Definition of Book keeping :

“Bookkeepingistheartofrecordingbusinesstransactionsinasystematicmanner
.A.H.Rosenkamph

“Book-keeping is the science and art of correctly recording in books of

accountallthosebusinesstransactionsthatresultinthetransferofmoneyormoney’sw
orth ”.R.N.Carter

Objectives of Book-keeping
1. Book-keeping provides a permanent record of each transactions.
2. Soundness of a firm can be assessed from the record assets and abilities on a
particular date.

ACCOUNTING
Meaning of Accounting
Accounting, as an information system is the process of identifying, measuring and
communicating the economic information of an organization to it user who need the
information of decision making.It identifies transactions and events of a specific
entity .A transaction is an exchange in which each participant receives or sacrifices
value( e.g .purchase of rawmaterial). An even t(whether internal or external) is a
happening of consequence to an entity (e.g. use of rawmaterial for production) .An
entity means an economic unit that performs economic activities.
Definition of Accounting
American Institute of Certified Public Accountants(AICPA) which defines
accountingas“theartofrecording,classifyingandsummarizinginasignificantmannerandinter
msofmoney,transactionsandevents,whichare,inpartatleast,ofafinancialcharacterandinterpr
etingtheresultsthereof”.
Objective of Accounting: Objective of accounting may differ from business to business
depending up on their specific requirements. However, the following are the general
objectives of accounting.

1.To keepingsystematicrecord: It is very difficult to remember all the business

transactions that take place. Accounting serves this purpose of recordkeeping by
promptly recording all the business transactions in the books of account.
2.Toascertaintheresultsoftheoperation:Accountinghelpsinascertainingresulti.e.,profit
earnedorlosssufferedinbusinessduringaparticularperiod.Forthispurpose,abusinessentityp
repareseitheraTradingandProfitandLossaccountoranIncomeandExpenditureaccountwhic
hshowstheprofitorlossofthebusinessbymatchingtheitemsofrevenueandexpenditureofthes
omeperiod.
3.Toascertainthefinancialpositionofthebusiness:Inadditiontoprofit,abusinessmanmust
knowhisfinancialpositioni.e.,availabilityofcash,positionof
assetsandliabilitiesetc.Thishelpsthebusinessmantoknowhisfinancialstrength.Financialsta
tementsarebarometersofhealthofabusinessentity.
4.To portray the liquidity position: Financial reporting should provide information
about how an enterprise obtains and spends cash about its borrowing and repayment of
borrowing ,about its capital transactions, cash dividends and other distribution so f
resources by the enterprise to owners and about other factors that may affect an
enterprise’s liquidity and solvency.

5.To protect businessproperties: Accounting provide sup to date information about the
various assets that the firm possesses and the liabilities the firm owes, so that no body can
claim a payment which is not due to him.
Accounting Concepts

1. Business entity concept: A business and its owner should be treated separately as far
as their financial transactions are concerned.
2. Money measurement concept: Only business transactions that can be expressed in
terms of money are recorded in accounting, though records of other types of transactions
may be kept separately.
3. Dual aspect concept: For every credit, a corresponding debit is made. The recording
of a transaction is complete only with this dual aspect.
4. Going concern concept: In accounting, a business is expected to continue for a fairly
long time and carry out its commitments and obligations. This assumes that the business
will not be forced to stop functioning and liquidate its assets at “fire-sale” prices.
5. Cost concept: The fixed assets of a business are recorded on the basis of their
original cost in the first year of accounting. Subsequently, these assets are recorded
minus depreciation. No rise or fall in market price is taken into account. The concept
applies only to fixed assets.
6. Accounting year concept: Each business chooses a specific time period to complete
a cycle of the accounting process—for example, monthly, quarterly, or annually—as per
a fiscal or a calendar year.
7. Matching concept: This principle dictates that for every entry of revenue recorded in
a given accounting period, an equal expense entry has to be recorded for correctly
calculating profit or loss in a given period.
8. Realisation concept: According to this concept, profit is recognised only when it is
earned. An advance or fee paid is not considered a profit until the goods or services have
been delivered to the buyer.
 

Accounting Conventions

There are four main conventions in practice in accounting: conservatism; consistency; full
disclosure; and materiality.

