CHAPTER

1
Introduction to Accounting
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Accounting Accounting is the process of collecting, recording, classifying,

summarising and communicating financial information to the users.
2. Book Keeping Book Keeping is a process of recording financial transactions in a
systematic manner and classifying them into ledger.
3. Accountancy Accountancy is a systematic knowledge of accounting, i.e., it educates
about how the books of account are maintained.
4. Income Statement Income Statement is Trading and Profit and Loss Account (Statement
of Profit and Loss, in case of companies). It shows the profit earned
or loss incurred by the enterprise during accounting year.
5. Position Statement, Position Statement or Balance Sheet shows the financial position of
i.e., Balance Sheet the enterprise on a particular date.
6. Accounting Information Accounting Information is used for forecasting, comparing and evaluating
the earning capacity and financial position of the business.
7. Double Entry System Double Entry System of Accounting means a system of accounting
of Accounting whereby both, debit and credit, aspects of a transaction are recorded.
8. Single Entry System of Single Entry System of Accounting is a system under which both, debit
Accounting and credit aspects of the transactions are not recorded in all the cases.
In some cases both aspects are recorded, while in others either one
aspect is recorded or a transaction is not recorded at all. This is also
known as Incomplete Double Entry System.

CHAPTER SUMMARY

• Accounting. “Accounting is an art of recording, classifying and summarising in a significant manner and in
terms of money, transactions and events which are, in part at least, of financial character, and interpreting the
results thereof.” —American Institute of Certified Public Accountants
• “Accounting is the process of identifying, measuring and communicating economic information to permit informed
Judgement and decisions by users of Information.” —American Accounting Association
• Difference between Book Keeping and Accounting. Accounting is a wider concept which includes ‘book
keeping’. Book Keeping is mainly concerned with the recording of financial data which is one aspect of
accounting. Accounting is the art of recording, classifying and summarising in terms of money, transactions
and events of a financial character and interpreting the results thereof. Accounting begins where book
keeping ends.
• Functions of Accounting. 1. Maintaining Systematic Records, 2. Preparing Financial Statements,
3. Analysis of financial statements 4. Communicating the Financial Results, 5. Meeting Legal Requirements,
6. Protecting Business Assets, 7. Assistance to Management, 8. Fixing Responsibility.
1.2 Double Entry Book Keeping—ISC XI

• Characteristics of Accounting. 1. Accounting is an art as well as a science. 2. Accounting records

only those transactions and events which are of financial character. 3. Accounting records the transactions
and events in terms of money. 4. Functions of Accounting: Identification, Recording, Classifying, Summarising
and interpreting. 5. Service activity.
• Objectives of Accounting. 1. Maintaining Proper Accounting Records, 2. Determining Profit earned or Loss
incurred, 3. Determining Financial Position, 4. Facilitating Management, 5. Providing Accounting Information
to Users.
• Accounting Cycle. 1. Financial Transactions, 2. Recording, 3. Classifying, 4. Summarising, 5. Analysis and
Interpretation, 6. Communicating.
• Advantages of Accounting. 1. Financial Information about Business, 2. Assistance to Management,
3. Replaces Memory, 4. Facilitates Comparative Study, 5. Facilitates Settlement of Tax Liability, 6. Facilitates
Loans, 7. Evidence in Court, 8. Facilitates Sale of Business, 9. Assistance in the event of Insolvency,
10. Helpful in Partnership Accounts.
• Limitations of Accounting. 1. Accounting is not fully exact. 2. Accounting information is not realistic.
3. Accounting ignores the qualitative elements. 4. Accounting ignores the effect of price level changes.
5. Accounting may lead to window dressing.
• Users of Accounting Information. Internal users and External users.

Parties Areas of Interest

1. Owners or Investors (i) Profitability, (ii) Financial Position, (iii) Future Prospects.

2. Management (i) Profitability in Relation to Investment, (ii) Managerial Decisions,

(iii) Liquidity of the Concern.

3. Suppliers or other Creditors (i) Profitability, (ii) Financial Position.

4. Lenders (i) Profitability, (ii) Financial Position.

5. Employees and Trade Unions Profitability.

6. Government and its Authorities (i) Profitability, (ii) Financial Position, (iii) Tax Liability.

7. Researchers (i) Accounting Theory, (ii) Business Practices, (iii) Future Profitability.

8. Society or Public (i) Protecting Environment, (ii) Indirect Contribution for Betterment.

• Branches of Accounting. 1. Financial Accounting, 2. Cost Accounting, 3. Management Accounting.

• Systems of Accounting. 1. Double Entry System, 2. Single Entry System.
 CHAPTER
2
Basic Accounting Terms
The Accounting Terms prescribed in the Syllabus are discussed hereunder:
1. Event. Event is a business event that impacts the Ledger account balances.
‘Event’ means happening or occurrence as a result of transaction or transactions and which
brings change in the financial position of the entity. Some examples of event are: inventory,
gross profit, and net profit, etc.
2. Transaction. It is exchange of money, goods and/or services by an entity.
‘Transaction’ is a financial event entered into by the entity having monetary impact on the
financial statements and recorded in the books of account. It brings change in the financial
position of an enterprise. Some examples of transactions are: sale of goods, purchase
of goods, receipts from debtors, payments to creditors, purchase or sale of fixed assets,
payment of dividend, etc.
Characteristics of a Transaction
(i) It is for a financial value, i.e., for an amount.
(ii) It is supported by a source voucher (document) e.g., sale invoice, purchase bills,
receipts, debit note, credit note, etc.
(iii) It has two fold effect in accounting.
(iv) It brings change in the financial position (assets and liabilities) of the entity.
A transaction is a cash transaction if the amount is transacted immediately on entering into
a transaction. It is a credit transaction if it is settled at a later date.
If a transaction is settled partly in cash immediately and partly later, part of transaction for
which cash is received is cash transaction and other part is credit transaction.
3. Vouchers.
Source Voucher. An evidence of transaction having taken place.
Voucher is a document which establishes that a transaction has taken place. It is an evidence
on the basis of which an entry is recorded in the books of account. Some examples of
vouchers are: Cash Memo, Invoice or Bill, Receipt, Debit/Credit Notes, etc. They are also
known as Source Vouchers.
Accounting Voucher. It is prepared on the basis of source vouchers showing account or accounts
that are debited and credited.
Based on the source vouchers, an accounting voucher is prepared which shows the accounts
debited and credited.
2.2 Double Entry Book Keeping—ISC XI

4. Trade Debtor. A person or entity who owes amount to the business against credit sale of goods
and/or services.
Trade Debtor is a person or entity who owes amount to the enterprise on account of credit
sale of goods and/or services. Stating differently, Trade Debtor is a person or entity to whom
goods and/or services are sold on credit.
5. Trade Creditor. A person or entity to whom amount is owed against credit purchase of goods and/or
services.
Trade Creditor is a person or entity to whom the enterprise owes an amount for credit
purchase of goods and/or services. Stating differently, Trade Creditor is a person or entity
from whom goods and/or services are purchased on credit.
6. Purchases. It is purchase of goods to be sold in the ordinary course of business.
The term ‘Purchases’ means purchase of goods for resale or for manufacture of goods, i.e.,
raw material. The term ‘Purchases’ includes both cash and credit purchase. Goods purchased
against cash are called cash purchases while goods purchased on credit, i.e., to be paid at
a later date, are called credit purchases.
Purchases Return. It is return of goods purchased for resale.
Goods purchased may be returned due to any reason, say, they are not as per specifications
or are defective. Goods returned are known as Purchases Return or Returns Outward.
7. Sales. It is sale of goods in the ordinary course of business.
The term ‘Sales’ means sale of goods dealt in by the enterprise. The term ‘Sales’ includes
both cash and credit sales. When goods are sold against cash, they are known as cash sales
but if goods are sold and payment is to be received at a later date, it is known as credit sales.
Sales Return. It is return of goods sold.
Goods sold when returned by the purchaser are termed as Sales Return or Returns Inward.
8. Assets. Economic resources of the entity which give cash or benefit in future.
Assets are property or legal rights owned by an entity to which money value can be attached.
In other words, anything which will enable the entity to get cash or benefit in the future
is an asset. Money owed by debtors, stock of goods, cash, furniture, machines, building,
patents, etc., are some examples of assets.
Assets can be classified as:
Fixed Assets. Assets owned by the entity or enterprise which are not for resale.
(i)
Fixed Assets are the assets held by an enterprise not for sale but with the purpose to
increase the earning capacity of the business. Fixed assets are further classified into
Tangible Fixed Assets and Intangible Fixed Assets.
(a) Tangible Fixed Assets. Tangible Fixed Assets have physical existence, i.e., they can
be seen and touched. Examples of tangible fixed assets are land, building, plant
and machinery, computer, etc.
(b) Intangible Fixed Assets. Intangible Fixed Assets do not have physical existence, i.e.,
they cannot be seen and touched. Examples of intangible fixed assets are goodwill,
trademarks, patents, computer softwares, etc.
Basic Accounting Terms 2.3

Current Assets. Assets that are held by the entity or enterprise for resale or conversion into
(ii)
cash in a short time.

Current Assets are assets held for short-term with a purpose to sell or convert them
into cash. Examples of current assets are unsold goods (Closing Stock or Inventory),
debtors, bills receivable, bank balance, etc.
Liquid Assets. Current Assets that can be realised, i.e., converted into cash in a short period.
(iii)

Liquid Assets are part of the current assets that can be realised (converted) into cash in
a short period. Examples are cash in hand, bank balance, fixed deposits, etc.
(iv) Wasting Assets. Assets which have limited life and decrease in value by extraction.
The term ‘Wasting Assets’ is associated with natural resources such as coal, oil, etc.
Wasting Assets are assets having limited life and decrease in value over time with
consumption. These assets cannot be recycled for generating additional revenue.
(v) Fictitious Assets. An asset coming into existence by an accounting entry.
Fictitious Assets are either accumulated losses or Deferred Revenue Expenses
(e.g., Advertisement Suspense) not yet written off till the date of Balance Sheet.
9. Liabilities. Claims of amounts against the entity or enterprise.
Liabilities mean the amount which the enterprise owes. It may be towards the outsiders or
the proprietors.
Liabilities can be categorised into:
(i) Internal Liabilities. Liability towards owners or proprietors.
It is a claim of the owners or proprietors against the assets of the enterprise termed as
Capital and shown as liability of the enterprise.
(ii) External Liabilities. Liabilities towards outsiders.
External Liabilities are those liabilities which arise from the credit transactions or loans
taken. For example, creditors, bank overdraft, bills payable, outstanding liabilities, etc.
External liabilities can be further classified into the following:
(a) Long-Term or Non-Current Liabilities. These are liabilities which are payable
after a period of 12 months from the end of the financial year. For example,
long-term loans, debentures, Public deposits, etc.
(b) Current Liabilities. These are liabilities which are payable within a period of
12 months from the end of the financial year. For example, creditors, bank
overdrafts, bills payable, short-term loans, etc.
(iii) Contingent Liabilities. A liability that crystallises upon happening of an event.
Contingent Liabilities are those liabilities of the enterprise in which obligation to pay
arises on happening of a future event. Thus, contingent liability may or may not be
payable. An example of contingent liability is a legal case against the enterprise for
compensation. If the court ruling is against the enterprise, it becomes payable and if
the court ruling is in favour of the enterprise, it is not payable.
2.4 Double Entry Book Keeping—ISC XI

10. Goods Traded in. Items that are purchased with the purpose to sell.
Goods Traded are the goods purchased with the purpose of reselling. In other words,
they are the products in which an enterprise is dealing or trading in. For example, for an
enterprise trading in home appliances, T.V., fridge, washing machines, A.C., etc., are goods.
Similarly, for a stationer, stationery is goods, whereas for others, it is an item of expense
(not purchases).
11. Stock (Inventory). Goods remaining unsold or unused in manufacturing as on a particular date.
Stock (inventory) is the tangible property held by an enterprise for resale in the ordinary
course of business or for the purpose of using it in the production of goods meant for sale
to be rendered. Stock may be opening stock or closing stock. The closing stock of one period
becomes the opening stock of the next period.
In case of a trading concern, it comprises closing stock in hand or the amount of goods
which are lying unsold at the end of an accounting period of the goods traded in.
Stock in the case of a manufacturing concern is of raw materials, work-in-progress and
finished goods. They are discussed hereunder:
(i) Raw Materials. Raw Material is a  material or substance used in production  or
manufacturing of goods. After the manufacturing process, the form or shape of raw
materials is often changed to suit a particular requirement. It should be kept in mind
that a raw material shall be goods traded in for the dealer of raw material commodity.
For example, paper is goods traded in for a paper dealer. It is a raw material for a
notebook manufacturer who produces notebooks after carrying out further processes
like ruling, sizing and binding.
(ii) Work-in-Progress (i.e., Semi-finished Goods). Work-in-Progress means raw material
that has entered into the production process but is not yet a finished product.
Work-in-Progress (WIP), therefore, means all materials and partly finished products
that are at various stages of the production process to be a finished product. Continuing
with the example in raw material, a copy manufacturer has completed the ruling
process on paper but it is yet to be sized and bound. The ruled paper is Work-in-Progress.
(iii) Finished Goods. Finished goods mean the goods which have undergone the complete
process of manufacturing and are ready for sale but are yet to be sold. Continuing the
above example, a notebook manufacturer has completed the manufacturing process,
i.e., notebooks are ready for sale. The stock of notebooks ready for sale is the stock of
finished goods.
12. Profit. Excess of revenue over expenses.
Profit is categorised into:
Gross Profit. Excess of sales over cost of goods sold.
(i)
Gross Profit = Sales – Cost of Goods Sold*
In other words, Gross Profit means excess of Revenue over Cost of Goods sold.


*Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses – Closing Stock.
Basic Accounting Terms 2.5

(ii) Net Profit. Excess of total revenue over direct and indirect expenses.
Net Profit is the profit earned after allowing for all expenses direct and indirect, in case
expenses are more than the revenue, it is Net Loss.
13. Loss. Excess of expenses over total revenue.

Loss is excess of expenses of a period over revenues for that period. It decreases the owner’s
equity, i.e., capital. It also refers to money or money’s worth lost (or cost incurred) against
which the enterprise receives no benefit, e.g., cash or goods lost in theft, loss on sale of
fixed assets, etc.
14. Expense. Amount spent to purchase and sell goods and/or services.

Expense is the amount spent to purchase and sell goods and/or services. Examples of
expense are payment of salaries, wages, rent, etc.
15. Revenue. Amount received or receivable against sale of goods and/or services.

Revenue is the gross inflow of cash, receivables or other consideration earned by the
enterprise from the sale of goods and/or services in its ordinary course of business. Examples
of revenue are amount received or receivable from sale of goods, rent, commission, etc.
Revenue is the gross inflow of cash, receivables or other consideration arising in the ordinary

activities of an enterprise from the sale of goods, from the rendering of services, and from the use
by others of enterprise resources yielding interest, royalties and dividends.
—Accounting Standard 9 issued by ICAI

16. Income. Excess of total revenue over total expense.

Income is the profit earned during a period of time. It is the difference between revenue
and expense. For example, goods costing ` 15,000 are sold for ` 21,000, the cost of goods
sold, i.e., ` 15,000 is expense, the sale of goods, i.e., ` 21,000 is revenue and the difference,
i.e., ` 6,000 is income. It can, therefore, be expressed as:

Income = Revenue – Expense

Income increases owner’s equity.

17. Drawings. Amount, goods or asset taken by the proprietor for personal use.

It is the amount of goods or asset which the proprietor or a partner withdraws (takes) for
his personal use. Drawings reduces capital of the owners.
18. Capital. Claim of the owners or proprietor.

Capital is the amount which the proprietor has invested in the business, increased by
profit (decreased by loss) and claims from the firm. For the firm, it is a liability towards the
owner. Capital is shown as a liability because for accounting purpose, owner is separate
from the business. Capital is also known as owner’s equity. It is always equal to assets
less liabilities. This can be expressed as:

Capital = Assets – Liabilities

2.6 Double Entry Book Keeping—ISC XI

Other Important Terms

The following Accounting Terms are not prescribed in the Syllabus but are important to
understand:
1. Cost.

It is the amount of expenditure incurred on or attributable to a specified article or product
or activity.
2. Gain. Profit earned from transactions incidental to business.
It is a profit that arises from transactions which are incidental to business such as sale of
investment or fixed asset at a price that is higher than its book value.
3. Expenditure. Amount incurred and includes both capital and revenue expenditure.
Expenditure is the amount spent or liability incurred for the value received. An expenditure
may be categorised into:
Capital Expenditure. Amount spent on acquiring fixed assets.
(i)
Capital Expenditure is the amount spent on purchasing assets which will give benefits
over a number of accounting periods. It means expenditure incurred on acquiring fixed
assets or for their improvement. Examples are: purchase of machinery to manufacture
goods, purchase of furniture or computers to conduct business. Capital expenditure is
shown on the assets side of the Balance Sheet.
Revenue Expenditure. Cost that is charged as expense.
(ii)
Revenue Expenditure is the amount spent to purchase goods and/or services that are
consumed during the accounting period. Revenue expenditure does not increase the
earning capacity but maintains it in the current year.
4. Discount. Reduction in the price of goods or in amount.

Discount is reduction in the prices of goods or amount due by the seller of goods and/or
services.
5. Trade Discount. Reduction in price of goods by the seller.

Trade Discount is discount allowed by the seller of goods for goods being purchased in
quantity. It is not accounted under a separate head but sale is accounted at net value.
Similarly, purchases is recorded at net amount, i.e., net of trade discount by the purchaser
of goods.
6. Cash Discount. Reduction in the amount due.

