly all the payments are shown in the bank column on the payment side of the cash book.If the receipt side is heavier than the payment side it represents balance as per cash book (Dr.) or a favorable balance. Similarly if the payment side is heavier than the deposit side it represents balance as per cash book (Cr.), unfavorable or bank overdraft.b. In case of Cash Journal: Total of the cash receipt journal is posted to the Bank Account in the General Ledger and the total of the cash payment journal is also posted. The debit balance represents the balance as per cash book (Dr.) or a favorable balance. Similarly the credit balance represents balance as per cash book (Cr.), unfavorable or bank overdraft.Pass BookThis is the copy of the depositors account in the bank ledger. All the deposits are recorded on the credit side or deposits side and all the payments and charges are recorded on the debit side or withdrawals side.Bank StatementA bank statement is a summary of the depositors record in the bank. It contains the opening balance, if any, the deposits, withdrawals and bank charges, if any. A bank usually sends bank summary to its customers after a specific time period.Types of balances:a. Balance as per cash book (Dr.) b. Balance as per cash book (Cr.)c. Balance as per pass book (Dr.) d. Balance as per pass book (Cr.)

Reasons of disagreement between the balance of cash book and pass bookThe following are the main reasons of disagreement between the balance of cash book and pass book.a. Un-presented checks These are the check issued to the bank for payment but the payment is not yet made from the bank. As the payment is not yet made from the bank, such checks are not included in the banks record due to which a difference arise between the cash book and pass book balance. b. Un-collected or un-credited checksThese are the checks which have been sent to the bank for deposit but are not deposited into the bank. As such checks are not shown in the banks recorddue to which a difference arise between the cash book and pass book balance.c. Interest and bank service chargesAny interest or other service charges not recorded in the depositors cash book arises a difference between the cash book and pass book balance.d. Dishonored checksAny check issued for deposit is immediately recorded in the cash book but such checks are not accepted by the bank due to some reason (s), the information of dishonor may not have been received by the customer, due to which a difference arise between the cash book and pass book balance.e. Interest credited by the bank not recorded in the cash book Interest credited by the bank not recorded in the cash book arise a difference between the cash book and pass book balance.f. Standing ordersAny standing order regarding payment, if omitted by the depositor arise a difference between the cash book and pass book balance.g. Direct debitA standing order for which the depositor changes payments date arise a difference between the cash book and pass book balance.h. ErrorsTo err is human. Any error on the part of the depositor or bank arise a difference between the cash book and pass book balance.Methods of Preparing Bank Reconciliation StatementFollowing are the methods of preparing bank reconciliation statementa. Finding the adjusted balance b. Reconciliation of the balance

A. Finding the adjusted balance Method1. In case of Balance as Per Cash Book (Dr.)First record all the transactions in cash book that not have been recorded in the Pass Book as well as the errors made in the cash book and checks dishonored. Then record all the transactions in the Pass Book that not have been recorded in the Cash Book and all the errors.Now draw the Bank Reconciliation Statement format and follow the following formula.Balance as Per Cash Book (Dr.)(+) Cr. Side of pass book (-) Dr. Side of pass book----from the balance of the cash book.It will be the adjusted balance of cash book. Now write the balance of pass book. Assume it is Balance as Per Pass Book (Cr.)(+) Dr. Side of Cash book (-) Cr. Side of Cash book ----from the balance of the pass bookIt will be the adjusted balance of pass book.2. In case of Balance as Per Cash Book (Cr.)Draw the Bank Reconciliation Statement format and follow the following formula.Balance as Per Cash Book (Cr.)(+) Dr. Side of pass book (-) Cr. Side of pass book ----from the balance of the cash book.It will be the adjusted balance of cash book. Now write the balance of pass book. Assume it is Balance as Per Pass Book (Dr.)(+) Cr. Side of Cash book(-) Dr. Side of Cash book ----from the balance of the pass bookIt will be the adjusted balance of pass book.Example of Bank Reconciliation StatementWe have four types of balances. Examples on all the four are given as under.

a. Balance as per Cash Book (Dr.)/ b. Balance as Per Pass Book (Cr.)