Conservatism is the convention by which, when two values of a transaction are available, the
lower-value transaction is recorded. By this convention, profit should never be overestimated,
and there should always be a provision for losses.
Consistency prescribes the use of the same accounting principles from one period of an
accounting cycle to the next, so that the same standards are applied to calculate profit and
loss.
Materiality means that all material facts should be recorded in accounting. Accountants
should record important data and leave out insignificant information.
Full disclosure entails the revelation of all information, both favourable and detrimental to a
business enterprise, and which are of material value to creditors and debtors.
Basic Accounting Terms

Here is a quick look at some important accounting terms.

Accounting equation: The accounting equation, the basis for the double-entry system (see
below), is written as follows:
Assets = Liabilities + Stakeholders’ equity
This means that all the assets owned by a company have been financed from loans from
creditors and from equity from investors. “Assets” here stands for cash, account receivables,
inventory, etc., that a company possesses.

Accounting methods: Companies choose between two methods—cash accounting or accrual

accounting. Under cash basis accounting, preferred by small businesses, all revenues and
expenditures at the time when payments are actually received or sent are recorded. Under
accrual basis accounting, income is recorded when earned and expenses are recorded when
incurred.
Account receivable: The sum of money owed by your customers after goods or services
have been delivered and/or used.
Account payable: The amount of money you owe creditors, suppliers, etc., in return for
goods and/or services they have delivered.

Principles of Double Entry System

every transaction there are two aspects. One is called Debit and the other is called Credit.
The debit and credit aspects of a transaction are to be identified based on the principles of
double entry system of accounting.

Debit refers to entering an amount on the left side of an account and Credit means to enter an
amount on the right side of an account. The abbreviated form of Dr. Stands for Debit and Cr.
Stands for Credit. Rules of debit and credit is based on dual aspect concept i.e. every
transaction has Debit effect and an equivalent credit effect.

Before deciding which account is to be debited or credited, it is necessary to decide the nature
of accounts which are influenced by the business transactions.

The rules of Debit and Credit are given below

Personal Accounts: (Natural Persons and Artificial Person)

Rule    : Debit the Receiver

              Credit the Giver

According to the above principle, the benefit receiver’s account is to be debited and and the
benefit giver’s account is to be credited.  

For Examples:
1. Goods purchased from Ramesh on credit for 2,000
The two accounts involved in this transaction are goods purchased A/c and Ramesh A/c. so,
Ramesh is the Giver of the goods. Hence Ramesh account is be credit (i.e. credit the giver
rule applies) goods purchased is expenditure, so nominal account, hence is to be debited.

2. Goods sold on credit to Mahesh Rs. 5,000/-

In this transaction Mahesh is receiving the benefit from the business. Hence, Mahesh account
is to be debited and goods sold is an income, so nominal account hence to be credited.
Cash paid to Mohan Rs. 500
In this transaction cash ( asset – real account) is going out and Mohan (personal – personal
A/c) is receiving cash. Hence Mohan account is to be debited and cash account is to be credit.

4. Cash received from Sathish Rs. 800

In this transaction Sathish (person) giving cash and cash (real A/c) is coming into business.
Here Sathish is the giver. Hence, his account is to be credited.

Real Accounts:(Assets)

Rule    : Debit What comes in

              Credit what goes out

According to real accounts principle, when an assets is received by the business, the asset
account is to be debited, when any asset goes out of the business, the asset account is to be
credited. 

For example:

1. Purchased office furniture for Rs. 10,000.

In this transaction office furniture (asset – Real A/c) is coming in and cash (asset – Real A/c)
is going out. Hence, office furniture account is to be debited and cash account is to be
credited.

2. Received cash from Shankar Rs. 2,000.

In this transaction cash (asset – Real account) is coming in and Shankar (personal A/c) is the
giver. Hence, cash A/c is to be debited.

3. Cash paid to Manoj Rs. 1,000.

In this transaction cash (asset) is going out and Manoj (personal A/c) is receiving cash.
Hence, cash A/c is to be credited and Manoh account is to be debited.

4. Old Machine (asset) sold for Rs. 600.

In this transaction cash (asset) is coming in and Machine (asset) is going out. Hence, cash A/c
is to be debited and Machine account is to be credited.

