Accounting tips trial balance

1. The total of the debit side should always be equal to the total of the credit side, which proves the arithmetic accuracy of the ledger entry.

2. The trial balance thus serves as a tool to detect errors, which may have occurred during the double entry system of the ledger.

3. A balanced trial balance does not necessarily guarantee that there is no error.

4. A trial balance is an internal document used only by company employees. It is not meant to be available to persons outside the company.

Trial balance

Trial Balance :

Trial balance is a statement ( not an account ) containing the balances of all ledger accounts as at any given date. It is arranged in the form of debit and credit columns. It is prepared to check the mathematical accuracy of ledger posting. The trial balance is prepared in each financial period as a summary of the closing balance of the ledger.

Business tips

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Special points

Special points :

1. B/f stands for brought forward. Taken from last period or year as the case may be.

2. Nominal accounts are not usually balanced but are closed by transferring to trading and profit & loss account.

3. Balancing of an account is necessary to ascertain the net effect of all transaction posted to that account during a given period.


To be continue.......

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Accounting tips delivery challan

Delivery challan :

This challan is used while sending goods to the customer from whom we have received order.


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Ledger posting purchase day book

Ledger posting purchase day book :

We now have a separate purchases ledger containing all the creditors accounts.
Credit purchases are posted one by one.to the credit of each supplier's account in the purchase ledger. At the end of each period the total of the credit purchases is posted to the debit side of the purchase account in the general ledger.

As with sales , each purchase will be posted to the related party account when the purchase occurs.

Ledger posting sales day book

Ledger posting sales day book :

Credit sales are posted to the debit side of each customer's account in the ledger and at the end of each period the total of the credit sales is posted to the credit of the sales account.
Question :

 Answer :

Effect on sales ledger :

Each of these items is posted ( transferred from the daybook) to the personal account when the sale occurs . at the end of month.

Posting from journal proper

Posting from journal proper :

example.

Posting from cash book :

Note :
Cash book itself contains cash & bank column hence contra entries are not posted anywhere.


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Balancing

Balancing :

After posting a ledger accounts, both sides of ledger account are totaled & if they match it means there is no balance but if there is a difference in the balances of both the sides then we make an entry as " balance ( carried down ) " with the amount of the difference, on the side with the leases balance. This may be a debit balance ( if credit side is short ) or credit balance ( if debit side is short ) .in The next period/ date this balance is brought down on the opposite side in that account as Balance ( brought down).

Ledger Posting

Ledger Posting :

After recording in proper books, second step is to post the entries from books to respective accounts in the ledger.
This process is called ledger posting.

Accounting tips quotation

Quotation :

This is used in case of tenders. This documents is used to tell about the terms and condition regarding supply of goods to prospective customer/ party from whom we have to take purchase order. It include the details of goods that the party requires with the rates ,tax delivery period and terms of payment

Purchase Return book

Purchase Returns book :

Purchase returns book is used for the purpose of recording the returns of merchandise purchased in cash nor the return of any assets other than the merchandise.

Source of recording :

The entries in the purchase return book are usually made on the basis of debit notes issue to the supplier.A debit note is prepared by the purchaser and it contain the date of return . name of the supplier to whom the goods have been returned ,details of the goods returned,reasons for return the good. All debit notes are serially numbered.

Sales return book

Sales return book :

Sales return book is used for the purpose of recording the return of merchandise sold on credit. It records neither the return of merchandise sold on cash basis nor the return of any asset other than the merchandise.

Source of recording :

The entries in the sales return book are usually, on the basis of credit notes issued to the customer.A credit note is prepared by the seller and it contain the date of return of goods. The name of the customer who has returned the goods details of goods received back the amount of such goods . all credit notes are serially numbered.

Journal entry part -1

Journal entry part -1

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Purchase day book

Purchase day book :

Purchase book is a book in which all credit purchases of goods. That will be used in the business for production or further sales, recorded.
When purchasing goods on credit the procedure is similar to the one outlined in a previous section for credit sales. The source document that would be used as the basis for entering up the transaction is the purchase invoice.the purchase invoice is actually the same document as the sales invoice.it is just considered from the point of view of the buyer.

