VOL 2 "THE SYSTEM OF ACCOUNTING

Volume – II

YEAR 2015

WRITTEN BY: SYED AQEEL RAZA

THE SYSTEM OF ACCOUNTING VOLIUM – I

Written by; Syed Aqeel Raza

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>

FATHER OF ACCOUNTING

Fra Luca Bartolomeo de Pacioli (1445–1517) was an Italian mathematician, and seminal contributor to the field now known as accounting. He is referred to as the Father of Accounting and Bookkeeping (he was the first to publish a work on double-entry system of book-keeping). He was also called Luca di Borgo after his birthplace, Borgo Sansepolcro, Tuscany.

<THE SYSTEM OF ACCOUNTING < VOLIUMII< SYED AQEEL RAZA<[email protected]>

P R E F A C E

https://en.wikipedia.org/wiki/Tuscany

https://en.wikipedia.org/wiki/Sansepolcro

https://en.wikipedia.org/wiki/Double-entry_bookkeeping_system

https://en.wikipedia.org/wiki/Double-entry_bookkeeping_system

https://en.wikipedia.org/wiki/Accounting

https://en.wikipedia.org/wiki/Mathematician

https://en.wikipedia.org/wiki/Italy

First and foremost, I want thank to Almighty Allah who attached me to the Door-of-knowledge and encouraged me to serve mankind by spreading education which made the human supreme in creation.

The object of writing this book “The System of Accounting” is to provide basic accounting concept in easy way of styles and illustrations makes readers, students and business executives acquainted with the concept of accounting.

This book is primarily written for the use of beginners of this subject and for those who wish to have knowledge of it to keep eyes on their finance applied in business.

At last in short, I shall say that this is my a little contribution based on your suggestions. I tried my best to avoid errors, but errors may be being human then please notify and suggest anything for improvement with liberty on my email addresses [email protected].


F O R W A R D

mailto:[email protected]

I am in great pleasure of presenting my Book “The System of Accounting Volume II which I think, will be proved different others because of the reason that I tried utmost to select suitable words with Urdu translation where necessary to make it comprehensive to readers and the students of commerce.

I hope my a little struggle for this noble cause will be admirable with suggestions for improvement.


COPY RIGHT

Copy right of this book goes to writer and not allows others to use its contents to publish but downloads for reading and study

All the best to my readers


DISCLAIMER

The name of book “The System of Accounting”, contents, definition, and written material of this book is

of writer not copied from any source but taken guideline from many other sources to complete thinking and saving errors. The name, amount, addresses and anything relating to personal in written materials are imaginary and thinking of writer.

In the opinion of writer, same views or concepts of accounting being the same subject with others may be resemblance but difference in idea of writing and presentation.

All the best to readers



The Mode of Transaction & its driver

THE MODE OF TRANSACTION

All transactions need cash to settle down and cash requires to pay and to receive in form of cash and bank.

The parties relating to business usually give cheque or do on line in the account of the company. The checks are deposited in the account and on line transactions are confirmed with bank statement.

The person who deals with banks called accountant-bank who issues checks for payment to accountant-cash, petty cashier/assistant to accountant-cash under head cash-in-hand and petty cash funds, to parties and to pay expenses under limit. He is also responsible to check and balance cash into banks under Bank Reconciliation Statement.

The cash is drawn from bank for paying vouchers requiring cash such as cash vouchers and petty cash vouchers handled by the person maintaining cash called accountant-cash and petty cashier. The responsibility of them is to receive cash from bank with security provided by the company and to pay the cash against vouchers verified by the persons authorized and keep in balance cash on daily basis.

The payment by cash must be limited by security reason and the cash which is drawn from bank will also be insured at an average drawing rate. The locker for keeping cash and instruments must also be provided.



Accountant-cash

In order to handle cash, the following points are created which I think are the main responsibilities of accountant-cash;

- To use security for fetching cash from bank.

The question of security should be on priority in this dangerous period wherein terrorism, loot, street crimes, etc are in full swim do not permit anyone to get handle or handle this out nature work alone.

The security must be given to person; must be two or more; handle this work and the best way of it are to hire security services and to insure the amount at average by insurance company.

The person or persons handling the work in question must be protected by insurance company in case of any difficulty in performing the work.

Security is the measure that ensures safety.

- To care in receiving the cash from bank.

The person submits cheque to bank must care the amount which he receives. It is better to count cash and matches it to the figure of cheque. In case of cheque more than one, he should total them in his diary before submitting. The cash in domination as per cash requirement must be taken from bank.Care saves from coming difficulty.



- To keep cash notes & coins domination-wise bundled separately.

In order to operate cash, the cash must be in domination-wise as coin 1, 2 & 5 and notes 10, 20, 50, 100, 1000 & 5000 and bundled separately which will keep accountant-cash in accuracy and save him keeping balance to give or to receive in case of short or excess payment or receipt.

To keep set everything is good habit.

- To view payment instruments and vouchers that they are completed as per rule.

The instrument and voucher are like bankers cheques given to someone to take cash from bank or transferring in the name given when the voucher is used to take cash internal must be viewed that they are completed especially date, amount and particular as well as the signature of authorized person as per rule.

- To pay after getting signature of receiving person on voucher.

The signature of receiving person must be taken which shows the purity of payment and saves future claim for non-payment. The signatures must be listed to match with the signature in payment instrument at the time of payment in case of internal and if the voucher is paid to outer, the signature must be verified by CNIC if unknown.

The voucher will consider unpaid if not signed.



- To care in giving cash to irrelevant person or ask for authorization.

The payment to the person to whom the voucher is being paid must be in his name otherwise ask for authorization in black and white or in case of emergency, confirm on phone but get the signature later.

The voucher or payment instrument may be void in case of signature of irrelevant person.

- To prepare summary of cash receipts and payments on daily basis.

After payments and receipts all the day, it is necessary to prepare summary of payments and receipts which show your daily activity of cash in and out and facilitate to record them in cash book and ledger. It will also recheck cash balance vs. summary and cash book.

The summary of payments and receipts named the daily cash report which is designed here;





The daily cash report has three segments as receipt, payment and temporary advances wherein receipt segment has opening balance of cash which adds receipts; cash, sale, other etc. becomes cash available for payments, payment segment contains name of person to whom the voucher is paid, description shows details of spending money and advance against salary or loan which is recoverable shown separately but include in sub -total of payment and the temporary advance segment is for payment of advances like I.O.U. (I owe you) for purchases, expenses and others. Total payments are reduced by total cash available and cash remains shown in closing balance which in next report will become opening cash of the day.

As far as temporary advances are concerned, it is given to person, assigned for purchases, repair works, is responsible for settle it within short period of time as soon as job is completed.

The vouchers relating to temporary advances are kept separately and on receiving adjustment form/voucher as prescribed below attached with bill/invoice and audited from the person taken temporary advance, the balance payable or receivable is paid or received to or by the person.





The final adjustment voucher is written in shade line and balance if payable in payment column and the balance if receivable in the receipt column is written. The adjustment voucher is recorded without deduction of temporary advance in cash book.

Other advances of long term nature are recorded in cash book directly in person’s account because of risk in handling balance in cash and keeping voucher in safe custody.

The work of making daily cash report and recording in cash book is look like double but auditing, cross checking, cross matching and showing the daily activity of cash to management point of view is good besides this the person recording transactions will be separate as to accountant or data entry operator.

- To balance cash with receipts and payments summary of the day.

The balance of cash in hand and the recording of voucher in cash book or in system must be on daily basis at the end of the day and the balance of cash in hand and the balance in cash book must match with each other like this;



CASH MATCHING

Cash in cash book Cash in daily cash report

10,000. - 6,000.-Unrecorded T/Advances 3,000.-

---------9,000.-

I.O.U. (I owe you) 1,000.---------------- -------------

Cash Balances 10,000. - 10,000.-========= ========

Now this question arises that temporary advances are just like I.O.U. but shown in cash matching unrecorded temporary advances and I.O.U. both. It must be cleared that temporary advances are shown in daily cash report but not I.O.U. because of small nature emergencies for short time.



- To keep balance cash in lock and key.

After recording and matching of cash, the cash may be counted domination-wise below and is kept under lock and key.

5,000 x 1 = 5,000

1000 x 2 = 2,000

500 x 2 = 1,000

100 x 10 = 1,000

50 x 10 = 500

20 x 10 = 200

10 x 20 = 200

5 x 10 = 50

2 x 10 = 20

1 x 30 = 30

- To keep in record any amount given other than voucher.Sometime, emergency is occurred and/or unavailability of domination, the cash is paid or received in short or excess but not properly documented, the accountant-cash must note the amount for his memory and future settlement.



- To maintain temporary advances or I.O.U.

The temporary advances are given for purchases, repair work and others signed by authorized person under limit when I.O.U. advances are of small nature like conveyance, cartage, entertainment, food, tea, out work etc. relates to accountant-cash and the person taken it settle able in short period and work like give and take and it does not require to record in cash book or in daily cash report but to work in balancing of cash.

Therefore, temporary advances or .I.O.U will be on written paper means voucher and may be kept in file in safe place.

- To record vouchers in the system or in cash book and in ledger.

The accountant, data entry operator or cash accountant is responsible for recording vouchers date and head wise in the system of accounting in computer or in cash book and in ledger.

- To check vouchers posted that they are in right place or in right head of account.

After recording in computer or in cash book, check vouchers that they are posted in right place or in right head of account.

The checking system on daily basis must be practiced because of which the difficulty of adjusting and reversing entries will be minimized.



- To submit vouchers to auditors/accountant for verification and audit.

All cash payment vouchers must be verified and audited internally by internal auditor who verifies vouchers that qualify under the rule and posted in cash book or ledger correctly. Otherwise, he will be responsible to get it corrected and in case of any discrepancy in taking cash, he will ask for the cause and get it refunded.

- To file vouchers with serial numbers.

After positing and auditing, all vouchers must be kept in file with serial number as cash payment voucher in cash payment voucher file and cash receipt voucher in cash receipt voucher file. The file must indicate file number the nature of voucher, serial number start to end and period of vouchers.

The petty cashier or assistant to accountant-cash will also be required according to the nature or volume of business especially in manufacturing concern where every time cash is required for repairing of machineries, advances to workers, small purchases and others need for cash. He will also be helpful in place of accountant-cash because the cash requires responsibilities and continuous demand to keeping in run business smoothly.



As far as the responsibilities of accountant-cash, the person handling banks named accountant-bank is responsible for;

- Keeping cheque books in lock and key.

It is the responsibility of accountant-bank to keep cheque books in lock and key. In case of cancellation of cheque, the cancellation part must be attached with relevant counter folio of cheque book.

- Viewing payment instruments and vouchers that they are completed as per rule.

The bill, invoice, forms, request, voucher etc must be viewed in making cheque that are aged, approved and rightly calculated as per rule. By this way, the papers will be rechecked educating to cheque maker in understanding the contents like things, rates, sales, income tax and deductions. The balance of the party whose cheque is being made should be confirmed from his account in ledger.

- Making cheques in cash, self, name, account payee, net amount; after deductions income tax, sales tax, advance, loan, etc. and gets signature of account holder.

It will be cared in making cheque that it will be paid in cash, self, name and on account payee and net amount which comes after deductions like income tax, sales tax, advance, loan, etcetera. After making cheque, signature of account holder on it will be obtained.



- Giving cheques after getting signature of receiving person on voucher.

He will get the signature of receiving person on voucher without any difference lower and higher rank. The receiving indicate that the amount has paid and any claim of non-payment will be challenged especially on cash cheques.

The payment may be void in case of signature of cheque receiving person on voucher.

- Caring on giving cash cheque to irrelevant person or ask for authorization.

All cheques of cash, of name, of account payee and of self must be given to the owner and in case of other than the owner asks for authorization.

It will also be cared that cash cheque must be given to relevant person and in case of receiving person is other than the owner, ask for him the authorization.

Care is better and saves future.

- Depositing cheques receipt into specific bank on daily basis or as soon as it received.

It is seen that debtors give cheque and/or deposit on line in the account of the company but cheques are deposited and on lines come directly in account.

The accountant-bank will deposit cheques into bank on daily basis as soon as they received.

- Preparing cheques receipts and payments summary on daily basis.

The accountant-bank will prepare daily bank report consists on receipts and payments reconciled daily with bank and cash book which will become the reporting to management and control check and balance.

Like daily cash report, I designed the internal daily bank report below;





Daily bank report has two sides; receipt and payment; wherein receipt side describes opening balance with bank statements or from bank reconciliation statement adds receipts in shape of cheques, on line and other sources becomes total receipts means funds available and payment side describes payments to parties, staff and others which is reduced by total receipts resulting in closing balance means the funds remain in bank and the closing balance will become opening in next daily bank report.

- Balancing cheques receipts and payments summary with the specific bank daily.

Actually, the amount does not transfer into account immediately but take some day when on line transfers come into account immediately from elsewhere. Therefore, the actual balance will be considered as cash into bank.

Because of doing payments, daily bank report must be balanced with the specified bank and cheques will be made on the basis of actual balance or cash available into bank.

- Preparing bank reconciliation statement at the end of the month.

It will be the responsibility of accountant-bank to reconcile banks with cash book at the end of the month and bank charges, commission, cheque book charges, Excise duty and tax on cash withdrawn etcetera will record in cash book.The structure of bank reconciliation statement is as follows;





The above structure of bank reconciliation statement shows two columns one is for bank statement and other for cash book and calculated as;

Bank book column; balance in bank statement at the end of the month less out-standing cheque add deposit in transit. Cash book column; balance in cash book at the end of the month less unknown debits and bank charges add unknown credits.

- Recording vouchers in the system or in cash book up to ledger.

The accountant-bank or date entry operator will record vouchers in cash book and in ledger or in the computerized system of accounting.

- Checking vouchers posted that they are in right place or in head of account.

- <THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>


The accountant-cash will check bank vouchers which has been posted that they are in right place of in right head of account. This will minimize correction at the end of the financial year.

- Controlling debtors and creditors accounts.

The debtors and creditors are concerned with the payment and receiving from and to parties payable and receivable hence they may be maintained age-wise. The accountant-bank will make the schedule of parties payable and receivable separately and issues cheques and reminds to parties for settling the amount receivable from him.

The best to control debtors and creditors account is accrual, because of which receivable and payable can be seen in ledger.

- Filing vouchers with serial numbers bank wise.

Vouchers must be kept in file with serial number bank wise and in case of need to see it, the voucher can be easily available.



EXTERNAL MODE

Some transactions need to pay and receive through bank and bank has many products to meet the purpose. The products for doing transactions through bank are mainly;

- Pay Order- Demand Draft- On Line transfer- Many other sources

PAY ORDER

The pay order is used to pay the parties that requires assurance wherein cash is given to bank and in result bank gives assurance to pay hundred percent to the person for whom it made.

The pay order is used to pay within city.

The accountant-bank gives cheque with pay order form for making pay order and bank makes and delivers it to him.

DEMAND DRAFT

The demand draft is like a pay order but used to pay out –side the city.

The accountant-bank gives it to the party instead of cheque as assurance of money definitely will pay.



ON LINE TRANSFER

Another useful medium of payment is on line transfer from which money is transferred at once by Internet system.

MANY OTHER SOURCES

Besides pay order, demand draft and on line many other sources for payment and receipt are provided by the bank wherein ATM Machine, Visa Card, Credit Card, Debit Card, Money gram transfer, western union, etc. etc.

Result is that accountant-bank transacts bank’s products with cheque and reconciles his accounts with cheque matching bank statement.



ACCOUNTING DRIVERS

In order to run any business, man power is needed and to control it the accounting set-up is required. Apparently, the man power needs salaries, over time, transport, food and other monetary requirements.

Besides man power many other kinds of monetary requirements are needed for machineries, payment to creditors, receiving from debtors, utility bills, water, light, repair and maintenance works in machineries and building, director expenses and internal and external monetary control.

In the nutshell, the need of money in business is like blood in body. Therefore, persons to control finances are required as stair in ladder which may be set up like this or according to the requirement and length of business;



ACCOUNTING DRIVERS

1- Accountant-Chief2- Assistant to Accountant-chief3- Accountant-Support4- Accountant-Taxes5- Accountant-Cash6- Accountant-Bank7- Assistant to Accountant-cash8- Assistant to Accountant-Bank

Medium Size Company set up



DIRECTOR

Accountant-Chief

Accountant-Audit

Accountant-Taxes

Accountnat-Cash

Assistant to Accountant-

Cash

Accountant-Bank

Assistant to Accountant-

Bank

Assistnt to Accountant-

Chief

1- ACCOUTANT-CHIEF

The Accountant-chief is the person that has higher degree in accounting because who drives persons under chart, will make accounts set up and ensures;

- That all accounts are in balance.- That cash flow is in favor of company.- That cost flow goes in profit.- That finances are under requirements or not to acquire from other

sources.- That all payments and receipts of debtors and creditors are smoothly

running.- That all matters relating to taxes are running smoothly and get them

reconciled with tax authorities.- That the financial statements of company are audited and submitted to

tax authorities in time.- That income tax, sales tax and all other taxes are being paid and

submitted to tax authorities in time.- That tax, finances and relating monetary knowledge are up dated.- To report of all accounting matters to director.



2- ASSISTANT TO ACCOUNTANT-CHIEF

The assistant to accountant-chief will be the person who helps accountant-chief in;

- In accounts reconciliation- In making cash flow and cost flow statements.- In preparing financial statements.- In taking reports under chart accounting drivers.- In making budget, planning and all statements relating accounts.