Nominal Accounts: (Expenses, Losses, Incomes, Gains)

Rule    : Debit all Expenses and Losses.

              Credit all Incomes and Gains.
According to normal account principle, expenses and losses are to be debited and all incomes
and gains of the business are to be credited. 

For example.

1. Salaries paid Rs. 5000

In this transaction salaries (expenditure-nominal A/c) is an item of expenditure and cash (real
A/c) is going out.

Hence, Salaries A/c is to be debited and cash A/c is to be credited.

2. Rent Received Rs. 200

In this transaction, cash (Real A/c) received is asset and rent received is income. Hence rent
A/c being income to be credited and cash A/c is to be debited.

3. Goods purchased for Rs.8000

In this transaction goods purchased is expenditure (nominal A/c) and cash (asset) paid is real
A/c. Hence, Goods purchased account is to be debited and cash A/c is to be credited.

4. Goods sold for Rs. 10,000

In this transaction cash (asset) received is real A/c and goods sold (income) is nominal A/c.
Hence, goods sold account is to be credited and cash A/c is to be debited.

Functions of Accounting:

The following are the major functions of accounting:

(a) Keeping Systematic Records:

As a language of business, accounting is to report the results of most business events. Hence,

its main function is to keep a systematic record of these events. This function embraces

recording transactions in journal and subsidiary books like cashbook, sales book etc., posting

them to ledger accounts and ultimately preparing the financial statements [final accounts].

(b) Communicating the Results:

The second main function of accounting is to communicate the financial facts of the

enterprise to the various interested parties like owners, investors, creditors, employees,

government, and research scholars, etc.

The purpose of this function is to enable these parties to have better understanding of the

business and take sound and realistic economic decisions.

(c) Meeting the Legal Requirements:

Accounting aims at fulfilling the legal requirements, especially of the tax authorities and

regulators of the business. It discharges this function in accordance with certain fundamental

truths and uniform enforcement of generally accepted accounting principles.

(d) Protecting the Properties of the Business:

Accounting helps protecting the property of the business.

(e) Planning and Controlling the Business Activities:

Accounting also helps planning future activities of an enterprise and controlling its day-to-

day operations. This function is done mainly to promote maximum operational efficiency.

Journal :

In accounting and bookkeeping, a journal is a record of financial transactions in order by

date. A journal is often defined as the book of original entry. The definition was more
appropriate when transactions were written in a journal prior to manually posting them to the
accounts in the general ledger or subsidiary ledger. Manual systems usually had a variety of
journals such as a sales journal, purchases journal, cash receipts journal, cash disbursements
journal, and a general journal.
With today's computerized bookkeeping and accounting, it is likely to find only a general
journal in which adjusting entries and unique financial transactions are entered. The
recording and posting of most transactions will occur automatically when sales and vendor
invoice information is entered, checks are written, etc. In other words, accounting software
has eliminated the need to first record routine transactions into a journal.

Ledger:
It is also known as the principal book of accounts as well as the book of final entry. It is a
book in which all ledger accounts and related monetary transactions are maintained in a
summarized and classified form. All accounts combined together make a ledger and form a
permanent record of all transactions. It is the most important book of accounting as it helps in
the creation of trial balance 

Subsidiary Books

Subsidiary books are books of original entry. In the normal course of business, a majority of
transactions either relate to sales, purchases or cash. So we record transactions of the same or
similar nature in one place, i.e. the subsidiary book. And we record these transactions in a
chronological order.
This actually saves a lot of man-hours and tiresome clerical work. Instead of journalizing each
entry, they are recorded into various subsidiary books. Think of your subsidiary book as sub-
journals that record only one type of transaction.

There is no separate entry for these transactions in the general ledger

Types of Subsidiary Books

The following are the subsidiary books a company will generally maintain while writing their
accounts,

 Cash Book

Purchase Book or Purchase Journal:

Purchase book is a book of original entry in which only credit purchases of goods are
recorded. Cash purchases of goods are recorded in the cash book. Credit purchases of other
assets are also not recorded in the purchase book; they are recorded in the journal

Purchase Return Book :Purchases return book is a book of original entry in which
transactions related to the return of purchases of goods are recorded.