Trade discount

Trade Discount :

Firms have different types of customers.some firms will offer discount to either regular customers or to other firms.this type of discount is known as a trade discount. There is no double entry for trade discount. The trade discount may be referred to on the sales invoice,but it should not show up in the ledger accounts.when calculating the actual amount that needs to be paid or is expected to be received it vital that the discounts are dealt with in the correct order.
The correct procedure is to first deduct the trade discount before calculating the cash discount.

Business tips Accountant

Accountant :

A person those job is keep or ispect financial accounts.

Accounting tips

Sales daybook :

All credit sales of goods should be entered into the sales day book. The source document for the sales day book is the sales invoice. A sales invoice is simply a business document containing all the details of the sale made.the business will keep a copy and will send another copy of the invoice to the customer .

Sales register :

Petty cash Example :

Petty cash format :

It prevenk the main cashbook from being cluttered up with small item of expenditure.

For is given bellow :

Example with explain :

Accounting tips

Accounting tips :

Debit or credit note

Debit note : when we return goods to supplier, we prepare a debit note and send it to the supplier with the returned goods.

Credit note : when goods are received back from a customer a credit note is send to him indicating that the customer's account has been credited in our books.

Imprest system

Imprest system of petty cash :

The most common system used to maintain the petty cash book is known as the imprest system.this involved co- ordination between the cashier responsible for the cashbook and the cashier responsible for the petty cash book.
The cashier will give the petty book cashier just enough money to cover the petty cash transaction of a period of time usually one month at the end of the month the amount actually spent will be totaled up and the amount will be refunded from the main cashbook as follow :

Petty cash book a/c.        Dr
To cash book a/c.

In this way , the balance on the petty cashbook will alway be the same at the start of each period.this opening balance is known as the float or imp rest.

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Petty cash book

Petty cash book :

Some firms actually keep a separate cashbook and petty cash book. The petty cash book deals with Small item of money.some firms have lots of transaction which involved relatively small amount of money. ( example : petrol costs, postage costs, tea and refreshment and so on.).
If these are entered in the cashbook then it would quickly become cluttered up with entries for small amount of money. To stop this, some firms keep a petty cashbook. Which deals with these items.at the end of each month the monthly totals can then be transferred to the main cash book. This also has the other advantage of allowing another member of staff the responsibility of dealing with petty cash book alone and this frees up time for the main cashier of the firm to deal with the main Cash book.some very large firm may actually use the petty cash book for dealing with all cash items of  expenditure.the main cash book would then only be used for bank transaction.

Important tips :

Important tips : related to cash book :

* A cash book is a special journal which is used for recording all cash receipt and cash payments.

* cash book is both a journal and a ledger.

* discount column in cash book is not to be balanced.

* debit side of discount column in cash book means discount allowed.

 * credit side of discount column in cash book means discount received.

* cash account is not opened in the ledger since the ' cash column ' in the cash book serves the purpose of a cash account.

Accounting tips

Journal voucher :

This type of voucher is used in the cash where the cash/bank account is not involved. In accounting this voucher is used for those journal entries that we enter in the journal,for example : depreciation,drawing,loss on sale of machinery etc. An original copy in the pink colour of this is given on the next page. You may fill it as per need.

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Cash book posting part -2

Cash book posting part-2 :

Posting of item appearing on the credit .
side:

1.all the payments appearing on the credit side are posted to the debit of the respective ledger account in the ledger by writing' to cash/bank a/c' in the particular column since cash/cheque has been paid in respect of them.

2. An individual entry in the discount received column is posted to the debit to the respective personal accounts in the ledger by  writing ' to discount received a/c' in the particular column.

3. The total of discount received column on the credit side is posted to the credit of the discount received a/c in the ledger by writing ' by sundries as per cash book ' in the particular column.

Cash book posting

Cash book posting :

The various items appearing on the debit side and credit side are posted as under :


Posting of item appearing on debit side

1.all the receipt appearing on the debit side are posted to the credit of the respective ledger account in the ledger by writing ' by Cash/bank a/c ' in the particular column since cash/ cheque has been received in respect of them.

2. An individual entry in the discount allowed column is posted to the credit of the respective personal accounts in the ledger by writing ' by discount allowed a/c 'in the particulars column.

3.the total of discount allowed columns on the debit side is posted to the debit of the ' by discount allowed a/c' in the ledger by writing' to sundries as per cash book ' in the particular column.