Cash Discount means discount allowed by the seller for making timely payment. It is
debited/credited to a separate head of account.
7. Rebate. Discount allowed for reasons other than for which Trade Discount is allowed.
It is reduction in price allowed by the seller of goods after the goods have been sold. It is
allowed for the reasons other than for which trade discount and cash discount are allowed.
For example, discount because of poor quality of goods.
Basic Accounting Terms 2.7

8. Account. A summarised record of similar transactions.

Account is a summarised record of relevant transactions at one place relating to a particular
head. It records not only the amount of transactions but also their effect and direction. For
example, a Cash Account will show all cash received and paid. A Fixed Asset Account will
show purchases, sales and depreciation of fixed assets.
9. Books of Account. Books in which transactions are entered.

Books of Account means a system of records, which records and explains the financial
transactions of a business. When we refer to books of account, it means Journal and Ledger
in which transactions are recorded.
10. Entry.

A transaction and event when recorded in the books of account is known as an Entry.
11. Debit.
An account has two parts, i.e., debit and credit. The left side is the debit side while the

right side is the credit side. If an account is to be debited, then the entry is posted to the
debit side of the account. In such an event, it is said that the account is debited. The term
‘Debit’ is derived from an Italian word ‘Debito’.
12. Credit.

Credit is the right side of an account. If an account is to be credited, then the entry is posted
to the credit side of the account. In such an event, it is said that the account is credited.
The term ‘Credit’ is derived from an Italian word ‘Credito’.
13. Proprietor. A person owning business and investing therein.

The person who owns and makes investment and bears all the risks connected with the
business is called the Proprietor.
14. Receivables. Amounts owed to the firm.

‘Receivables’ means amount due from others against sale of goods and/or services. It
includes debtors, bills receivables, advances, etc.
15. Payables. Amounts owed by the firm.
‘Payables’ means amount payable by the enterprise to others and includes amount payable
to creditors, lenders, employees or government towards taxes, etc.
16. Bill of Exchange. An unconditional order in writing.

A Bill of Exchange is an unconditional order in writing given by the creditor to the debtor
and accepted by him (debtor) to pay on demand or after a certain period, a certain sum
of money to or to the order of a specified person or to the bearer.
17. Bill Receivable.

Bill Receivable means a bill of exchange accepted by a debtor, the amount of which will
be received on the specified date.
2.8 Double Entry Book Keeping—ISC XI

18. Bill Payable.

Bill Payable means a bill of exchange, the amount of which will be payable on the
specified date.
19. Depreciation. Decrease in book value of assets due to its wear and tear.

Depreciation is decrease in the value of an asset because of usage or with passage of time
or obsolescence or accident.
20. Cost of Goods Sold. Cost of goods attributable to goods sold.
Cost of Goods Sold is the direct cost of the goods and/or services sold.
21. Bad Debts. Amount not recoverable.
Bad Debt is the amount that has become irrecoverable. It is a business loss and is debited
to Profit and Loss Account.
22. Insolvent. A person or entity unable to pay his/its debts.
Insolvent is a person or entity whose assets are not adequate to pay its debts.
23. Solvent. A person or entity in position to pay his/its liabilities.
Solvent is a person or enterprise whose assets are sufficient to pay its debts.
24. Book Value. Value of an asset in the books of account.
It is the amount at which an item exists in the books of account.
25. Investments. Asset purchased or amount placed in bank to earn income.
Investment means placement of funds with the expectation to earn return. Commonly, it
refers to shares and debentures, mutual funds, bonds issued by the financial institutions
and by the government. Investments are not expected to be sold within a year.
26. Balance Sheet. A statement showing assets, liabilities and capital.
It is a statement of the financial position at a given date, which shows its assets, liabilities,
capital, reserves and other account balances at their book values.
27. Entity. An economic entity.
An entity means an economic unit that performs economic activities (e.g., Bajaj Auto,
Maruti, TISCO). An entity may be a business entity or non-business entity. Business entity
means a specifically identifiable business enterprise like ITC Ltd.
 CHAPTER
3
Generally Accepted Accounting
Principles (GAAP) and Basic
Accounting Concepts
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Generally Accepted Generally Accepted Accounting Principles are basic or fundamental

Accounting Principles propositions based on which transactions and events are recorded
(GAAP) in the books of account and financial statements are prepared.
2. Fundamental Accounting
Assumptions
(i) Going Concern Under this assumption, it is presumed that the business will continue
Assumption for a foreseeable future and there is no intention to close down the
business or scale down its operations significantly.
(ii) Accrual Assumption Under this assumption, a transaction is accounted at the time when
it is entered into and not when settlement takes place.
(iii) Consistency Under this assumption, accounting practices once adopted should
Assumption be applied consistently year after year. They may be changed under
following three conditions:
(a) If law requires the change,
(b) If Accounting Standard requires the change, or
(c) If it results in more fair presentation of financial affairs of the business.

CHAPTER SUMMARY

• Accounting Principles. Accounting is the language of business and every language has certain rules of
grammar. Similarly, in order to understand accounting information and for maintaining uniformity and
consistency, certain principles are needed in accounting.
Accounting Principles are the norms or rules which are to be followed in treating various items of assets,
liabilities, expenses, incomes, etc.
• Generally Accepted Accounting Principles (GAAP) refers to the rules or guidelines adopted for recording
and reporting business transactions, in order to bring uniformity and consistency in the preparation and
presentation of financial statements.
• Accounting Concepts
(i) Going Concern Concept. The business will continue for an indefinite period and there is no intention
to close the business or reduce its size of operations significantly.
(ii) Accounting (Business) Entity Concept. Business is treated as a separate entity distinct from its owners.
(iii) Money Measurement Concept. Transactions and events that can be expressed in money or in money
terms are recorded in the books of account.
3.2 Double Entry Book Keeping—ISC XI

(iv) Accounting Period (or Periodicity) Concept. Life of an enterprise is divided into time intervals which
are known as accounting periods, at the end of which Income Statement and Position Statement
are prepared to show the performance and financial position.
(v) Complete or Full Disclosure Concept. According to this concept, the financial statements and
accompanying notes should contain a complete disclosure of all significant financial information.
Disclosure should be full, fair and adequate.
(vi) Revenue Recognition or Realisation Concept. According to Revenue Recognition Concept, revenue
is considered as earned on the date when it is realised. Revenue is generally recognised in case of
sales of goods when an exchange between buyer and seller has taken place and the earning process
of revenue is complete or virtually complete. Generally, revenue is recognised at the point of sales
or rendering services.
(vii) Verifiable Objective (Evidence) Concept. There must be objective evidence of transactions which
are capable of verification.
(viii) Matching Concept. Costs incurred during a particular period should be set out against the revenue
of that period to ascertain profits.
(ix) Historical Cost Concept. The underlying idea of Cost Concept is that the asset must be shown at
its cost price, which is the cost of acquisition less depreciation.
(x) Accrual Concept. This concept recognises revenues and expenses as they are earned or incurred
respectively ignoring the date of receipt or payment.
(xi) Dual Aspect Concept. Every transaction has two aspects: one aspect of a transaction is debited while
the other is credited.
(xii) Materiality Concept. Items or events having a significant effect need to be disclosed.
(xiii) Consistency Concept. Accounting practices once selected and adopted should be applied consistently
year after year.
(xiv) Prudence or Conservatism Concept. Do not anticipate profits but provide for all possible losses.
(xv) Timeliness. Provide the financial statements or information to users within a reasonable time.

The chapter introduces the students to:

• Generally Accepted Accounting Principles (GAAP). These principles are the basic or
fundamental propositions based on which transactions are recorded in the books of account
and financial statements are prepared.
• Accounting Concepts
 Going Concern Concept.
Under this concept, it is assumed that the enterprise will continue to operate indefinitely
in future and there is no intention to close or scale down its operations significantly. It is
because of this concept that assets are recorded at their historical value and depreciated
every year.

Going Concern Concept along with Accrual Concept and Consistency Concept, is a
fundamental accounting concept. It is recognised to be the fundamental accounting
concept by the Accounting Standard-1, Disclosure of Accounting Policies.
It is presumed to have been followed. It means that while preparing the financial
statements it is presumed to have been followed unless it is stated otherwise in the
financial statements, i.e., the enterprise is not a going concern. If the enterprise is not
a going concern, the financial statements will be prepared differently than the regular
financial statements.
Generally Accepted Accounting Principles (GAAP) and Basic Accounting Concepts 3.3

 Accounting (Business) Entity Concept.

Under this concept, business is considered to be a separate entity from its owners.
Transactions are recorded in the books of account from the point of view of the business
and not from that of owners.
 Money Measurement Concept.
Under this concept, only those transactions and events are recorded in the books of
account that can be measured in terms of money. Transactions and events that cannot
be measured in terms of money such as quality of the staff, industrial relations, etc. are
not recorded.
 Accounting Period or Periodicity Concept.
Under this concept, life of the business is broken into smaller parts (usually a year).
Financial statements are prepared for the accounting period and communicated to
the users.
 Concept of Complete or Full Disclosure.
Under this concept, there should be complete reporting of the financial statements of all
significant information relating to the affairs of the enterprise that is understandable to
the users.
 Revenue Recognition or Realisation Concept.
Under this concept, revenue is recognised when the transaction has been entered into and
the obligation to receive the amount has been established. It is to be noted that recognition
of revenue and receipt of amount are two separate aspects. For example, in a transaction
for sale of goods, revenue is recognised when the title of the goods is transferred to
the buyer and not before. Similarly, in a transaction for rendering service, revenue is
recognised when the service has been rendered.
 Verifiable Objective (Evidence) Concept.
Objectivity means reliability, trust worthiness and verifiability means that the transactions
and events are recorded in the books of account on the basis of evidence ascertaining the
correctness thereof. In other words, it holds that recording of transactions and events
should be free from personal bias. For example, sales is evidenced by sale invoices,
purchases is evidenced by purchase bills and so on.
But, accounting is never free from personal bias because estimates have to be made. For
example, useful life of an asset is estimated and depreciated over the estimated useful
life. When an estimate is made personal bias always gets involved.
 Matching Concept or Matching Principle.
Under this concept, revenue earned and cost incurred to earn the revenue should be
matched. It means when revenue is recognised all expenses incurred (whether paid or
not) to earn the revenue should also be recognised. It also means that if recognition of
revenue is not recognised, all expenses incurred in relation to that income are also not
recognised as expense and is carried forward in the balance sheet as an asset. These
expenses are recognised as expenses, i.e., transferred to Profit and Loss Account in the
year in which revenue is recognised.
3.4 Double Entry Book Keeping—ISC XI

There are expenses which are not directly associated with the revenue (for example,
salary paid to staff). These expenses are recognised as expense in the year they
are incurred because the benefit of such expenses expires with the expiry of
the accounting year.
 Historical Concept.
Under this concept, assets are recorded in the books of account at the price that is paid
to acquire (purchase) the asset. It includes all expenses incurred to make it ready for
use. For example, cost of machinery will include purchase price, freight cost, octroi,
installation expenses of machinery, etc.
 Accrual Concept.
Under this concept, transactions are recorded at the time when they take place and not
when the settlement of the transaction takes place. Assuming the liability or recognising
the asset and payment made or received are separate from each other.

Accrual Concept, along with Going Concern Concept and Consistency Concept, is a
fundamental accounting concept. It is recognised to be the fundamental accounting
concept by the Accounting Standard-1, Disclosure of Accounting Policies.
Accrual Concept is presumed to have been followed. It means that while preparing the
financial statements it is presumed to have been followed unless it is stated otherwise in
the financial statements, i.e., the enterprise is not a going concern. If the enterprise is not
a going concern, the financial statements will be prepared differently than the regular
financial statements.
 Dual Aspect Concept.
According to this concept, every transaction has two aspects, a debit and credit aspect
and the amounts under the two aspects are equal.
 Materiality Concept.
Under this concept, transactions are recorded in the books of account on the basis of
materiality. An item is regarded as material if there is reason to believe that knowledge
of it would influence the decision of an informed user.
 Consistency Concept.
Under this concept, accounting policies and practices once adopted and applied should
be followed consistently year after year. However, it does not mean that accounting
policies and practices once adopted and applied cannot be changed by the enterprise.
Accounting policy may be changed under the following three situations:
(i) If there is a change in law because of which accounting policy needs to be changed, or
(ii) there is a change in the accounting standard, or
(iii) the change will lead to better presentation and reporting.

Consistency Concept along with Going Concern Concept and Accrual Concept is a
fundamental accounting concept. It is recognised to be the fundamental accounting
concept by the Accounting Standard-1, Disclosure of Accounting Policies.
Generally Accepted Accounting Principles (GAAP) and Basic Accounting Concepts 3.5

Consistency Concept is presumed to have been followed. It means that while preparing
the financial statements it is presumed to have been followed unless it is stated otherwise
in the financial statements, i.e., the enterprise is not a going concern. If the enterprise is
not a going concern, the financial statements will be prepared differently than the regular
financial statements.
 Conservatism or Prudence Concept.
Under this concept, prospective losses are recognised (accounted) but prospective
incomes are not. This concept is often described as “Do not anticipate profits, but provide
for all losses”.
 Timeliness.
This concept requires that financial statements or information should be made available
to the user within a reasonable time as the information not provided within reasonable
time losses its importance and relevance.
 CHAPTER
4
Accounting Standards:
Concepts and Objectives,
International Financial Reporting
Standards (IFRS)
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Accounting Standards Accounting Standards are the written policy documents covering the
aspects of recognition, measurement, treatment, presentation and
disclosure of accounting transactions in the financial statements.
2. International Financial International Financial Reporting Standards (IFRS) are a set of
Reporting Standards
accounting standards issued by International Accounting Standards
(IFRS)
Board (IASB) based on sound and clearly stated principles.

CHAPTER SUMMARY

• Accounting Standards are a set of guidelines, i.e., generally accepted accounting principles, issued by the
accounting body of the country such as The Institute of Chartered Accountants of India, that are followed
for preparation and presentation of financial statements.
• The objective of setting Accounting Standards, is to bring uniformity in accounting practices and to ensure
transparency, consistency and comparability.
• International Financial Reporting Standards (IFRS) are a set of accounting standards issued by IASB,
which came into existence in the year 2001.
• IASB adopted existing International Accounting Standards (IAS) and SIC as their standards.
• IFRS-compliant financial statements are:
(i) Statement of Financial Position,
(ii) Comprehensive Income Statement,
(iii) Statement of Changes in Equity,
(iv) Statement of Cash Flow, and
(v) Notes and Summary of Significant Accounting Policies.
4.2 Double Entry Book Keeping—ISC XI

• Objectives of IASB are:

(i) To develop, in the public interest, a single set of high-quality, understandable, and enforceable global
accounting standards that require high-quality, transparent, and comparable information in financial
statements and other financial reporting to help participants in the various capital markets of the
world and other users of the information to make economic decisions;
(ii) To promote the use and rigorous application of those standards;
(iii) In fulfilling the objectives associated with (i) and (ii), to take account of, as appropriate, the special
needs of small and medium-sized entities and emerging economies; and
(iv) To bring about convergence of national accounting standards and International Financial Reporting
Standards to high-quality solutions.
• Benefits of IFRS are to investors, industry and professionals worldwide.
• Difference between IFRS and Indian Accounting Standards. The principal difference between the two is
that while IFRS are based on principle and fair value, Indian Accounting Standards are based on rules and
historical value.
• India has decided to converge Indian Accounting Standards with IFRS and has issued IFRS equivalent
accounting standards titled ’Ind-AS’.

Accounting Standards

Accounting Standards are the policy document guiding the measurement, treatment and
disclosure of financial or accounting transactions. They are issued by the accountancy body
such as the Institute of Chartered Accountants of India (ICAI). In other words, accounting
standards are the guidelines for accounting policies and practices to be adopted and followed
in accounting and presentation of financial statements.

A regulated financial accounting process ensures consistency, reliability, comparability

and correctness of financial statements. Accounting standards guide the measurement and
treatment of financial transactions and their disclosure in the financial statements.

In India, accounting standards have been formulated and issued by the Institute of Chartered
Accountants of India (ICAI). They are applicable on the entities, other than companies, for
preparation and presentation of financial statements. The Companies Act, 2013 has recognised
these accounting standards (Accounting Standard-1 to Accounting Standard-29) issued by the
Institute of Chartered Accountants of India that are followed by the companies. The Companies
Act, 2013 has not recognised Accounting Standard-30, Accounting Standard-31 and Accounting
Standard-32. Also, these three accounting standards have been made recommendatory by the
Institute of Chartered Accountants of India and not mandatory.
Accounting Standards: Concepts and Objectives ... 4.3

The Institute of Chartered Accountants of India has so far issued thirty-two accounting
standards. These are:
AS No. Title
AS-1 Disclosure of Accounting Policies
AS-2 Valuation of Inventories (Revised)
AS-3 Cash Flow Statements (Revised)
AS-4 Contingencies and Events Occurring after the Balance Sheet Date (Revised)
AS-5 Net Profit or Loss for the period, Prior Period Items and Changes in Accounting Policies
AS-6 Depreciation Accounting (Revised)*
AS-7 Construction Contracts
AS-8 Accounting for Research and Development*
AS-9 Revenue Recognition
AS-10 Property, Plant and Equipment
AS-11 The Effects of Changes in Foreign Exchange Rates (Revised)
AS-12 Accounting for Government Grants
AS-13 Accounting for Investments
AS-14 Accounting for Amalgamations
AS-15 Employee Benefits (Revised 2005)
AS-16 Borrowing Costs
AS-17 Segment Reporting
AS-18 Related Party Disclosures
AS-19 Leases
AS-20 Earnings Per Share
AS-21 Consolidated Financial Statements
AS-22 Accounting for Taxes on Income
AS-23 Accounting for Investments in Associates in Consolidated Financial Statements
AS-24 Discontinuing Operations
AS-25 Interim Financial Reporting
AS-26 Intangible Assets
AS-27 Financial Reporting of Interests in Joint Ventures
AS-28 Impairment of Assets
AS-29 Provisions, Contingent Liabilities and Contingent Assets
AS-30 Financial Instruments: Recognition and Measurement**
AS-31 Financial Instruments: Presentation**
AS-32 Financial Instruments: Disclosures and Limited Revision to AS-19 on Leases**
* It is Withdrawn.
** Not recognised by the Companies Act, 2013.
4.4 Double Entry Book Keeping—ISC XI

International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS), like Indian Accounting Standards, are
the international accounting standards based on which financial statements of enterprises are
prepared and presented. These standards have been formulated with the aim that globally
financial statements are prepared by all the entities following same accounting standards so
the users across the world are able to understand them in the same manner.