He will follow assistant to accountant-chief in all matters.

3- Accountant-support

Actually, an accountant will be required to support accounting matters in;

- Preparing salaries and employees’ relating statements.- Checking indents/purchase orders/inventory/consumables- Checking invoices/bills/cash memos compare to purchase order/requests- Checking and calculation of invoice/bills/cash memo in compassion to rate- Getting awareness with rates according to market.- Raising questions about rates and purchases above than purchase order.- Verified payment instrument that has been audited.- Finding mistakes in wrong postings and make them corrected.- Keep an eye on receiving and payments



4- Accountant-Taxes

The taxes are the matters which need fully attention of an employer which saves him in future difficulty for which a person is required who can handle taxes independently and must have knowledge of taxes, able to face audit and can keep records according to taxes.

The accountant-taxes will have following responsibilities;

- In making records of taxes- Keep books of accounts according to taxes.- Preparing sales tax records - Preparing income tax records- Depositing taxes in time- E-filing or submitting statement to tax authorities before

due date.- Ensure deduction of taxes - Update knowledge in taxes- <THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>


5- Accountant-Cash

Accountant-cash - To use security for fetching cash from bank.- To care in receiving the cash from bank. - To keep cash notes & coins domination-wise bundled

separately.- To view payment instruments and vouchers that they are

completed as per rule.- To pay after getting signature of receiving person on voucher.- To care in giving cash to irrelevant person or ask for

authorization.- To prepare summary of cash receipts and payments on daily

basis.- To balance cash with receipts and payments summary of the

day.- To keep balance cash in lock and key. - To keep in record any amount given other than voucher.- To maintain temporary advances or I.O.U.- To record vouchers in the system or in cash book and in ledger.- To check vouchers posted that they are in right place or in right

head of account.- To submit vouchers to auditors/accountant for verification and

audit.- To file vouchers with serial numbers.- <THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>


6- Assistant to accountant cash

The assistant to accountant-cash will be responsible;

- To handle petty cash under fixed limit.- To keep cash in safe custody.- To maintain petty cash book as prescribed.- To give request for replenishing of petty cash funds.- To submit vouchers and petty cash book to auditors/accountant for

verification or audit of petty cash activities during the period. - To assist accountant-cash in daily cash activities.- To file vouchers with serial numbers.- Outdoor assignments.

The assistant to accountant-cash must follow accountant-cash.



7- Accountant-bank

Accountant-bank is responsible for;

- Keeping cheque books in lock and key.- Viewing payment instruments and vouchers that they are

completed as per rule.- Making cheques in cash, self, name, account payee, net

amount; after deductions income tax, sales tax, advance, loan, etc. and gets signature of account holder.

- Giving cheques after getting signature of receiving person on voucher.

- Caring on giving cash cheque to irrelevant person or ask for authorization.

- Depositing cheques receipt into specific bank on daily basis or as soon as it received.

- Preparing cheques receipts and payments summary on daily basis.

- Balancing cheques receipts and payments summary with the specific bank daily.

- Preparing bank reconciliation statement at the end of the month.

- Recording vouchers in the system or in cash book up to ledger.- Checking vouchers posted that they are in right place or in

head of account.- Controlling debtors and creditors accounts.- Filing vouchers with serial numbers bank wise.



8- Assistant to accountant-bank

An assistant to accountant-bank is recommended for smooth working and replacement of accountant-bank who assigned for working and helping accountant bank;

- In bank reconciliation.- In filing vouchers with serial number bank-wise.- In making entries in cash book and ledger in absence of

accountant-bank.- In depositing cheques and drawing cash.- In outdoor works.- In keeping update bank balances.- In other works assigned to him.

Assistant to accountant-bank must follow accountant-bank.



JOURNAL MAKING

USE OF JOURNALS

The system of any existence requires devices or methods which empower its mechanism to run smoothly achieving target of its own made for that purpose. In accounting many devices or methods have been invented for recording business transactions and/or under journals columnar designed to make easy book keeping.

There are several kinds of journal used in book keeping designed according to the nature of business or the volume of transactions from which some are mentioned here;

KINDS OF JOURNALS

1-GENERAL JOURNAL (JV)2-CASH BOOK (CB)3-PETTY CASH BOOK (PCB)4-CASH RECEIPT JOURNAL (CRJ)5-CASH PAYMENT JOURNAL (CPJ)6-PURCHASE JOURNAL (PJ)7- PURCHASE RETURN AND ALLOWANCES JOURNAL (PR&AJ)8-SALES JOURNAL (SJ)9- SALES RETURN AND ALLOWANCES JOURNAL (SR&AJ)

<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL [email protected]

JOURNAL MAKING


1-STEPS FOR JOURNALS

- Source document

The first step for moving towards journals is source document meant by any information relating to business transaction enables journals to fill its columnar requirement like cash memo, bill, invoice, sales tax invoice, purchase invoice etc. and the source document also provides evidence or support to the transaction consists on date, serial number, the name of seller and purchaser, quantity, description of goods, rate of goods, amount and tax involved in etc. etc. as specified in accounting cycle or below;


JOURNAL MAKING

CASH MEMOS.No. Date M/S.

S.No. Particulars RateQuantity

Amount (Rs.)

Total Goods once sold will not be back. E.&.O.E.

Signature


JOURNAL MAKING

COMPANY LOGO Invoice No.

Date

COMPANY NAME P.Order No.

(Company Slogan)

(Address )

No., Street, City, code

Phone, Fax

e-mail

SALES TAX NO.

To

Name

Company Name

Address

Phone No.

SALES TAX NO.

S.NO. QUANTITY DESCRIPTION RATE AMOUNT

SUB TOTAL

SALES TAX

TOTAL

THANK YOU FOR YOUR BUSINESS


JOURNAL MAKING

- Voucher system

The second step for entering in journals is voucher system contains the information of source document as well as the voucher number, date of payment or receipt, and folio number; the journal or ledger page number supported by source document or works alone as source document.

The specimen of vouchers; cash payment voucher, cash receipt voucher, petty cash voucher, bank payment voucher, bank receipt voucher and journal voucher, used in recording as specified below;

Journal voucher is used to record liabilities and adjustments in ledger.

The source document supports to voucher and voucher to journal and both play very important role in crystallizing the system of accounting. They provide references to auditors to reach the required transaction in no time then we can say true accounting is behind to source document and voucher.


JOURNAL MAKING

CASH PAYMENT VOUCHER

Name of Company Date

Voucher No. C.B. Folio

DEBIT A/

c

PAID TO

On account of Amount

Rs. Ps.

TOTAL

RUPEES

Prepared by: Checked by: Authorized by: Received By:



JOURNAL MAKING

CASH RECEIPT VOUCHER

Name of Company Date Voucher No. C.B. Folio

CREDIT A/cReceived from


Rs. Ps.

TOTAL

RUPEES



JOURNAL MAKING

` Name of Company

PETTY CASH VOUCHERNo. Paid to Rupees Rs. on account of Prepared by: Checked by: Authorized by: Received By:


JOURNAL MAKING

BANK PAYMENT VOUCHER

Name of Company Date Voucher No. C.B. Folio

DEBIT A/c

PAID TO


Rs. Ps.

TOTAL

RUPEES



JOURNAL MAKING

BANK RECEIPT VOUCHER

Name of Company Date BP.V NO. C.B. Folio

CREDIT A/cReceived from


Rs. Ps.

TOTAL

RUPEES



JOURNAL MAKING

JOURNAL VOUCHER

JV.No. DATED : S.NO. HEAD OF ACCOUNTS FOLIO DR. (Rs.) CR. (Rs.)

TOTAL NARRATION:

Signed Signed Signed Signed



JOURNAL MAKING

1- GENERAL JOURNAL (GJ)

General Journal is used for sequential record of all business transactions in low volume otherwise spread in specialized journals consists on date, description, reference, debit and credit and the transactions involves the date of the transaction, the title of the accounts which have to debit and credit and the explanation of transaction.

There are two types of general journals “Standard Form and Skeleton Form as designed below;


JOURNAL MAKING

1 - STANDARD FORM

PAGE NO.

GENERAL JOURNAL DATE 2015- DESCRIPTION REF. DEBIT CREDIT


JOURNAL MAKING

The standard form of general journal contains five columns namely date, description, reference, debit and credit and the method of recording is given below;

DATE

In this column, the year is written on top as 2015, divided into two portions bigger and small, bigger is for month i.e. Jan, Feb, Mar, Apr, May, June and son so and, small the date of the month i.e. 1, 2, 3, 4, 5, 6, 7 so on.

DESCRIPTION

The column of description contains the name or head of account of the transaction indicating debit and credit. The debit is written first nearest to the date of the transaction and the credit on the second line giving space to the debit. The third under line in the bracket is of narration or explanation of the transaction which separates each transaction.


JOURNAL MAKING

REFERENCE/REF:

The voucher number oblique page number of the ledger where the account is mentioned is referred in the column “Ref.” as to cash account on page 5, capital account on page 01, Furniture account on page 50 and so on.

DEBIT AND CREDIT

The amount of transaction is written on the column debit and credit.

Therefore, the general journal covers all the aspects of transaction involves date, description, posting reference and accounting methods.


JOURNAL MAKING

2 – SKELETON FORM

Skeleton Form of general journal is only column-less but the entries of the transactions are recorded as same as in

General Journal. This form is generally used to save time or for practice purposes.

1.1.2015 CASH

CAPITAL

(Narration…………………..)


JOURNAL MAKING

Illustration No.1

Jan1, 2015: Rizwan commences trading business in the name of Rizwan Traders with a cash of Rs.100, 000/=.

Jan 5, 2015: Paid shop rent for three months @ Rs.2000/= per month as shop deposit and Rs. 2000/= for the month.

Jan 6, 20105: Purchased merchandise on cash Rs.60, 000/=.

January 7, 2015: Purchase Furniture for shop 5000/= in cash.

January 10, 2015, Purchase Merchandise for Rs.25, 000/= on credit from Imran Trading Co.

Jan 11, 2015: Paid for cartage on carrying merchandise at shop Rs.2000/=.

Jan 15, 2015: Sold merchandise of Rs.50, 000/= in cash.

Jan 18, 2015, Sold merchandise on credit for Rs.30, 000/= to A.A. Enterprises, S.I.T.E., Karachi.

Jan 20,2015: Cash deposited into bank Rs.10, 000/= as an initial deposit for opening account into MCB Bank Ltd, K.I.A. Br. Karachi.


JOURNAL MAKING

Jan 22, 2015: Paid electricity bill for Rs.1500/= for the month of January 2015

Jan 22, 2015: Returned defective goods worth Rs.1000/= to M/s. Imran Trading Company.

Jan 23, 2015 Cash Rs.23, 520/= paid to M/s. Imran Trading Co. and received 2% discount Rs.480/= on payment within time.

Jan 24, 2015: Cash Rs.28, 500/= received from M/s. A.A. Enterprises and allowed them discount Rs.500/- on payment within time.

30, Paid salary to sale man Rs. 5000/= by cheque.

Jan 31, 2015: Unsold goods of Rs.1000/= returned from M/s. A.A. Enterprises.


JOURNAL MAKING

Solution:

Jan1, 2015: Rizwan commences trading business in the name of Rizwan Traders with a cash of Rs.100, 000/=.

FIRST STEP = SOURCE DOCUMENT = CASH MEMO/INVOICE

SECOND STEP = VOUCHER SYSTEM = CASH PAYMENT

THIRD STEP = JOURNALS = GENERAL JOURNAL


JOURNAL MAKING


RIZWAN TRADERS Date 1/1/2015

Voucher No. CR-1 Folio 1

CREDIT CAPITAL A/C (RIZWAN) A/cReceived from RIZWAN TRADERS


Rs. Ps.

Mr. Rizwan invested cash for starting business 100,00

0 00

under the name of Rizwan Traders

TOTAL

RUPEES ONE HUNDRED THOUSAND ONLY

100,00

0 00

signed signed signed signed Prepared by: Checked by: Authorized by: Received By:


JOURNAL MAKING

PAGE NO. 1

GENERAL JOURNAL

DATE DESCRIPTION REF. DEBIT CREDIT2015

Jan 1 Cash A/c CR-1 100,000.- Capital A/c (Rizwan) CR-1 100,000.- (Cash invested by Rizwan)

Jan 5, 2015: Paid shop rent for three months @ Rs.2000/= per month as shop deposit and Rs. 2000/= for the month.

FIRST STE = SOURCE DOCUMENT = RENT AGREEMENT/RENT RECEIPT




JOURNAL MAKING



Voucher No. CP-1 C.B. Folio 1

DEBIT SHOP DEPOSIT A/C & PREPAID RENT A/

cPAID TO SHOP OWNER


Rs. Ps.

Paid shop rent for three months @ Rs.2000/month as shop deposit

and Rs.2000 for the month

SHOP DEPOSIT 6,000 00

PREPAID RENT 2,000 00

TOTAL 8,000 00

RUPEES EIGHT THOUSAND ONLY



JOURNAL MAKING

PAGE NO. 1

GENERAL JOURNAL

DATE DESCRIPTION REF. DEBIT CREDIT 2015

Jan: 5 Shop Deposit A/c CP1

6,000.-

Prepaid Rent A/c CP1

2,000.-

Cash A/c CP1 8,00

0.-

(3 month shop rent as deposit & 1 month rent in advance)

Jan 6, 20105: Purchased merchandise on cash Rs.60, 000/=.

FIRST STE = SOURCE DOCUMENT = CASH MEMO/INVOICE




CASH MEMOS.No. 700 Date 06.1.2015 M/S. RIZWAN TRADERS S.No. Particulars Rate Quantity Amount (Rs.)

01 RADIO 100/= 100 10,000.-

02 TAPE RECORDER 500/= 30 15,000.-

03 SPEAKERS JAPAN 200/= 50 10,000.-

04 V.C.R. 500/= 30 15,000.-

05 CAMRAS 100/= 100 10,000.-

KAMRAN ELECTRONICS

I.I.Chundrigar Road

Total 60,000.-Goods once sold will not be back. E.&.O.E.

Signature


JOURNAL MAKING



Voucher No. CP-2 Folio 1

DEBIT PURCHASES A/

c

PAID TO CASH


Rs. Ps.

Merchandise purchased on cash from M/s. Kamran Electronics 60,00

0 00

Vide C/M No.700 dated 6.1.2015

-

-

TOTAL 60,00

0 00

RUPEES SIXTY THOUSAND ONLY



JOURNAL MAKING

PAGE NO. 1

GENERAL JOURNAL


Jan: 6 Purchases A/c CP2

60,000.-

Cash A/c CP2 60,00

0.- (Merchandise purchased in cash)

January 7, 2015: Purchase Furniture for shop 5000/= in cash.





JOURNAL MAKING

CASH MEMOS.No. 100 Date 07.1.2015 M/S. RIZWAN TRADERS S.No. Particulars Rate Quantity Amount (Rs.)

01 CHAIR 200/= 5 1,000.-

02 TABLE 500/= 1 500.-

03 SHOW CASE 1000/= 1 1,000.-

04 STOOL 100/= 5 500.-

05 SIDE RACK 1,000/= 2 2,000.-

SHAHID FURNITURE MART

Liaquatabad, Karachi


Signature


JOURNAL MAKING




DEBIT FURNITURE A/C A/c

PAID TO CASH


Rs. Ps.

Purchased furniture for shop in cash 5,00

0 00

TOTAL 5,00

0 00

RUPEES FIVE THOUSAND ONLY



JOURNAL MAKING

PAGE NO. 1

GENERAL JOURNAL


Jan: 7 Furniture A/c CP3 5,00

0.-

Cash A/c CP3 5,00

0.- (Purchased furniture for shop)

January 10, 2015, Purchase Merchandise for Rs.25, 000/= on credit from Imran Trading Co.


SECOND STEP = VOUCHER SYSTEM = JOURNAL VOUCHER



JOURNAL MAKING

INVOICE

COMPANY LOGO Invoice No. 0102

Date 10.1.2015

COMPANY NAME IMRAN Trading Company P.Order No. PO-RT-5

(Company Slogan)

(Address ) I.I. Chundrigar Road,

No., Street, City, code Karachi

Phone, Fax 0213712586

e-mail [email protected]

SALES TAX NO.

To

Name MR. RIZWAN

Company Name M/S. RIZWAN TRADERS

Address KORANGI, KARACHI

Phone No. 0215067012

SALES TAX NO.


01 10 T.V. SETS TOSHIBA B&W 2000/= 20,000.-

02 10 V.C.P. China 500/= 5,000/=

2% discount on payment within 15 days from the date

Of purchase.

25,000.-

SUB TOTAL 25,000.-

SALES TAX 0

TOTAL 25,000.-

THANK YOU FOR YOUR BUSINESS<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>

JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER

JV.No. JV-1 DATED : 10/1/2015 S.NO. HEAD OF ACCOUNTS FOLIO DR. (Rs.) CR. (Rs.)

1 Purchases A/c JV1/6 25,000.- 2 A/c Payable (Imran Trading Co.) JV1/7 25,000.-

TOTAL NARRATION: TO RECORD PURCAHSE OF MERCHANDISE FROM Imran TRADING CO.




JOURNAL MAKING

PAGE NO. 1

GENERAL JOURNALDATE DESCRIPTION REF. DEBIT CREDIT

2015

Jan: 10 Purchases A/c JV1 25,00

0.- A/c Payable (Imran Trading) JV1 25,000.-

(Merchandise purchased on credit from Imran Trading)

Jan 11, 2015: Paid for cartage on carrying merchandise at shop Rs.2000/=.