To be continue.....credit side

Triple column cash book

Triple column cash book :

This cash book has three columns ( one for cash, one for bank and one for discount) on each side. All cash receipt , deposits into bank and discount allowed are recorded on debit side and all cash payment, withdrawals from Bank and discount received are recorded on the credit side.in fact a three column cash book serves the purpose of cash account and bank account.there is no need to open these two accounts in the ledger. The cash and bank column are balanced separately like any other ledger account.cash account always shows a debit balance but bank account may show either debit balance or credit balance discount columns are merely totaled and are not balanced.

Double column cash book

Double column casa book:

This casa book has two amount columns ( one for cash and another for discount) on each side. All cash receipts and discount allowed are recorded on the debit side and all cash payments and discount received are recorded on the credit side. Only the cash columns are balanced like any other account. The discount columns are merely totaled and are not balanced because these Two discount columns relate to separate account discount column on debit side relate to discount allowed account and discount column on credit side relates to discount received account.

Important tips

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Types of cash book

There are mainly two types of cash book :

1. Single - column cash book

This cash book has one amount column on each side. All cash receipt are recorded on the debit  side. And all cash payments on the credit side. In fact this book is nothing but a cash account. Hence there is no need to open this account in the ledger. This cash book is balanced just like any other ledger account.

To be continue.............

Cash book

Cash book :

The cash book is a book of original entry since transaction are recorded for the first time from the source documents.it is a journal . the cash book is a ledger in the sense that it is designed in the form of a cash account and records cash receipt on the debit side and cash payments on the credit side.thus cash book is both a journal and a ledger.

Accounting tips

Receipt :

When a trader receives cash from a customer. He issue a receipt containing the date, amount and the name of the customer. The original copy of receipt is given to the customer and its duplicate copy is kept for making records in the books of accounts. In the same way whenever we make payment we obtain a receipt from the party to whom we make payment . on next page you may find the 2 original copy of this receipt in white and pink color for your exercise.

Now we go for next step according  to above given picture. We are already complete transaction recording process.

Illustration - 4

1. Depreciate machine @ 10% p.a that had been purchased on 1st Oct. For rs 40000. Books are closed on 31st December.

Depreciation a/c.     1000
To Machinery a/c.              1000

2. Appreciate land by rs 25000.

Land a/c.                       25000.
To appreciation a/c.                  25000.

3. Tools of  rs 15000. Now revalued at rs. 10000 only.

Depreciation a/c.                      5000
To tools & implements a/c.                 5000


Now I closed illustration now. If you have any question comment me.

Now  I stray new topic..

Illustration - 3

1. Farhan closed his business due to heavy losses and paid only rs 400. To us in full settlement of his debt of rs. 2000

Cash a/c.            400
Bad debts a/c.  1600
To farhan's a/c.            2000


2. Dhuruv who purchased goods of rs 3000 from us & paid earlier only rs 1200. Is now untraceable.

Bad debts a/c       1800
To dhuruv's a/c.             1800

3. Received rs 1600 from farhan who's a/c was written off last year as a bad debts.

Cash a/c.                                  1600
To bad debts recovered a/c.           1600

Illustration - 2

Illustration - 2

1. Purchase goods for rs 2000 cash.

Purchase a/c.     Dr  2000
To cash a/c.                         2000

2. Purchased goods for rs 10000 from ram.

Purchase a/c.     Dr. 10000.
To Ram a/c.                               10000.

3. Goods sold to cash rs 10000.

Cash a/c.     Dr.   10000
To sales a/c.                     10000.

To be continued.....

Start Illustrations (journal entry )

Now start illustration -1,

With out illustrations accounting is incomplete totally . then now I start here illustrations :

1.purchased a motorcycle for his son for rs 45000 out of business cash.

2. Paid life insurance of proprietor rs 1100.

3. Personal income tax paid rs 2000 by owner from business cash.


Given above transaction same entry made as follow :

Drawing  a/c.        Dr.          48100
To cash a/c.                                        48100

4.paid rent for the home by cheque rs 6400.

Drawing a/c.      Dr.       6400
To bank a/c.                              6400.

Accounting tips

Invoice  or bill accounting tips :

When a trader sells goods on credit basis , he prepares a sale invoice while when a trader purchases goods on credit basis , he
Receives a credit bill from supplier  of goods, original copy of the sale invoice is sent to the purchaser and its duplicate copy is kept for making records in our books of accounts. This also includes tax amount wherever applicable. It may be either in pink colour or yellow colour. Two original copy of this is given on next pages. You can fill that according to your requirements.