International Accounting Standards Board (IASB) was set up in the year 2001 taking over the
International Accounting Standards Committee (IASC) which was set up in 1973. IASC had
issued International Accounting Standards which have been adopted by the IASB to be replaced
by IFRS upon their issuance. IFRS are referred to as principles based accounting standards as
IASB places emphasis on developing standards based on sound and clearly stated principles.

In view of the fact that economic environment and laws differ in each country and India is
no exception. India decided to issue its own accounting standards that are equivalent to IFRS.
The Institute of Chartered Accountants of India has issued IFRS equivalent Indian Accounting
Standards titled IND–AS.

Difference between IFRS and Indian Accounting Standards

IFRS are Principle based standards while Indian Accounting Standards are Rule based.

Unlike Indian Accounting Standards, IFRS do not prescribe any form for preparing the
financial statements. For example, under the Indian laws, Balance Sheet and Statement of
Profit and Loss are prepared according to Schedule III of the Companies Act, 2013 or in the
form as near thereto. Contrary to this, IFRS does not prescribe form for preparing the financial
statements. It prescribes that the items may be shown in the Balance Sheet according to the
principle associated with it. Elaborating it, Redeemable Preference Shares are shown as Share
Capital in the Balance Sheet under Schedule III of the Companies Act, 2013. But, under IFRS
based Balance Sheet, it is shown as borrowing. The principle being that preference shares carry
fixed rate of dividend and have to be redeemed after the specified date. Therefore, in the real
sense it is loan.

IFRS are based on Fair Value Concept while Indian Accounting Standards are based on
Historical Cost Concept.

Indian Accounting Standards require that assets should be carried in the Balance Sheet at their
historical cost and depreciated on the basis of their useful life. But, in the IFRS based Balance
Sheet, fair value concept may be adopted. It means that assets be valued at their fair value each
year and difference be debited or credited to the Income Statement.
Accounting Standards: Concepts and Objectives ... 4.5

Besides the above two basic differences, there are differences in other areas also. Some of the
areas where there is difference in the two standards are as follows:

• Revenue recognition

• Prior Period Items

• Inventory valuation in Service Sector

• Extraordinary Items

• Accounting of Taxes on Income

• Regrouping/Reclassification

• Useful Life of Intangible Assets

• Impact on Fixed Assets

• Current and Non-current Classification

 CHAPTER
5
Bases of Accounting
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Cash Basis of Accounting It is a system of accounting according to which transactions are

recorded in the books of account when cash is transacted, whether
received or paid.
2. Accrual Basis of It is a system of accounting according to which transactions are
Accounting
recorded in the books of account when a transaction is entered into
irrespective of cash having been received or not.
3. Outstanding Expenses These are expenses which have been incurred during the accounting
period but have not yet been paid. In the Balance Sheet, they are
shown as liability.
4. Prepaid Expenses These are expenses which have been paid in advance. In the Balance
Sheet, they are shown as an asset.
5. Accrued Income It is an income which has been earned during the accounting period
but has not yet become due for payment and, therefore, has not been
received. In the Balance Sheet, it is shown as an asset.
6. Income Received It is an income which has been received before it has been earned,
in Advance i.e., goods have been sold or services have been rendered. In the
Balance Sheet, it is shown as a liability.

Note: Terms at serial numbers 3, 4, 5 and 6 will appear when accrual basis of accounting is followed.

CHAPTER SUMMARY

• Bases of Accounting. For recording financial transactions, there can be three broad approaches to accounting.
These are:
1.  Cash Basis, 2. Accrual Basis, and 3. Hybrid Basis.
• Cash Basis of Accounting. A system in which accounting entries are made only when cash is transacted,
whether received or paid.
• Accrual Basis of Accounting. A system in which accounting entries are made on the basis of amounts
having become due for payment or receipt.
Outstanding expenses, prepaid expenses, accrued income and unearned income are adjusted while preparing
the Financial Statements.
5.2 Double Entry Book Keeping—ISC XI

Bases of accounting mean the basis of recording transactions in the books of account. There
are three bases of accounting:
• Cash Basis of Accounting,
• Accrual Basis of Accounting, and
• Hybrid Basis of Accounting.

Cash Basis of Accounting

Cash Basis of Accounting is the basis of accounting whereby transactions are recorded
in the books of account when amount is paid or received against the transaction and not
when transaction is entered into. It means that credit transactions are not recorded in the books
of account.
Its effect on revenue is that it is recognised when amount is received whether earned or not
and not prior to it. It means accrued income and income received in advance is not determined
and accounted.
Its effect on expenses is also that they are recognised only when they have been paid and not before.
It means that outstanding expenses and prepaid expenses are not determined and accounted.
Cash System of Accounting is recognised by the Income Tax Act, 1961. However, it can be adopted by
entities other than Companies as the Companies Act, 2013 requires Companies to maintain its accounts
only on accrual basis.

Accrual Basis of Accounting

Accrual Basis of Accounting is based on the concept of realisation and expiration and follows
two basic accounting principles, viz., Revenue Recognition Principle and Matching Principle.
Its effect on income is that it is recognised when it is earned whether amount is received against
it or not. For example, sale is recognised as sale when the title in the goods is transferred
irrespective of the fact whether amount has been received against it or not. It means that
recognition of revenue and receiving amount against it are two separate aspects, i.e., transactions.
Its effect on expenses is that they are recognised as expenses when incurred irrespective of the
fact whether amount has been paid against it or not. For example, rent for the month of March,
2020 has not been paid. It will be recognised as expense in the financial year ended 31st March,
2020 because it has become due and has not been paid. In this example, Rent Account will be
debited and Rent Payable Account will be credited. When the payment is made, Rent Payable
Account will be debited and Cash Account or Bank Account will be credited.
The Companies Act, 2013 requires Companies to maintain its books of account on accrual basis.

Hybrid Basis of Accounting

It is a combination of Cash Basis of Accounting and Accrual Basis of Accounting. Under the
Hybrid Basis of Accounting (also called Mixed System of Accounting), revenues are accounted
on Cash Basis and the expenses are accounted on Accrual Basis. In actual practice, this basis
of accounting is not used since it fails to measure the income accurately.Also Hybrid Basis of
Accounting is not accepted by any authority including tax authorities.
Note:  Hybrid Basis of Accounting is not the part of the Syllabus.
Bases of Accounting 5.3

Example. From the following information, determine the profit earned or loss incurred when
(i) Cash Basis of Accounting and (ii) Accrual Basis of Accounting are followed:
`
Cash Sales 5,00,000
Credit Sales 2,00,000
Outstanding Salary and Wages 4,000
Insurance Paid in Advance 2,500
Outstanding Electricity Expenses 1,000
Income Received (excluding income received in advance) 5,000
Income Received in Advance 1,000
Income Earned but not Received 3,000
Cash Purchases 2,75,000
Credit Purchases 1,25,000
Salary and Wages Paid 44,000
Electricity Expenses Paid 11,000
Insurance Expenses Paid (including prepaid) 10,000
Solution:
(i) When Cash Basis of Accounting is followed:
`
Cash Sales 5,00,000
Add: Income Received 5,000
Income Received in Advance 1,000 6,000
5,06,000
Less: Cash Purchases 2,75,000
Salary and Wages Paid 44,000
Electricity Expenses Paid 11,000
Insurance Expenses Paid 10,000 3,40,000
Profit 1,66,000
(ii) When Accrual Basis of Accounting is followed:
`
Sales (Cash + Credit) 7,00,000
Add: Income Earned (Income Received
+ Income Earned but not Received
(` 5,000 + ` 3,000)) 8,000
7,08,000
Less: Purchases (Cash + Credit) (` 2,75,000 + ` 1,25,000) 4,00,000
Salary and Wages (Paid + Outstanding) 48,000
(` 44,000 + ` 4,000)
Electricity Expenses (` 11,000 + ` 1,000) 12,000
Insurance Expenses (Paid less prepaid) (` 10,000 – ` 2,500) 7,500 4,67,500
Profit 2,40,500
 CHAPTER
6
Accounting Equation
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Accounting Equation Accounting Equation shows the relationship among capital,

liabilities and assets. Total assets are equal to the sum of capital
and liabilities.
Mathematical Expression of Accounting Equation:
(i) Assets = Liabilities + Capital; or
(ii) Capital = Assets – Liabilities; or
(iii) Liabilities = Assets – Capital.
2. Assets Assets are the resources that the business owns. They refer to
properties or legal rights owned by the business, which can be
measured in terms of money.
3. Liabilities Liabilities are the financial obligations of an enterprise. In common
parlance, it refers to financial obligations of the enterprise other than
capital of the owners.
4. Capital Capital is the amount invested by the owner in the business. It
increases by the profit earned during the year and decreases by the
loss incurred during the year and drawings made.
Or
Capital is the excess of assets over external liabilities, i.e.,
Capital = Assets – Liabilities.

CHAPTER SUMMARY

• Accounting Equation is the basis for Double Entry System of Book Keeping. Total assets of the business firm
are provided by the creditors/lenders and the owners. Therefore, at any point of time, the total assets of a
business are equal to its total liabilities. Liabilities to the outsiders are known as liabilities but liability to the
owners, in accounting is referred to as capital.
We can express the relationship that exists among assets, liabilities and capital in the form of an accounting
equation as follows:
Total Assets = Total Liabilities
Or
Total Assets = Liabilities + Capital
Or
Capital = Total Assets – Liabilities
6.2 Double Entry Book Keeping—ISC XI

Solved Questions

Illustration 1.
X has following assets and liabilities as on 31st March, 2020. Ascertain his capital.
Cash ` 25,000; Bank ` 47,500; Debtors ` 18,000; Creditors ` 22,000; Plant and Machinery ` 80,000;
Building ` 2,00,000; Furniture ` 24,000; Bills Receivable ` 56,500; Bills Payable ` 23,500.
Solution: Assets = Liabilities + Capital
Or
Capital = Assets – Liabilities
= (Cash + Bank + Debtors + Plant and Machinery + Building +
Furniture + Bills Receivable) – (Creditors + Bills Payable)
= ` (25,000 + 47,500 + 18,000 + 80,000 + 2,00,000 + 24,000 +
56,500) – ` (22,000 + 23,500)
= ` 4,51,000 – ` 45,500 = ` 4,05,500.
Illustration 2.
Show the effect of following transactions on the accounting equation:
(i) Ram commenced business with cash ` 15,00,000, Bank Balance ` 7,50,000 and Bank
Loan ` 2,00,000.
(ii) Purchased Car for ` 1,30,000 by paying ` 85,000 in cash and balance at a later date.
(iii) Purchased 300 chairs @ ` 700 each from XYZ Ltd.
(iv) Purchased 2 tables @ ` 5,000 each to be used in his showroom and paid by cheque.
(v) Payment made to XYZ by cheque in full settlement after receiving 20% discount.
(vi) Paid commission ` 24,000. 20% is for current year.
Solution: Refer to Page No. 6.3.
Illustration 3.
Show the effect of following transactions on the accounting equation:
(i) Mr. Y started business with cash ` 4,00,000, Machinery ` 25,000, Furniture ` 15,000
and a loan of ` 1,75,000.
(ii) He purchased goods of ` 1,00,000 from M/s XYZ. Traders who are willing to give cash
discount of 5%, if payment was made within 1 month.
(iii) Furniture is now valued at 75%.
1
(iv) Sold goods of list price ` 20,000 at a profit of 33 % on cost price to Mr. Aman. He
3
accepted a bill for 1/5th of the amount due and paid the remaining amount.
(v) Purchased Investment (Personal) of ` 5,000.
(vi) Paid instalment of Loan of ` 25,000 including interest on Loan of ` 3,000.
(vii) Paid Life Insurance premium for 8 months of ` 16,000.
(viii) Paid rent ` 15,000 and security deposit to landlord ` 50,000.
(ix) Charge interest on drawings ` 4,000.

Solution: Refer to Page No. 6.4.

Solution: Refer to Illustration 2 on Page No. 6.2.

Transactions Assets = Liabilities + Capital

No. Cash + Bank + Car + Chairs + Tables + Prepaid = Bank Loan + Creditor + XYZ Ltd. + Capital
` ` ` ` ` Comm. (`) ` for Car (`) ` `

(i) 15,00,000 + 7,50,000 + 0 + 0 + 0 + 0 = 2,00,000 + 0 + 0 + 20,50,000

Accounting Equation

(ii) (85,000) + 0 + 1,30,000 + 0 + 0 + 0 = 0 + 45,000 + 0 + 0

New Equation 14,15,000 + 7,50,000 + 1,30,000 + 0 + 0 + 0 = 2,00,000 + 45,000 + 0 + 20,50,000

(iii) 0
+ 0
+ 0 +
2,10,000 + 0 + 0 = 0 + 0
+ 2,10,000
+ 0

New Equation 14,15,000 + 7,50,000 + 1,30,000 + 2,10,000 + 0 + 0 = 2,00,000 + 45,000 + 2,10,000 + 20,50,000

(iv) 0 + (10,000) + 0 + 0 + 10,000 + 0 = 0 + 0 + 0 + 0

New Equation 14,15,000 + 7,40,000 + 1,30,000 + 2,10,000 + 10,000 + 0 = 2,00,000 + 45,000 + 2,10,000 + 20,50,000

(v) 0 + (1,68,000) + 0 + 0 + 0 + 0 = 0 + 0 + (2,10,000) + 42,000

New Equation 14,15,000 + 5,72,000 + 1,30,000 + 2,10,000 + 10,000 + 0 = 2,00,000 + 45,000 + 0 + 20,92,000

(vi) (24,000)
+ 0
+ 0 + 0 + 0 +
19,200 = 0 + 0
+ 0
+ (4,800)

New Equation 13,91,000 + 5,72,000 + 1,30,000 + 2,10,000 + 10,000 + 19,200 = 2,00,000 + 45,000 + 0 + 20,87,200
6.3
Solution: Refer to Illustration 3 on Page No. 6.2.
6.4

Transactions Assets = Liabilities + Capital

No. Cash + Machinery + Furniture + Stock + B/R + Security = Loan + M/s. XYZ + Capital
` ` ` ` ` Deposit (`) ` ` `

(i) 4,00,000
+ 25,000 + 15,000 + 0 + 0 + 0 = 1,75,000 + 0 + 2,65,000

(ii) 0
+ 0
+ 0
+
1,00,000
+ 0
+ 0 = 0 +
1,00,000
+ 0

New Equation
4,00,000
+ 25,000 + 15,000 + 1,00,000 + 0 + 0 = 1,75,000 + 1,00,000 + 2,65,000

(iii) 0 + 0 + (3,750) + 0 + 0 + 0 = 0 + 0 + (3,750)

New Equation
4,00,000
+ 25,000 + 11,250 + 1,00,000 + 0 + 0 = 1,75,000 + 1,00,000 + 2,61,250

(iv) 16,000 + 0 + 0 + (15,000) + 4,000 + 0 = 0 + 0 + 5,000

New Equation
4,16,000
+ 25,000 + 11,250 + 85,000 + 4,000 + 0 = 1,75,000 + 1,00,000 + 2,66,250

(v) (5,000) + 0 + 0 + 0 + 0 + 0 = 0 + 0 + (5,000)

New Equation
4,11,000
+ 25,000 + 11,250 + 85,000 + 4,000 + 0 = 1,75,000 + 1,00,000 + 2,61,250

(vi) (25,000) + 0 + 0 + 0 + 0 + 0 = (22,000) + 0 + (3,000)

New Equation
3,86,000
+ 25,000 + 11,250 + 85,000 + 4,000 + 0 = 1,53,000 + 1,00,000 + 2,58,250

(vii) (16,000) + 0 + 0 + 0 + 0 + 0 = 0 + 0 + (16,000)

New Equation
3,70,000
+ 25,000 + 11,250 + 85,000 + 4,000 + 0 = 1,53,000 + 1,00,000 + 2,42,250

(viii) (15,000) + 0 + 0 + 0 + 0 + 0 = 0 + 0 + (15,000)

(50,000)
+ 0
+ 0
+ 0
+ 0
+
50,000 = 0 + 0
+ 0

New Equation
3,05,000
+ 25,000 + 11,250 + 85,000 + 4,000 + 50,000 = 1,53,000 + 1,00,000 + 2,27,250

0 + 0 + 0 + 0 + 0 + 0 = 0 + 0 + 4,000

(ix) 0 + 0 + 0 + 0 + 0 + 0 = 0 + 0 + (4,000)

New Equation
3,05,000
+ 25,000 + 11,250 + 85,000 + 4,000 + 50,000 = 1,53,000 + 1,00,000 + 2,27,250
Double Entry Book Keeping—ISC XI
Accounting Equation 6.5

Illustration 4.
Show the accounting equation on the basis of the following transactions and also the Balance
Sheet of Mr. Rahul:
(i) Commenced business with cash ` 2,00,000.
(ii) Purchased goods from Ms. Neha ` 50,000.
(iii) Withdrew goods costing ` 10,000 for personal use.
(iv) Sold goods for cash (cost ` 35,000) ` 60,000.
(v) Introduced fresh capital 50,000.
(vi) Paid telephone bills amounting to ` 3,000.
(vii) Goods costing ` 2,000 sold at a profit of 25% on cost.
(viii) Motorcycle purchased for personal use ` 18,000.
(ix) Paid Rent ` 18,000.
(x) Paid Salaries ` 12,000.
Solution: Refer to Page No. 6.6.