FIRST STE = SOURCE DOCUMENT = NONE

SECOND STEP = VOUCHER SYSTEM = CASH PAYMENT VOUCHER



JOURNAL MAKING




DEBIT CARTAGE A/C A/c

PAID TO CASH


Rs. Ps.

Paid cartage on carrying merchandise to shop 2,00

0 00

TOTAL 2,00

0 00

RUPEES TWO THOUSAND ONLY



JOURNAL MAKING

PAGE NO. 2

GENERAL JOURNAL


Jan:11 Cartage A/c CP4

2,000.-

Cash A/c CP4 2,0

00.- (paid cartage for merchandise)

Jan 15, 2015: Sold merchandise of Rs.50, 000/= in cash.


SECOND STEP = VOUCHER SYSTEM = CASH RECEIPT VOUCHER



JOURNAL MAKING


CASH MEMOS.No. 700 Date 15.1.2015 M/S. CHAUDRY TRADERS KARACHI S.No. Particulars Rate Quantity Amount (Rs.)

01 RADIO 200 50 10,000.-

02 TAPE RECORDER 600 15 9,000.-

03 SPEAKERS JAPAN 300 24 7,200.-

04 V.C.R. 600 15 9,000.-

05 CAMRAS 200 50 10,000.-

06 T.V. SETS TOSHIBA BW 600 8 4,800.-

RIZWAN TRADERS

Korangi-Karachi


Signature

JOURNAL MAKING




CREDIT SALE A/C A/c

CASH Received from; M/S. CHAUDHRY TRADERS


Rs. Ps.

Cash received from cash customer for sale of merchandise 50,0

00 00

Cash Memo No.700 dated 15.1.2015

TOTAL

RUPEES FIFTY THOUSAND ONLY

50,0

00 00

signed signed signed signed

Prepared by: Checked by: Authorized by: Received By: <THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL [email protected]

JOURNAL MAKING

PAGE NO. 2


2015

Jan: 15 Cash A/c CR2 50,000

.-

Sale CR2 50,000

.- (Merchandise sold in cash)

Jan 18, 2015, Sold merchandise on credit for Rs.30, 000/=

to A.A. Enterprises, S.I.T.E., Karachi.

FIRST STE = SOURCE DOCUMENT = INVOICE





JOURNAL MAKING

INVOICE

COMPANY LOGO Invoice No. 002

Date 18.1.2015

COMPANY NAME RIZWAN TRADERS Order No. AAE-002

(Company Slogan)

(Address )

No., Street, City, code KORANGI, KARACHI

Phone, Fax 0215067012

e-mail [email protected]

SALES TAX NO.

To

Name

Company Name M/S. A.A. ENTERPRISES

Address S.I.T.E. KARACHI

Phone No. 0213892065

SALES TAX NO.


01 4 T.V. SETS TOSHIBA B&W 2500/= 10,000.-

02 50 RADIO 200/= 10,000.-

03 25 CAMRA 200/= 10,000.-

30,000.-

SUB TOTAL 30,000.-

SALES TAX 0

TOTAL 30,000.-

THANK YOU FOR YOUR BUSINESS<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>

JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER


1 A/c Receivable (A.A. Enterprises) 2 30,000.- 2 Sales 2 30,000.-

TOTAL NARRATION: TO RECORD SALE OF GOODS ON CREDIT


Prepared by: Checked by: Authorized by: Received By: <THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>

JOURNAL MAKING

PAGE NO. 2

GENERAL JOURNAL


Jan: 18 A/c Receivable (A.A. Enterprises) JV2 30,00

0.-

Sales A/c JV2 30,00

0.-

(Sold merchandise on credit to A.A. Enterprises, Karachi)

Jan 20,2015: Cash deposited into bank Rs.10, 000/= as an initial deposit for opening account into MCB Bank Ltd, K.I.A. Br. Karachi.

FIRST STE = SOURCE DOCUMENT = BANK DEPOSIT SLIP

SECOND STEP = VOUCHER SYSTEM = BANK PAYMENT VOUCHER



JOURNAL MAKING



Voucher No. CP5 Folio 2

DEBIT BNAK A/cPAID TO MCB, KIA BRANCH

On account of Amount Rs. Ps.Cash deposited into bank as an initial deposit for opening 10,000 00account into MCB Bank Ltd, K.I.A., Branch, Karachi

TOTAL 10,000 00 RUPEES TEN THOUSAND ONLY



JOURNAL MAKING

PAGE NO. 2

GENERAL JOURNAL


Jan:20 Bank A/c

CP5/

10,000.-

CashCP5

/ 10,000

.- (Cash deposited into Bank)

Jan 22, 2015: Paid electricity bill for Rs.1500/= for the month of January 2015

FIRST STE = SOURCE DOCUMENT = ELECTRICITY BILL

SECOND STEP = VOUCHER SYSTEM = CASH PAYMENT VOUCHER



JOURNAL MAKING




DEBIT UTILITY EXPENSES A/c

PAID TO CASH


Rs. Ps.

Cash paid for Electricity bill for the month of January 2015 1,50

0 00

Into MCB, KIA Branch, Karachi.

-

-

TOTAL 1,50

0 00

RUPEES ONE THOUSAND FIVE HUNDRED ONLY



JOURNAL MAKING

PAGE NO. 2


2015

Jan:22 Utilities Expense CP6/ 1,500.-

Cash CP6/ 1,500.- (paid electricity bill)

Jan 22, 2015: Returned defective goods worth Rs.1000/= to M/s. Imran Trading Co.

FIRST STEP = SOURCE DOCUMENT = DEBIT NOTE




JOURNAL MAKING

ISSUED BY PURCHASER

SPECIMEN OF DEBIT MEMORANDUMRIZWAN TRADERS, P.O.Box 125, Korong, Karachi Debit Memorandum NO. 001 To: Date: January 22,2015 M/s. Imran Trading Co. I.I.Chundrigar Road, Karachi We are debiting your account with the value of under mentioned goods returned; Qty. Particulars Amount(Rs.)2 Tape Record @ Rs.500 as per invoice. 1,000.- No. 102 dated 10.1.2015 Less Returned goods being of inferior quality via Courier Company E.&O.E. Signature


JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER


1 A/c Payable (Imran Trading) 3 1,000.- 2 Purchase Return 3 1,000.-

TOTAL NARRATION: TO RECORD THE RETURN OF DFECTIVE GOODS TO IMRAN TRADING CO VIDE

DEBIT NOTE # 001 DATED 22.1.2015 Signed Signed Signed Signed



JOURNAL MAKING

PAGE NO. 3

GENERAL JOURNAL

DATE DESCRIPTION REF. DEBIT CREDIT 2015Jan: 23 A/c Payable (Imran Trading) JV3/ 1,000.- Purchase Return A/c JV3/ 1,000.- (goods returned to Imran Trading)

23, Cash Rs.23, 520/= paid to M/s. Imran Trading Co. and received 2% discount Rs.480/= on payment within time.

FIRST STEP = SOURCE DOCUMENT = /CASH RCEIPT FROM SUPPLIER




JOURNAL MAKING




DEBIT A/C PAYABLE (IMRAN TRADING) A/c

PAID TO IMRAN TRADING


Rs. Ps.

Cash paid to Imran Trading against merchandise purchased on 23,520 00

account)

-

TOTAL 23,520 00

RUPEES Twenty three thousand five hundred twenty only



JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER


1 A/c Payable (Imran Trading) 3 480.- 2 Purchase Discount 3 480.-

TOTAL NARRATION: TO RECORD PURCAHSE DISCOUNT RECEIVED ON PAYMENT WITHIN TIME.




JOURNAL MAKING

PAGE NO. 3


2015

Jan:23 A/c Payable (Imran Trading) Cp7/ 23520.-

Cash A/c CP7/

23,520.-

(Cash paid to Imran Trading against purchases)

A/c Payable (Imran Trading) JV4/ 480.- Purchase discount JV4/ 480.- (To record purchase discount)

Jan 24, 2015: Cash Rs.29, 000/= received from M/s. A.A. Enterprises and allowed them discount Rs.500/- on payment within time.

FIRST STEP = SOURCE DOCUMENT CREDIT NOTE/CASH RCEIPT FROM SUPPLIER

SECOND STEP = VOUCHER SYSTEM = CASH RECEIPT VOUCHER/JOURNAL VOUCHER



JOURNAL MAKING




CREDIT A/c Receivable (A.A. Enterprises) A/c

Cash Received from M/S.A.A. ENTERPRISES


Rs.Ps.

Cash received from M/s. A.A. Enterprises 28,5

00 00

TOTAL 28,500 00

RUPEES Twenty eight thousand five hundred only



JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER


1 Sales Discount 3 500.- 2 A/c Receivable (A.A. Enterprises) 3 500.-

TOTAL NARRATION: TO RECORD DISCOUNT ON SALE ALLOWED TO M/S. A.A. ENTERPRISES ON TIMELY PAYMENT.



JOURNAL MAKING

PAGE NO. 3

GENERAL JOURNAL


Jan:24 Cash A/c

CR3/ 28,500.-

A/c Receivable (A.A. Enterprises) CR3/ 28,500.-Unsold goods returned from A.A. Enterprises)Sales Discount JV5/ 500.-

A/c Receivable (A.A. Enterprises) JV5/ 500.- (To record Sales Discount)

30, Paid salary to sale man Rs. 5000/= by cheque.

FIRST STE = SOURCE DOCUMENT = SALARY SLIP DULY RECEIVED

SECOND STEP = VOUCHER SYSTEM = BANK PAYMENT VOUCHER



JOURNAL MAKING



Voucher No. BP-1 Folio 3

DEBIT SALARIES A/C A/cPAID TO MR. KASHIF, SALES MAN

On account of Amount Rs. Ps.Paid cheque against salary for the month of January 2015 5,000 00

TOTAL 5,000 00 RUPEES FIVE THOUSAND ONLY



JOURNAL MAKING

PAGE NO. 3

GENERAL JOURNAL


30 Salaries Expense A/c

BP1/

5,000.-

Bank A/cBP1

/ 5,000

.- (paid for salary to sale man at shop)

Jan 31, 2015: Unsold goods of Rs.1000/= returned from M/s. A.A. Enterprises.

FIRST STE = SOURCE DOCUMENT = CREDIT NOTE




JOURNAL MAKING

ISSUED BY SELLER

SPECIMEN OF CREDIT MEMORANDUMRIZWAN TRADERS, KORANGI KARACHI-PAKISTAN To: Credit Memorandum No. 001 A.A. Enterprises Date: January 31,2015 S.I.T.E., KARACHI- PAKISTAN We are crediting your account with the value of under mentioned goods Received from you for the reason stated in your Debit Note. Qty. Particulars Amount(Rs.)5 Radio @ Rs.200 as per Debit Note 1,000.- No. 501 dated 19.1.2015

Returned (goods being unsold as greed to return)

E.&O.E. Signature

<THE SYSTEM OF ACCOUNTING < VOLUME II< SYED AQEEL RAZA<[email protected]>

JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER


1 Sales Return 3 1,000.- 2 A/c Receivable (A.A. Enterprises) 3 1,000.-

TOTAL NARRATION: TO RECORD THE RETURN OF UNSOLD GOODS FROM M/S. A.A. ENTERPRISES AS AGREED.


Prepared by: Checked by: Authorized by: Received By: <THE SYSTEM OF ACCOUNTING < VOLUME II< SYED AQEEL RAZA<[email protected]>

JOURNAL MAKING

PAGE NO. 1

GENERAL JOURNALDATE DESCRIPTION REF

. DEBIT CREDIT 2015

Jan:31 Sale Return

JV6/ 1,000.-

A/c Receivable (A.A. Enterprises)JV6

/ 1,000.- (unsold goods returned)


JOURNAL MAKING

PAGE NO. 1

GENERAL JOURNALPage No.1


Jan 1 Cash A/cCR1/ 100,000

Capital A/c (Rizwan)CR1/ 100,000

(Cash invested by Rizwan) 5 Shop Deposit A/c CP1/ 6,000 Prepaid Rent A/c CP1/ 2,000 Cash A/c CP1/ 8,000 (3 month shop rent as deposit & 1 month rent in advance) 6 Purchases A/c CP2/ 60,000 Cash A/c CP2/ 60,000 (Merchandise purchased in cash) 7 Furniture A/c CP3 5,000 Cash A/c CP3 5,000 (Purchased furniture for shop)

10 Purchases A/c JV1 25,000

A/c Payable (Imran Trading) JV1 25,000


C/O 198,000 198,000


JOURNAL MAKING

GENERAL JOURNALPage No.2


C/O 198,00

0 198,00

0

11 Cartage A/c CP4/ 2,00

0

Cash A/c CP4/ 2,00

0 (paid cartage for merchandise)

15 Cash A/c CR2/ 50,00

0

Sale CR2/ 50,00

0 (Merchandise sold in cash)

18 A/c Receivable (A.A. Enterprises) JV2/ 30,00

0

Sales A/c JV2/ 30,00

0 (Sold merchandise on credit to A.A. Ent.)

20 Bank A/c CP5/ 10,00

0

Cash A/c CP5/ 10,00

0 (Cash deposited into Bank)

Jan: 22 Utilities Expense CP6/ 1,50

0

Cash CP6/ 1,50

0 (paid electricity bill)

C/O 291,50

0 291,50

0 <THE SYSTEM OF ACCOUNTING < VOLUME II< SYED AQEEL RAZA<[email protected]>

PAGE NO. 3


2015 C/O 291,500 291,500 Jan: 22 A/c Payable (Imran Trading) JV3/ 1,000

Purchase Return A/c JV3/ 1,00

0 (goods returned to Imran Stores) Jan: 23 A/c Payable (Imran Trading ) CP7/ 23,520 Cash A/c CP7/ 23,520


A/c Payable (Imran Trading Co.) JV4/ 480

Purchase Discount JV4/ 480 (To record Purchase discount) Jan: 24 Cash A/c CR3/5 28,500 A/c Receivable (A.A. Enterprises) CR3/ 28,500 (Cash received from A.A. Enterprises)

Sales Discount JV5/ 500

A/c Receivable (A.A. Enterprises) JV5/ 500 (To record sales discount) 30 Salaries Expense A/c BP1/ 5,000

Bank A/c BP1/ 5,000

(paid for salary to sale man at shop) Jan: 31 Sales Return A/c JV6/ 1,000

A/c Receivable (A.A. Enterprises) JV6/ 1,000

(Unsold goods returned from A.A. Enterprises)

TOTAL 353,480 353,480 <THE SYSTEM OF ACCOUNTING < VOLUME II< SYED AQEEL [email protected]


JOURNAL MAKING

SKELETON FORM:

Jan 1 Cash A/c CR1/ 100,000

Capital A/c (Rizwan) CR1/ 100,000

(Cash invested by Rizwan)

5 Shop Deposit A/c CP1/

6,000

Prepaid Rent A/c CP1/

2,000

Cash A/c CP1/

8,000

(3 month shop rent as deposit & 1 month rent in advance)

6 Purchases A/c CP2/

60,000

Cash A/c CP2/

60,000

(Merchandise purchased in cash)

7 Furniture A/c CP3 5,000

Cash A/c CP3 5,000

(Purchased furniture for shop)




<THE SYSTEM OF ACCOUNTING < VOLUME II< SYED AQEEL [email protected]


JOURNAL MAKING


Cash A/c CP4/ 2,000

(paid cartage for merchandise)

15 Cash A/c CR2/ 50,000

Sale CR2/ 50,000

(Merchandise sold in cash)

18 A/c Receivable (A.A. Enterprises) JV2/10 30,000

Sales A/c JV2/9 30,000

(Sold merchandise on credit to A.A. Ent.)

20 Bank A/c Cp5/ 10,000

Cash A/c Cp5/ 10,000

(Cash deposited into Bank)


Cash CP6/ 1,500

(paid electricity bill)



JOURNAL MAKING

Jan: 22 A/c Payable (Imran Trading) JV3/ 1,000


(goods returned to Imran Stores)

Jan: 23 A/c Payable (Imran Trading ) CP7/ 24,000

Cash A/c CP7/ 24,000


A/c Payable JV4/ 480

Purchase Discount JV4/ 480

(To record Purchase discount)

Jan: 24 Cash A/c CR3/5 29,000

A/c Receivable (A.A. Enterprises) CR3/ 29,000

(Cash received from A.A. Enterprises)


A/c Receivable (A.A. Enterprises) JV5/ 500

(To record sales discount)

30 Salaries Expense A/c BP1/ 5,000

Bank A/c BP1/ 5,000

(paid for salary to sale man at shop)

Jan: 31 Sales Return A/c JV6/ 1,000


(Unsold goods returned from A.A. Enterprises)<THE SYSTEM OF ACCOUNTING < VOLUME II< SYED AQEEL [email protected]


JOURNAL MAKING

2 – CASH BOOK (CB)

Cash book is maintained to record date-wise all accounting transactions relating to cash/bank receipts and cash/bank payments.

The cash book has two sides “Receipts on debit side and Payments on credit side” each side has same column as to date, description, folio, cash and bank. Cash debit is recorded in receipt side and credit on payment side.

It works as Journal and Ledger both and saves time of posting journal entries and their posting to ledger in Cash account and Bank account.