Journal entry part -2

Journal entry part - 2

1. Bank charges.

Bank charges a/c.      Dr
To Bank a/c.

2.Received from debtors and allowed discount.

Cash & discount allowed a/c.     Dr.
To debtors a/c.

3.Given to creditors and received discount.

Creditors a/c.                     Dr
To cash & discount received a/c.

4. Appreciate land.

Land a/c.       Dr
To appreciation a/c.

5. Drawing from business.

Drawing a/c.        Dr
To cash a/c.

Journal entry part - 1

Journal entry part - 1

1. Paid salary

Salary a/c.    Dr
To cash

2. Rent received

Cash a/c        Dr
To rent a/c

3. Goods lost by fire

Loss by fire a/c.    Dr
To purchase a/c

4. Bad debts

Bad debts a/c.      Dr
To debtor a/c

5. Cash taken from bank.

Cash a/c.        Dr
To bank a/c


To be continue.......

Accounting tips

Cash memo :

When a trader sells goods on cash basis,he gives a cash memo and when he purchases goods for cash he receives a cash memo.details regarding the quantity, rate and the total price is mentioned in the cash memo.transactions regarding cash sale and cash purchase are recorded in the books of account on the basis of these cash memos. Two copy of this in the pink and green color is given on the next pages for your assistance.

Important journal entry part - 2

6. Discounting of b/r from bank.

Bank a/c (discounting charges ) .    Dr
To B/R. a/c

7. Depreciation.

Depreciation a/c.  Dr
To asset a/c

8. B/R accepted by the debtor.

B/R a/c .    Dr
To debtor a/c.

9. B/p acceptance given to creditor.

Creditor a/c.       Dr
To B/p a/c

10. Send B/r to bank for collection.

Bill for collection a/c.   Dr
To B/R. a/c.   

Important journal entries

Some special typ of transaction:

1. Goods given as Charity.

Charity a/c.    Dr
To purchase a/c

2.goods used in making furniture.

Furniture a/c.      Dr
To purchase a/c.

3.interest on capital.

Int. On capital a/c.     Dr
To capital a/c

4.cash as drawing.

Drawing a/c.       Dr
To cash a/c

5.interest on drawing.

Drawing a/c.       Dr
To int. On drawing.



To be continued......

Some adjustment important point

Disposal of goods other then sale:

Purchase will be credited because purchase account represent goods account and if goods decrease or say go out then as per real account it is to be credited.


Interest on capital :

Business may allow interest to its proprietor on his capital.it is an expense for the business.as the expense is debited.interest on capital will be debited.the other account involved here is capital account which is an artificial personal account.it will be credited with the amount of interest on capital.


Drawing :

When the proprietor  withdraws some money from the business for his personal or domestic use.it is known as drawing.drawing reduce the amount of capital. As decrease in capital is debited. Drawing will be also debited. As cash will be decrease as an asset.it will be credited.


Interest on drawing :

Business charges interest on business cash used by owner for private use. 

Income received in advance

Income received in advance :

Income is received in advance during the current year. It is received for the next year, it should not be included in the current year's income.As this income pertains to the next year. It cannot be treated as income in the current year, so it becames a liability representing a person who may be a creditor for this .it should be credited.

Example : if rent is received in advance for the period Jan and Feb 2013, in December 2012, rs 9000.then the entry will be.

Rent a/c.                                           9000
To rent received in advance a/c.         9000

( rent received in advance for Jan and Feb in the month of Dec 2012.)

Adjustment entry - Accrued income

Accrued income :

In case, income has been earned but it has not been received till now, it is an accrued income. Accrued income is an asset because it is to be received in future,representing a person who will pay this amount it will be debited.

Example:
Rent ( receivable) is outstanding for the month of Nov rs 4000. The entry in such a case will be:

Accrued rent a/c.          4000
To rent a/c.                               4000.
(Being rent due but not yet received for the period)

Note:
Rent income a/c has been credited because of nominal nature of account . it is an income to be received in future . it will be credited.

Prepaid Expense:

This is an expense relating to the next year that has been Paid in advance during the current year. In such a case, this amount should not be treated as an expense for this year. It should be treated as an asset in the current year as the services will be received only in the next year. ( but the payment has been made in this year). It is a representative personal account which is just like a debtor. And prepaid expense account will be debited.