On January 31st, 2011, a trader has a balance of $4320 as shown by the cash book (Dr.), while the pass book shows a balance of $4955 on the same date. On reconciling the balances we find the following.

a. A check of $2000 issued to jamal has not been presented for payment into the bank.b. A check of $1500 deposited into the bank has not yet been credited by the bank.c. The bank has debited the amount of $80 as bank charges.d. The bank has credited the amount of $215 as interest on deposit.

Required:PrepareBank Reconciliation Statement from the above data.

Dr.Cash Book Cr.Dr. Pass Book Cr.

Receipts Payments Withdrawals Deposits

b. 1500 a. 2000 c. 80 d. 215

Bank Reconciliation Statement

Balance as per cash book (Dr.)(+) d. interest credited by the bank

(-) c. interest charged by the bank

4320215

453580

Adjusted balance4455

Balance as per pass book (Cr.)(+) b. cash paid for deposit not yet deposited by bank

(-) a. check issued for payment, but not yet made by

4955150064552000

Adjusted balance4455

c. Balance as per Cash Book (Cr.)/ d. Balance as Per Pass Book (Dr.)

On January 31st, 2011, a trader has a balance of $3254 as shown by the cash book (Cr.), while the pass book shows a debit balance of $3170 on the same date. On reconciling the balances we find the following.

a. A check of $584issued to jamal has not been presented for payment into the bank.b. A check of $1085 deposited into the bank has not yet been credited by the bank.c. The bank has debited the amount of $15 as bank charges.d. The bank has credited the amount of $600 as interest on deposit.

Required: Prepare Bank Reconciliation Statement from the above data.

Dr. Cash Book Cr. Dr. Pass Book Cr.

Receipts Payments Withdrawals Deposits

d. 1085 a. 584 c. 15 d. 600

Bank Reconciliation Statement

Balance as per cash book (Cr.)(+)c. interest charged by the bank

(-)d. interest credited by the bank

325415

3269600

Adjusted balance2669

Balance as per pass book (Dr.)(+) b. cash paid for deposit not yet deposited by bank

(-) a. check issued for payment, but not yet made by

3170584 37541085

Adjusted balance2669

B. Reconciliation of the balance MethodIn this method the balance of one book as well as reasons of difference is given and the balance of the other book is to be finding out.

Procedure of Bank Reconciliation Statement

1. In case of Balance as Per Cash Book (Dr.)First record all the transactions in cash book that not have been recorded in the Pass Book as well as the errors made in the cash book and checks dishonored. Then record all the transactions in the Pass Book that not have been recorded in the Cash Book and all the errors.Now draw the Bank Reconciliation Statement format and follow the following formula.Balance as Per Cash Book (Dr.)(+) Cr. Side of pass book and cash book (-) Dr. Side of pass book and cash book It will give the balance as per Pass Book Balance as Per Pass Book (Cr.)(+) Dr. Side of Cash book and pass book(-) Cr. Side of Cash book and pass book It will give the balance as per cash book 1. In case of Balance as Per Cash Book (Cr.)Draw the Bank Reconciliation Statement format and follow the following formula.Balance as Per Cash Book (Cr.)(+) Dr. Side of pass book and cash book(-) Cr. Side of pass book and cash bookIt will give the balance as per pass book Balance as Per Pass Book (Dr.) (+) Cr. Side of Cash book and pass book(-) Dr. Side of Cash book and pass bookIt will give balance as per cash booka. When balance as per Pass Book (Cr.) is given and Balance of Cash Book is to find out.

Show the balance as per Cash Book from the following data.

1. Balance as per pass book (Cr.) $11500 on January 31, 2011.2. Checks of $500 and $1700 deposited into the bank, not yet credited by the bank.3. Checks $400 and $950 issued for payment but the payment is not yet made by the bank.4. A check has been dishonored $450.5. Bank charges were $50.

Dr. Cash Book Cr. Dr. Pass Book Cr.

Receipts Payments Withdrawals Deposits

2. 500 3. 4005. 501. 11500 1700 9504 450

Check dishonored $450= - from cash book balance

Bank Reconciliation Statement

Balance as per Pass book (Cr.)(+) 5 interest charged by the bank not recorded in Cash Book2.Checks paid for deposited not collected by the bank(500+1700)Check dishonored

(-) 3. Checks issued for payment but the payment is not made(400+950)

502200

450

11500

2700

4200

1350

Balance as per Cash Book (Dr.)12850

b. When balance as per Cash Book (Dr.) is given and Balance of Pass Book is to find outA limited company has balance as per cash book $2500, it was not agree with the balance of pass book due to the following reasons.a. A check for $600 was not presented to the bank for payment.b. A check of $2000 was not deposited into the bank.c. Bank charges were $20.d. Interest not recorded in the cash book $150.e. Dividend received by the Bank not recorded in the cash book $400.f. Commission debited in the bank statement not recorded in cash book $300.Prepare bank reconciliation statement.