There may be several reasons for returning the goods to the supplier; some of them are
as under:
(a) On finding some defects in the goods.

(b) When goods sent are not as per the samples or specifications.

(c) If the quantity of goods supplied is more than the requirements.

(d) When there is a breach of agreement between the seller and the purchaser.

When the business enterprise returns the goods to the supplier, a debit note is sent to the party
to whom this document is sent. Business enterprise may make a debit note against the
supplier for an amount which is to be recovered from him when the business enterprise
returns some goods which are defective in nature or not as per specifications.

 Sales Book : Sales book is a book of original entry in which only credit sales of goods
are recorded. Cash sales of goods are recorded in the cash book. Credit sales of other
assets are also not recorded in the sales book; they are recorded in the journal proper.
Goods here mean the items or articles in which business enterprise is dealing or we can
say that goods are the items which are used by the business enterprise for regular sale.
For example, sale of furniture by a business enterprise which is dealing in stationery
 shall not be treated as its goods and items related to stationery alone shall be regarded as
its goods

Sales Return Book: Sales return book is a book of original entry in which transactions related
to the return of sales of goods are recorded. The sales return book does not record return of
goods sold on cash basis. There may be several reasons for returning the goods by the
customers.

Some of them are as under:

(a) On finding some defects in the goods.

(b) When there is delay in supply of goods to the customers.

(c) When goods sent are not as per the samples or specifications.

(d) If there is an oversupply of goods.

(e) When there is a breach of agreement between the seller and the purchaser.

When a business enterprise receives back the goods sold earlier, it makes a credit note in
favour of the purchaser showing that his account has been credited in the books of business
enterprise. In this document, all details about the date and amount of transaction, the name of
the party whose account is credited along with reason for crediting his account shall be
mentioned. It should be noted that the trade discount allowed at the time of credit sale shall
also be adjusted at the time of receiving goods.

 Bills Receivable Book

 Bills Payable Book

 Journal Proper
Advantages of Subsidiary Books

Let us now take a look at some of the advantages these subsidiary books provide in the process
of accounting

i. Saving Labour Hours: Recording is a subsidiary book saves a lot of time and clerical
hours. Firstly there is no need to journalize and/or give narrations for every transaction.
This helps reduce the time it takes to completely record a transaction. Also since we use a
number of subsidiary books, various accounting process can be undertaken
simultaneously. This to will save the time of the clerks/accountants.
 ii. Division of Work: In place of one general journal, we have several subsidiary books,
So the resulting work may be divided among several members of the staff. This will save
time, improve efficiency and result in fewer errors as well.

iii. Specialization of Work: If one person maintains the same subsidiary book over many
years he acquires full knowledge and understanding of the work. We can say he becomes
a specialist in one type of transaction (say purchases for example). He becomes very
efficient in handling such transactions and hardly any error gets made.

iv. Easy for Reference: When transactions of all types are in the same subsidiary book it
becomes easy to search for them. Whenever any information is needed we directly refer
the subsidiary book to get said information.

v. Easier for Checking: If the Trial Balance does not match, it will be much easier to
locate the error thanks to the existence of separate books i.e. a subsidiary book. Same
goes if you want to detect a fraud.

Trial balance may be defined as an informal accounting schedule or statement that lists the
ledger account balances at a point in time compares the total of debit balance with the total of
credit balance.

1. The fundamental principle of double entry system is that at any stage, the total
of debits must be equal to the total of credits. If entries are recorded and
posted correctly, the ledger will reflect equal debits and credits, and the total
credit balance will then be equal to the total debit balances.

2. Every business concern prepares final accounts at the end of the year to
ascertain the result of the activities of the whole year. To ensure correct result,
the concern must be free from doubt that the books of accounts have been
correctly recorded throughout the year. Trial balance is prepared to test the
arithmetical accuracy of the books of accounts. As we know that under double
entry system for each and every transaction one account is debited and other
account is credited with an equal amount. If all the transactions are correctly
recorded strictly according to this rule, the total amount of debit side of all the
ledger accounts must be equal to that of credit side of all the ledger accounts.
This verification is done through trial balance.