JOURNAL MAKING

DISCOUNT

The trade discount on sale or purchase is not recorded as shown as deduction in invoice and purchaser or seller record the net amount of the commodities.

The discount, allowed on the amount receivable from the customer to collect the money at an early date or some reasons, is recorded to ledger through journal voucher.

Contra Entry:

Contra entry means no effect of transaction, or transfer the amount from one place to another place or replace the place of account as cash replace with bank marked as “C”.

Banks;

In case of more than one bank, the column can be added.



JOURNAL MAKING



JOURNAL MAKING

Illustration 1.1

Feb: 1, 2105: Issued cheque Rs.2000/= as Petty Cash Fund.



Voucher No. BP-3 Folio 4

DEBIT PETTY CASH FUND A/cPAID TO Mr. Abdul Lateef

On account of Amount Rs. Ps.Cheque No. 1125678 dated 1.2.2015 2000 00Initial payment for petty cash expenses

TOTAL 2000 00 RUPEES TWO THOUSAND ONLY




JOURNAL MAKING

PAGE NO. 4


2015Feb: 01 Petty Cash Fund Bp3 2,000.- Bank BP3 2,000.- (Cash for petty cash expenses)

3-PETTY CASH BOOK (PCB)

Petty cash book is the journal where small payments like conveyance, cartage, postage, Entertainment, Office supplies etc. etc. are recorded under separate columns head wise and other columns corresponding to the nature of transactions refer to page number or account number of ledger.

It contains five columns namely; Receipt, Date, Description, Voucher Number and payments spreadable.



JOURNAL MAKING

Cash or cheque of specified amount or in lump sum as Petty Cash Fund is issued from cash book to petty cashier and petty cashier makes payments of petty cash expenditure, records all these payments in petty cash book in their respective columns and then submits to the accountant who checks the values and statements and then issues cheque or cash of the amount spent against replenishment of petty cash funds.

Illustration 1.22.2.2015: Purchase Carbon paper, calculator, pen, pencil Rs.300.-

3.2.2015: Tea, Cold Drink, biscuits Rs.100.-

4.2.2015: Taxi fare of Mr. Rizwan Rs.100.-

5.2.2015: Paid for postage Rs. 50.-

6.2.2015: Paid charity Rs. 20.-

7.2.2015: Paid for office chair repaired Rs.300.-

10.2.2015: Purchase ink, marker etc Rs.100.-


JOURNAL MAKING

12.2.2015: Purchase tissue paper, mosquito spray Rs.200.-

15.2.2015: paid for tea, biscuits Rs. 50.-

16.2.2015: Paid taxi fare of Mr. Rizwan Rs.100.-

18.2.2015: paid for telephone expense Rs. 50.-

20.2.2015: Paid for letter pads Rs.100.-

22.2.2015: Paid for Stapler Rs. 50.-

25.2.2015: Paid advance to Kashif, S/Man Rs.400.-

Solution;

Petty Cash Voucher will be filled as specified below and attach support if available. Cash memos for purchases of 2/2/2015, 10/2/2015, 12/2/2015, 22/2/2015 & 22/2/15 shall be attached with petty cash vouchers and remaining singed by paying person or receiving person on voucher.


JOURNAL MAKING

Rizwan Traders

PETTY CASH VOUCHERNo. Paid to Rupees Rs. on account of Prepared by: Checked by: Authorized by: Received By:


JOURNAL MAKING

The petty cashier will submit to Accountant petty cash book along with all vouchers for getting further funds who checks and verifies the values and statement and then issues a cheque or cash further to replenish petty cash fund like before.

The Accountant will journalize petty cash expenses to ledger accounts as;


JOURNAL MAKING

RIZWAN TRADERS

JOURNAL VOUCHER


1 Stationery A/c 550 2 Entertainment A/c 150 3 Conveyance A/c 200 4 Postage A/c 50 5 Charity A/c 20 6 Furniture Repair A/c 300 7 Janitorial A/c 200 8 Telephone Charges A/c 50 9 Advance to Staff 400 Petty Cash Funds 1,920

TOTAL NARRATION: TO RECORD PETTY CASH EXPENSES.



JOURNAL MAKING

4-CASH RECEIPT JOURNAL (CRJ)

The cash receipt journal is used to record all transactions involve the receipt of cash.

The sale of merchandise mostly involves the amount of receivables or sometime discount on sale, the columns of Sales (Cr.), account receivable (Cr.) and sales discount (Dr.) are shown for the receipt relating to sale.

The columns “Other Accounts” is for all other types of cash receiving transaction which do not involves sales or accounts receivable.

Posting in account receivable column links to subsidiary ledger account of customers to have an up to date record of balances of customers and a check mark ( _/) is marked in Ref: column of accounts receivable as a proof of posting in subsidiary ledger.

At the end of the period, the total of all debit and credit columns is made as equal and the totals are posted in their respective accounts in ledger under reference crj.


JOURNAL MAKING


JOURNAL MAKING

5- CASH PAYMENT JOURNAL (CPJ)

Like cash receipt journal, the cash payment journal is used to control all cash payments and payments to creditors for purchases.

The cash payment journal involves columns date, description and voucher number

Date, description and voucher number is used commonly, other accounts like shop rent, office supplies, office equipment besides purchases shown in other account column.

Posting in account payable column links to subsidiary ledger account of suppliers to have an up to date record of balances of supplies and a check mark ( _/) is marked in Ref: column of accounts payable as a proof of posting in subsidiary ledger.

At the end of the period, the total of all debit and credit columns is made as equal and the totals are posted in their respective accounts in ledger under reference cpj.


JOURNAL MAKING

6- PURCHASE JOURNAL (PJ)

Purchase journal relates to transactions of credit purchases of merchandise only.

Purchase journal consists on columns date, invoice number, name of supplier, post reference and amount.


JOURNAL MAKING

Purchase journal links to controlling ledger of Purchases Account and Account Payable and account payable links to subsidiary ledger of suppliers and subsidiary ledger links to accounts payable schedule or list of account payable balances of suppliers.

A check mark (_/) is marked in Ref: column of purchase journal as a proof of posting in subsidiary ledger of account payable.

Illustration 1.3

Rizwan Traders purchased merchandise on account during March 2015 as below;

100 radio set @ 100/= for Rs.8000/- Bilal Store vide Invoice No.305 dated 1.3.2015.

10 T.V. set @ 1500/= for Rs.15000/= from Asim Traders vide Invoice No. 1005 dated 10.3.2015.

25 VCR @ 500/= for Rs.12500 from Khan & Co. Vide Invoice NO. 203 dated 15.3.2015.

50 radio set @ 100/= amounting to Rs.5000/= from Imran Traders under Invoice No.400 dated 20.3.2015.

25 cameras @ 100 each amounting to Rs.2500/= from Sumair Enterprises under Invoice NO.506 dated 28.3.2015.


JOURNAL MAKING

PURCHSASE JOURNALPage No. 01

DATE NOVICE NO. NAME OF SUPPLIER

POSTAMOUNT

2015 Ref.

Jan' 10 102 Imran Trading Co. _/ 25,000 Mar’01 305 Bilal Store _/ 8,000Mar’10 1005 Asim Traders _/ 15,000Mar’15 203 Khan & Co. _/ 12,500 Mar’20 400 Imran Traders _/ 5,000 Mar’28 506 Sumair Enterprises _/ 2,500 TOTAL 68,000

Purchases 11205 68,000 Accounts Payable 22101


JOURNAL MAKING

7-PURCHASE RETURN AND ALLOWANCES JOURNAL (PR&AJ)

Purchase Return and Allowances journal relates to credit notes issued by supplier, who credited the account of purchaser, against debit note of goods returned and debit to supplier is recorded.

Purchase Return & Allowances Journal consists on columns date, credit memorandum, Name of supplier, post reference and amount.

Purchase Return and Allowances journal links to controlling ledger of Accounts Payable of supplier (Dr.) and Purchase Return and Allowances account (Cr.) and Purchase Return and Allowances effects to subsidiary ledger of suppliers.

A check mark (_/) is marked in Post Ref: column of sale return and allowances journal as a proof of posting in subsidiary of account payable.


JOURNAL MAKING

Illustration 1.4

Merchandise returned to following suppliers;

01 VCR @ 500/= for Rs.500 to Khan & Co. received credit memo No.1023 dated 20.3.2015 against debit memo No.102.

2 radio set @ 100/= Rs.200/= to Imran Traders under received memo No.203 dated 25.3.2015 against debit memo No.103.

1 cameras @ 100 for Rs.100/= to Sumair Enterprises issued debit memo No. 104 and received credit memo No. 1036 dated 30.3.2015.


PURCHASE RETURNS AND ALLOWANCES JOURNALPage No. 01

DATE CREDIT MEMO NO. NAME OF SUPPLIER

POSTAMOUNT

2015 Ref.

Jan' 22 201 Imran Trading Co. _/ 1,000 Mar’20 1023 Khan & Co. _/ 500 Mar’25 203 Imran Traders _/ 200 Mar’30 1036 Sumair Enterprises _/ 100 TOTAL 1,800

Account Payable 22101 1,800 Purchase Return & Allowances 11108


JOURNAL MAKING

8-SALES JOURNAL (SJ)

Sales journal relates to record the credit sale of merchandise.

Sales journal consists on columns date, invoice number, name of customers, post reference and amount.

Sales journal links to controlling ledger of Sales Account and Account Receivable and account Receivable links to subsidiary ledger of customer and subsidiary ledger links to accounts receivable schedule; a list of account payable balances of customers.

A check mark (_/) is marked in Ref: column of Sales journal as a proof of posting in subsidiary ledger of account receivable.


JOURNAL MAKING

Illustration 1.5

Rizwan Traders sold merchandise on account during April 2015 as below;

100 radio set @ 200/= for Rs.16000/- to Umair Electric vide Invoice No.2255 dated 1.4.2015.

10 T.V. set @ 1600/= for Rs.16000/= to Ali Imran & Co. vide Invoice No. 506 dated 8.4.2015.

25 VCR @ 600/= for Rs.15000 to Murad Electronics Vide Invoice NO. 5206 dated 15.4.2015.

50 radio set @ 200/= amounting to Rs.10000/= to Talpur & Co. under Invoice No.1005 dated 20.4.2015.

25 cameras @ 200 each amounting to Rs.5000/= to Moon Electronics under Invoice NO.605 dated 30.4.2015.


JOURNAL MAKING

SALES JOURNALPage No.01

DATE ACCOUNT DEBITED INVOICE NO.

POSTAMOUNT

2015 Ref.

Jan'18 A.A. Enterprises 2 _/ 30,000 Apr’01 Umair Electric 2255 _/ 16,000 Apri’08 Ali Imran & Co. 506 _/ 16,000

Apr’15 Murad Electronic 5206 _/ 15,000 Apr’20 Talpur & Co. 1005 _/ 10,000 Apr’30 Moon Electronic 605 _/ 5,000 TOTAL 92,000

Account Receivable 11203 92,000 Sales 40002

1- SALES RETURN AND ALLOWANCES JOURNAL (SR&AJ)

Sales Return and Allowances journal relates to credit notes of goods returned by customer and credit to customer account under account receivable is recorded.

Sales Return & Allowances Journal consists on columns date, debit memorandum, Name of customer, post reference and amount.

Sales Return and Allowances journal links to controlling ledger of Accounts Receivable of Customer (Cr.) and Sales Return and Allowances account (Dr.) and Sales Return and Allowances effects to subsidiary ledger of customer.

A check mark (_/) is marked in Post Ref: column of sale return and allowances journal as a proof of posting in subsidiary of account receivable.


JOURNAL MAKING

Illustration 1.6

Sold Merchandise returned from following suppliers;

1 T.V. set for Rs.1600/= from Ali Imran & Co. and issued a credit memo No. 2 dated 10.4.2015

1 VCR for Rs.600 from Murad Electronics and issued a credit memo No. 3 dated 20.4.2015.

SALES RETURNS AND ALLOWANCES JOURNALPage No. 01

DATE ACCOUNT CREDITED

CREDIT POSTAMOUNT

2015 MEMO Ref.

Jan' 31 A.A. Enterprises 1 _/ 1,000 Apr’10 Ali Imran & Co. 2 _/ 1,600 Apr”20 Murad Electronics 3 _/ 600 TOTAL 3,200

Sales Return & Allowances 41001 3,200 Accounts Receivable 11203


JOURNAL MAKING

Illustration 2

Apr: 1, Arshad started business with a cash of Rs100000/= in the name of Arshad Enterprises.

2, Purchased merchandise on cash Rs.20, 000/=.

3, Paid shop deposit Rs.5000/=.

5, Purchase Furniture on cash Rs.5000/=.

6, Paid for transporting expenses Rs.1000/=.

7, Purchase merchandise on cash Rs.5000/=.

8, Merchandise purchased on credit from Yousuf Brothers Rs.10, 000/=.

9, Sold merchandise on cash Rs.25, 000/=.

10, Sold merchandise on credit to Ameen & sons Rs.10, 000/=.

11, Paid Electricity bill for Rs. 2000/=.

12, Paid petty cash funds Rs.3000/=.

13, Paid cash to M/s. 5,000/= to Yousuf & Brothers.

14, Goods returned to Yousuf & Brothers Rs.500/=.


JOURNAL MAKING

15, Cheque Rs.5000 received from Ameen & sons and deposited into bank account.

16, Paid for advertising expense Rs.2000/=.

20, Sold goods returned from M/s. Ameen & sons Rs.2000/=.

21, Merchandise purchased on credit from Ghaffar & Co. Rs.15, 000/=.

22, Merchandise purchased on cash for Rs.5000/=

23, Merchandise sold on cash Rs. 5000/=.

24, Sold merchandise on cash Rs.2000/=.

25, Sold merchandise on account to Malik Brothers Rs. 5000/=.

28, Cash deposited into bank account Rs. 8000/=.


JOURNAL MAKING

30, paid salary to employee for the month Rs.3000/=.

30, Paid rent for the month Rs.3000/=.

30, Paid by cheque 2,000/= to Yousuf Brothers and got 5% discount over it.

30, Cash Rs.5000/= received from Ameen & Sons and allowed Rs.200 discount.

Required: GENERAL JOURNAL


JOURNAL MAKING

GENERAL JOURNAL Page # 1

DATEDESCRIPTION REF

. DEBIT CREDIT 2015

April: 1 Cash 100,000

Capital 100,000

(Arshad invested cash for business)

2 Purchases 20,000

Cash 20,000

(Merchandise purchase for business in cash)

3 Shop deposit 5,000

Cash 5,000

(Paid cash for shop deposit)

5 Furniture & Fixtures 5,000

Cash 5,000

(Purchase furniture in cash)

6 Cartage 1,000

Cash 1,000

(Paid cartage for merchandise)

7 Purchases 5,000

Cash 5,000

(Merchandise purchased for business in cash)

8 Purchases 10,000

A/c Payable (Yusuf Bros.) 10,000

(Merchandise purchased from Yusuf Bros.)

9 Cash 25,000

Sale 25,000

(Sold merchandise on cash)

C/o 171,000 171,000 <THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>

JOURNAL MAKING


DATEDESCRIPTION REF. DEBIT CREDIT

2015

Apr: 9 B/f 171,000 171,000

10 A/c Receivable (Ameen & Sons) 10,000

Sale 10,000

(sold merchandise on credit to Ameen & Sons)

11 Utility Expenses 2,000

Cash 2,000

(Paid Electricity bill)

12 Petty Cash Funds 3,000

Cash 3,000

(Paid petty cash Funds to petty cashier)

13 A/c Payable (Yusuf Bros) 5,000

Cash 5,000

(cash paid to Yusuf Brothers)

14 Account Payable (Yusuf Bros.) 500

Purchase Return 500

(Goods returned to Yusuf & Bros.)

15 Bank 5,000

A/c Receivable (Ameen & Sons) 5,000

(Cheque received form Ameen & sons & deposited)

C/o 196,500 196,500


JOURNAL MAKING


DATEDESCRIPTION REF. DEBIT CREDIT

2015

Apr: 15 B/f 196,500 196,500

16 Advertising Expense 2,000

Cash 2,000

(Cash paid for advertising)

20 Sales Return 2,000

A/c Receivable (Ameen & sons) 2,000

(Sold goods return from Ameen & sons)

21 Purchases 5,000

A/c Payable (Ghaffar & Co.) 15,000

(Merchandise Purchased from Ghaffar & Co.)

22 Purchases 5 ,000 Cash 5,000

(Merchandise purchased in cash)

23 Cash 5,000

Sale 5,000

(Merchandise sold in cash)

24 Cash 2,000

Sales 2,000

(Sold merchandise on cash)

C/o 227,500 227,500 <THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>

JOURNAL MAKING


DATEDESCRIPTION REF

. DEBIT CREDIT 2015

Apr:

24 B/f 227,500 227,500

25 A/c Receivable (Malik Bros.) 5,000

Sales 5,000

(Sold Merchandise on account to Malik Bros.)

28 Bank 8,000

Cash 8,000

(Cash deposited into Bank account)

30 Salaries Expenses 3,000

Cash 3,000

(Paid salary to employee)

Rent Expenses 3,000

30 Cash 3,000

(Cash paid for Rent)

30 A/c Payable (Yusuf Bros.) 2,100

Bank 2,000

Purchase Discount 100

(paid to Yusuf Bros. & got 5% discount)

30 Cash 5000

Sales Discount 200

A/c Receivable (Ameen & Sons) 5,200

(cash & discount received from Ameen & Sons)

TOTAL 253,800 253,800


JOURNAL MAKING

Illustration 3

The following selected transactions are taken from M/s. Iqbal Traders;

2015;

July 01, Purchased merchandise from Aslam Brothers Rs. 10,000/= vide Invoice No.320.