Advanced Level Question

Illustration 5.
Use Accounting Equation to show the effect of following transactions on assets, liabilities and
capital and also show the Balance Sheet:
Transactions
(i) Mohan started business with cash of ` 3,60,000, Goods ` 1,00,000, Debtors ` 20,000,
Furniture ` 20,000 and Creditors ` 40,000.
(ii) Goods costing ` 12,000 sold to Ram at a loss of 10%, out of which ` 4,000 received
in cash.
(iii) Cash deposited into bank ` 40,000.
(iv) Outstanding Rent ` 10,000.
(v) Received cheque from Ram ` 6,400 in full settlement of ` 6,800. Cheque deposited on the
same date.
(vi) Prepaid Insurance ` 2,000.
(vii) Paid to creditors ` 36,000 by cheque in full settlement of their accounts.
(viii) Depreciation on Furniture @ 10%.
(ix) Unearned Commission ` 4,000.
Solution: Refer to Page Nos. 6.7 and 6.8.
6.6 Double Entry Book Keeping—ISC XI

Solution: Refer to Illustration 4 on Page No. 6.5.

No. Transactions Assets = Liabilities + Capital
Cash + Stock = Ms. Neha (Creditor) + Capital

` ` ` `
1. Started business
with cash 2,00,000 + 0 = 0 + 2,00,000
2. Purchased goods from
Ms. Neha 0 + 50,000 = 50,000 + 0
New Equation 2,00,000 + 50,000 = 50,000 + 2,00,000
3. Withdrew goods for
personal use 0 + (10,000) = 0 + (10,000)
New Equation 2,00,000 + 40,000 = 50,000 + 1,90,000
4. Sold goods for cash 60,000 + (35,000) = 0 + 25,000
New Equation 2,60,000 + 5,000 = 50,000 + 2,15,000
5. Introduced fresh capital 50,000 + 0 = 0 + 50,000
New Equation 3,10,000 + 5,000 = 50,000 + 2,65,000
6. Paid telephone bills (3,000) + 0 = 0 + (3,000)
New Equation 3,07,000 + 5,000 = 50,000 + 2,62,000
7. Goods goods at a profit
of 25% on cost 2,500 + (2,000) = 0 + 500
New Equation 3,09,500 + 3,000 = 50,000 + 2,62,500
8. Purchased motorcycle
for personal use (18,000) + 0 = 0 + (18,000)
New Equation 2,91,500 + 3,000 = 50,000 + 2,44,500
9. Paid rent (18,000) + 0 = 0 + (18,000)
New Equation 2,73,500 + 3,000 = 50,000 + 2,26,500
10. Paid Salaries (12,000) + 0 = 0 + (12,000)
New Equation 2,61,500 + 3,000 = 50,000 + 2,14,500

BALANCE SHEET OF RAHUL

as at ...
Liabilities ` Assets ` 

Capital 2,14,500 Cash 2,61,500

Ms. Neha (Creditor) 50,000 Stock 3,000
2,64,500 2,64,500
Solution: Refer to Illustration 5 on Page No. 6.5.

Transactions Assets = Liabilities + Capital

No. Cash + Stock + Furniture + Debtors + Prepaid + Bank = Creditors + Unearned + Outstanding + Capital
` ` ` ` Insu. (`) ` (`) Comm. (`) Rent (`) `
(i) 3,60,000 +
1,00,000 + 20,000 + 20,000 + 0 + 0 = 40,000 + 0 + 0 + 4,60,000

(ii) 4,000 – 12,000 + 0 + 6,800 + 0 + 0 = 0 + 0 + 0 – 1,200 (Loss)

Accounting Equation

New Equation 3,64,000 + 88,000 + 20,000 + 26,800 + 0 + 0 = 40,000 + 0 + 0 + 4,58,800

(iii) –40,000 + 0 + 0 + 0 + 0 + 40,000 = 0 + 0 + 0 + 0

New Equation 3,24,000 + 88,000 + 20,000 + 26,800 + 0 + 40,000 = 40,000 + 0 + 0 + 4,58,800

(iv) 0 + 0 + 0 + 0 + 0 + 0 = 0 + 0 +
10,000 – 10,000

New Equation 3,24,000 + 88,000 + 20,000 + 26,800 + 0 + 40,000 = 40,000 + 0 + 10,000 + 4,48,800

(v) 0 + 0 + 0 – 6,800 + 0 + 6,400 = 0 + 0 + 0 – 400

New Equation 3,24,000 + 88,000 + 20,000 + 20,000 + 0 + 46,400 = 40,000 + 0 + 10,000 + 4,48,400

(vi) –2,000 + 0 + 0 + 0 + 2,000 + 0 = 0 + 0 + 0 + 0

New Equation 3,22,000 + 88,000 + 20,000 + 20,000 + 2,000 + 46,400 = 40,000 + 0 + 10,000 + 4,48,400

(vii) 0 + 0 + 0 + 0 + 0 – 36,000 = –40,000 + 0 + 0 + 4,000

New Equation 3,22,000 + 88,000 + 20,000 + 20,000 + 2,000 + 10,400 = 0 + 0 +

10,000 + 4,52,400

(viii) 0
+ 0 – 2,000 + 0
+ 0 + 0
= 0 + 0 + 0 – 2,000

New Equation 3,22,000 + 88,000 + 18,000 + 20,000 + 2,000 + 10,400 = 0 + 0 +

10,000 + 4,50,400

(ix) 4,000 + 0 + 0 + 0 + 0 + 0 = 0 + 4,000 + 0 + 0

New Equation 3,26,000 + 88,000 + 18,000 + 20,000 + 2,000 + 10,400 = 0 + 4,000 +

10,000 + 4,50,400
6.7
6.8 Double Entry Book Keeping—ISC XI

BALANCE SHEET
as at ...

Liabilities ` Assets `

Unearned Commission 4,000 Cash 3,26,000

Outstanding Rent 10,000 Debtors 20,000
Capital 4,50,400 Stock 88,000
Prepaid Insurance 2,000
Bank 10,400
Furniture 18,000
4,64,400 4,64,400

Illustration 6.
Show the accounting equation on the basis of the following transactions and also show the
Balance Sheet: `
1. Commenced business with cash ` 5,00,000, Goods ` 1,00,000
and Furniture ` 10,000.

2. Sold goods to Rakesh on credit costing ` 4,000 for 5,000

3. Paid rent in advance 5,000

4. Salary outstanding 1,000

5. Charge depreciation on furniture 1,000

6. Goods destroyed by fire 5,000

7. Purchased household goods for ` 1,50,000, giving ` 50,000 in cash

and balance through a loan

8. Accrued Interest 5,000

9. Commission received in Advance 10,000

10. Interest due but not paid 1,000

11. Prepaid Insurance 7,000

12. Creditors accepted a bill for 15,000

13. Interest on Capital 10,000

14. Interest on Drawings 3,000

15. Transfer from capital to loan 50,000

Use the following headings in equation:

Cash + Stock + Debtors + Furniture + Prepaid Expenses + Accrued Income = Unearned

Commission + Loan + Bills Payable (B/P) + Outstanding Expenses (O/s Expenses) + Capital.
Solution:
Transaction Assets = Liabilities + Capital

No. Cash + Stock + Debtors + Furniture + Prepaid + Accrued = Unearned + Loan + B/P + Outstanding + Capital
` ` ` ` Exp. (`) Int. (`) Comm. (`) ` ` Exp. (`) (`)
1. 5,00,000 + 1,00,000 + 0 + 10,000 + 0 + 0 = 0 + 0 + 0 + 0 + 6,10,000
New Equation 5,00,000 + 1,00,000 + 0 + 10,000 + 0 + 0 = 0 + 0 + 0 + 0 + 6,10,000
2. 0 – 4,000 + 5,000 + 0 + 0 + 0 = 0 + 0 + 0 + 0 + 1,000
Accounting Equation

New Equation 5,00,000 + 96,000 + 5,000 + 10,000 + 0 + 0 = 0 + 0 + 0 + 0 + 6,11,000

3. –5,000 + 0 + 0 + 0 + 5,000 + 0 = 0 + 0 + 0 + 0 + 0
New Equation 4,95,000 + 96,000 + 5,000 + 10,000 + 5,000 + 0 = 0 + 0 + 0 + 0 + 6,11,000
4. 0 + 0 + 0 + 0 + 0 + 0 = 0 + 0 + 0 + 1,000 – 1,000
New Equation 4,95,000 + 96,000 + 5,000 + 10,000 + 5,000 + 0 = 0 + 0 + 0 + 1,000 + 6,10,000
5. 0 + 0 + 0 – 1,000 + 0 + 0 = 0 + 0 + 0 + 0 – 1,000
New Equation 4,95,000 + 96,000 + 5,000 + 9,000 + 5,000 + 0 = 0 + 0 + 0 + 1,000 + 6,09,000
6. 0 – 5,000 + 0 + 0 + 0 + 0 = 0 + 0 + 0 + 0 – 5,000
New Equation 4,95,000 + 91,000 + 5,000 + 9,000 + 5,000 + 0 = 0 + 0 + 0 + 1,000 + 6,04,000
7. –50,000 + 0 + 0 + 0 + 0 + 0 = 0 + 1,00,000 + 0 + 0 – 1,50,000
New Equation 4,45,000 + 91,000 + 5,000 + 9,000 + 5,000 + 0 = 0 + 1,00,000 + 0 + 1,000 + 4,54,000
8. 0 + 0 + 0 + 0 + 0 + 5,000 = 0 + 0 + 0 + 0 + 5,000
New Equation 4,45,000 + 91,000 + 5,000 + 9,000 + 5,000 + 5,000 = 0 + 1,00,000 + 0 + 1,000 + 4,59,000
9. 10,000 + 0 + 0 + 0 + 0 + 0 = 10,000 + 0 + 0 + 0 + 0
New Equation 4,55,000 + 91,000 + 5,000 + 9,000 + 5,000 + 5,000 = 10,000 + 1,00,000 + 0 + 1,000 + 4,59,000
10. 0 + 0 + 0 + 0 + 0 + 0 = 0 + 0 + 0 + 1,000 – 1,000
New Equation 4,55,000 + 91,000 + 5,000 + 9,000 + 5,000 + 5,000 = 10,000 + 1,00,000 + 0 + 2,000 + 4,58,000
11. –7,000 + 0 + 0 + 0 + 7,000 + 0 = 0 + 0 + 0 + 0 + 0
New Equation 4,48,000 + 91,000 + 5,000 + 9,000 + 12,000 + 5,000 = 10,000 + 1,00,000 + 0 + 2,000 + 4,58,000
12. 0 + 0 + 0 + 0 + 0 + 0 = 0 – 15,000 + 15,000 + 0 + 0
New Equation 4,48,000 + 91,000 + 5,000 + 9,000 + 12,000 + 5,000 = 10,000 + 85,000 + 15,000 + 2,000 + 4,58,000
13. 0 + 0 + 0 + 0 + 0 + 0 = 0 + 0 + 0 + 0 + 10,000
– 10,000
New Equation 4,48,000 + 91,000 + 5,000 + 9,000 + 12,000 + 5,000 = 10,000 + 85,000 + 15,000 + 2,000 + 4,58,000
14. 0 + 0 + 0 + 0 + 0 + 0 = 0 + 0 + 0 + 0 + 3,000
– 3,000
New Equation 4,48,000 + 91,000 + 5,000 + 9,000 + 12,000 + 5,000 = 10,000 + 85,000 + 15,000 + 2,000 + 4,58,000
15. 0 + 0 + 0 + 0 + 0 + 0 = 0 + 50,000 + 0 + 0 – 50,000
New Equation 4,48,000 + 91,000 + 5,000 + 9,000 + 12,000 + 5,000 = 10,000 + 1,35,000 +
15,000 + 2,000 + 4,08,000
6.9
6.10 Double Entry Book Keeping—ISC XI

BALANCE SHEET
as at ...
Liabilities ` Assets `
Unearned Commission 10,000 Cash 4,48,000
Bills Payable 15,000 Stock 91,000
Outstanding Expenses 2,000 Debtors 5,000
Loan 1,35,000 Prepaid Expenses 12,000
Capital 4,08,000 Accrued Interest 5,000
Furniture 9,000
5,70,000 5,70,000

Unsolved Questions
1. Raghunath had the following transactons in an accounting year: `
(i) Commenced business with cash 50,000
(ii) Paid into bank 10,000
(iii) Purchased goods for cash ` 20,000 and credit ` 30,000.
(iv) Sold goods for cash ` 40,000 costing ` 30,000.
(v) Rent paid 500
(vi) Rent outstanding 100
(vii) Bought furniture on credit 5,000
(viii) Bought refrigerator for personal use 5,000
(ix) Purchased motorcycle for cash 20,000
Create an Accounting Equation to show the effect of the above transactions on his assets, liabilities and
capital and also show his Balance Sheet.
2. Show an Accounting Equation on the basis of the following transactions: `  
(i) Sunil started business with cash 1,50,000
(ii) He purchased a building and furniture for 1,00,000
(iii) He purchased goods from Ram on credit 50,000
(iv) He paid cartage 500
(v) He sold to Shyam on credit goods costing ` 6,000 for 9,000
(vi) Received rent from tenants 1,000
(vii) Received security deposit from tenants 1,500
(viii) Purchased stationery for cash 100
(ix) Invested in shares (personal) 50,000
(x) Received interest in cash 200
(xi) Introduced fresh capital 25,000
(xii) Goods destroyed by fire 500
3. Create an Accounting Equation on the basis of the following transactions:
(i) Commenced business with cash ` 50,000, goods ` 30,000 and furniture ` 20,000.
(ii) Sold goods to Ajay on credit costing ` 4,000 for ` 5,000.
(iii) Sold goods for cash costing ` 12,000 for ` 16,000.
(iv) Purchased goods for cash ` 40,000.
Accounting Equation 6.11

(v) Purchased goods on credit for ` 20,000.

(vi) Paid rent ` 3,000 including ` 2,000 in advance.
(vii) Paid salaries ` 2,000.
(viii) Sold goods costing ` 8,000 for ` 10,000.
(ix) Salaries outstanding ` 1,000.
(x) Charge depreciation on furniture ` 500.
4. Show an Accounting Equation on the basis of the following transactions:
(i) D. Mahapatra commenced business with cash ` 1,50,000; goods ` 60,000; machinery ` 1,00,000 and
furniture ` 50,000.
(ii) 1/3rd of the above goods sold at a profit of 10% on cost and half of the payment is received in cash.
(iii) Depreciation on machinery provided @ 10%.
(iv) Cash withdrawn for personal use ` 10,000.
(v) Interest on drawings charged @ 5%.
(vi) Goods sold to Gupta for ` 10,000 and received a Bill Receivable for the same amount for 3 months.
(vii) Received ` 10,000 from Gupta against the Bills Receivable on its maturity.
5. Mr. B.K. Goyal started a real estate agency business with a cash investment of ` 3,50,000. Show the impact
of following transactions on the Accounting Equation and check whether the equation remains balanced
or not:
(a) Paid three month’s advance rent for office accommodation ` 21,000.
(b) Bought car for office use ` 2,10,000.
(c) Purchased office furniture ` 70,000.
(d) Bought office Laptop from Gupta Tech. & Co. ` 30,000.
(e) Sold extra office furniture at cost to Mohan for ` 10,000. Mohan paid ` 6,000 in cash and accepted a
bill at three months for the balance.
(f ) Mohan paid the amount of the bill at maturity and Mr. B.K. Goyal paid half the amount he owed to
Gupta Tech. & Co.
(g) Collected commission ` 60,000.
(h) Paid telephone bill amounting to ` 1,500.