Dr. Cash Book Cr. Dr. Pass Book Cr.

Receipts Payments Withdrawals Deposits

B 2000 A 600 c 20 d 150 F 300 e 400

Bank Reconciliation Statement

Balance as per Cash book (Dr.)(+) A Check issued but payment is not yet made by the bank D Interest not recorded in cash book E Dividend not recorded in cash book

(-) b check paid into bank, not collected by the bank C bank charges not recorded in cash book F commission charged by the bank

600150400

2000203002500

11503650

2320

Balance as per Pass Book (Cr.)1330

Chapter No.04Bank Reconciliation StatementChapter End Exercises

Chapter End ExercisesMethod-IExercise No. 01From the following particulars, prepare a bank reconciliation statement on January 31, 2011.Bank balance as per cash book ----------------Dr. $7500Balance as per pass book .Cr. $8000

a) Checks issued but not yet presented for payment before January 31 $1000b) Checks paid for deposit but not yet deposited into the bank $1500c) Interest charged by the bank $500d) Commission received by the bank $500e) Payment made to creditor $1000, not yet made from the bank.Exercise No. 02Ahmad business had the following data for the month of February, 2011.Balance as per cash book (Cr.) $6508. And Balance as per pass book (Dr.) $6340.a. Bank charges for all the above period was $30.b. Checks issued but not presented for payment $1168.c. Checks paid into the bank but not yet collected by the bank $2170.d. Interest on Government shares collected by the bank $1200.Instructions: You are required to prepare a Bank Reconciliation Statement!Exercise No. 03The cash book of Three Stars Company showed a debit balance of $1470 and the balance of pass book was credit $2443. The reasons of difference are as under:a. Dividend collected by the bank $50 has not been entered in cash book.b. A check has been dishonored but no entry was made in the cash book $220.c. Bank charges $77 not recorded in the cash book.d. Check paid into bank not recorded in the pass book $3120.e. Check $4340 had been credited in the cash book but no entry existed in the pass book.Instructions: You are required to prepare a Bank Reconciliation Statement!

Exercise No. 04On June 30th, 2011 the cash book of Khalil enterprises showed an overdraft of $7600 while pass book showed a debit balance of $6700. The reasons of differences are as under:a. Interest on overdraft not recorded in cash book $265.b. Dividend collected by the bank $2450.c. Checks paid in the bank but not cleared $2050.d. Check issued but not yet cleared $1400.e. A check received from a customer $635 was omitted to be paid into bank. Requirements: You are required to prepare a bank reconciliation statement!Exercise No. 05From the following information prepare a bank reconciliation statement.Balance as shown by Pass book Cr. $60.a. Checks issued but not presented prior to August 31st $750.b. Interest on overdraft for 6 months $235.c. Checks paid prior August 31st, not yet deposited into the bank $3250.d. Bank charge debited in the pass book $65.e. Interest and dividend collected by the bank $350.f. A check received from a customer was omitted to paid into the bank $220.g. A customer has directly paid cash into our bank account $350 but not recorded in cash book.Balance as shown by the Cash Book was Dr. $2380.Instructions: You are required to prepare a Bank Reconciliation Statement.Exercise No. 06Bank overdraft as per cash book $7832.Bank overdraft as per pass book $8942.