July 05, Purchased merchandise from Half Moon Enterprises Rs.5000/= vide Invoice No. 430.

July 06, Purchase merchandise from General Traders of Rs.6000/= under Invoice No.1002.

July 07, Purchase merchandise from Ismail Bros of Rs.15, 000/= under Invoice No.502.

July 10, Received an Invoice # 600 against purchase of merchandise of Rs.20, 000/= from A.R. Traders.

July 20, Purchase goods for Rs.10, 000/= from Shakir Traders under Invoice No.10020.


JOURNAL MAKING

July 25, Received Bill No. 800 for Rs.5000/= from Akram Electronics against purchase of goods.

July 30, Merchandise purchase on credit from M/s. Azad Store for Rs.20, 000/= under Invoice No. 108.

Prepare;

Purchase Journal

PURCHSASE JOURNALPage No. 01


POSTAMOUNT

2015 Ref.

Jul’1 320 Aslam Brothers _/ 10,000

5 430 Half Moon Enterprises _/ 5,000

6 1002 General Traders _/ 6,000

7 502 Ismail Brothers _/ 15,000

10 600 A.R. Traders _/ 20,000

20 10020 Shakir Traders _/ 10,000

25 800 Akram Electronics _/ 5,000

30 108 Azad Store _/ 20,000

TOTAL 91,000

Purchases 11205 91,000

Accounts Payable 22101 91,000


JOURNAL MAKING

Illustration 3.1 (Iqbal Traders)

July 10, Merchandise returned to Aslam Brothers Rs.1000/= credit memorandum NO.3005.

July 12, Merchandise returned to Half Moon Enterprises Rs.500/= under credit memo # 2501.

July 15, Debit Note issued to M/s. General Traders for Rs.300/= of damaged goods returns, and received credit note No. 1102.

July 20, merchandise return to M/s. A.R. Traders for Rs.500/= vide credit memo No.300.

Prepare;

Purchase Return & Allowances Journal<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>

JOURNAL MAKING

PURCHASE RETURNS AND ALLOWANCES JOURNALPage No. 01


POST AMOUNT

2015 Ref.

Jul” 10 3005 Aslam Brothers _/ 1,000

12 2501 Half Moon Enterprises _/ 500

15 1102 General Traders _/ 300

20 300 A.R. Traders _/ 500

TOTAL 2,300

Account Payable 22101 2,300

Purchase Return & Allowances 11108 2,300


JOURNAL MAKING

Illustration 3.2 (Iqbal Traders)Aug 1, 2015, Cash paid to Aslam Brothers R.5000/=.Aug 5, 2015, Payment made by cheque to Half Moon Enterprises 2500/= and got discount Rs.200/=.Aug 6, 2015, Paid by bank to General Traders Rs.3000/=.Aug 7, 2015, Cash paid to Ismail Brothers Rs.7500/=.Aug 10, 2015, Cheque given to A.R. Traders Rs.5000/-.Aug 20, 2015, Cash paid to Shakir Traders Rs.2500/=.Aug 25, 2015, payment by cheque to Akram Electronics Rs.2500/=.Aug 30, 2015, Paid by Cheque to Azad Store Rs.10000/=.

Account payable 38,200 Purchase Discount 200

Cash 15,000Bank 23,000


JOURNAL MAKING


July 1, Sold merchandise to Hakim & Co. Rs.15, 000/= vide Invoice No.005.

July 2, Sold merchandise to Rahim & Karim Traders Rs.5, 000/= vide Invoice No. 006.

July 6, issued an Invoice No.007 for Rs.15, 000/= on account of merchandise sold to M/s. Mushtaq & Co.

July 10, Sold merchandise on account to M/s. Khan Khan Traders for Rs. 10,000/= vide Invoice NO. 008.

July 15, Merchandise consigned to Ashraf Brothers for Rs.10, 000/= under Invoice NO.009.

July 20, Merchandise sold to Imran Sons for Rs.5, 000/= under Invoice No. 010.

July 25, Merchandise sold to Kamran & Brothers for Rs.6, 000/= vide Invoice No. 011.

July 30, Goods on account to M/s. Nadeem & Co. for Rs.10, 000/= vide invoice No. 012.

Prepare;

Sales Journal


JOURNAL MAKING


DATEACCOUNT DEBITED INVOICE NO.

POSTAMOUNT

2015 Ref.

Jul’01 Hakim & Co. 005 _/ 15,000.-

2 Rahim & Karim Traders 006 _/ 5,000.-

6 Mushtaq & Co. 007 _/ 15,000.-

10 Khan Khan Traders 008 _/ 10,000.-

15 Ashraf Brothers 009 _/ 10,000.-

20 Imran Sons 010 _/ 5,000.-

25 Kamran & Brothers 011 _/ 6,000.-

30 Nadeem & Co. 012 _/ 10,000.-

TOTAL 76,000

Account Receivable 11203 76,000

Sales 40002 76,000


JOURNAL MAKING


July 5, Merchandise return from Hakim & Co. Rs.500/= and issued them a credit memo No. 101.

July 6. Received merchandise as return from M/s. Rahim & Karim Traders Rs.500, issued credit memo No. 102.

July 12, damaged goods return from Khan Khan Traders Rs.500/= credit memo No. 103.

July 20, Goods return from Ashraf Brothers Rs.1000/= as damaged during transportation credit memo No. 104.

July 30, Merchandise return from;

Kamran & Brothers Rs.200/= credit note # 105.

Nadeem & Co. Rs. 500/= credit note # 106.<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>

JOURNAL MAKING



CREDIT POSTAMOUNT

2015 MEMO Ref.

Jul’5 Hakim & Co. 101 _/ 500.-

6 Rahim& Karim Traders 102 _/ 500.-

12 Khan Khan Traders 103 _/ 500.-


30 Kamran Brothers 105 _/ 200.-

30 Nadeem & Co. 106 _/ 500.-

TOTAL 3,200.-

Sales Return & Allowances 41001 3,200.- Accounts Receivable 11203 3,200.-


Illustration 3.5 (Iqbal Traders)The receipts from debtor or customer are made through cash receipt journal which affects to general ledger control account and subsidiary ledger of each party like other journals as;

Aug 1, 2015, Cash receipt from Hakim & Co. Rs.5000/=.Aug 2, 2015 Cheque Rs.2500/= received from Rahim & Karim Traders and given discount Rs.200/=.Aug 6, 2015, Cheque received from Mushtaq & Co Rs.5000/=.Aug 10, 2015, Cash received from Khan Khan Traders Rs.3000/=.Aug 15, 2015, Cheque received from Ashraf Brothers Rs.5000/=. Aug 20, 2015, Cash received from Imran Sons Rs. 2000/=.Aug 25, 2015, Pay Order received from Kamran & Bros. Rs.3000/=.Aug 30, 2015, Cash received from Nadeem & Co. Rs.5000/=.

Cash 15,000Bank 15,500Sales Discount 200

Accounts Receivable 30,700


JOURNAL MAKING

Something about journalizing;

The journalizing is the art of recording business transactions in journals like general journal, cash book, petty cash book, cash receipt journal, cash payment journal, purchase journal, purchase return and allowances journal, sales journal, sales return and allowances journal and many other creations in journals according to the nature or volume of business designed to make easy book keeping.

All journals require source document means evidence of transaction which supports to voucher and voucher helps recording in journals.

The example of journalizing we take from a diary maintains to memorize day to day events either in personal life or in business operation.

In connection with journalizing I must say only that the journal is the structure of accounting that supports to whole accounting strategies and crystallizes the system of accounting.

Writer’s view<THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>

LEDGER MAKING

After making journals of transactions for the period, another device which shows the end result of account is required and the group of accounts is known as ledger which is also known as “ The Book of Final Entry”.

All journals show increase or decrease in all nature of accounts not in particular account but the ledger account is a particular account showing increase and decrease during the period with final balance.

The ledger is maintained in different ways as in bounded register and in loose leaf already designed in manual accounting system as contains below;

The ledger page contains page number; in which the transactions are recorded or a page is allocated for an account, that page number is called the account number of that account. There are two sides in standard ledger form; each side contains four columns (1) Date (2) Description (3) Reference (4) Debit/Credit.

Date: in this column, year, month and date is written as in general journal.

Description: in this column, the head of account of opposite account is written for example the ledger account Capital which affected with opposite account cash; cash is written in Capital account and capital in cash account.

Reference: The account number/ledger folio/page number of the opposite account is written in reference column.

Debit/Credit: The amount of the account is recorded; debit in debit column and credit in credit column.

There are three forms account as specified below:

1- Standard Form2- Skeleton form “T” Account3- Self balancing form


LEDGER MAKING

1- STANDARD FORM LEDGERHead of Account CASH

Date Description Ref: Debit Date Description Ref: Credit2015 2015

Jan' 1 2 3 4 5

c/f _/ Feb' 1 b/f _/

2 3 4 5

c/f _/ Mar' 1 b/f _/


LEDGER MAKING

2- Skeleton form “T” Account

Skeleton or “T” form ledger is derived from Standard form ledger. The columns have been removed and the positing is recorded keeping in mind the Standard Form ledger.

Cash Acc: No.

3- Self balancing form

Self balancing ledger form contains date, description, reference, debit, credit and balance is suitable for all accounts especially for account payable and receivable. It shows the latest balance of debit or credit at a glance. Banks also use this form of ledger.


LEDGER MAKING

GENERAL LEDGERCOMPANY NAME LEDGERAccount of

DEBIT CREDIT Dr./ BALANCEDATE PARTICULARS FOLIO Rs. Rs. Cr. Rs.

Self balancing form


LEDGER MAKING

There may be some kind of ledger books according to business requirements but here are following ledger books mostly used as described;

General ledger

Subsidiary Ledger

Accounts Payable Accounts receivable

Expense & Revenue Ledger

General Ledger

A general ledger may contain all accounts for recording business transactions relating to assets, liabilities, owner’s equity, revenue and expenses under double entry accounting system.

In order to control huge business information, general ledger may be divided for permanent accounts or balance sheet accounts; assets, liabilities and owner’s equity named general ledger and temporary accounts or income statement accounts; revenue and expense named expense and revenue ledger under control account as sequence;


LEDGER MAKING

Balance Sheet Accounts

ASSETS EQUITIESCURRENT ASSETS LIABILITIESBank CURRENT LIABILITIESCash Accounts payablePetty Cash Funds Salaries/wages payableAccounts receivable Bank LoanMerchandise Inventory Unearned RevenuePrepaid ExpenseInvestments short term

Contra Current Assets

Allowance for uncollectible

Non-current Liabilities

Mortgage payableLong term loan

NON-CURRENT ASSETSLandBuilding OWNER'S EQUITYEquipment Owner's capitalFurniture & Fixtures Owner's drawingsOther AssetsInvestments long term

Contra Non-current AssetsAccumulated depreciation-Asset

Income Statement Accounts

Revenues:Sales/Fees/Commission/Rent Income/Interest


LEDGER MAKING

Direct ExpensesCartage Wages/LaborCustom Duty

Selling ExpensesAdvertising ExpensesSales Promotion ExpensesSales Distribution Expenses

Financial ExpensesBank CommissionBank Charges

Administrative ExpensesSalaries Utility Expenses Stationery Entertainment ConveyancePostage Charity Furniture Repair Janitorial Telephone ChargesBad Debt Expenses - Depreciation ExpensesPurchasesPurchase ReturnPurchase Discount


LEDGER MAKING

Illustration 1

PAGE NO. 1

GENERAL JOURNAL


Jan 1 Cash A/cCR1/ 100,000

Capital A/c (Rizwan)CR1/ 100,000

(Cash invested by Rizwan) 5 Shop Deposit A/c CP1/ 6,000 Prepaid Rent A/c CP1/ 2,000 Cash A/c CP1/ 8,000 (3 month shop rent as deposit & 1 month rent in advance) 6 Purchases A/c CP2/ 60,000 Cash A/c CP2/ 60,000 (Merchandise purchased in cash) 7 Furniture A/c CP3 5,000 Cash A/c CP3 5,000 (Purchased furniture for shop)




C/O 198,000 198,000


LEDGER MAKING

Page No.2

GENERAL JOURNALPage # 2


C/O 198,00

0 198,00

0


0

Cash A/c CP4/ 2,00

0 (paid cartage for merchandise)

15 Cash A/c CR2/ 50,00

0

Sale CR2/ 50,00

0 (Merchandise sold in cash)

18 A/c Receivable (A.A. Enterprises) JV2/ 30,00

0

Sales A/c JV2/ 30,00

0 (Sold merchandise on credit to A.A. Ent.)

20 Bank A/c CP5/ 10,00

0

Cash A/c CP5/ 10,00

0 (Cash deposited into Bank)


0

Cash CP6/ 1,50

0 (paid electricity bill)

C/O 291,50

0 291,50

0


LEDGER MAKING

PAGE NO. 3


2015 C/O 291,500 291,500 Jan: 22 A/c Payable (Imran Trading) JV3/ 1,000


0 (goods returned to Imran Stores) Jan: 23 A/c Payable (Imran Trading ) CP7/ 23,520 Cash A/c CP7/ 23,520


A/c Payable (Imran Trading Co.) JV4/ 480

Purchase Discount JV4/ 480 (To record Purchase discount) Jan: 24 Cash A/c CR3/ 28,500 A/c Receivable (A.A. Enterprises) CR3/ 28,500 (Cash received from A.A. Enterprises)


A/c Receivable (A.A. Enterprises) JV5/ 500 (To record sales discount) 30 Salaries Expense A/c BP1/ 5,000

Bank A/c BP1/ 5,000

(paid for salary to sale man at shop) Jan: 31 Sales Return A/c JV6/ 1,000


(Unsold goods returned from A.A. Enterprises)

TOTAL 353,480 353,480 <THE SYSTEM OF ACCOUNTING < VOLIUM II< SYED AQEEL RAZA<[email protected]>

LEDGER MAKING

Illustration 1.1

PAGE NO. 4


2015Feb: 01 Petty Cash Fund Bp3 2,000.- Bank BP3 2,000.- (Cash for petty cash expenses)

Illustration 1.2


LEDGER MAKING

RIZWAN TRADERS

JOURNAL VOUCHER


1 Stationery A/c 550 2 Entertainment A/c 150 3 Conveyance A/c 200 4 Postage A/c 50 5 Charity A/c 20 6 Furniture Repair A/c 300 7 Janitorial A/c 200 8 Telephone Charges A/c 50 9 Advance to Staff 400 Petty Cash Funds 1,920

TOTAL NARRATION: TO RECORD PETTY CASH EXPENSES.




LEDGER MAKING

The entries from general journal or from journal voucher will be posted in ledger column as in general journal date in date column, opposite account in particular column, debit in debit column and credit in credit column of the ledger following reference number as shown below;


LEDGER MAKING


LEDGER MAKING


LEDGER MAKING


LEDGER MAKING


LEDGER MAKING


LEDGER MAKING


LEDGER MAKING

Illustration 1-1.2 (RIZWAN TRADERS)

In self balancing form, the balance of the ledger automatically will come by adding the amount debit with debit and credit with credit and reducing debit from credit and credit from debit with each transaction.


LEDGER MAKING

SUBSIDIARY LEDGER

Subsidiary ledger contains on detailed information is a sub ledger or book of general ledger designed for recording of specific types of business transactions where the volumes of transactions are usually high which links with general ledger under control account. There is no need of creating subsidiary ledger in small concern.

The subsidiary of an account can make which has various accounts or parties and things like parties in sale and purchase, things in assets and materials, etc.

The subsidiary ledger has same contains like ledger but difference is to separate specific account involves various parties or things links with the specific account.

The subsidiary ledger is periodically summarized and posted to an account in the specified general ledger control account.

The following subsidiary ledgers may usually require for controlling huge business information;

o Accounts payableo Accounts receivableo Purchase Ledgero Sale Ledger

ACCOUNTS PAYABLE SUBSIDIARY LEDGER

Accounts payable refers to creditors who deliver goods for business and get payment after sometime. The amount of invoice is journalized as inventory account debit and party’s account credit in ledger account directly or through purchase journal. The purchases in business may be from different persons or firm may require the separate book of accounts like subsidiary ledger which provide detailed information of each person or firm to accountant. It is controlled in general ledger by Account payable control account.


LEDGER MAKING

Purchase journal, purchase return and allowances journal, cash payment journal and journal voucher are the source of transferring data to account payable subsidiary ledger accounts.

Illustration 1.3

RIZWAN TRADINGPURCHSASE JOURNAL

Page No. 01DATE

NOVICE NO. NAME OF SUPPLIERPOST

AMOUNT2015 Ref.

Mar’01 305 Bilal Store _/ 8,000Mar’10 1005 Asim Traders _/ 15,000Mar’15 203 Khan & Co. _/ 12,500 Mar’20 400 Imran Traders _/ 5,000 Mar’28 506 Sumair Enterprises _/ 2,500 TOTAL 43,000

Purchases 11205 43,000 Accounts Payable 22101


LEDGER MAKING

The details of credit transactions as to date of purchase, Invoice number, name of supplier and amount payable to supplier are recorded in purchase journal daily or date wise without debit or credit.