GUIDE TO ANSWERS
1. Assets—Cash ` 34,500 + Bank ` 10,000 + Stock ` 20,000 + Furniture ` 5,000 + Motorcycle ` 20,000 = ` 89,500;
Liabilities—Creditors ` 30,000 + Outstanding Rent ` 100 + Vendor for Furniture ` 5,000 + Capital ` 54,400 = ` 89,500.
2. Assets—Cash ` 27,100 + Building & Furniture ` 1,00,000 + Stock ` 43,500 + Debtor (Shyam) ` 9,000 = ` 1,79,600;
Liabilities—Creditor (Ram) ` 50,000 + Security Deposits ` 1,500 + Capital ` 1,28,100 = ` 1,79,600.
3. Assets—Cash ` 31,000 + Stock ` 66,000 + Furniture ` 19,500 + Debtor (Ajay) ` 5,000 + Prepaid Rent ` 2,000 = ` 1,23,500;
Liabilities—Creditor ` 20,000 + Outstanding Salary ` 1,000 + Capital ` 1,02,500 = ` 1,23,500.
[Hint: In transaction (x), furniture will be reduced by ` 500 and capital will also be reduced by ` 500
because of loss due to depreciation.]
4. Assets—Cash ` 1,61,000 + Stock (goods) ` 30,000 + Machinery ` 90,000 + Furniture ` 50,000 + Debtors ` 11,000
= ` 3,42,000;
Liabilities—Nil + Capital ` 3,42,000 = ` 3,42,000.
[Hints: 1. Opening Capital ` 3,60,000 = Cash ` 1,50,000 + Stock ` 60,000 + Machinery ` 1,00,000 +

Furniture ` 50,000.
2. Liabilities: Nil.]
5. Assets—Cash ` 1,02,500 + Bill Receivable 0 + Prepaid Rent ` 21,000 + Office Car ` 2,10,000 + Office Furniture
` 60,000 + Office Laptop: ` 30,000 = ` 4,23,500;
Liabilities—Gupta Tech. & Co.: ` 15,000 + Capital—` 4,08,500 = ` 4,23,500.
 CHAPTER
7
Journal
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Journal It is the primary book of account in which transactions are first

recorded in a chronological order (i.e., as they take place).
2. Book of Original Entry It is the book in which a transaction is first recorded. Hence, it is a Book
of Original Entry.
3. Journalising Recording of transactions in the Journal is called Journalising.
4. Account It is a summary of transactions of one nature or transactions relating
to a particular head at one place.
5. Bad Debts It is the amount which is not recoverable and hence, written off.
6. Bad Debts Recovered It is the amount that was earlier written off as Bad Debt and is later
recovered, in full or in part.
7. Discount There are two types of discount that are allowed to customers:
(i) Trade Discount It is a discount allowed to the purchaser of goods when goods are
purchased in large quantity. Purchases and Sales are recorded in the
books of account at net of Trade Discount.
(ii) Cash Discount It is a discount allowed on receipt of amount promptly, i.e., by the
due date. Cash Discount allowed or received is recorded separately
as expense and income respectively.
8. Rebate It is allowed because of reasons other than for which trade
discount and cash discount is allowed. For example, rebate may
be allowed for poor quality of goods sold or goods being not as per
specification, etc.
9. Simple Journal Entry It is a Journal entry in which only two accounts are affected, i.e., one
account is debited and another account is credited.
10. Compound Journal Entry It is a Journal entry in which more than two accounts are affected,
i.e., one or more accounts are debited and/or credited.
11. Opening Entry It is the first entry passed in the Journal book incorporating the closing
balances of previous year.
12. Ledger Ledger is an accounting book in which various accounts are
maintained in classified form.

CHAPTER SUMMARY

• An account is a summarised record of relevant transactions at one place relating to a particular head. It
records not only the amount of transactions but also their effect and direction.
7.2 Double Entry Book Keeping—ISC XI

• Traditional Approach for Classification of Accounts

Accounts

Personal Real Nominal (Revenue or Expense)

Natural Artificial Representative

Rules for Debit and Credit when the accounts are classified as Personal, Real and Nominal.

Types of Account Rules for Debit Rules for Credit

1. For Personal Account Debit the receiver. Credit the giver.
2. For Real Account Debit what comes in. Credit what goes out.
3. For Nominal Account Debit all expenses and losses. Credit all gains and incomes.
• Modern Approach for Classification of Accounts

Accounts

Asset Accounts Liability Accounts Capital Accounts Revenue Accounts Expense Accounts

RULES FOR DEBIT AND CREDIT

Types of Account Accounts to be Debited Accounts to be Credited
1. Asset Accounts Increase Decrease
2. Liability Accounts Decrease Increase
3. Capital Accounts Decrease Increase
4. Revenue Accounts Decrease Increase
5. Expense Accounts Increase Decrease

According to modern classification, for Capital or Liability or Revenue Account—debit means decrease
while credit means increase, whereas for any Asset or Expense Account—debit means increase while
credit means decrease.
• Source Documents. Documents on the basis of which entries are recorded in the accounts are termed as
source documents.
• Double Entry Book Keeping. Double Entry Book Keeping refers to a system of accounting in which every
transaction is recorded under two aspects. Each debit has a corresponding credit of equal amount and each
credit has a corresponding debit of equal amount.
• Journal is the primary book of account in which transactions are originally recorded in a chronological
order, i.e., in the order they take place.
• Journal is a book of original entry because a transaction is first entered in the Journal from where it is
posted to the Ledger.
The process of recording transactions in a Journal is termed as Journalising. The transactions in a Journal
are recorded on the basis of rules of debit and credit.
Journal 7.3

• Journal entry may be (i) Simple Journal Entry or (ii) Compound Journal Entry.
(i) Simple Journal Entry is a Journal entry in which one account is debited and another account is credited.
(ii) Compound Journal Entry is a Journal entry, which involves more than two accounts. It means it is an
entry in which more than one account is debited or credited.
• Opening Entry. In case of an existing business, assets and liabilities appearing in the previous year’s Balance
Sheet will have to be brought forward to the current year. This is done by means of a Journal entry termed
as ‘Opening Entry’.
Steps in Journalising
Step 1. Identify the accounts involved in the transaction.
Step 2. Determine the nature of accounts, e.g., Real, Nominal or Personal.
Step 3. Apply the rule for ‘Debit’ and ‘Credit’.
Step 4. Draw ruling of a Journal and record the transaction.
Advantages of a Journal
1. It reduces the possibility of errors.
2. It provides an explanation to an entry by way of narration.
3. It provides a chronological record of transactions.

Solved Questions
Illustration 1.
Record the following transactions in Journal:
2020 `  
Jan. 1 Paid to Mohan ` 9,500 in full settlement of his account of ` 10,000
Jan. 5 Received from Ram ` 12,000 in cash and allowed him discount 100
Jan. 7 Paid Salaries 5,000
Jan. 7 Paid Rent 3,000
Jan. 7 Paid Wages 1,000
Jan. 10 Purchased goods for ` 20,000 from Shyam Lal out of which goods of ` 12,000
were on credit.
Jan. 15 Sold goods to Rakesh for ` 2,000. He paid ` 1,000 immediately.

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2020
Jan. 1 Mohan ...Dr. 10,000
To Cash A/c 9,500
To Discount Received A/c 500
(Being the payment to Mohan in full settlement of his account)
Jan. 5 Cash A/c ...Dr. 12,000
Discount Allowed A/c ...Dr. 100
To Ram 12,100
(Being the receipt of money from Ram and the discount allowed to him)
Jan. 7 Salaries A/c ...Dr. 5,000
Rent A/c ...Dr. 3,000
Wages A/c ...Dr. 1,000
To Cash A/c 9,000
(Being the payment of salaries, rent and wages)
7.4 Double Entry Book Keeping—ISC XI

Jan. 10 Purchases A/c ...Dr. 20,000

To Cash A/c 8,000
To Shyam Lal 12,000
(Being the goods purchased for cash ` 8,000 and on credit from
Shyam Lal for ` 12,000)
Jan. 15 Rakesh ...Dr. 1,000
Cash A/c ...Dr. 1,000
To Sales A/c 2,000
(Being the goods sold to Rakesh for cash and credit)

Illustration 2.
Journalise the following transactions in the books of a trader:
1st April, 2020
Debit Balances: Cash in Hand—` 18,000; Cash at Bank—` 25,600; Stock of Goods—` 50,000;
Furniture—` 10,000; and Building—` 4,51,400. Debtors: Vijay—` 2,700; Anil—
` 1,500; Ashwani—` 2,000; Anupam—` 1,800; and Madhu—` 5,000.
Credit Balanaces: Creditors: Anand—` 5,400; Arya & Co.—` 77,000 and Balwant Rai— ` 52,000;
Mrs. Anita’s Loan—` 1,00,000.
2020
April 1 Purchased goods worth ` 50,000 less 20% trade discount and 5% cash discount. Paid ` 25,000 by
cheque and balance in cash.
April 3 ` 2,646 received from Vijay and allowed him discount ` 54.
April 5 Bought 100 shares in Bharat Ltd. @ ` 15 per share, brokerage paid ` 30.
April 8 Goods costing ` 500 were damaged in transit; a claim was made on the railway authorities for
the same.
April 10 Paid ` 5,292 cash to Anand and discount allowed by him ` 108.
April 13 Received cheque from the railway in full settlement of claim for goods damaged in transit.
April 15 Anupam is declared insolvent and a dividend of 50 paise in a rupee is received from him in full
settlement.
April 18 Sold 40 shares in Bharat Ltd. @ ` 18 per share, brokerage paid ` 15.
April 20 Bought a Delivery Van for ` 21,000 for delivering goods to customers.
April 22 Paid for: Charity ` 501
Postage ` 200
Stationery ` 199
April 30 One month’s interest on Mrs. Anita’s Loan @ 12% p.a. became due but was not paid.
April 30 The Delivery Van bought on April 20 met with an accident and was sold for ` 10,000.
April 30 Received from travelling salesman ` 3,000 for goods sold by him after deducting his travelling
expenses ` 150.
April 30 Paid for: Salaries ` 3,500
Rent ` 1,500
April 30 Sold goods worth ` 12,000 less 10% trade discount.
Journal 7.5

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

2020
April 1 Cash A/c ...Dr. 18,000
Bank A/c ...Dr. 25,600
Stock A/c ...Dr. 50,000
Furniture A/c ...Dr. 10,000
Building A/c ...Dr. 4,51,400
Vijay ...Dr. 2,700
Anil ...Dr. 1,500
Ashwani ...Dr. 2,000
Anupam ...Dr. 1,800
Madhu ...Dr. 5,000
To Anand 5,400
To Arya & Co. 77,000
To Balwant Rai 52,000
To Mrs. Anita’s Loan A/c 1,00,000
To Capital A/c (Balancing Figure) 3,33,600
(Being the balances of assets, liabilities and capital brought in from last year)
April 1 Purchases A/c ...Dr. 40,000
To Bank A/c 25,000
To Cash A/c 13,000
To Discount Received A/c 2,000
(Being the goods worth ` 50,000 bought at 20% trade discount
and 5% cash discount paid ` 25,000 by cheque and balance in cash)
Note: Trade discount is not shown but cash discount is shown
in the books.
April 3 Cash A/c ...Dr. 2,646
Discount Allowed A/c ...Dr. 54
To Vijay 2,700
(Being the cash received from Vijay and allowed him discount)
April 5 Investments A/c ...Dr. 1,530
To Cash A/c 1,530
(Being the purchase of 100 shares in Bharat Ltd. @ ` 15 per share
plus brokerage ` 30)
April 8 Railway Claim A/c ...Dr. 500
To Purchases A/c 500
(Being the claim sent to railway for goods damaged in transit)
April 10 Anand ...Dr. 5,400
To Cash A/c 5,292
To Discount Received A/c 108
(Being the cash paid to Anand and discount allowed by him)
April 13 Bank A/c ...Dr. 500
To Railway Claim A/c 500
(Being the cheque received in full settlement of claim for damages from railway)
April 15 Cash A/c ...Dr. 900
Bad Debts A/c ...Dr. 900
To Anupam 1,800
(Being the 50 per cent of amount due received from Anupam and balance
written off as bad debts)
7.6 Double Entry Book Keeping—ISC XI

April 18 Cash A/c ...Dr. 705

To Investments A/c 705
(Being 40 shares in Bharat Ltd. sold @ ` 18 per share less brokerage ` 15)
April 20 Delivery Van A/c ...Dr. 21,000
To Bank A/c 21,000
(Being the delivery van bought for delivering goods to customers)
April 22 Charity A/c ...Dr. 501
Postage A/c ...Dr. 200
Stationery A/c ...Dr. 199
To Cash A/c 900
(Being the cash paid for charity, postage and stationery)
April 30 Interest A/c ...Dr. 1,000
To Mrs. Anita’s Loan A/c 1,000
(Being the interest payable on Mrs. Anita Loan ` 1,00,000
@ 12% p.a. for one month)
April 30 Cash A/c ...Dr. 10,000
Loss on Sale of Delivery Van A/c ...Dr. 11,000
To Delivery Van A/c 21,000
(Being the delivey van sold for cash after accident and balance of cost
written off as loss)
April 30 Cash A/c ...Dr. 3,000
Travelling Expenses A/c ...Dr. 150
To Sales A/c 3,150
(Being ` 3,000 cash received for sales from travelling salesman after
deducting his travelling expenses ` 150)
April 30 Salaries A/c ...Dr. 3,500
Rent A/c ...Dr. 1,500
To Cash A/c 5,000
(Being the payment of salaries and rent)
April 30 Cash A/c ...Dr. 10,800
To Sales A/c 10,800
(Being the sales of goods worth ` 12,000 less 10% trade discount)

Illustration 3.
Pass the Journal entry for each of the following items:
(i) Acquired running business of Rama & Co. for cash ` 40,000, by taking over the following
assets and liabilities at values stated against them.
Stock of Goods ` 25,000; Furniture ` 10,000; Debtors ` 7,000; Machinery ` 8,000; Creditors
` 22,000.
Out of ` 40,000 payable to Rama & Co., ` 10,000 were borrowed from B.
(ii) Took loan of ` 1,00,000 from M but he paid the amount after deducting interest in advance
for one year at 6% p.a.
(iii) Bought from D & Co. goods for ` 6,000 less 15% trade discount and 2% cash discount
terms and paid them half the amount in cash.
(iv) Sold to L goods worth ` 600 less 2½% cash discount and received payment by cheque.
(v) L’s cheque returned unpaid by Bank, marked ‘Insufficient Funds’.
(vi) Paid to D & Co. ` 2,500 in full settlement of their account.
Journal 7.7

(vii) Withdrew cash ` 500 and goods worth ` 200 for personal use. These goods were bought
from D & Co. getting Trade Discount of 15%.
(viii) Encashed a cheque of ` 3,000 for T charging him ` 10 commission.
(ix) L is declared insolvent and only 40 paise in a rupee is received from his estate.
(x) Sold personal car for ` 50,000 and bought a new one for business with the proceeds plus
` 1,50,000 from office cash.
(xi) Out of the goods worth ` 5,000 insured for ` 4,000, a part is burnt by fire, the loss
amounted ` 400. The insurers admitted the claim for a proportionate loss and paid cash.
(xii) Goods worth ` 600 were spoiled and sold to K for ` 300 only.
(xiii) Old furniture appearing in the books at ` 6,000 is exchanged for new furniture of
` 12,000. The old furniture has been valued at ` 4,000 for exchange purpose.

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

(i) Stock A/c ...Dr. 25,000

Furniture A/c ...Dr. 10,000
Debtors A/c ...Dr. 7,000
Machinery A/c ...Dr. 8,000
Goodwill A/c (Note) ...Dr. 12,000
To Creditors A/c 22,000
To B ’s Loan A/c 10,000
To Cash A/c 30,000
(Being the running business of Rama & Co. acquired for ` 40,000;
out of ` 40,000 paid to Rama & Co., ` 10,000 borrowed from B.
` 12,000 paid in excess of the net intrinsic worth—assets minus
liabilities—of the business transferred to Goodwill Account)
(ii) Cash A/c ...Dr. 94,000
Interest A/c ...Dr. 6,000
To M ’s Loan A/c 1,00,000
(Being the loan of ` 1,00,000 from M, interest @ 6% p.a. on
` 1,00,000 deducted in advance for one year)
(iii) Purchases A/c ...Dr. 5,100
To Cash A/c 2,499
To Discount Received A/c 51
To D & Co. 2,550
(Being the goods worth ` 6,000 less 15% trade discount bought from D & Co.;
half of the amount of ` 5,100 paid in cash to avail 2% cash discount)
(iv) Bank A/c ...Dr. 585
Discount Allowed A/c ...Dr. 15
To Sales A/c 600
(Being the goods worth ` 600 sold for cash less 2½% cash discount)
(v) L ...Dr. 600
To Bank A/c 585
To Discount Allowed A/c 15
(Being the L’s cheque returned unpaid by Bank; cash discount
allowed to L written back)
7.8 Double Entry Book Keeping—ISC XI

(vi) D & Co. ...Dr. 2,550

To Cash A/c 2,500
To Discount Received A/c 50
(Being the amount of ` 2,500 paid to D & Co. in full settlement of their account
of ` 2,550; ` 50 gain credited to Discount Received Account)
(vii) Drawings A/c ...Dr. 670
To Cash A/c 500
To Purchases A/c (` 200 less 15% Trade Discount) 170
(Being the cash and goods withdrawn for personal use; 15% deducted from
goods because these were purchased from D & Co. at 15% trade discount)
(viii) Bank A/c ...Dr. 3,000
To Cash A/c 2,990
To Commission A/c 10
(Being the cheque of ` 3,000 encashed for T charging
him ` 10 commission)
(ix) Bank A/c ...Dr. 240
Bad Debts A/c ...Dr. 360
To L 600
(Being 40% of the amount of ` 600 due from L received and balance
written off as bad debts on his being declared insolvent)
(x) Car A/c ...Dr. 2,00,000
To Capital A/c 50,000
To Cash A/c 1,50,000
(Being the sale of personal car for ` 50,000 and bought a new car with the
proceeds of personal car for business plus ` 1,50,000 cash paid from office)
(xi) Cash A/c ...Dr. 320
Loss of Stock by Fire A/c (Profit and Loss A/c) ...Dr. 80
To Purchases A/c 400
(Being the amount of insurance claim received for 4/5 of the goods destroyed;
1/5 of the goods destroyed being loss—claim not admitted by the
insurance company—transferred to Profit and Loss Account)
(xii) K ...Dr. 300
Damaged Goods A/c (Profit and Loss A/c) ...Dr. 300
To Sales A/c 600
(Being the goods worth ` 600 spoiled and sold to K at a loss of ` 300)
(xiii) Furniture A/c (New) ...Dr. 12,000
Loss on Sale of Furniture A/c (Profit and Loss A/c) ...Dr. 2,000
To Furniture A/c (Old) 6,000
To Vendor 8,000
(Being the old furniture having book value of ` 6,000 valued at ` 4,000
exchanged for new furniture of ` 12,000)

Note:
Goodwill = Purchase Price – Net Assets* (i.e., Assets – Liabilities)
= ` 40,000 – ` 28,000 = ` 12,000.
*Net Assets = ` 25,000 (Stock) + ` 10,000 (Furniture) + ` 7,000 (Debtors) + ` 8,000
(Machinery) – ` 22,000 (Creditors)
= ` 28,000.
Journal 7.9

Advanced Level Question

Illustration 4.
Pass Journal entries in the books of Puneet, Delhi for the following:
(i) Received an order from Karan & Co. for supply of goods of ` 50,000.
(ii) Received an order from AK & Co. for goods of ` 1,00,000 along with a cheque for
` 25,000 as advance.
(iii) Paid to staff ` 40,000 against outstanding salary of ` 60,000.
(iv) Sold goods to Bharat, Kaithal (Haryana) of ` 10,000 out of which 1/5th were returned
being defective.
(v) Cheque of ` 20,000 issued by Feroz was dishonoured.
(vi) Received 40 paise in a rupee from Feroz against the above dues.
(vii) Received a cheque of ` 25,000 from Mohan after banking hours.
(viii) Purchased goods from Barun of Chandigarh of ` 10,000 and sold them to Arun of
Shimla (HP) at ` 20,650.
(ix) Arun returned goods of ` 5,900, which were returned to Barun.
(x) Purchased 10 TV sets @ ` 20,000 per set. It sold all the sets @ ` 25,000 per set.
(xi) Paid insurance of ` 12,000 for a period of one year.
(xii) Sold personal car for ` 1,00,000 and invested the amount in the firm.
(xiii) Goods costing ` 1,00,000 were destroyed in fire. Insurance company admitted the
claim for ` 75,000.
(xiv) Purchased machinery for ` 50,000 and paid cartage and installation charges thereon
` 5,000 and ` 10,000 respectively.
(xv) Goods costing ` 40,000 sold to Amit at a profit of 20% on sales less 10% Trade Discount
and received a cheque under 2% cash discount.
(xvi) Purchased machinery from New Machinery House for ` 50,000 and paid it by means
of a bank draft purchased from bank. Paid bank charges ` 50.