3. If the trial balance agrees we may reasonably assume that the books are
correct. On the other hand, if it does not agree, it indicates that the books are
not correct - there are mistakes somewhere. The mistakes are to be detected
and corrected otherwise correct result cannot be ascertained. There are
however, a few types of errors which the trial balance cannot detect. In other
words, the trial balance will agree in spite of the existence of those errors.

4. The trial balance is not an absolute or solid proof of the accuracy of books of
accounts. Thus if trial balance agrees, there may be errors or may not be
errors. But if it does not agree, certainly there are errors.

Purposes of Trial Balance:

The trial balance serves two main purposes. These are as under:
 1. To check the equality of debits and credits - an arithmetical or mathematical test of
accuracy.

2. To provide information for use in preparing final accounts.

Methods of Preparing Trial Balance:

There are three methods for the preparation of trial balance. These methods are:

1. Total or gross trial balance

2. Balance or net trial balance
3. Total - cum - balance trial balance

The method 1 and 2 are described below:

Total or Gross Trial Balance:

Under this method the two sides of all the ledger accounts are totaled up. Thereafter, a list of
all the accounts is prepared in a separate sheet of paper with two "amount" columns on the
right hand side. The first one for debit amounts and the second one for credit amounts. The
total of debit side and credit side of each account is then placed on "debit amount" column
and "credit amount" column respectively of the list. Finally the two columns are added
separately to see whether they agree of not. This method is generally not followed in practice.

Balance or Net Trial Balance:

Under this method, first of all the balances of all ledger accounts are drawn. Thereafter, the
debit balances and credit balances are recorded in "debit amount" and "credit amount"
column respectively and the two columns are added separately to see whether they agree or
not. This is the most popular method and generally followed.

The various Steps involved in the preparation of Trial Balance under this method are given
below:

1. Find out the balance of each account in the ledger.

2. Write up the name of account in the first column.
3. Record the account number in second column.
4. Record the debit balance of each account in debit column and credit balance in credit
column.
5. Add up the debit and credit column and record the totals.

Definition and Explanation:

The account which is prepared to determine the gross profit or gross loss of a business
concern is called trading account.

It should be noted that the result of the business determined through trading account is not
true result. The true result is the net profit or the net loss which is determined through profit
and loss account. The trading accounting has the following features:
 1. It is the first stage of final accounts of a trading concern.

2. It is prepared on the last day of an accounting period.

3. Only direct revenue and direct expenses are considered in it.

4. Direct expenses are recorded on its debit side and direct revenue on its credit side.

5. All items of direct expenses and direct revenue concerning current year are taken into
account but no item relating to past or next year is considered in it.

6. If its credit side exceeds it represents gross profit and if debit side exceeds it shows
gross loss.

Purpose of Preparing Trading Account:

The profit or loss determined by a trading account is the gross result of the business but not
the net result. If so, then a question arises - what is the use of preparing a trading account?
This account is necessary because of the following advantages.

1. Gross profit of a business is very important data, since all business expenses are met
out of it. So the amount of gross profit should be adequate to meet the indirect
expenses of a business concern.

2. The amount of net sales can be determined through this account. Gross sales can be
ascertained from sales account in the ledger, but net sales cannot be so obtained. The
true sales of a business is net sales - not gross sales. Net sales are determined by
deducting sales returns from gross sales in trading account.

3. The success or failure of a business can be ascertained by comparing net sales of the
current year with that of the last year. It should be noted that an increase in the
amount of net sales of the current year over the last year may not be regarded as a sign
of success, since sales may increase because of rise in price level.

4. Percentage of gross profit on net sales (gross profit ratio) can be easily determined
from trading account. This percentage is very important yardstick for measuring the
success or failure of a business. Compared to last year, if the rate increases, it
indicates success; on the other hand if the rate decreases, it is an indication of failure.

5. Percentage of different items of buying expenses (direct expenses) on gross profit can
be easily determined and by comparing the percentage of the current year with that of
the previous year the variations can be ascertained. An analysis of variances will
disclose their cause which will help in controlling the amount of expenses.

6. Inventory or stock turnover ratio can be determined from trading account. The success
or failure of a business can be measured by this rate. Higher rate indicates a favorable
sign i.e. goods are sold soon after their purchase. On the other hand, low rate signifies
deterioration, i.e. goods are sold long after their purchase.