The total amount of purchase journal at the end of the month or on accounting period payable to suppliers is recorded in General Ledger as purchases (Inventory) debit and account payable control account credit as shown below;


LEDGER MAKING

The detail of accounts payable 22101 of each party subsidized by March 31,2015 is made as below;

The details of account payable 22101 of each party subsidized by March 31, 2015 are recorded through purchase journal on daily basis or as soon as transaction occurred date wise and a tick as post reference marked in purchase journal as a sign of recording in subsidiary ledger of particular account as;


LEDGER MAKING


LEDGER MAKING

Illustration 1-1.3

In case of goods return to suppliers, general ledger control account will be affect by the total of purchase return and allowance journal account payable debit and purchase return & allowances credit under purchase Return and Allowances journal.

Illustration 1.4

PURCHASE RETURNS AND ALLOWANCES JOURNALRIZWAN TRADERS Page No. 01


POSTAMOUNT

2015 Ref.

Mar’20 1023 Khan & Co. _/ 500 Mar’25 203 Imran Traders _/ 200 Mar’30 1036 Sumair Enterprises _/ 100 TOTAL 800

Account Payable 22101 800 Purchase Return & Allowances 11108


LEDGER MAKING

In connection purchase return and allowances, the subsidiary ledger of creditors/parties will be affected by the individual amount of party through purchase return and allowances journal.

The post reference column of purchase return and allowances journal is marked by ticking _/ as a sign of positing against each party in subsidiary ledger.


LEDGER MAKING


LEDGER MAKING

The Subsidiary ledger of creditors following general ledger may also be affected by adjustment through journal voucher, in case of any such transaction that does not belong to purchase journal, purchase return and allowances journal, cash payment journal.

The another step of subsidiary ledger is to reconcile it with general ledger control account making schedule of account payable’s subsidiary accounts consist on balances of the period. The total amount of parties in subsidiary ledger and in control account of accounts payable in general ledger must be equal with each other like;


LEDGER MAKING

The account payable schedule one side works as a trial balance of creditors and on other side is shown in financial statement under note.

RIZWAN TRADERS

The accounts mostly used are shown but many other accounts according to business nature means manufacturing, services and trading may be formed in order.


LEDGER MAKING

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

Account receivable account in general ledger indicates that the amount is receivable from the party to whom the goods was sold on credit that party is called debtor and the gathering of parties comes under debtor accounts which in order words are accounts receivable.

For making subsidiary ledger of accounts receivable or debtor accounts, we have to maintain journals like sales journal, sales return and allowances journal, cash receipt journal and adjustments through journal vouchers of those transactions that do not belong to journals or come after positing of entries from journals.

Illustration 1.5 Rizwan Traders



POSTAMOUNT

2015 Ref.

Apr’01 Umair Electric 2255 _/ 16,000 Apri’08 Ali Imran & Co. 506 _/ 16,000 Apr’15 Murad Electronic 5206 _/ 15,000 Apr’20 Talpur & Co. 1005 _/ 10,000 Apr’30 Moon Electronic 605 _/ 5,000 TOTAL 62,000

Account Receivable 11203 62,000 Sales 40002


LEDGER MAKING

The details of debit transactions in terms of receivable as to date of sale, account debited by name of customer, Invoice number, tick mark as a post reference and amount receivable from customer are recorded in sales journal daily or date wise.

The total amount of sales journal at the end of the month or on accounting period receivable from customer is recorded in General Ledger as account receivable debit and sales credit as shown below;

Illustration 1.6 Rizwan Traders



CREDIT POSTAMOUNT

2015 MEMO Ref.

Apr’10 Ali Imran & Co. 2 _/ 1,600 Apr”20 Murad Electronics 3 _/ 600 TOTAL 2,200

Sales Return & Allowances 41001 2,200 Accounts Receivable 11203


LEDGER MAKING

In case of goods return to customer, general ledger control account will be affect by the total of sales return and allowance journal account receivable credit and sales return & allowances debit under sales return and allowances journal.

In connection with sales return and allowances, the subsidiary ledger of debtors/customers will be affected by the individual amount of party through sales return and allowances journal.

The post reference column of sales return and allowances journal is marked by ticking _/ as a sign of posting against each party in subsidiary ledger.


LEDGER MAKING


LEDGER MAKING

The another step of subsidiary ledger is to reconcile it with general ledger control account making schedule of account receivable subsidiary accounts consist on balances of the period. The total

amount of parties in subsidiary ledger and in control account of accounts payable in general ledger must be equal with each other like;

The account receivable schedule one side works as a trial balance of debtors and on other side is shown in financial statement under note.


LEDGER MAKING

RIZWAN TRADERS


LEDGER MAKING

Illustration 3

From the following selected purchase journal, purchase return and allowances journal and cash payment journal of M/s. Iqbal Traders require accounts payable subsidiary ledger under control accounts under “T” Form.

PURCHSASE JOURNAL

IQBAL TRADERS P1


POSTAMOUNT

2015 Ref.

Jul 1 320 Aslam Bothers _/ 10,000

5 430 Half Moon Enterprises _/ 5,000

6 1002 General Traders _/ 6,000

7 502 Ismail Brothers _/ 15,000

10 600 A.R. Traders _/ 20,000

20 10020 Shakir Traders _/ 10,000

25 800 Akram Electronics _/ 5,000

30 108 Azad Store _/ 20,000

TOTAL 91,000

Purchases (Inventory) 91,000

Accounts Payable 91,000


LEDGER MAKING

Illustration 3.1

PURCHASE RETURN AND ALLOWANCES JOURNAL

IQBAL TRADERS Page No. 1


POSTAMOUNT

2015 Ref.

Jul 10 3005 Aslam Brothers _/ 1,000

12 2501 Half Moon Enterprises _/ 500

15 1102 General Traders _/ 300

20 300 A.R. Traders _/ 500

2,300

Accounts payable (22101) 2300

Purchase Return & Allowances (1108) 2300


LEDGER MAKING

Illustration 3.2

The payment to creditors or supplier is made through cash payment journal which affects to general ledger control account and subsidiary ledger of each party like other journals as;

Account payable 38,200Purchase Discount 200Cash 15,000Bank 23,000


LEDGER MAKING


LEDGER MAKING

ACOUNTS PAYABLE SCHEDULE

Accounts Payable (22101)30/7 PRJ1 2,300 30/7 PJ1 91,00031/8 CPJ1 38,200 32/8 c/f 50,500

IQBAL TRADERSSCHDULE OF ACCOUNTS PAYABLE

Aslam Brothers 4,000 Half Moon Enterprises 1,800 General Traders 2,700 Ismail Brothers 7,500 A.R. Traders 14,500 Shakir Traders 7,500 Akram Electronics 2,500 Azad Store 10,000

TOTAL 50,500


LEDGER MAKING




POSTAMOUNT

2015 Ref.

Jul’01 Hakim & Co. 005 _/ 15,000.-

2 Rahim & Karim Traders 006 _/ 5,000.-

6 Mushtaq & Co. 007 _/ 15,000.-

10 Khan Khan Traders 008 _/ 10,000.-


20 Imran Sons 010 _/ 5,000.-

25 Kamran & Brothers 011 _/ 6,000.-

30 Nadeem & Co. 012 _/ 10,000.-

TOTAL 76,000

Account Receivable 11203 76,000

Sales 40002 76,000


LEDGER MAKING




CREDIT POSTAMOUNT

2015 MEMO Ref.

Jul’5 Hakim & Co. 101 _/ 500.-

6 Rahim& Karim Traders 102 _/ 500.-

12 Khan Khan Traders 103 _/ 500.-


30 Kamran Brothers 105 _/ 200.-

30 Nadeem & Co. 106 _/ 500.-

TOTAL 3,200.-

Sales Return & Allowances 41001 3,200.- Accounts Receivable 11203 3,200.-


LEDGER MAKING


The receipts from debtor or customer are made through cash receipt journal which affects to general ledger control account and subsidiary ledger of each party like other journals as;

Aug 1, 2015, Cash receipt from Hakim & Co. Rs.5000/=.Aug 2, 2015 Cheque Rs.2500/= received from Rahim & Karim Traders and given discount Rs.200/=.Aug 6, 2015, Cheque received from Mushtaq & Co Rs.5000/=.Aug 10, 2015, Cash received from Khan Khan Traders Rs.3000/=.Aug 15, 2015, Cheque received from Ashraf Brothers Rs.5000/=. Aug 20, 2015, Cash received from Imran Sons Rs. 2000/=.Aug 25, 2015, Pay Order received from Kamran & Bros. Rs.3000/=.Aug 30, 2015, Cash received from Nadeem & Co. Rs.5000/=.

Cash 15,000Bank 15,500Sales Discount 200

Accounts Receivable 30,700


LEDGER MAKING


LEDGER MAKING

Accounts Receivable (11203)30/7 SJ1 76,000

30/7 SRJ1 3,200

30/8 CRJ1 30,700

30/8 c/f 42,100


LEDGER MAKING

Expense and Revenue Ledger

Expense and revenue ledger consists on income statement accounts may be created to view the position of changing revenue under control account in general ledger as Revenue Control A/c or Expense and revenue accounts as well as to concise general ledger.

On making income statement accounts at the end of the year, the balances in expense and revenue ledger will move as revenue control account debit and expense and revenue accounts credit and balance in revenue control account will be income or loss matching with revenue control account in general ledger. The contra balance in revenue control account of expense and revenue ledger will be transferred to revenue control account in general ledger.

If, we are maintaining general ledger only, the balances of revenue and expenses will contra at the end of the period by creating expense and revenue summary account.

Expense and revenue accounts or Income Statement Accounts are temporary accounts link to general ledger under revenue control account showing the actual position of profit and loss.

The ledger of expense and revenue may be formed under alphabetically order or account following after account as mentioned below;


LEDGER MAKING

Illustration 1-1.6

GENERAL LEDGERRIZWAN TRADERS LEDGERAccount of REVENUE CONTROL ACCOUNT

DATE PARTICULARS FOLIO DEBIT CREDITDr. / BALANCE

2015 Rs. Rs. Cr. Rs.

Jan 6 To purchases cp1/1 60,00

0 Dr. 60,000

Jan 10 To purchases jv1/1 25,00

0 Dr. 85,000

Jan 11 To Cartage cp4/2 2,00

0 Dr. 87,000

Jan 15 BY Sale cr2/2 50,00

0 Dr. 37,000

Jan 22 By Purchase Return jv3/3 1,00

0 Dr. 36,000

Jan 22 Utility Exp cp6/2 1,50

0 Dr. 37,500

Jan 24 Sales Discount jv5/3 500 Dr. 38,000

Jan 30 To Salaries bp1/4 5,00

0 Dr. 43,000

Jan 18 By Sale jv2/2 30,00

0 Dr. 13,000

Jan 31 To Sales Return jv6/3 1,00

0 Dr. 14,000

Feb 28 To petty cash pc1 1,52

0 Dr. 15,520

July 23 By Purchase Discount jv4/4 480 Dr. 15,040 Mar 31 To Purchase Journal pj1

43,000 Dr. 58,040

Mar 31 By Purchase Return prj1 800 Dr. 57,240

Apr 30 By Sales Journal sj1 62,00

0 Cr. (4,760

)

Apr 30 To Sales Return sjr1 2,20

0 Cr. (2,560

)

Self balancing form of ledger

Illustration 1-1.6


LEDGER MAKING


LEDGER MAKING


LEDGER MAKING


LEDGER MAKING

The credit balance in revenue control account will show that revenue is above than expenses and debit below than expenses.


LEDGER MAKING

The subsidiary ledgers may also be created in following conditions;

Trade Creditors

Trade creditors are who, who supply goods or services other than expenses for business referred to accounts payable.

Purchase Ledger

Subsidiary ledger for purchase is required where, where the variety of items purchased for selling are involved. Every item with quantity account is maintained under control account of purchases account either on cash or credit.

Sundry Creditors (Account Payable)

In case of getting something relating to expense from a person or an organization on credit basis, the company accrues or creates its liability debiting expense account and crediting person or firm account in general ledger under sundry creditors. Sundry creditors do not belong to trade relating to the purchase of merchandise for doing business.

Therefore, a person or firm supplies goods or services on credit basis relating to expense are also referred to sundry creditors or sundry payables.

The subsidiary ledger of sundry creditors may be made in case of huge volume of transactions under control account of Accrued Expenses payable in general ledger otherwise no need of creating subsidiary ledger.


LEDGER MAKING

Advance from customers

If a company sells goods or services in advance, it records entry as cash debit and advance from customer credit in ledger account may refer to deferred revenue or unearned revenue and has obligation to deliver the goods or services in future otherwise to return cash under liability account.

The subsidiary ledger of customers under control account of advance from customers in general ledger can be created.

Trade Debtors

Account receivable account in general ledger indicates that the amount is receivable from the party to whom the goods was sold on credit that party is called trade debtor and the gathering of parties comes under trade debtor accounts which in order words are accounts receivable.

For making subsidiary ledger of accounts receivable or trade debtor accounts, we have to maintain journals like sales journal, sales return and allowances journal, cash receipt journal and adjustments of trade debtors through journal vouchers of those transactions that do not belong to journals or come after posting of entries from journals.

Trade debtors relate to goods or services for doing business.


LEDGER MAKING

Sundry Debtors

Sometimes, the firm may have to give advance to suppliers for goods or services, deposit as security, loan or advance to staff etc. which are received after meeting the purpose may also come under sundry debtors and recorded in general ledger or we can subsidiary ledger of accounts having various persons or firms involved like loan to staff in large organization which is receivable bit by bit may be subsidized.

Hence, a person or firm is given money for something other than goods or services sold to them comes under sundry debtors.

Sale Ledger

Subsidiary ledger for sale either on cash or credit may be useful to control the variety of units sold under control account of sale.

The exact stock for trade may be ascertained by maintaining purchase and sales ledgers.

Loan to staff

It is seen that large organization which has thousands of employees require loan and advance against salaries; advance against salaries are adjusted in salaries for the month but loan requires time to settle, hence subsidiary ledger of loan to staff individually may be created under control account “loan to staff” in general ledger. The adjustment of loan deductions is journalized by pay roll as salaries expenses debit and loan to staff credit in general ledger and loan to staff individual account of subsidiary ledger in credit side.

Loan to staff belongs to the category of accounts receivable or sundry debtors.


LEDGER MAKING

Ledger making

The art of recording transactions in specified columns is named ledger accounts under book title general ledger may be divided into two as general ledger and expense and revenue ledger and sub divided in subsidiary ledgers under control account especially accounts receivable and accounts payable and many other accounts as required to create according to requirement.

The gathering of accounts in debit and credit may be called trial balance which moves accounts towards financial position of the period.

The ledger account balances enable management to pay, receipt or adjust accounts. We may say that the best way to concise accounts is ledger accounting system.

WRITER’S VIEW


TRIAL BALNACES

The ledger accounts show the position of each account and the balances of accounts at the end of specified period and to known the correctness of accounts require making equal debit and credit balances.

Another device or to trial balances, we need trial balance having column title of Accounts, account number, debit and credit where we put balance debit in debit column and credit in credit column as accounts sequence as assets, liabilities, proprietorship, income and expenses.

There will be following steps of accounts summary or trial balance;

Trial Balance – unadjusted

Trial balance – adjusted

Post closing Trial balance

TRIAL BALNACE - UNADJUSTED

Trial balance unadjusted means a trial balance which was created before adjustment in accounts for seeing the equality of balances in debit and credit. If the sum of debit and the sum of credit have no difference, the posting is considered correct otherwise the difference is ascertained by checking accounts.

TRIAL BALNACES

Illustration 1-1.6

TRIAL BALNACES

If we are maintaining Expense and Revenue ledger, the general ledger and expense and revenue ledger is over viewed as illustration 1-1.6.

TRIAL BALNACES

TRIAL BALNACES

TRIAL BALNACE ADJUSTED

After journalizing and posting in respective accounts of all adjusting entries, an adjusted trial balance is prepared. The adjustment or settlement of an account is made at the end of the period like accrued expense, bad debts or uncollectible, unused supplies or merchandise, accrued income, unearned revenue etc. The same contents as trial balance are used herein but with the replacement of balance amount in account.

The adjustment, reversal and correction of errors are made before making adjusted trial balance.

An adjusting entry is the entry that updates the balance of an account at the end of the period; financial period or month like below;

Accrued expenses or accrual of expenses

Accrued expenses means recording of expenses in accounts of the period to be settled in next month or financial period like salaries, wages, rent, interest on loan, advertising expenses, telephone charges, electricity charges, insurance expenses etc. which are debited and payable of each account or accrued expense account credited.

The expense, which has been made or to be made but not recorded in accounts are recorded by adjusting entries like adjusting entries of (A);

a) Salaries Rs.10, 000/= for the last month not yet paid.b) Wages Rs.2, 000/= for the last 5 days are remained unpaid.

Salaries Expenses 10,000/=Salaries Payable 10,000/=

Wages Expenses 5, 000/=

Wages payable 5, 000/=

(B) Interest on notes payable Rs.10 for 15 days is accrued as;

Suppose that a firm signed on 6% interest bearing promissory note of Rs.4, 000/= for 60 days on June 16 and June 30 is ending accounting period, the calculation will be;

Computation on 60 days @ 6% note of Rs. 4, 000/=

Signed Date June 16Ending Accounting Date June 30Maturity Date August 15

6% of Rs.4, 000 makes 120 one month Rs.240 for 12 monthsRs.240 divided by 12 months Rs.20 for 30 daysRs.20 is divided by 30 days Rs.0.666667 for 1 dayInterest from June 16 to June 30 Rs.0.666667 x 15 days = Rs.10/=Interest from July 1 to June 30 Rs.0.666667 x 45 days = Rs.30/=Total 60 days interest Rs.0.666667 x60 days = Rs.40/=

Journal Entry;Dr. Interest ExpensesCr. Interest payable on notes payable

The accrual of expenses will increase both liabilities and expenses.