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

(i) No Entry
(ii) Bank A/c ...Dr. 25,000
To Advance from AK & Co. A/c 25,000
(Being the advance received against the order of ` 1,00,000)
(iii) Outstanding Salaries A/c ...Dr. 40,000
To Bank A/c 40,000
(Being the outstanding salaries paid)
7.10 Double Entry Book Keeping—ISC XI

(iv) (a) Bharat ...Dr. 10,000

To Sales A/c 10,000
(Being the sale of goods to Bharat)

(b) Returns Inward A/c ...Dr. 2,000

To Bharat 2,000
(Being 1/5th of the goods sold to Bharat returned by him)

(v) Feroz ...Dr. 20,000

To Bank A/c 20,000
(Being the cheque issued by Feroz dishonoured)

(vi) Cash/Bank A/c ...Dr. 8,000

Bad Debts A/c ...Dr. 12,000
To Feroz 20,000
(Being 40 paise in a rupee received from Feroz against his dues)

(vii) Cash A/c ...Dr. 25,000

To Mohan 25,000
(Being the cheque received from Mohan)

(viii) (a) Purchases A/c ...Dr. 10,000

To Barun 10,000
(Being the purchase of goods from Barun)

(b) Arun ...Dr. 20,650

To Sales A/c 20,650
(Being the sale of goods to Arun)

(ix) (a) Returns Inward A/c ...Dr. 5,900

To Arun 5,900
(Being the goods returned by Arun)

(b) Barun ...Dr. 2,857

To Returns Outward A/c 2,857
(Being the goods returned to Barun)

(x) (a) Purchases A/c ...Dr. 2,00,000

To Bank A/c 2,00,000
(Being the goods purchased for ` 2,00,000)

(b) Bank A/c ...Dr. 2,50,000

To Sales A/c 2,50,000
(Being the goods sold for ` 2,50,000)

(xi) Insurance Premium A/c ...Dr. 12,000

To Bank A/c 12,000
(Being the insurance premium paid)

(xii) Cash/Bank A/c ...Dr. 1,00,000

To Capital A/c 1,00,000
(Being the sale proceeds of personal car brought in business
by the proprietor)
Journal 7.11

(xiii) Insurance Co. ...Dr. 75,000

Loss of Stock by Fire A/c ...Dr. 25,000
To Purchases A/c 1,00,000
(Being the company admitted claim for loss of goods by fire against
the goods purchased)

(xiv) Machinery A/c ...Dr. 65,000

To Bank A/c 65,000
(Being the machinery purchased for ` 50,000 paid ` 5,000 for its
cartage, ` 10,000 installation)

(xv) Bank A/c (Note) ...Dr. 44,100

Discount Allowed A/c ...Dr. 900
To Sales A/c 45,000
(Being the sale of goods at a profit of 20% on sales less 10% trade
discount and 2% cash discount)

(xvi) Machinery A/c ...Dr. 50,000

Bank Charges A/c ...Dr. 50
To Bank A/c 50,050
(Being the machinery purchased against draft)

Note: Cost of Goods Sold ` 40,000

*Profit = 20% of Sales = 25% of Cost = ` 10,000
` 20
[*Let Sales = ` 100; Profit = ` 20; Cost = ` 80; Profit on Cost (%) = × 100 = 25%.]
` 80
`
Cost 40,000
Add: Profit on Cost (25%) 10,000
List Price 50,000
Less: Trade Discount 5,000
45,000
Cash Discount @ 2% 900
Amount received from Amit = ` 45,000 – ` 900 = ` 44,100.

Unsolved Questions
1. Jaspal and Ayub entered into the following transactions during February, 2020:
2020
Feb. 1 Jaspal sold 100 calculators to Ayub @ ` 100 each; Trade Discount allowed @ 20%.
Feb. 5 Sale by Jaspal of 10 calculators to Ayub in January, 2019 @ ` 70 each; Trade Discount 20%, were
returned by Ayub.
Feb. 17 Jaspal sold 10 keyboards @ ` 500 each less Trade Discount 20%.
Feb. 20 Ayub paid Jaspal by cheque ` 10,000 on account.
Feb. 29 Ayub paid the balance amount by cheque after deducting Cash Discount @ 2%.
Pass Journal entries.
7.12 Double Entry Book Keeping—ISC XI

2. Mohan was carrying on business as a cloth dealer. On 1st April, 2020 his assets were: Furniture and Office
Equipment, ` 12,500; Stock of Cloth ` 1,25,000; Cash in Hand ` 2,250; Bank Balance ` 42,500; Amount due
from B ` 6,000; Amount due from G ` 7,500. On that date he owed ` 10,000 to M and ` 7,250 to P. His
transactions during April, 2020 were as follows:
Date Particulars `
2020
April 1 Sold cloth on credit to G.............................................................................................................................................. 2,500
April 2 Purchased cloth from A on credit............................................................................................................................... 10,000
April 3 Paid rent for the month of March by cheque......................................................................................................... 1,500
April 4 Purchases of cloth (paid by cheque).......................................................................................................................... 4,000
Cash sales............................................................................................................................................................................. 2,250
April 5 Cheque received from B................................................................................................................................................. 4,900
Allowed him discount..................................................................................................................................................... 100
April 6 Paid for stationery............................................................................................................................................................ 250
April 8 Drew cash for personal use........................................................................................................................................... 2,500
April 10 Drew cash from Bank for office.................................................................................................................................... 7,500
April 12 B ’s cheque returned dishonoured by Bank which charges ` 25 for expenses
April 13 Purchased goods on credit from M............................................................................................................................ 12,500
April 15 Sent cheque to M in full settlement of amount due on 1st April.................................................................... 9,750
Sent cheque to P............................................................................................................................................................... 7,250
April 16 Sold goods on credit to G.............................................................................................................................................. 9,000
April 17 Paid telephone charges.................................................................................................................................................. 2,400
April 18 Cash sales............................................................................................................................................................................. 5,500
Paid for advertising.......................................................................................................................................................... 1,750
April 20 Paid income-tax................................................................................................................................................................. 9,500
Received letter from P saying that he has not received the cheque;
cancelled the cheque and paid cash.
April 21 B becomes insolvent; only 50% received from his estate
April 22 Cash purchases.................................................................................................................................................................. 4,500
April 24 Purchased filing cabinet and paid by cheque........................................................................................................ 2,500
April 27 Paid salaries for the month............................................................................................................................................ 10,000
Journalise the transactions. Note that cheques received are immediately sent to the Bank.
3. Journalise the following transactions in the books of Shiv Mohan. On 1st April, 2020, his assets and liabilities
were as follows:
Assets: Furniture—` 5,000; Machinery—` 10,000; Stock—` 4,000; Cash in Hand—` 550; Cash at Bank—
` 7,450; Debtors: Ramesh—` 1,000; and Suresh—` 2,000.
Liabilities: Creditors: Ram & Co.—` 4,500; Ranjeet & Co.—` 2,000; and Shyam Sunder—` 1,500.
Date Particulars `

2020
Apr. 1 Purchased Goods from Ajay Kumar............................................................................................................................... 4,500
Apr. 3 Sold Goods for Cash............................................................................................................................................................ 1,500
Apr. 5 Withdrew from Bank for personal use.......................................................................................................................... 2,500
Apr. 10 Sold Goods on Credit to Mukesh.................................................................................................................................... 1,700
Apr. 15 Paid for Postage.................................................................................................................................................................... 100
Apr. 16 Received Cash from Rakesh.............................................................................................................................................. 2,200
Apr. 16 Deposited in Bank................................................................................................................................................................ 2,800
Apr. 17 Paid telephone charges..................................................................................................................................................... 250
Apr. 18 Cash Sales................................................................................................................................................................................ 1,500
Apr. 20 Purchased Government Securities................................................................................................................................. 5,000
Journal 7.13

Apr. 22 Purchased goods worth ` 16,000, less 20% trade discount and 5% cash discount
from Malhotra & Co. for cash and supplied them to Ramesh & Co.
at list price less 10% trade discount
Apr. 25 Cash Purchases...................................................................................................................................................................... 16,500
Apr. 27 Goods worth ` 500 were damaged in transit, a claim was made
on the railway authorities for the same
Apr. 28 Suresh is declared insolvent and a dividend of 50 paise in a rupee is received
from him in full settlement
Apr. 28 Purchased Machinery from Rajiv for ` 50,000 and paid him by means of a bank draft
purchased from bank for ` 50,050
Apr. 30 Received Commission ` 10,000 half of which is in advance
Apr. 31 Allowed interest on capital @ 8% p.a. for one year
Apr. 31 Paid for: Salaries................................................................................................................................................................. 5,500
Rent....................................................................................................................................................................... 1,000

4. Journalise the following transactions of Singh Enterprises, Delhi:

2019 `
June 1 Started business with cash............................................................................................................................................ 50,000
June 2 Deposited cheque from Savings Account in firm’s account.............................................................................. 2,00,000
June 3 Received cash from Ram................................................................................................................................................ 50,000
June 4 Purchased goods for cash.............................................................................................................................................. 15,000
June 11 Sold goods to M/s. Hari Sales, Delhi........................................................................................................................... 12,000
June 13 Paid to Ramavtar............................................................................................................................................................... 40,000
June 17 Received from M/s. Hari Sales...................................................................................................................................... 10,000
June 20 Bought furniture from S.R. Furnishers against Cash............................................................................................. 20,000
June 27 Paid rent............................................................................................................................................................................... 28,000
June 30 Paid salary............................................................................................................................................................................ 50,000

Comprehensive Question
5. Pass the Journal entries for the following:
(i) Goods worth ` 500 given as charity.
(ii) Received ` 975 from Harikrishna in settlement of his account for ` 1,000.
(iii) Received a first and final dividend of 60 paise in a rupee from the official receiver of Rajan, who owed
us ` 1,000.
(iv) Sold goods to Mohan of ` 12,000 less 2½% cash discount and received from him ` 11,700 net on
account by cheque.
(v) Bought goods from Raja & Co. of ` 30,000 at 15% trade discount and 2% cash discount and paid them
half the amount in cash.
(vi) Charged depreciation @ 10% for one month on Machinery of ` 50,000.
(vii) Rent outstanding ` 500.
(viii) Received interest on loan from the debtor ` 250.
7.14 Double Entry Book Keeping—ISC XI

(ix) Provided interest on capital at 6% p.a. for six months on ` 50,000.

(x) Sold goods to Manohar, list price ` 4,000, trade discount 10% and cash discount 5%. He paid the amount
on the same day and availed the cash discount.
(xi) Supplied goods costing ` 1,200 to Sohan, issued invoice at 10% above cost less 5% trade discount.
(xii) Received commission ` 5,000, half of which is in advance.
(xiii) Paid to landlord ` 1,200 for rent. One-third of the premises is occupied by the proprietor for his
own residence.
(xiv) Goods costing ` 500 were used by the proprietor for domestic purposes.
(xv) Goods uninsured costing ` 3,000 were destroyed by fire.
(xvi) Supplied goods costing ` 600 to Mohan issued at 10% above cost less 5% trade discount.
(xvii) Goods costing ` 8,000 were destroyed by fire; insurance company admitted the claim in full and paid
the amount by cheque.
(xviii) Paid ` 2,500 in cash as wages on installation of a machinery.
(xix) Issued a cheque in favour of M/s Parmatma Singh & Sons on account of purchase of goods worth
` 7,500.
(xx) Goods sold costing ` 6,000 to M/s Kalu & Sons at an invoice price of 10% above cost less 5%
trade discount.
(xxi) Received cash ` 500 from a debtor which was written off as bad debt last year.
(xxii) Interest charged on drawings @ 5% when total drawings were ` 10,000.
(xxiii) Received a cheque from J. Peterson ` 5,450. Allowed him discount of ` 150.
(xxiv) Returned goods to Sudershan of the value of ` 350.
(xxv) Bought 50 shares of X Ltd. at ` 60 per share, brokerage paid ` 100.
(xxvi) Goods worth ` 600 were damaged and sold to M for ` 300 only.
(xxvii) Sold goods to Kitty at a list price of ` 2,000. Sale subject to 10% trade discount and 5% cash discount
if payment is made immediately. Kitty availed of cash discount.
(xxviii) Supplied goods costing ` 600 to Shakuntala. Issued invoice at 10% above cost less 5% trade discount.
 CHAPTER
8
Ledger
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Ledger Ledger is the principal book which contains all accounts (Asset
Accounts, Liability Accounts, Capital Accounts, Revenue Accounts,
Expense Accounts) to which the transactions recorded in the books
of original entry are transferred, i.e., posted from the Journal.

2. Posting The process of transferring the transactions recorded in the books

of original entry to the ledger is called posting.

3. Balancing of Accounts It means totalling the two sides of the account and determining the
difference. Difference between the totals of the two sides is written
on the side with smaller total.

If the total of debit side is smaller, it means that the account has
credit balance. If the total of credit side is smaller, it means that the
account has debit balance.

4. Trial Balance It is a statement in which the balances in the Ledger Accounts are
written. The total of amounts in the two columns should be same and
this is a proof of arithmetical accuracy of transactions recorded in the
books of account.