Meaning:
Financial Statements are the collective name given to Income Statement and Positional
Statement of an enterprise which show the financial position of business concern in an
organized manner. We know that all business transactions are first recorded in the books of
original entries and thereafter posted to relevant ledger accounts. For checking the
arithmetical accuracy of books of accounts, a Trial Balance is prepared.

Trial balance is a statement prepared as a first step before preparing financial statements of an
enterprise which record all debit balances in the debit column and all credit balances in credit
column. To find out the profit earned or loss sustained by the firm during a given period of
time and its financial position at a given point of time is one of the purposes of accounting.
For achieving this objective, financial statements are prepared by the business enterprise,
which include income statement and positional statement

These two basic financial statements viz:

(i) Income Statement, i.e., Trading and Profit & Loss Account and

(ii) Positional Statement, i.e., Balance Sheet portrays the operational efficiency and solvency
of any business enterprise.

The income statement shows the net result of the business operations during an accounting
period and positional statement, a statement of assets and liabilities, shows the final position
of the business enterprise on a particular date and time. So, we can also say that the last step
of the accounting cycle is the preparation of financial statements.

Income statement is another term used for Trading and Profit & Loss Account. It determines
the profit earned or loss sustained by the business enterprise during a period of time. In large
business organization, usually one account i.e., Trading and Profit & Loss Account is
prepared for knowing gross profit, operating profit and net profit.

On the other hand, in small size organizations, this account is divided into two parts i.e.
Trading Account and Profit and Loss Account. To know the gross profit, Trading Account is
prepared and to find out the operating profit and net profit, Profit and Loss Account is
prepared. Positional statement is another term used for Balance Sheet. The position of assets
and liabilities of the business at a particular time is determined by Balance Sheet.

Objective and Importance:

(i) Knowing Profitability of Business:
Financial statements are required to ascertain whether the enterprise is earning adequate
profit and to know whether the profits have increased or decreased as compared to the
previous year(s), so that corrective steps can be taken well in advance.
(ii) Knowing the Solvency of the Business:
Financial statements help to analyse the position of the business as regards to the capacity of
the entity to repay its short as well as long term liabilities.

(iii) Judging the Growth of the Business: Through comparison of data of two or more years
of business entity, we can draw a meaningful conclusion as regard to growth of the business.
For example, increase in sales with simultaneous increase in the profits of the business,
indicates a healthy sign for the growth of the business.

(iv) Judging Financial Strength of Business:

Financial statements help the entity in determining solvency of the business and help to
answer various aspects viz., whether it is capable to purchase assets from its own resources
and/or whether the entity can repay its outside liabilities as and when they become due.

(v) Making Comparison and Selection of Appropriate Policy:

To make a comparative study of the profitability of the entity with other entities engaged in
the same trade, financial statements help the management to adopt sound business policy by
making intra firm comparison.

(vi) Forecasting and Preparing Budgets:

Financial statement provides information regarding the weak-spots of the business so that the
management can take corrective measures to remove these short comings. Financial
statements help the management to make forecast and prepare budgets.

(vii) Communicating with Different Parties:

Financial statements are prepared by the entities to communicate with different parties about
their financial position. Hence, it can be concluded that understanding the basic financial
statements is a necessary step towards the successful management of a commercial
enterprise.

Limitations of Financial Statements:

(i) Manipulation or Window Dressing:
Some business enterprises resort to manipulate the information contained in the financial
statements so as to cover up their bad or weak financial position. Thus, the analysis based on
such financial statements may be misleading due to window dressing.

(ii) Use of Diverse Procedures:

There may be more than one way of treating a particular item and when two different
business enterprises adopt different accounting policies, it becomes very difficult to make a
comparison between such enterprises. For example, depreciation can be charged under
straight line method or written down value method. However, results provided by comparing
the financial statements of such business enterprises would be misleading.

(iii) Qualitative Aspect Ignored:

The financial statements incorporate the information which can be expressed in monetary
terms. Thus, they fail to assimilate the transactions which cannot be converted into monetary
terms. For example, a conflict between the marketing manager and sales manager cannot be
recorded in the books of accounts due to its non-monetary nature, but it will certainly affect
the functioning of the activities adversely and consequently, the profits may suffer.