Accrued revenue or accrual of revenue

The revenue, which has been earned but not received or recorded in accounting period, will be recorded in accounts by adjusting entries such as; services rendered but not received, rent for the last three months not received, commission due but not received.

The adjusting entries will be service revenue receivable debit and services revenue credit, accrued rent revenue receivable debit and rent revenue credit and commission revenue receivable debit and commission credit.

Examples:

- Services rendered but not billed.- Commission receivable.- Interest receivable on note receivable

Adjustments;

Services revenue receivable Service revenue

Commission revenue receivable Commission Income

Accrued Interest receivableInterest Income

TRIAL BALNACES

Interest on notes bearing Rs.8000/= receivable as calculated below;

Suppose that a firm had received interest 10% of Rs.8000/= for three months on May 1 and closed accounts on June 30. It means it earned two months interest Rs.133/= as per following calculation.

Computation on 3 months interest @ 10% on Rs.8000/=

8000x10/100 = Rs.800 for one year; 800x3/12 = Rs.200/= interest revenue will be earned after 3 months.Rs.200 = 3 months interest200/3 = 66.66667 one month interest revenue66.66667x2 = Rs.133/= two months interest revenue.Journal Entry;I June 30, Interest receivable on Notes receivable 133/=

Interest revenue 133/=

The accrued revenues or unrecorded revenues increases in assets (to be received) and increases in revenue (to be received).

TRIAL BALNACES

Prepaid Expenses

Which expenses paid in advance e.g. insurance, rent, advertising etc. may be adjusted at the end of the period against a portion of the period expired or consumed by making adjusting entries as; Insurance Expense debit and prepaid insurance credit, rent expense debit and prepaid rent credit, advertising expense debit and prepaid advertising credit.

For example on May 1, 2014, paid cash Rs.3, 000/= to Radio Pakistan for advertising for a period of three month and passed entry as;

Prepaid Advertising 3,000/=

Cash 3, 000/=

At the end of the accounting period June 30, 2015, a portion of the period services expired i.e. May 1, 2014 to June 30, 2015 for two months Rs.2, 000/= and another period of services i.e. July 1, 2015 to July 30, 2015 remained unexpired Rs.1, 000/= will remain in asset.

The portion of expired period will be treated in expense as

Advertising Expense 2000

Prepaid Advertising 2000

The Prepaid expenses are record in assets.

TRIAL BALNACES

Unearned Revenue

Such revenues are received in advance against merchandise to be supplied or services to be rendered. At the end of the accounting period, the earned revenue is recorded, and the balance is treated as liability and referred to as a deferred revenue account.

For example;

On May 1, ABC Company received Rs. 3, 000/= for the fees revenue of services to be given from May 1 to July 30 and recorded it;

May 1, Cash 3,000.-

Advance fees revenue 3,000.-

Since the receipt against fees is for three months i.e. 3000/3 = Rs.1000/month income and on closing at June 30, the revenue will be Rs.2000/= for two months (May 1 to June 30, the entry will be;

June 30, Unearned fees revenue 2,000/=

Fees Revenue (earned) 2,000/=

And if, On May 1, ABC Company services rendered but not billed for Rs.2, 500/= will pass journal entry as accrual;

May 1, Fee Revenue Receivable 2,500/=

Fees Revenue 2,500/=

Depreciation

The allocation of the cost of fixed assets to the period the services are receivable may call depreciation neither the physical deterioration nor decrease in market value. The expired cost of tangible asset is also referred to depreciation.

There are many methods for calculation of depreciation on tangible assets especially straight line method, declining balance method and sum of the year digit method on time basis and depreciation on tangible asset used basis.

A new account named “accumulated depreciation” is generated as contra asset of particular asset account.

For example, a firm purchased office equipment Rs.30, 000/= and given it life for 10 years and after ten year, it will be sold at Rs.3000/= at salvage cost as computed under constant annual depreciation under straight light method below;

Depreciation per year = Cost – Salve Value Useful life years

Depreciation per year = 30,000-3000 = 27,000 = Rs.2, 700 per year10 years 10

Depreciation per year x 100 = 2700 x 100 = 27 = 9% Cost 30,000 3

The portion of the depreciated period will be treated as depreciation under accumulated depreciation (O.E.) as;

Depreciation Expense 2700

Accumulated Depreciation (O.E.) 2700

The allowance on depreciation on the cost of fixed asset over its expected useful life is written off as “allowance for depreciation” and charged in expense account.

Bad debt/Uncollectible

Bad debt is the amount that is uncollectable because of certain reasons such as death of the customer, bankruptcy, lack of cash flow, poor management and unforeseen causes which have to write off at the end of the period by adjusting entry as bad debt expense debit and account receivable credit.

If businessman has an idea of credit sales which will remain uncollectable because of the reason above, he estimates the portion of the amount uncollectable and allocates the amount estimated uncollectible at the end of accounting period by adjusting entry Uncollectible/Bad Debt expenses debit and allowance for uncollectible/Bad Debts credit.

The account allowance for uncollectible/Bad Debts is known as contra assets account against account receivable account.

Suppose that on June 30, ABC & Company estimated uncollectable Rs.2, 000/= of 1% on credit sales or on accounts receivable Rs.200, 000/=

Dr. Uncollectable/Bad Debts Expenses

Cr. Allowance for uncollectable/Bad Debts

Merchandise Inventory

Merchandise inventory means the goods or materials for business remains unsold at the end of the period and the market cost of merchandise inventory is recorded as merchandise inventory opening of the period in general ledger account transferred by expense and revenue accounts closing as Merchandise inventory debit and expense and revenue summary credit.

The opening inventory in general accounts is transferred to expense and revenue accounts for calculating income or loss as expense and revenue accounts debit and merchandise inventory account credit.

Closing Entries;

Closing entries are the process of transferring balances of expense and revenue accounts and the net income or loss to capital account from expense and revenue summary for the next period. All expense and revenue relating accounts become the part of making profit or loss and profit or loss, unsold merchandise, unearned revenue, etc remain to go for the next period.

TRIAL BALNACES

Reversing Entries

Some entries like un-recorded expenses, un-recorded income, prepaid expenses, un-earned revenues, etc. need reversal optionally to simplify bookkeeping in the New Year which erases the prior year’s accrual.

The reversing entry will create balance in reverse account which on payment and receipt in New Year will clear the affect of payable or receivable as wages expense debit and accrued wages payable in previous period and reversing entry in new period accrued wages payable debit and wages expenses credit shows the balance of wages payable moves to wages expenses and on payment wages expenses will clear by cash or bank.

There is no need to record reversing entries if transactions were originally transactions were originally recorded in assets or liabilities.

Correction of errors

The erasing, omitting and rubbing of any mistake in transaction make accounts doubtful. The cause of mistakes may occur in journal or ledger such as wrong posting, wrong head of account, wrong amount, missing of one account in ledger, errors in balancing or transferring balances and many other reasons may come in accounting process. Therefore, the correction of errors by making entries is made such as;

1- Plant repaired Rs.900/= and debited to account Repair & Maintenance plant by Rs.700 wrongly.

Repair & Maint. (Plant) 200

Suspense Account 200

2- Purchase of stationery for Rs.1000/= but recorded in purchase account.

Stationery 1000

Purchases 1000

3- Wages Rs.500/= paid for repair building but debited to wages account.

Building Repair 500/=

Wages 500/=

TRIAL BALNACES

Illustration i

Adjustments:

The following adjustments of ABC & Co. rendering services business are made at the end of the period 30th June 2015;

Adjustments:1 Rs. 2700 of depreciation on office equipment. 2 Rs.1350 of depreciation on furniture.3 Rs. 2000/= of prepaid advertisement expired.4 Rs.1000/= of unexpired insurance expired.5 Salaries Rs.10, 000/= for the last month not yet paid.6 Wages Rs.2000/= for the last 5 days are remained unpaid.7 Interest on notes payable Rs. 10/= for 15 days is accrued.8 Unearned concession revenue earned Rs.5000/=.9 Unearned fees revenue Rs.2000/= earned.

10 Fee revenue earned but not yet received Rs.2500/=.

Adjusting Entries:

1. Depreciation Expense 2,700/= Accumulated Depreciation (O.E.) 2,700/=

2. Depreciation Expense 1,350/=Accumulated Depreciation (F) 1,350/=

3. Advertising Expense 2,000/= Prepaid Advertising 2,000/=

4. Insurance Expense 1,000/=Prepaid Insurance 1,000/=

5. Salaries Expense 10,000/=Salaries Payable 10,000/=

6. Dr. Wages Expense 2,000/=

Cr. Wages Payable 2,000/=

7. Interest Expense 10/=Interest on notes payable 10/=

8. Unearned concession revenue 5,000/=Concession revenue 5,000/=

9. Unearned fees revenue 2,000/=Fees Revenue 2,000/=

10. Fees Revenue Receivable 2,500/=Fees Revenue 2,500/=

An adjusted trial balance from the above adjusting entries has been prepaid along with trial balance and adjustments below;

TRIAL BALNACES

Illustration ii

Adjustments:

Rs.2700/= depreciation on Office Furniture.Rs.900/= depreciation on Office Equipment.Rs.2000/= prepaid rent expired.Rs.133/= interest on notes receivable.Rs.2000/= prepaid advertising expired.Rs.3000/= unearned subscription revenue earned.Rs.1000/= rent for the last month not yet received.Rs.4000/= commission receivable.Rs.5000/= services rendered but not yet received.

Adjusting Entries

Depreciation Expense 2700/=Accumulated Depreciation (O.F.) 2700/=

Depreciation Expense 900/=Accumulated Depreciation (O.E.) 900/=

Rent Expense 2000/=Prepaid Rent 2000/=

Interest Receivable on notes receivable 133/=Interest Income 133/=

Advertising Expense 2000/=Prepaid Advertising 2000/=

Unearned subscription revenue 3000/=Subscription revenue 3000/=

Accrued Rent Revenue receivable 1000/=Rent Revenue 1000/=

Commission revenue receivable 4000/=Commission Income 4000/=

Services revenue receivable 5000/=Service revenue 5000/=

The above adjustments and entries related to the account of M/s. Helping- Hands are made at the end of the period at 30 th June 2015 and on the basis of adjustments the following adjusted trial balance has been made showing complete picture of trial balance, adjustment and adjusted trial balance;

Illustration iii

Adjustments:

Rs.2700/= estimated accumulated depreciation on Office Furniture.Rs.2700/= estimated accumulated depreciation on Office Equipment.

Rs.5000/= estimated accumulated depreciation on Plant & Machinery.Rs.500/= of prepaid rent expired.Rs.200/= interest due on notes receivable.Rs.1000/= of prepaid insurance expired. Rs.5000/= of prepaid advertising expired.Rs.2000/= estimated allowance for uncollectable on accounts receivable.Rs.1500/= office supplies used.

Depreciation Expense 2700/=Accumulated Depreciation (O.F.) 2700/=

Depreciation Expense 2700/=Accumulated Depreciation (O.E.) 2700/=

Depreciation Expense 5000/=Accumulated Depreciation (P&M) 5000/=

Rent Expense 500/=Prepaid Rent 500/=

Interest on notes receivable 200/=

Interest Income 200/=

Insurance Expense 1000/=

Prepaid Insurance 1000/=

Advertising Expense 5000/=Prepaid Advertising 5000/=

Bad Debt 2000/=Allowance for Uncollectable/Bad Debt 2000/=

Office Supplies Expense 1500/=Office Supplies 1500/=

The above adjustments and entries made at the end of the period are of M/s. Moon Enterprises as shown in trial balance, adjustments and adjusted trial balance below;

The ledger shows activity in accounts individually and the summary of accounts consists on ending balance may call trial balance by rectified by adjusting entries and correction of errors which ensures the equality of all debits and credits.

After moving balance of temporary accounts relating to income and expenses to Expense and Revenue summary, the rest of accounts are transferred under post closing trial balance to next accounting cycle.

WRITER

FINANCIAL STATEMENTS


A financial statement is former written report duly signed by owner/owners shows financial activities and the position of a business or any entity.

There may be some financial possible statements like Profit and loss statement, balance sheet, cash flow statement and the statement of retained earnings wherein profit and loss statement and balance sheet are basically used in all type of businesses.



WORKSHEET

Worksheet is an initial columnar statement but not mandatory contains on the information of accounts’ ending balances comes to work for preparing financial statements. It usually contains columns; account number, head of accounts, ten columns of debit and credit for trial balance, adjustments, adjusted trial balance, and income statement accounts and balance sheet accounts.

The worksheet is automatically solve, if you enter the amount of trial balance in trial balance column, adjusting entries in adjustment column, the total of adjustment amount and trial the balance amount in adjusted trial balance column and keep in write place of income and expense accounts and balance sheet account.

By making worksheet, profit and loss is ascertained before making profit and loss account and post closing accounts transferable to next accounting cycle.

Hence, we may say that the worksheet is the end of accounts statement which provides fuel for preparing financial statements and saves energy to go back.



Illustration I





Illustration ii





Illustration iii







EXPENSE AND REVENUE SUMMARY ACCOUNT

A new account in the name of Expense and revenue summary is generated where all accounts relating to Expense and Revenue will be transferred through closing journal entries by debiting all credit accounts and crediting all debit accounts to expense & revenue summary account and the net income or loss is transferred to Capital account.

All temporary accounts relating to Expense and revenue summary accounts will have zero balance.



Illustration i

CLOSING JOURNAL ENTRIES:

ABC & CO.

June 30, Fee Revenues 52,500/=Concession Revenue 5,000/=

Expense and revenue summary 57,500/=

Expense and Revenue Summary 59,560/=Utility Expenses 5,000/=Office Maintenance Expenses 9,000/=Salaries Expenses 25,000/=Office Supplies Expenses 2,000/=Depreciation Expenses 4,050/=Insurance Expense 1,000/=Wages Expenses 2,000/=Interest Expenses 10/=Miscellaneous Expenses 6,000/=Advertising Expenses 5,000/=Bank Charges/Commission 500/=





Illustration ii

CLOSING JOURNAL ENTRIES:

HELPING HANDS

June 30, Fees Revenue 30,000/= Commission Income 39,000/= Rent Revenue 4,000/= Other Income 3,000/= Interest Revenue 3,133/= Subscription Revenue 6,000/= Services Income 5,000/= Expenses and Revenue Summary 90,133/=

June 30, Expense & Revenue Summary 29,900/= Telephone Expenses 1,000/= Office Maintenance Expenses 2,000/= Salaries Expenses 8,000/= Office Supplies Expenses 2,000/= Depreciation Expenses 3,600/= Insurance Expenses 5,000/= Miscellaneous Expenses 2,150/= Rent Expenses 2,000/= Electricity Expenses 2,000/= Advertising Expenses 2,000/= Bank Charges/Commission 150/=





CLOSING JOURNAL ENTRIES:MOON ENTERPRISES

June 30, Sales 400,000/=Expense & Revenue Summary 400,000/=

Expense & Revenue Summary 2,000/=Sales Return & Allowances 1,000/=Sales Discount 1,000/=

Expense & Revenue SummaryPurchases 350,000/=Merchandise Inventory (Opening) 25,000/=

Purchase Return & Allowances 2,000/=Purchase Discount 3,000/=

Expense & Revenue Summary 5,000/=

Expense & Revenue Summary 6,000/=Transpiration 2,000/=Custom duty 1,000/=



Expense & Revenue Summary 106,700/=Telephone Expense 1,000/=Office Maintenance Expense 3,000/=Repair & Maintenance (P&M) 5,000/=Salaries Expense 25,000/=Office Supplies Expense 1,500/=Depreciation Expense 10,400/=Insurance Expense 3,000/=Wages Expense 3,000/=Uncollectable/Bad Debt Expense 2,000/=Miscellaneous Expense 2,000/=Rent Expense 500/=Electricity Expense 5,000/=Advertising Expense 15,000/=Sales Promotion Expense 15,000/=Sales Distribution Expense 15,000/=Bank Commission 100/=Bank Charges 200/=





INCOME STATEMENT

Income statement or Profit and Loss Statement is the financial statement which describes the company’s financial performance in term of net profit or loss over a specified period. It comprises over two segments as;

Income: Income or revenue describes that the business has earned over a period from income sources according to nature of business like sales revenue, dividend income, fees income, commission income, rent income, interest revenue, subscription revenue, service revenue and so on.

Expenses: Expenses is the cost which incurred during business operation over a period like salaries, wages, rent expense, insurance expense, and depreciation expense etc.

Net profit or loss is diagnosed by deducting expenses from income.

COST OF GOODS SOLD

In Manufacturing and trading business, the cost of goods is ascertained by The Cost of goods sold statement prepared before making income statement or reported in it.

The cost of goods sold may be ascertained by different methods such as increasing or decreasing in inventory, beginning inventory + Net Purchases + Direct Expenses incurred on purchases = cost of goods available – ending unsold inventory, average cost method etcetera.