CHAPTER SUMMARY

• A Ledger is a book or register in which all the accounts are put together.
• Posting to the Ledger is the process of transferring information contained in the Journal to the Ledger.
• Utility of Ledger. Being the principal book of account, a Ledger contains all the information regarding
various accounts. It helps in preparing the final accounts.
• Both Journal and Ledger are essential for a complete and efficient accounting system.
• Balancing of Accounts means totalling the two sides of the account and writing the difference between the
two on the side with the smaller total. In the case of Real Accounts and Personal Accounts, the difference is
carried forward to the credit side—if the credit side is greater, by writing ‘By Balance b/d’ and to the debit
side, if the debit side is greater, by writing, ‘To Balance b/d’.
Personal and real accounts are balanced but nominal accounts are closed at the end of the period by
transferring them to Trading Account or Profit and Loss Account.
• Trial Balance. A Trial Balance is a statement in which the debit and credit balances of all accounts are
recorded with a view to ascertain the arithmetical accuracy of the books of account.
8.2 Double Entry Book Keeping—ISC XI

Solved Question
Illustration 1.
Prepare the Stationery Account of a firm for the year ended 31st March, 2020, duly balance off,
from the following details:
2019 `
April 1 Stock in Hand 960
July 12 Purchase of stationery by cheque 1,600
Aug. 10 Purchase of stationery on credit from India Stationery Mart 2,500
Aug. 22 Purchase of stationery by cash 500
2020
Mar. 31 Stock in Hand 2,200
Solution:
Dr. STATIONERY ACCOUNT Cr.
Date Particulars ` Date Particulars `
2019 2020
April 1 To Balance b/d 960 March 31 By Profit and Loss A/c 3,360
July 12 To Bank A/c 1,600 (Balancing Figure)
Aug. 10 To India Stationery Mart 2,500 March 31 By Balance c/d 2,200
Aug. 22 To Cash A/c 500
5,560 5,560

Unsolved Question
1. Journalise the following transactions in the books of Shri Ashutosh, a trader. Also, prepare the Ledger Accounts:
Debit Balances on 1st April, 2020:
Cash in Hand ` 8,000; Cash at Bank ` 25,000; Stock of Goods ` 20,000; Furniture ` 2,000; Building ` 10,000;
Sundry Debtors: Vijay ` 2,000; Anil ` 1,000 and Madhu ` 2,000.
Credit Balances on 1st April, 2020:
Sundry Creditors: Anand ` 5,000; Loan from Bablu ` 10,000.
Following were further transactions in the month of April, 2020:
2020
April 2 Purchased goods worth ` 5,000 for cash
Less: 20% trade discount and 5% cash discount
April 4 Received ` 1,980 from Vijay and allowed him ` 20 as discount
April 6 Purchased goods from Bharat ` 5,000
April 8 Purchased plant from Mukesh for ` 5,000 and paid ` 100 as cartage
for bringing the plant to the factory and another ` 200 as installation charges
April 12 Sold goods to Rahim on credit ` 600
April 15 Rahim became insolvent and could pay only 50 paise in a rupee
April 18 Sold goods to Ram for cash ` 1,000
April 20 Paid salary to Ratan ` 2,000
April 21 Paid to Anand ` 4,800 in full settlement
April 26 Interest received from Madhu ` 200
April 28 Paid to Bablu interest on loan ` 500
April 30 Cash sales ` 500
April 30 Withdrew goods from business for personal use ` 200
Ledger 8.3

GUIDE TO ANSWER

1. Total of Trial Balance—` 77,700.

[Dr. Balances: Cash A/c ` 580; Bank A/c ` 25,000; Stock A/c ` 20,000; Furniture A/c ` 2,000; Building A/c
` 10,000; Anil ` 1,000; Madhu ` 2,000; Purchases A/c ` 8,800; Plant A/c ` 5,300; Interest on Loan A/c ` 500;
Discount Allowed A/c ` 20; Bad Debts A/c ` 300; Salary A/c ` 2,000; Drawings A/c ` 200.
Cr. Balances: Interest A/c ` 200; Capital A/c 55,000; Bablu’s Loan A/c ` 10,000; Discount Received A/c

` 400; Bharat ` 5,000; Mukesh ` 5,000; Sales A/c ` 2,100.]
 CHAPTER
9
Sub-Division of Journal—Cash Book
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Special Purpose Books Sub-division of the Journal into various books recording transactions
or Subsidiary Books of similar nature are called subsidiary books.
2. Cash Book Cash Book is a Special Purpose Subsidiary Book or Journal in which
cash receipts and cash payments are recorded.
Kinds of Cash Book
(i) Simple Cash Book It is a Cash Book in which only cash transactions are recorded. It has
only one column on each side.
(ii) Triple-Column It is a Cash Book which has three columns, one column each for
Cash Book cash, bank and discount on each side of the cash book. In this book
both cash and bank transactions are recorded together with discount
allowed and received.
(iii) Petty Cash Book It is a Cash Book maintained for recording petty expenses.
3. Cash Discount Cash discount is the amount of discount received or allowed on cash
payments and cash receipts. Discount received is an income for the
business while discount allowed is an expense.
4. Contra Entry It means a transaction involving both cash and bank. Such
transactions though recorded in the Cash Book are not posted into
ledger. In the column for ledger folio letter ‘C ’ is written to show that
it is a contra entry.

CHAPTER SUMMARY

• Subsidiary Books (Sub-Division of Journal)

When the volume of transactions of a business firm becomes voluminous, a single Journal becomes
inadequate as the sole book of original entry. It is better to have separate books for different activities like
cash, purchase, sales, purchase return, sales return, and so on. In other words, for convenience, the Journal
is, therefore, divided into a number of subsidiary books. The subsidiary books used are:

Subsidiary Book/Special Journal Category of Business Transactions Recorded

1. Cash Book All cash and bank transactions.
2. Purchases Book All Credit purchases of goods only.
3. Sales Book All Credit sales of goods only.
4. Purchases Return Book All returns of goods purchased by us from suppliers, i.e., Returns Outward.
(Returns Outward Book)
5. Sales Return Book All returns of goods sold by us to customers, i.e., Returns Inward.
(Returns Inward Book)
6. Journal Proper All such transactions which cannot be recorded in the above five books.
9.2 Double Entry Book Keeping—ISC XI

• Cash Book. Cash Book records cash transactions. Even banking transactions can be recorded in the
Cash Book.
When a Cash Book is maintained, there is no need to open a separate Cash Account in the Ledger as the
purpose of Cash Account is served by Cash Book. Thus, the Cash Book plays a dual role as a Journal as well
as a Ledger.
• Kinds of Cash Book. There are different kinds of Cash Book, such as:
(i) Simple or Single Column Cash Book—For recording cash transactions only.
(ii) Triple-column Cash Book—In this type of Cash Book, which in addition to Cash Column, has columns
for discount and bank on each side. Cash transactions are recorded in the Cash Column and bank
transactions are recorded in Bank Column.
If a firm maintains Triple-column Cash Book, there is no need to open Cash and Bank Accounts in the Ledger.
• Contra Entries: Contra entries mean entries that are made on both sides of the book.
Dr. FORMAT OF CASH BOOK SHOWING POSSIBLE ENTRIES IN Dr. (RECEIPTS) AND Cr. (PAYMENTS) SIDE Cr.
Particulars Discount Cash Bank Particulars Discount Cash Bank
Allowed Received
To Balance b/d   By Balance b/d* 
To Sales A/c    By Cash A/c (C) 
To Cash A/c (C)  By Wages A/c  
To Cheques in Hand A/c  By Freight A/c  
To Bank A/c (C)  By Purchases A/c   
To Deepak (Debtor)    By Commission A/c  
To Alok (Debtor) (Cheque   By Salary A/c  
Received but not By Rent A/c  
Deposited on Same Day) By Advance to Staff A/c  
To Cash A/c (Chequed from  By Advance for
Alok Deposited) Purchases A/c  
To Loan A/c   By Advance for
To Capital A/c   Purchase of
To Investments A/c (Sale)   Fixed Assets A/c  
To Rent Received A/c   By Office Exp. A/c  
To Bad Debts Recovered   By Bank A/c 
A/c (Cheque from Alok)
To Furniture A/c (Sale)   By Electricity Exp. A/c  
To Scrap Sale A/c   By Telephone Exp. A/c  
To Interest Received A/c   By Prepaid Exp. A/c  
To Arun (Cheque  By Bank A/c (C) 
Issued Dishonoured) By Drawings A/c  
To Balance c/d ** By Chander (Creditors)  
By Loan A/c  
(Repayment)
By Investments A/c  
By Stationery A/c  
By Petty Cash A/c  
By Interest A/c (Paid)  
By Furniture A/c  
By Subhash (Cheque 
Deposited
Dishonoured)
By Balance c/d  

To Balance b/d   By Balance b/d 
* Overdraft Opening Balance
** Overdraft Closing Balance
Sub-Division of Journal—Cash Book 9.3

Solved Questions
Illustration 1.
Record the following transactions in the Cash Book of Smith, Kolkata and show the balance:
2020 `
March 1 Balance of cash in hand 15,000
March 8 Purchased goods for cash from Peter 3,200
March 15 Sold goods to Angella 4,800
March 20 Received commission 650
March 20 Paid commission 550
March 28 Paid to Samuel on account 7,150
March 31 Paid salary to the office clerk ` 1,000 and office rent ` 600
Solution: In the Books of Smith
Dr. CASH BOOK Cr.
Date Particulars L.F. ` Date Particulars L.F. `
2020 2020
March 1 To Balance b/d 15,000 March 8 By Purchases A/c 3,200
March 20 To Commission Received A/c 650 March 20 By Commission Paid A/c 550
March 28 By Samuel 7,150
March 31 By Salary A/c 1,000
March 31 By Office Rent A/c 600
March 31 By Balance c/d 3,150
15,650 15,650
April 1 To Balance b/d 3,150
Note: Credit transactions are not recorded in the Cash Book. Transaction of 15th March, 2020 is a credit sale
hence, is not recorded in the cash book.
Illustration 2.
Enter the following transactions in Triple-column Cash Book with Cash, Bank and Discount
Columns:
2020 `
Jan. 1 Chander commences business with Cash.................................................................................................................. 20,00,000
Jan. 3 He paid into Bank Current A/c........................................................................................................................................ 19,00,000
Jan. 4 He receives cheque from Kirti & Co. on account....................................................................................................... 60,000
Jan. 7 He deposits Kirti & Co.’s cheque into Bank
Jan. 10 He pays Ratan & Co. by cheque and is allowed discount ` 2,000....................................................................... 33,000
Jan. 12 Tripathi & Co. pays into his Bank A/c............................................................................................................................. 47,500
Jan. 15 He receives cheque from Warsi and allows him discount ` 3,500..................................................................... 45,000
Jan. 20 He receives cash ` 7,500 and cheque ` 10,000 for sales
Jan. 25 He pays into Bank, including cheques received on 15th and 20th January................................................... 1,00,000
Jan. 27 He pays by cheque for cash purchases........................................................................................................................ 27,500
Jan. 30 He pays sundry expenses in cash................................................................................................................................... 5,000
Jan. 30 He pays John & Co. in cash and is allowed discount ` 3,500................................................................................ 37,500
Jan. 31 He pays office rent by cheque......................................................................................................................................... 20,000
Jan. 31 He draws a cheque for personal use............................................................................................................................. 25,000
Jan. 31 He pays staff salaries by cheque..................................................................................................................................... 30,000
Jan. 31 He draws a cheque for office use................................................................................................................................... 40,000
Jan. 31 He purchases stationery in cash..................................................................................................................................... 2,500
Jan. 31 He purchases goods for cash........................................................................................................................................... 12,500
Jan. 31 He pays Jagpal by cheque for commission................................................................................................................ 30,000
Jan. 31 He issues cheque to Ram Saran for purchase of furniture for office................................................................. 1,57,500
Jan. 31 He receives cheque for commission from Raghubir & Co. and pays the same into bank.......................... 50,000
Jan. 31 Cash Sales............................................................................................................................................................................... 45,000
9.4 Double Entry Book Keeping—ISC XI

Solution: In the Books of Chander

Dr. TRIPLE-COLUMN CASH BOOK Cr.
Date Particulars L.F. Discount Cash Bank Date Particulars L.F. Discount Cash Bank
Allowed Received
` ` ` ` ` `
2020 2020
Jan. 1 To Capital A/c 20,00,000 ... Jan. 3 By Bank A/c C 19,00,000 ...
Jan. 3 To Cash A/c C ... 19,00,000 Jan. 7 By Bank A/c C 60,000 ...
Jan. 4 To Kirti & Co. 60,000 ... Jan. 10 By Ratan & Co. 2,000 ... 33,000
Jan. 7 To Cash A/c C ... 60,000 Jan. 25 By Bank A/c C 1,00,000 ...
Jan. 12 To Tripathi & Co. ... 47,500 Jan. 27 By Purchases A/c ... 27,500
Jan. 15 To Warsi 3,500 45,000 ... Jan. 30 By Sundry Exp. A/c 5,000 ...
Jan. 20 To Sales A/c 17,500 ... Jan. 30 By John & Co. 3,500 37,500 ...
Jan. 25 To Cash A/c C ... 1,00,000 Jan. 31 By Rent A/c ... 20,000
Jan. 31 To Bank A/c C 40,000 ... Jan. 31 By Drawings A/c ... 25,000
Jan. 31 To Commission Jan. 31 By Salaries A/c ... 30,000
Received A/c ... 50,000 Jan. 31 By Cash A/c C ... 40,000
Jan. 31 To Sales A/c 45,000 ... Jan. 31 By Stationery A/c 2,500 ...
Jan. 31 By Purchases A/c 12,500 ...
Jan. 31 By Commission A/c ... 30,000
Jan. 31 By Furniture A/c ... 1,57,500
Jan. 31 By Balance c/d 90,000 17,94,500
3,500 22,07,500 21,57,500 5,500 22,07,500
21,57,500

Feb. 1 To Balance b/d 90,000 17,94,500

Illustration 3.
Write the following transactions in Triple-column Cash Book with Cash, Bank and Discount
Columns:
Date Particulars `
2020
Jan. 1 John commences business with ` 50,000 in cash out of which he deposits
` 20,000 each in Garden Bank and Your Bank.
Jan. 2 He transfers by cheque ` 1,00,000 and ` 75,000 from his savings account to
Garden Bank and Your Bank respectively.
Jan. 3 Pays by cheque on Garden Bank towards rent to landlord for the month of January, 2020...................... 5,000
Jan. 4 Purchases furniture for office by issuing cheque drawn on Your Bank.............................................................. 10,000
Jan. 4 Purchases goods for sale from Kay & Co. and issues a cheque drawn on Your Bank..................................... 25,000
Jan. 4 Purchases goods for sale from Iban & Co. against cheque on Garden Bank.................................................... 35,000
Jan. 5 Sale of goods against cash................................................................................................................................................. 10,500
Jan. 5 Sale of goods on credit to Soho & Co. amounting to ` 25,000 at Trade Discount of 5%
Jan. 6 Receives cheque from Robin & Co. as advance for supply of goods ordered by it........................................ 10,000
Jan. 6 Receives cheque from Soho & Co. for sale of goods on 5th January, 2020 allowing cash discount of ` 1,000.
The cheque was deposited on the same day in Your Bank.
Jan. 11 Purchased goods from Rahul & Co. for ` 40,000 and availed Trade Discount of 5% and issued
cheque of current date on Garden Bank and availed further cash discount of 2%.
Jan. 11 Deposited cash in Your Bank; being sale of January 5, 2020.................................................................................. 10,500
Jan. 11 Withdrew from Garden Bank for office use.................................................................................................................. 10,000
Jan. 11 Deposited cheque of Robin & Co. in Garden Bank
Jan. 15 Paid petty expenses.............................................................................................................................................................. 1,000
Jan. 16 Paid advance against salary............................................................................................................................................... 1,000
Jan. 17 Paid for stationery................................................................................................................................................................. 2,500
Jan. 20 Paid commission to agent against sale.......................................................................................................................... 1,500
Jan. 21 Withdrew from Your Bank for personal use.................................................................................................................. 5,000
Jan. 25 Cash sale................................................................................................................................................................................... 5,000
Jan. 29 Paid Municipal Taxes............................................................................................................................................................. 750
Jan. 31 Paid salaries, after adjusting advance............................................................................................................................. 5,000
Sub-Division of Journal—Cash Book 9.5

Solution: 
In the Books of John
Dr. TRIPLE-COLUMN CASH BOOK Cr.
Date
Particulars L.F.
Discount
Cash
Garden Your
Date
Particulars L.F.
Discount
Cash
Garden
Your
Allowed Bank Bank Received Bank Bank
` ` ` ` ` ` ` `

2020 2020
Jan. 1 To  Capital A/c 50,000 ... ... Jan. 1 By Bank A/c C 40,000 ... ...
Jan. 1 To  Cash A/c C ... 20,000 20,000 Jan. 3 By Rent A/c ... 5,000 ...
Jan. 2 To Capital A/c ... 1,00,000 75,000 Jan. 4 By Furniture A/c ... ... 10,000
Jan. 5 To Sales A/c 10,500 ... ... Jan. 4 By Purchases A/c ... ... 25,000
Jan. 6 To Robin & Co. 10,000 ... ... Jan. 4 By Purchases A/c ... 35,000 ...
Jan. 6 To Soho & Co. 1,000 ... ... 22,750 Jan. 11 By Purchases A/c 760 ... 37,240 ...
Jan. 11 To Cash A/c C ... ... 10,500 Jan. 11 By Your Bank C 10,500 ... ...
Jan. 11 To Garden Jan. 11 By Cash A/c C ... 10,000 ...
Bank A/c C 10,000 ... ... Jan. 11 By Garden Bank
Jan. 11 To Cash A/c C ... 10,000 ... A/c C 10,000 ... ...
Jan. 25 To Sales A/c 5,000 ... ... Jan. 15 By Petty Exp. A/c 1,000 ... ...
Jan. 16 By Advance

against

Salary A/c 1,000 ... ...
Jan. 17 By Stationery A/c 2,500 ... ...
Jan. 20 By Commission

A/c 1,500 ... ...
Jan. 21 By Drawings A/c ... ... 5,000
Jan. 29 By Municipal

Taxes A/c 750 ... ...
Jan. 31 By Salaries A/c 5,000 ... ...
Jan. 31 By Balance c/d 13,250 42,760 88,250

1,000
85,500
1,30,000
1,28,250 760
85,500
1,30,000
1,28,250

Feb. 1 To Balance b/d 13,250 42,760 88,250

Note: Entry of 5th January, 2020 for sale of goods on credit shall not be recorded in the Cash Book. Credit Sales
will be recorded in the Sales Book.
9.6 Double Entry Book Keeping—ISC XI

Unsolved Questions
1. Prepare Three-column Cash Book with Cash, Bank and Discount Columns from the following transactions
and balance the Cash Book on 31st January, 2020:
2020 ` 2020 `
Jan. 1 Cash in Hand 5,670 Jan. 17 Purchased a car and paid by cheque 47,990
Jan. 1 Cash at Bank 1,26,750 Jan. 17 Purchased goods for ` 5,000 and availed
Jan. 2 Deposited in Bank 5,000 Trade Discount of 10% Cash Discount
Jan. 5 Received from A 7,900 of 2% was offered on immediate
and allowed discount 100 payment. The offer made was availed.
Jan. 7 Purchased Furniture Payment was made through cheque.
for cash 2,500 Jan. 17 Paid by cheque to D and 3,670
Jan. 8 Paid to B by cheque and 7,450 received discount 30
received discount 50 Jan. 19 Withdrew from Bank for office use 2,500
Jan. 13 Received from C by cheque Jan. 22 Purchased goods for cash 3,500
and deposited into Bank 5,000 Jan. 25 Paid Establishment
Jan. 15 Cash sales 7,850 expenses through Bank 4,500
Jan. 15 Deposited into Bank 10,000 Jan. 31 Paid rent in cash 500