(iv) Historical:
Financial statements are historical in nature as they record past events and facts. Due to
continuous changes in the demand of the product, policies of the firm or government etc,
analysis based on past information does not serve any useful purpose and gives only post-
mortem report.

(v) Price Level Changes:

Figures contained in financial statements do not show the effects of changes in the price
level, i.e. price index in one year may differ from price index in other years. As a result,
misleading picture may be obtained by making a comparison of figures of past year with
current year figures.

(vi) Subjectivity & Personal Bias:

Conclusions drawn from the analysis of figures given in financial statements depend upon the
personal ability and knowledge of an analyst. For example, the term ‘Net profit’ may be
interpreted by an analyst as net profit before tax, while another analyst may take it as net
profit after tax.

(vii) Lack of Regular Data/Information:

Analysis of financial statements of a single year has limited uses. The analysis assumes
importance only when compared with financial statements, relating to different years or
different firm.

Problem:1 Journalized the following transaction

1-1-2019 : started business with cash Rs. 30,000
22-1-2019 : Deposited into bank : Rs. 10,000
23-1-2019: Goods purchased for cash : Rs. 5,000
24-1-2019: withdraw from bank for office uses :Rs. 1,000
25-1-2019: credit sales to Krishna : Rs.1,500
31-1-2019: paid salaries: Rs. 2250
Problem 2: pass the necessary journal entires in the book of Mr. Krian
1-3-19 : kiran started business with cashRs.10,000 and plant machinery Rs.20,000
2-3-19 : Bought the furniture from Raj :Rs.2,000
8-3-19 : purchase goods worth For RS. 6,000
12-3-19 : Sold goods Rs. 1,000
16-3-19 Purchased goods from Vishnu on account : 5,00
18-3-19 : Sold goods to Rajesh : 2,000
20-3-19 : Returned damaged goods to Vishnu: 1,00
27-3-19 : received cheque from Rajesh : Rs, 1,000

Problem :3

Journalised the following transaction in the book of Sri Brother & com.

1-5-2018: Received Rs 975 from Hari krishan in full settlement of his account for Rs.1,000

4-5-2018: Paid Rs 480 to Mohan in full settlement of his account for Rs.500

10-5-2018 : with draw goods for personal use: Rs.500

14-5-2018 : paid in to Bank : Rs. 11,000

20-5-2018 : cash sales : Rs.2,000

24-5-2018 paid life insurance premium :Rs. 10,000

28-5-2018 purchased a typewriter for Rs.200 spent Rs.50 on its repairs and paid to through
the cheque

Problem ;4 Journalised the following transaction in the book of Sri Ganesh .

Date Particular Amount
1-4-2019 : Sri Ganesh started his business with cash Rs. 50,000
2-4-2019 : Purchases goods for cash Rs. 10,000
3-4-2019 : Sold goods for cash Rs.12,000
9-4-2019 : purchases goods from Moon Rs. 10,000
11-4-2019 : With drew for personal use Rs.1,000
15-4-2019 : paid salary Rs. 1,000
20-4-2019 : Sold goods to Sachin Rs.20,000
25-4-2019 : paid commission Rs.10,000
29-4-2019 : Purchases goods from Sheelan of the list price of Rs.30,000 at a trade
discount of 10%

Problem ;5 Journalised the following transaction

1-8-2018: Deposited Rs.40,000 in the company bank account in exchange for
4000 shares
2-8-2018: Paid two months office rent in advance Rs. 2,200
3-8-2018: Bought testing equipment on credit :Rs. 6,500
4-8-2018 Bought office supplies for cash: Rs. 480
7-8-2018: Received fees for service provided :Rs.6,900
13-8-2018: ordered testing equipment: Rs 3,200
16-8- 2018 : paid salaries :Rs.3,200
19-8-2018: Billed customers for service provided: Rs.9,700
20-8-2018: Received testing equipment ordered on August 13th and agreed to
pay for it on September 5
28-8-2018: paid telephone: Rs. 390
29-8-2018: Received cash for Services Provided :Rs.2,700
30-8-2018: paid salaries: Rs.2,300