Illustration i

INCOME STATEMENT OF ABC & CO.FOR THE YEAR ENDED JUNE, 2015

REVENUES Fee Revenues 52,500.00 Concession Revenue 5,000.00 Gross Revenue 57,500.00 Less: Expenses Utilities expenses 5,000 Office Maintenance expense 9,000 Salaries Expenses 25,000 Office Supplies Expenses 2,000 Depreciation Expenses 4,050 Insurance Expense 1,000 Wages Expenses 2,000 Interest Expenses 10 Miscellaneous expenses 6,000 Advertising Expenses 5,000 Bank Charges/Commission 500 Total Expenses 59,560 (59,560) Net Loss transferred to Capital (2,060)



Illustration ii

INCOME STATEMENT OF HELPING HANDSFOR THE YEAR ENDED JUNE, 2015

REVENUES Fees Revenue 30,000.00 Commission Income 39,000.00 Rent Revenue 4,000.00 Other Income 3,000.00 Interest Revenue 3,133.00 Subscription Revenue 6,000.00 Services Income 5,000.00 Gross Revenue 90,133.00 Less: Expenses Telephone Expenses 1,000 Office Maintenance Expenses 2,000 Salaries Expenses 8,000 Office Supplies Expenses 2,000 Depreciation Expenses 3,600 Insurance Expenses 5,000 Miscellaneous Expenses 2,150 Rent Expenses 2,000 Electricity Expenses 2,000 Advertising Expenses 2,000 Bank Charges/Commission 150 Total Expenses 29,900 (29,900) Net Income Transferred to Capital 60,233



Illustration iii





BALANCE SHEET

A Balance sheet is a financial statement which represents company’s assets, liabilities and equity in summarized way under accounting formula assets = liabilities + owner’s equity.

It comprises over two sides as;

ASSETS SIDEEQUITY SIDE

- The assets side describes non-current assets and current assets reduced by contra assets like accumulated depreciation, allowance for bad debts etc.

- The Equity side describes long term liabilities and current liabilities plus owners’ equity reduced by contra equity like drawings etc.

The way of presenting the financial position over a specific period of the business is named Balance Sheet.



Illustration i



Illustration ii



Illustration iii



POST CLOSING TRIAL BALANCE

A post closing trial balance contains accounts relating to permanent account such as assets, liabilities and owners’ equity which will be open in next accounting year by opening general entries or opening balances.

The post closing trial balance is prepared from the last balance sheet indicating the balances of ledger accounts which gives assurance that the books are in balance and ready for transferring accounts shown as balance sheet in new accounting period.

OPENING JOURNAL ENTIRES

The opening journal entries provide opening balances of accounts shown in balance sheet or in post closing trial balance to next accounting period for further recording transactions.



Illustration i



Opening General Entries:

ABC & CO.

July 1, Building 100,000Furniture 15,000Office Equipment 30,000Cash 6,000Bank 8,100Accounts Receivable 5,000Unexpired Insurance 2,000Prepaid Advertising 1,000Fees Revenue Receivable 2,500

Accumulated Depreciation (OE) 10,800Accumulated Depreciation (Fur) 5,400Notes Payable 4,000Income Tax Payable 1,000Sales Tax Payable 2,000Salaries Payable 10, 000Wages Payable 2,000Interest payable on notes payable 10Telephone Expense Payable 1,000Electricity Power & Light Payable 2,000Unearned fees Revenue 1,000Unearned revenue from concession 3,000Capital 127,390



Illustration ii




HELPING HANDSJuly 1, Furniture 30,000

Office Equipment 10,000Shop Deposit 10,000Cash 13,700Bank 10,000Accounts Receivable 15,000Prepaid Rent 4,000Notes Receivable 8,000Prepaid Advertising 1,000Accrued Rent Revenue R/A 1,000Commission Revenue R/A 4,000Service Revenue R/A 5,000Interest receivable on Notes R/A 133

Accumulated Depreciation (OE) 900Accumulated Depreciation (Fur) 2,700Accounts Payable 10,000Notes Payable 10,000Unearned Subscription Revenue P/A 3,000Capital 85,233



Illustration iii




MOON ENTERPRISESJuly 1, Land 100,000

Building 30,000Furniture 30,000Office Equipment 30,000Plant & Machinery 50,000Shop Deposit 10,000Cash 25,000Bank 20,000Accounts Receivable 25,000Prepaid Rent 4,500Notes Receivable 10,000Prepaid Advertising 10,000Prepaid Insurance 4,000Interest R/A on Notes R/A 200Office Supplies 500Merchandise Inventory (End) 100,000

Accumulated Depreciation (OE) 2,700Accumulated Depreciation (Fur) 2,700Accumulated Depreciation (P&M) 5,000Allowance for Uncollectable/Bad Debts 2,000Loan 50,000Accounts Payable 20,000Notes Payable 10,000Income Tax Payable 5,000Sales Tax Payable 10,000Interest Payable on Bank Loan 500Interest Payable on Notes P/A 200Telephone Expense Payable 3,000Electricity Light & Power Payable 2,000Capital 336,100


1- Can ledger make without journal?

Journal is the source of providing information to ledger accounts relating to transaction’s date, nature of account, reference number, applied rubes and amount. The information in journal comes from vouchers which make base to source documents.

Ledger is the bunch of accounts requires prescribed information which may be supplied by journals or from the source documents to which journal make base for recording. Then we are in right to say that ledger can be made from source documents but the importance of maintaining journals is in its own place. The diary for cash or bank will have to maintain necessarily if ledger is made without journals or cash book.

In small business where some transactions occurred in a month, it can be applied but where transactions’ volume is huge, the practice of maintaining journals must be adopted.

The good way is to walk step by step.

2- What is the difference between cash book and journals?

Cash book is a form of journal mostly used to control receipts and payments of cash. It works as a ledger of cash and bank which balance at the end is shown in balance sheet. The cash book deals with only transactions occurred in cash or by bank and for small transactions, petty cash book is maintained.

When general journal is the form of mixtures of all transactions cash, credit, adjustments, discounts and goods returns and some special journals like cash receipt journal, cash payment journal, sales journal, sales return and allowances journal and purchase journal, purchases return and allowance journals support to general journal.

The cash book is the best replacement of cash receipt and cash payment journals.

3- Does petty cash book link to cash book, explain?

Petty cash book is the part of cash book, it maintains to record small transactions such as conveyance, cartage, entertainment, postage, small repairs, etc.

Petty cash fund is issued by cash book debiting petty cash funds account. The petty cash fund decrease cash from cash book and increase cash in petty cash book. Petty cash expenses are paid through petty cash voucher and recorded into petty cash book in specific column and many other accounts which have no column is written in other account.

Having been paid expenses, the total of each account is journalized into ledge as petty cash expenses; head wise debt and petty cash fund credit. The ledger balance becomes equal to petty cash book balance and for the same way the fund issued and spends.

In other words, we can say the petty cash book is the sub book of cash book.

4- What do you mean by journals and journalizing?

Journal is a book or diary columnar designed to make easy record keeping but journalizing is the method of recording transaction in general journal or in specified journals but where cash book is used instead of journals, journal entry affects general ledger or to its subsidiary ledger accounts.

In business, sale or purchase on credit; the payment of which made later; is journalized by journal voucher which effect debtor or creditor accounts.

All adjustments such as sales discount, purchase discount, sale return, purchase return, transfer of amount from an account to another account and so on in accounts are made through journalizing.

Journalizing mostly affects general ledger consists on permanent accounts and sometimes affects temporary accounts for adjustment purposes.

Because of journalizing, we find the actual balance of debit and credit fluctuating immediately from the process of journalizing facilities one to pay or receive the amount payable or receivable.

Journalizing is mostly used for correction the amount of an account or transfers the balance from an account to another account freely.

5- Explain the function of ledger?

The bunch of accounts is called ledger, its main function is to provide end result of amount as to balance in debit or in credit. If balance in general ledger which consists on assets, liabilities and owner’s equity, as asset is debit means to have or to receive, liabilities is debit means to pay the amount to whom the debit taken and owner’s equity is credit means to have the amount of investment. The balances in temporary accounts; expense and revenue; are ended on calculation of profit and loss which is transferred to general ledger account.

The main function of maintaining ledger is to provide end balance of all accounts to next stage as to trial balance.

6- What do you mean by purchase merchandise; assets or expense?

All purchases unsold for doing business are assets for example a trader purchases items for sale and to get profit over it and a manufacturer purchases different materials to make goods of his business. All goods sold help to recover the amount of purchases as well as profit over it. Therefore, the purchases which were assets unsold when sold changed the name as sale.

Because of the reason in question, the purchase of merchandise is treated as expense to make gross profit or loss and the unsold merchandise will be the part of permanent account as current asset.

All purchase returns and purchase discounts which are contra assets but reduce purchases in income summary are temporary accounts may belong to expense and revenue ledger.

7- Subsidiary ledger and the benefit of making it, explain?

Subsidiary ledger is a sub book of general ledger mostly makes for account receivable and account payable having various parities or clients to whom the goods sold and purchase are made on credit.

The subsidiary ledger helps for receiving the amount balance in party’s account as well as giving discounts on sale or purchases which sometime seller or purchaser issues on early payment. The party’s account in subsidiary ledger is increased or decreased in balance by discounts

The subsidiary ledger helps in doing returns of sale or purchase to any party due to defect in goods or any reason and is affected by increase or decrease in balance.

All accounts which have windows or various accounts relating to specific account may be opened by subsidiary ledger account.

The main benefit of subsidiary accounts is to make separate account of any specific account having multiple parties or clients.

8- What do you understand by accounts receivable and accounts payable and its schedule?

The list of debtors or creditors consists on parties name, amount etc. is the schedule of accounts receivable or account payable scratched from subsidiary ledger; sub ledger of general ledger; especially made for parties.

Creditors are those from whom we purchase merchandise on credit by crediting their accounts as account payable and debtors are the parties to whom we sell merchandise on account by debiting their accounts as account receivable. For example, we purchase merchandise goods worth Rs.10, 000/= from A.I. Traders on credit, we shall open A.I. Traders Account (A/c payable) and on paying some amount or Rs.5000/= from his account shall debit his account as A.I. Traders (A/c Payable), the balance will remain in credit Rs.5000/= indicate us to pay later.

The schedule of debtors and creditors may indicate the position of parties altogether or individually for management purposes that requires with a payment or receiving point of view and for linking with general ledger control account.

9- Is purchase asset or an expense?

All purchases which have no concern with the goods applied in sale are expenses and the goods sold which consumed in sale will also be an expense but the goods unsold is current asset.

Hence, purchase for doing business is a temporary asset or may be considered expense but relates to the ledger of expense and revenue or income statement accounts.

Further, Purchase for doing business is a temporary account relates to inventory and inventory is asset until in hand but may be considered as expense because of its relation to income and the balance remains unsold will be permanent account as asset which is transferable to the next accounting cycle.

10- Is purchase return asset or an expense?

The purchase returns and allowances have relation to purchase merchandise which reduce purchases is not expense directly but may be contra expense.

11- Is purchase discount asset or an expense?

Purchase discount offered by supplier to purchaser on payment in time is not an expense directly but relates to goods purchased for business and does contra to the value of goods purchased. It is reduced by purchases in income statement may be contra expense account.

12- Describe the net and gross method of purchase discount.

Purchase discount is given by the supplier to the purchaser on payment in time and may be recorded under gross method and net method of accounting.

In gross method, the total cost of purchase is credited to accounts payable and discount at the time of payment if realized will be recorded as accounts payable debit; the total amount of payable against invoice; discount credit; the amount of discount; cash credit; the payment after

deducting discount and payment after discount period; accounts payable debit and cash credit.

In net method of accounting, the total net cost of purchase (gross value less discount) is debited and account payable credited and on payment account payable is debited and purchase discount credited.

If the payment is not made in time, an anti-revenue account named purchase discount lost is debited to record the loss as accounts payable debit, purchase discount loss debit and cash credit.

13- How to close an opening and closing inventory account?

An opening inventory is the balance of closing inventory at the start of accounting cycle transferred by expense & revenue summary to general ledger account as opening inventory debit and income summary credit.

In order to make income statement, the opening inventory is transferred to expense summary under journal entry as income summary debit and inventory opening credit.

The inventory unsold is transferred to general ledger account under journal entry as inventory ending debit and income summary credit.

The inventory ending is a current asset shown in balance sheet.

14- Is the cost of goods sold an expense?

The cost of goods sold is obtained by cost of goods sold statement under formula cost of goods sold = merchandise inventory opening + net purchases – merchandise inventory closing. On selling, the cost of goods sold is converted into cash and cash is asset, the sale above than cost of goods will definitely be profit and profit is the part of capital but the consumption process of cost of goods is considered as an expense.

15. Discuss briefly on asset, liabilities, equities, revenue and expenses.

The discussion on assets, liabilities, proprietorship, revenue and expense is like to draw water from sea and to count stars from sky because of their involvements in every places entire subject but in shortly we can describe them;

- Assets represent to resources or things having economical value equal to liabilities plus proprietorship under different classifications.

- Liabilities are the claims of suppliers and borrowers in short term and long term.

- Equities are the sources of providing funds to business by internal or external ways.

- Expenses help to generate profit.

The result is concluded that assets are resources obtained by sources or equities which can have liabilities from internal or external but revenues and expenses are applied in the process of income.

The assets, liabilities and equities are the member of accounting cycle but revenues and expenses are expired on income and loss sate.

16- What do you mean by working capital?

Money invested in business is recognized by capital which enables business to buy assets and pay for obligations.

Working capital is a measure to weigh the financial health of an entity by increasing or decreasing in assets and liabilities under formula working capital = current assets – current liabilities. The increase in current assets means the efficiency in business and decrease in current assets defines deficiency.

The working capital ratio can be calculated by dividing all current assets with all current liabilities indicating increase and decrease in assets comparatively as;

Year 1 Year 2 Year 3Current Assets 400,000 600,000 800,000

Current Liabilities 200,000 300,000 500,000

Working capital ratio 2:1 2:1 1.6:1

17- What do you mean by other assets, sundry creditors and sundry debtors?

Other assets, sundry creditors and sundry debtors represent to different types of assets, creditors and debtors require classification separately in lieu of opening the different accounts of irregular assets, creditors and debtors.

The benefit of them is to save the time of searching, to see in a list and they work like control account of miscellaneous accounts relating to like these.

18- Described about cash base accounting, accrual base accounting and cash base and accrual base mix accounting.

CASH BASE ACCOUNTING

In cash base accounting system, transactions are recognized on receipt and payment of cash. It is usually applied or followed by individual or small business concerns. Revenues and are report in income statement when the cash is received and expenses occurred.

ACCRUAL BASE ACCOUNTING

In accrual base accounting, transactions are recorded in ledger under journalizing and as when they transact and reported in income statement when they earned or occurred of the period that closes accounting. Now, the cash received or paid will have no concern with revenues and expenses but payment and receipt.

As far as usually expenses are concerned, the accrual of them daily is not in practice. Now, this question can be arisen that will the profit cover the transaction of the date? The answer will be no, then the accrual base accounting need to accrue all transactions on accrual basis if we require profit and loss and balance sheet on daily basis.

CASH AND ACCRUAL BASE MIX ACCOUNTING

In cash base accounting cash is received or paid against transactions as and when they occurred and in accrual base accounting, the journal entry of the transactions is recorded as and when it occurred before cash receipt and payment.

In cash and accrual mix base accounting, usually cash is received or paid against transactions but the transactions relate to receivable or payable are journalized and remaining transactions of the date of accounting period are recorded at the time of closing accounts.

It is up to entity’s requirement that it adopts the system among cash, accrual and mix accounting system.

19 - What is suspense account?

A suspense account in debit or credit is an account which is opened in general ledger temporarily to record doubtful transactions requires proper account undefined. On meeting the proper account, the amount recorded in suspense account is transferred to its proper account from suspense account.

Suppose that on reconciliation of bank statement, an amount of Rs.50000/= is found in credit in bank statement may be sent by someone or party. It needs to store in account temporarily to imbalance cash book till the party is ascertained, it will kept in suspense account like; bank debit and suspense account credit and like this way an amount is found in payment by bank statement, will be in suspense account debit and bank credit.

Further, a suspense account is used to record the difference in amount of an account like;

- Machinery repaired at Rs. 900/= has been debited to Machinery repair account Rs. 800/=.

The difference in account has been noted Rs.100/= because machinery was repaired Rs.900/= and the original entry will be machinery repair debited by Rs.900/= and cash credited by Rs.900/= but difference in positing in machinery repair account is recorded Rs.800/= instead of Rs.900/= then the difference will go in machinery repair account in debit Rs.100/= and suspense account in credit Rs.100/=.

Discuss about the need of internal audit.

Everything which has weight if let it idle will cause faulting, this is the fact that everyone has no way to deny. Just like this, accounts to which we say are the characters of accounting need to have checking and finding mistakes at an early stage will save the difficulty of presenting true accounting.

Hence, accounts are needed to check daily and to do it an auditor is required internally who sees every transaction with bird’s eye view and finds mistakes in source documents and in recording. I think he will be responsible for;

- Checking indents/purchase orders/inventory/consumables- Checking invoices/bills/cash memos compare to purchase

order/requests- Checking and calculation of invoice/bills/cash memo in compassion

to rate- Getting awareness with rates according to market.- Raising questions about rates and purchases above than purchase

order.- Verified payment instrument that has been audited.- Finding mistakes in wrong postings and make them corrected.- Keep an eye on receiving and payments

Volume – II

YEAR 2015

THE END

WRITTEN BY: SYED AQEEL RAZA

Education

VOL 2 "THE SYSTEM OF ACCOUNTING