a. Interest on overdraft was $610.b. Checks issued but not presented for payment.Ahmad Company $1000Akmal Company $1500c. Checks deposited but not yet collected by the bank.Z & Z Company $2500X &X Company $1300d. Interest on investments collected by the bank $800.Instructions: You are required to prepare a Bank Reconciliation Statement!Exercise No. 07A Company received the bank statement on September 31, 2011 showing a credit balance of $10500 while the balance of cash book was $9155. The reasons of differences are as under:a. Checks amounting to $2750 were deposited into the bank but check amounting to $750 has not been cleared upto September 31, 2011.b. Checks amounting to $3500 were given to the creditors but checks amounting to $1200 had not been presented for payment in the bank September 31, 2011.c. The bank had debited the account $35 for service charges.d. The bank has received an amount directly from a customer $800.e. Interest credited by the bank $130.Instructions: You are required to prepare a Bank Reconciliation Statement!Exercise No. 08Prepare bank reconciliation statement from the following particulars.a. On 31st November, 2011, the bank account of Mr. Tariq showed an overdraft of $750 while the cash book showed a balance of $855.b. Check for $250 on 25th November of which $200 were presented and paid by the bank.c. A check of $25 was deposited but it was not credited in the bank account.d. A check entered in the cash book was omitted $10.e. Direct deposit made by a customer $30.f. Interest amounting to $60 credited by the bank not recorded in the cash book.

Exercise No.09The accountant of Dee See Company had the following data for the month of December, 2011.a. The bank overdraft as per cash book $3254.b. The bank overdraft as per pass book $3170.c. Bank charges were $15.d. Checks issued but not yet cleared $584.e. Checks paid for deposit not yet deposited into the bank $1085.f. Interest on bonds collected by the bank $600.Instructions: You are required to prepare a Bank Reconciliation Statement!

Method-IIExercise No.01TT Company had the following data for the month of January, 2011.Balance as per cash book. $1280Bank charges..$10Interest charged by the bank$20Interest on bonds collected by the bank. $300

Instructions: You are required to prepare a Bank Reconciliation Statement!Exercise No.02Balance as per cash book. $1630Checks paid into the bank not yet collected $430Checks issued for payment but the payment is not yet made $510Instructions: You are required to prepare a Bank Reconciliation Statement!Exercise No.03Balance as per cash book $3400.a. Debit in respect of bank charges $32 and credit in respect of bank interest $140 and dividend received by the bank not recorded by the depositor.b. A note receivable received by the bank $700 not recorded in the cash book.c. Checks for $700 issued but not yet cleared.d. Checks for $800 not yet collected by the bank.e. A check for $10 was shown as dishonored in the pass book.Instructions: You are required to prepare a Bank Reconciliation Statement!

Chapter No: 05Adjustments in Financial Statements

Adjusting EntriesEntries made at the end of an accounting period to up-to-date the record are called adjusting entries. At the end of an accounting period normally, we pass the following adjusting entries.1. Outstanding ExpensesThe expense the benefit of which has been received but the payment is not yet made. Treatment:a. Income statement: add with the expenseb. Balance sheet: show as a liabilityExample: At the end of December 31, 2011 salary amounting to $1000 is unpaid. And salary paid in trail balance is $11000.Income statementAmountAmountAmount

Operative Expense:

Salary 11000

+ outstanding salary100012000

Balance sheet

Assets$$Liabilities + O.E$$

Outstanding Salary1000

2. Prepaid ExpenseExpense for which the payment is made in advance is called prepaid expense.Treatment:a. Income statement: deduct from the expenseb. Balance sheet: show as an assetExample: Salary $1000 prepaid and salary in Trail Balance $13000Income statementAmountAmountAmount

Operative Expense:

Salary 13000

- Prepaid salary100012000

Balance sheet

Assets$$Liabilities + O.E$$

Prepaid Salary1000

3. Accrued RevenueRevenue earned but not yet received is called accrued revenue.Treatment:a. Income statement: add with the revenueb. Balance sheet: show as an assetExample: Rent $1000 earned but not yet received and in Trail Balance rent is $11000Income statementAmountAmountAmount

Other Income:

Rent 11000

+Accrued Rent100012000

Balance sheet

Assets$$Liabilities + O.E$$

Accrued Rent1000

4. Unearned RevenueRevenue receive but not yet earned is called accrued revenue.Treatment:c. Income statement: deduct from the revenued. Balance sheet: show as a liabilityExample: Rent $1000 received but not yet earned and in Trail Balance rent is $13000Income statementAmountAmountAmount

Other Income:

Rent 13000

-unearned Rent100012000

Balance sheet

Assets$$Liabilities + O.E$$

Unearned Rent1000

5. Ending InventoryThe unsold goods at the end of an accounting period are called ending inventory.Treatment:a. Income statement: deduct from the cost of goods available for saleb. Balance sheet: show as an assetExample: Inventory $1000 remand unsold.Income statementAmountAmountAmount

cost of goods available for sale15000

-closing inventory100014000

Balance sheet

Assets$$Liabilities + O.E$$

Closing stock1000

6. Depreciation Decrease in the value of an asset or the process of allocating the value of an asset over its expected life.Treatment:a. Income statement: show as an expenseb. Balance sheet: deduct from the value of the assetExample: Furniture in trail balance $40000 and $10000 is depreciation.Income statementAmountAmountAmount

Operative Expense:

Depreciation-Furniture 10000

Balance sheet

Assets$$Liabilities + O.E$$

Furniture 40000

-depreciation1000039000

Chapter No: 05 Adjustments in Financial StatementsChapter End Exercises

Exercise No. 01Following is the trial balance; prepare Income statements and Balance sheets.Trial BalanceS.NOAccountsRef.Dr.Cr.

1234567891011121314

Machinery Cash FurnitureAccounts receivableAdvertisement Postal expenseOffice supplies expenseSalariesRent Equipments Accounts payableNotes payableSalesOwners equity 4400120340240172140226500122300

12805001970

Total 65606560

Adjustments for Exercise No. 01

a. Salary accrued $60b. Advertisement paid in advance $22c. Depreciation on furniture was $120

Exercise No. 02Adjustments for Exercise No. 02

For exercise no. 02, the following are the adjustments.a. Merchandise inventory at the end of year $1000b. Outstanding rent $190c. Prepaid insurance $200

Trial Balance S.NOAccountsRef.Dr.Cr.

123456789101112131415

PurchasesAccounts receivableBuilding Rent InsuranceCarriage in AdvertisementOpening inventoryOffice SalariesSelling salariesCash in handMachineryOwners equityAccounts payableSales

648054902440310400700330150018002400300010000

10000720017650

Total 3485034850

Exercise No. 03S.NOAccountsRef.Dr.Cr.

1234567891011121314151617181920

Accounts payableWagesNotes receivableDiscount receivedDiscount allowedRent TaxesSalesMachineryAccounts receivableSalariesAdvertisementCash PurchasesGeneral expenseLoan taken form bankNotes payableOwners equityDrawingsMotor car

4683361

2603801000

5360817519406002860109442560

72525004338

130

25360

1000152010000

Total 4234842348

Adjustments for Exercise No. 03a. Closing stock $5350b. Depreciate machinery @10%c. Rent paid in advance $100d. Outstanding salaries $950e. Interest on owners equity was @ 6%

Exercise No. 04Trial BalanceS.NOAccountsRef.Dr.Cr.

123456789101112131415

Cash Building DrawingFurnitureInterest paidPurchasesRentOpening stockSalariesAdvertisementsFood expensesAccounts receivableOwners equityAccounts payablesales

125004000075010005003000010000400010001006007500

129502000075000

Total 107950107950

Adjustments for Exercise No. 04

a. Closing stock $4500b. Salaries outstanding $150c. Prepaid food expense $100d. Depreciation on building and furniture @5%

Exercise No. 05Trial BalanceS.NOAccountsRef.Dr.Cr.

123456789101112131415161718

Cash Accounts receivableNotes receivableCarriageSuppliesFurnitureEquipment Sales returnWagesInsuranceGeneral expensesPurchasesAccounts payableBank overdraftOwners equitySales Purchases returnRent received

212537005500230025055015008752400265037524000

3000625935032375625250

Total 4622546225

Adjustments for Exercise No. 05

a. Outstanding wages $100b. Prepaid insurance $50c. Rent receive but not yet earned $100d. Depreciation on equipments $25

Exercise No. 06Trial Balance S.NOAccountsRef.Dr.Cr.

12345678910111213141516

PurchasesAccounts receivableAudit feeCash in handSalariesCarriage in Supplies expenseMachineryRentSales returnFurnitureSalesAccounts payableInterest received Purchases returnOwners equity

750015001502003802204501150180140130

74007001005003300

Total 1200012000

Adjustments for Exercise No. 06

a. Interest earned but not yet received $250b. Audit fee not yet paid and outstanding $50c. Some interest of $10 received in advanced. Depreciation on machinery @5%e. Salary $20 paid in advance

Lecturer: Mr. Kamran Khan MU M.Com (Accounting), B.Com Mashal University