Example :
Insurance is prepaid for 2013 in 2012 of rs 3000. Then entry will be made as follow:

Prepaid insurance a/c.          3000
To insurance premium a/c.             3000.
(Insurance paid in advance )

Adjustment entry for outstanding expenses.

Outstanding Expenses :

An expenses for the current accounting period should be debited. It is immaterial whether it is paid in that accounting period or not. In case the same expense is not paid during the year, it becomes outstanding for that particular year. It is the liability of the business for that year and , thus, expense outstanding account will be credited as this is an representative personal account which will receive money after a certain period.
For example : creditor.


If salaries are outstanding of rs 5000. For December 2018 then the entry will be made as follow:

Salaries a/c.     5000
To salaries o/s a/c.     5000
(Salaries remaining unpaid for the month of December).

Adjustment entries

Adjustment Entry :

To satisfy the principal of matching cost and revenue, amount of every expenses and revenue should pertain to the period for which accounts are being prepared.there can be two situations :

A. Amount has been received or paid which belongs to more than one accounting year.

B. Amount of expense or revenue for the current year stands due but are not paid or received.


To be continue......

Compound Entry

Compound Entry
There can be entries that effect more than two accounts : such entry are called compound or combined entries.

Example :
Two simple journal entries are as under :

Salary a/c.                 6000
To cash a/c.                            6000
( salary paid in cash )

Rent a/c.                    12000
To cash a/c.                              12000
( rent paid in cash )


Compound entry :

Salary a/c.      Dr.       6000
Rent.   a/c.      Dr.       12000
To cash a/c.                               18000
( payment of salary and rent in cash ).


Note:
To make the compound entry it is necessary that the transaction must be of the same date and one account is common.

Types of accounts

There are three types accounts

1.personal account : the account which is closely related to the name of an entity either natural or artificial.
For example : Ram, shyam, ram trading account, bank account, drawing account,capital account etc.

2. Real account : real account are those account which relate to a thing having a physical substance, that can be moved at our wish.it may be goods, assets etc.
Example : furniture, closing stock , casa etc.

3. Nominal account : these account are closely related to expenses, incomes, gains,profits, etc.
For example : salary , rent, commission, discount etc.

Journal entry examples part 2

4.sale made to ramesh rs 40000.

Ramesh           40000
To sales                          40000.
(Being sales made to ramesh on credit)

5. Sales made to Mohan rs 2000. On cash.

Cash a/c.          2000
To Sales a/c.                2000
Being sales made on cash to mohan).

6.salary paid to ganesh rs 2000

Salary a/c.       2000
To cash a/c.                2000

7.purchased stationary rs 50

Stationary a/c.       50
To cash a/c.                  50
( being stationary purchased on cash).

Journal entry examples.

Same journal entry examples:

Giving journal entries in the books of Ram traders. Proprietor of which is Ram.

1. Started business with cash rs 25000. Furniture rs 12000.

Cash a/c.                   25000
Furniture a/c.           12000
     To capital a/c.                         37000.
( being: business started with cash 25000 or furniture 12000.)



2. Purchased goods rs 2000.

Purchases a/c.         2000
To cash a/c.                          2000
( being purchases made in cash ).

3. Purchased goods worth 3000 from mohan

Purchase a/c.      3000
  To Mohan.                    3000
(Being purchase made from Mohan on credit worth rs 3000.)

To be continue.........

Process of journalizing

Process of journalizing

1. Identify the accounts :
First of all, the affected accounts of an accounting transaction are identified.

Example : furniture worth rs 10000 are sold for cash, then furniture A/c, and Cash A/c,
Are the two affected accounts.

Furniture or cash are both real account apply Dr. Or Cf. Rule :

Entry in the journal will be.

Furniture a/c.       10000
To cash a/c.                              10000.
( being furniture purchased worth rs 10000).

Journal

Journal :

Journal is derived from the french word ' jour' which means a day. Journal means a daily record of business transaction.journal is a book of original entry because transaction is first written in the journal. From which it is posted to the ledger at any convenient time.


Format :

Journalizing means recording a transaction in the journal and the form in which it is recorded is known as journal entry.


Example: Mr. Ram started business under the name ram traders on 5Jan10. With cash rs 50000.

Date.   
5 jan 10.


Cash account.             50000
To capital account.                    50000
( being business started with cash rs 50000).