2. Enter the following transactions in suitable Triple-column Cash Book of Bhaskar Reddy and strike the
balance at the end of the month:
2020 `
Jan. 1 Cash in Hand........................................................................................................................................................................... 50,000
Jan. 2 Opened a bank account and deposited office cash therein................................................................................. 37,500
Jan. 3 Purchased office furniture and paid off by a cheque.............................................................................................. 2,500
Jan. 6 Purchased stationery........................................................................................................................................................... 500
Jan. 8 Cash purchases...................................................................................................................................................................... 2,000
Jan. 9 Paid to Mani Lal for goods purchased by cheque..................................................................................................... 10,000
Jan. 10 Received from Kartar Singh payment for goods in cash ` 5,000 and by cheque ` 12,500
and deposited into bank.................................................................................................................................................... 17,500
Jan. 12 Cash sales................................................................................................................................................................................. 3,500
Jan. 16 Kartar Singh’s cheque returned dishonoured by the bank
Jan. 18 Purchases made and availed 5% cash discount........................................................................................................ 9,500
(payment in cash ` 5,000 and by cheque ` 4,500)
Jan. 20 Withdrew cash from Bank for personal use................................................................................................................ 1,000
Jan. 22 Sold goods for cash and deposited the cash into bank.......................................................................................... 12,000
Jan. 27 Kartar Singh paid cash in lieu of dishonoured cheque........................................................................................... 12,500
Jan. 28 Paid office rent by cheque................................................................................................................................................. 5,000
Jan. 30 Paid salary to staff................................................................................................................................................................. 10,000
A fire occurred in godown and goods costing ` 10,000 were destroyed.
A claim was lodged with Insurance Co., which is yet to be received.
Sub-Division of Journal—Cash Book 9.7

3. Prepare Three-column Cash Book from the following transactions of Mani, Kochi:
2020
March 1 Cash in Hand ` 15,000; Cash at Bank ` 5,000
March 3 Purchased goods of ` 6,000 settled the account by cash and received discount of ` 220
March 5 Deposited into bank ` 5,000
March 7 Cash sales ` 10,000
March 10 Cash withdrawn from Bank for Office use ` 2,000
March 15 Received three months post dated cheque of ` 20,000 from Raj and deposited in the bank on the same day,
discounted from bank paying discounting charges ` 750
March 18 Received cheque from Deepak for ` 5,000 (not banked), allowed discount ` 200
March 20 Cheque received from Deepak deposited in Bank
March 22 Paid to Chandra by cheque ` 2,500; received discount ` 100
March 25 Withdrew from bank for personal use ` 1,000
March 28 Sold goods to Ashok Mitra, Kolkata ` 10,000
March 30 Purchased goods from Chander, Delhi ` 20,000
March 31 Received cheque from Ashok Mitra ` 5,000 and deposited in bank, allowed him discount ` 200

4. Yash operates two Bank Accounts both of which are maintained in three columnar Cash Book itself. You
are required to draw up the Cash Book and show how the following transactions relating to 31st January,
2020 will appear therein and close the Cash Book for the day:
(i) Opening Balance: `
Cash 2,000
State Bank of India (SBI) 8,000 (Overdraft)
Punjab National Bank (PNB) 60,000
(ii) Received cheque for ` 12,500 in respect of sales. The cheque was deposited in SBI, which credited the
net amount after deducting ` 30 as discounting charges.
(iii) Purchased goods for ` 20,000 and a cheque issued on the PNB.
(iv) Paid rent ` 1,500 and ` 200 for stationery.
(v) Out of cash sales of ` 15,000 a sum of ` 10,000 was deposited in the SBI.
(vi) Credit purchases of ` 15,000 were made from Mr. Shyam who sent the documents relating to the goods
through the PNB for 90% of their value. The bank charged ` 150 for releasing the documents.
(vii) Deposited ` 5,000 in SBI.
(viii) A ‘Bill Receivable’ for ` 10,000 was discounted with PNB, which charged 1% towards discounting. The
bank credited the net amount after deducting discount.
(ix) Withdrew ` 6,000 from the PNB.
(x) A Demand Draft was purchased for ` 3,000 from a bank after paying ` 10 towards their charges and
paid to the MTNL as security deposit.
(xi) Interest of ` 120 and ` 50 were credited and debited respectively by the PNB and SBI.
(xii) An amount of ` 4,000 was withdrawn from PNB and salaries paid in cash to that extent.
(xiii) Manager’s salary of ` 7,000 was paid by cheque drawn on SBI.
(xiv) PNB collected dividend of ` 2,500.
(xiv) An amount of ` 10,000 was transferred from PNB to SBI

GUIDE TO ANSWERS
1. Cash Balance—` 2,420; Bank Balance—` 76,230; Discount Allowed—` 100; Discount Received—` 170.
2. Cash Balance—` 11,000; Bank Balance—` 31,500; Discount Received—` 500.
[Hint: Entry will not be passed for loss of goods by fire in the Cash Book.]
3. Cash Balance—` 16,220; Bank Balance—` 33,750; Discount Allowed—` 400; Discount Received—` 320.
4. Cash Balance—` 3,290; SBI—` 22,420; PNB—` 18,870.
 CHAPTER
10
Petty Cash Book
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Petty Cash Book It is a Cash Book in which payments of small amounts are recorded.
2. Imprest System of It is a system whereby an estimate of expenditure is made
Petty Cash
and the estimated amount is given to the Petty Cashier. Thereafter,
the statement of expenses is submitted at the end of the designated
period, which is reimbursed to him to make the petty cash equal to
the original petty cash amount.

CHAPTER SUMMARY

• Petty Cash Book. This book is maintained for recording petty payments or expenses in cash.
A Petty Cash Book may be maintained from recording point of view, under two different systems, namely:
1. Simple Petty Cash Book; 2. Analytical Petty Cash Book.
• Advantages of Analytical Petty Cash Book
1. All the heads of petty expenses are ready at hand at one place in one book.
2. A summarised record of petty expenses under each head can be made at a time in the ledger.
3. Errors and frauds can be detected easily and early through double check (the total of expenses columns
must tally with the total of payments column).
• Imprest System of Petty Cash. The most effective system of recording the transactions in the Petty Cash
Book is the ‘Imprest Petty Cash System’. Under this system, the Petty Cashier is given a certain amount of
cash for a particular period (say for a week or a fortnight or a month) to meet various petty expenses for
the period. At the end of the period, the amount actually spent by the Petty Cashier is reimbursed to him
by the Head Cashier.

A specimen format of a Simple Petty Cash Book is given below:

Dr. SIMPLE PETTY CASH BOOK Cr.
Amount Received L.F. Cash Book Date Particulars L.F. Voucher No. Amount Paid
` Folio `
Amount Received ... ... ... ... ...

Amount Paid ... ...
10.2 Double Entry Book Keeping—ISC XI

A specimen format of Analytical Petty Cash Book is given below:

ANALYTICAL PETTY CASH BOOK

Receipts Date Voucher Particulars Total Conveyance Cartage Stationery Postage Sundries
No. Payments and
Courier
` ` ` ` ` ` `
 CHAPTER
11
Sub-Division of Journal
(Purchases Book, Sales Book, Purchases Return Book,
Sales Return Book and Journal Proper)

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Purchases Book It is a subsidiary book in which credit purchase of goods traded in

are recorded.
2. Purchases Return or It is a subsidiary book in which returns outward, i.e., returns of
Returns Outward Book goods purchased is recorded.
3. Sales Book It is a subsidiary book in which goods sold on credit are recorded.
4. Sales Return or Returns It is a subsidiary book in which goods returned by the customers
Inward Book are recorded.
5. Journal Proper It is one of the subsidiary books, which is used to record those
transactions which cannot be recorded in any other subsidiary
book such as (1) Cash Book, (2) Purchases Book, (3) Sales Book,
(4) Purchases Return Book and (5) Sales Return Book.
6. Debit Note It is the document prepared to debit the account of the seller. For
example, purchaser of goods prepares a Debit Note when goods are
returned to the seller.
7. Credit Note It is the document prepared to credit the account of the buyer. For
example, seller of goods prepares a Credit Note when goods are
returned by the purchaser.
8. Trade Discount Trade discount is the discount allowed by the seller on goods sold. It
is recorded in the Purchases Book by the purchaser and Sales Book
by the seller. But, in the ledger, purchases and sales are accounted
at net amount.

CHAPTER SUMMARY

• Purchases Book (also known as Purchases Journal) is used for the purpose of recording goods purchased
on credit with the purpose to resell or use them in production.
Cash purchases are not recorded in the Purchases Book. They are recorded in the Cash Book.
• Sales Book (also known as Sales Journal) is used for the purpose of recording the sale of goods on credit.
• Purchases Return Book (also known as Returns Outward Book) is used for recording return of goods
purchased on credit.
11.2 Double Entry Book Keeping—ISC XI

• Sales Return Book (also known as Returns Inward Book) is used for the purpose of recording the return
of goods sold on credit.
• Journal Proper. Journal Proper is used for recording those transactions which do not find a place in any
other subsidiary book such as (i) Cash Book, (ii) Purchases Book, (iii) Sales Book, (iv) Purchases Return Book
and (v) Sales Return Book.
Entries recorded in the Journal Proper are:
(i) Opening Entry (vi) Miscellaneous Entries:
(ii) Closing Entry • Credit Purchase of Assets
(iii) Transfer Entries (vii) Credit Sale of Assets:
(iv) Adjustment Entries • Writing off Bad Debts
(v) Rectifying Entries • Endorsement of Bills Receivable

Table showing the Nature of Transactions Recorded in Subsidiary Books and their
Effect on Ledger Accounts
Name of the Book Nature of Transaction Entered Effect on Ledger Accounts
Debit Credit
1. Cash Book All cash and bank transactions. Cash and Bank A/c for receipt of Cash and Bank A/c for Payment
Cash and Cheques. of Cash and Cheques.
2. Purchases All credit purchases of goods. Purchases A/c Suppliers’ A/c
Book
3. Sales Book All credit sales of goods. Customers’ A/c Sales A/c
4. Purchases Return of goods to Suppliers’ A/c Purchases Return A/c or
Return Book suppliers. Returns Outward A/c
5. Sales Return Return of goods by Sales Return A/c or Customers’ A/c
Book customers. Returns Inward A/c
6. Journal Proper All such transactions that Account affected by Account affected by
cannot be entered in the transactions. transactions.
above five books.
Format of Purchases Book or Purchases Journal

PURCHASES BOOK OR PURCHASES JOURNAL

Date Particulars Invoice L.F. Details Cost Freight, Total
No. Cartage, etc.
` ` ` `
(1) (2) (3) (4) (5) (6) (7) (8)

The Purchases Book has eight columns:

1. Date. The date of transaction is written.
2. Particulars. The name of the seller of goods, description of the articles, price per unit
payable and quantities purchased are written.
3. Invoice No. Invoice number of the goods purchased is written.
Sub-Division of Journal 11.3

4. Ledger Folio (L.F.). When the Purchases Book is posted to the ledger, the page number of
the ledger is written.
5. Details. The amount in respect of each article is written in this column. If trade discount is
allowed by the seller, it is deducted from the gross amount. Thereafter, expenses payable,
if any (say, freight/cartage) are added. It is shown as follows:

`
Quantity × Price per Article ...
Less: Trade Discount ...
...
Add: Expenses (Freight/Cartage, etc.) ...
Invoice Price ...

6. Cost. Cost of goods purchased.

7. Expenses. The expenses say freight, cartage and/or packing material, etc., payable to the
seller of goods is written.
8. Total. The amount of invoice and expenses payable is written.

Format of Sales Book or Sales Journal

SALES BOOK OR SALES JOURNAL

Date Particulars Invoice L.F. Details Sale Freight, Total
No. Value Cartage, etc.
` ` ` `
(1) (2) (3) (4) (5) (6) (7) (8)

Format of Purchases Return Book or Returns Outward Book

Date Particulars Debit L.F. Details Amount
Note No. ` `

Format of Sales Return Book or Returns Inward Book

Date Particulars Credit L.F. Details Amount
Note No. ` `
11.4 Double Entry Book Keeping—ISC XI

Solved Questions
Illustration 1.
On the closing date of an accounting period of Mr. Singh that is on 31st March, 2020, make the
following transfer entries:
(i) Debtors include ` 2,000 due from A, whereas creditors include ` 1,000 due to A;
(ii) Gross profit ` 70,400;
(iii) Net profit ` 36,000, out of which 10% is to be transferred to reserve.

Solution: JOURNAL PROPER

Date Particulars L.F. Dr. (`) Cr. (`)
2020
March 31 Creditors A/c (WN 1) ...Dr. 1,000
To Debtors’ A/c 1,000
(Being the amount transferred from Creditors’ A/c to Debtors’ A/c)

Trading A/c ...Dr. 70,400

To Profit and Loss A/c 70,400
(Being the gross profit transferred to Profit and Loss A/c)

Profit and Loss A/c ...Dr. 3,600

To General Reserve A/c 3,600
(Being the amount transferred to general reserve)

Working Notes:
1. Amount due from A is ` 2,000 and amount due to A is ` 1,000. Therefore, ` 1,000 is to be deducted from the
Debtors’ balance as well as from the Creditors’ balance.
2. Adjustment entries are passed before they are transferred to the Trading and Profit and Loss Account and
the Balance Sheet. This is because adjustment entries always have a dual effect. They affect either the Trading
Account or the Profit and Loss Account but definitely the Balance Sheet.

Illustration 2.
Pass Adjustment Entries of the following transactions in the books of Rehman at the end of the
accounting year on 31st March, 2020:
(i) Annual insurance premium of ` 20,000 paid up to 30th June, 2020.
(ii) Salary of ` 10,000 for the month of March, 2020 is outstanding.
(iii) Rent @ ` 8,000 p.m. for April and May, 2020 received in advance.
(iv) Salary due to an employee but not received by him ` 2,500.
(v) Interest due on loan but not paid. Loan on ` 25,000 was taken at 8% per annum on
1st July, 2019.
Sub-Division of Journal 11.5

Solution:
JOURNAL PROPER
Date Particulars L.F. Dr. (`) Cr. (`)

2020
March 31 Prepaid Insurance A/c ...Dr. 4,000
(i) To Insurance A/c 4,000
(Being the adjustment of prepaid insurance)
(ii) Salaries A/c ...Dr. 10,000
To Outstanding Salaries A/c 10,000
(Being the adjustment of salaries due but not paid)
(iii) Rent Received A/c (` 8,000 × 2) ...Dr. 16,000
To Rent Received in Advance A/c 16,000
(Being the adjustment of rent received in advance)
(iv) Salaries A/c ...Dr. 2,500
To Outstanding Salaries A/c 2,500
(Being the adjustment of salaries due but not paid)
(v) Interest on Loan A/c (` 25,000 × 9/12 × 8/100) ...Dr. 1,500
To Outstanding Interest A/c 1,500
(Being the adjustment of outstanding interest for 9 months)

Unsolved Questions
1. (Opening Entries). Following balances appeared in the Balance Sheet of Ram Stores on 31st March, 2020.
Pass necessary Journal entries for opening the books for the year 2019–20:
Debit Balances: Furniture ` 4,000; Machinery ` 20,000; Debtors ` 5,000; Bills Receivable ` 11,800; Cash

` 14,200.
Credit Balances: Capital ` 30,000; Bills Payable ` 15,000; Creditors ` 10,000.

2. Record the following transactions into proper subsidiary books, close the subsidiary books on
31st January, 2020 and post them into Ledger:
2020 `
Jan. 1 Purchased goods from Mahinder of the list price of
` 40,000 less Trade Discount 10%
Jan. 5 Sold goods to Moti 10,000
Jan. 6 Returned goods to Mahinder of the list price 5,000
Jan. 7 Sold goods to Shyam Singh 30,000
Jan. 8 Sold goods to Harish 12,000
Jan. 19 Sold goods to Moti 6,000
Jan. 27 Sold goods to Mahesh 8,000

GUIDE TO ANSWER

2. Total of Purchases Book—` 1,27,200; Total of Sales Book—` 43,437.50.

 CHAPTER
12
Accounting of Goods and Services
Tax (GST)
Accounting Entries

A. Journal entries of transactions on which GST is Paid and Allowed as Input GST:

S.No. Transactions and Explanations Journal Entry

1.
Purchase of Goods (a) For intra-state Purchase
Explanation: Input Credit for GST Paid Purchases A/c ...Dr
is allowed. Input CGST A/c ...Dr.
Input SGST A/c ...Dr.
To Cash/Bank A/c [Cash Purchase]
To Creditor’s A/c [Credit Purchase]
(b) For inter-state Purchase
Purchases A/c ...Dr.
Input IGST A/c ...Dr.
To Cash/Bank A/c [Cash Purchase]
To Creditor’s A/c [Credit Purchase]

2. Purchases Return (a) For return of intra-state Credit Purchase

Explanation: Input Credit for GST Paid Creditor’s A/c ...Dr.
taken on purchase is cancelled, i.e., To Purchases Return A/c
reversed. To Input CGST A/c
To Input SGST A/c
(b) For return of intra-state Cash Purchase
Cash/Bank A/c ...Dr.
To Purchases Return A/c
To Input CGST A/c
To Input SGST A/c
(c) For return of inter-state Credit Purchase
Creditor’s A/c ...Dr.
To Purchases Return A/c
To Input IGST A/c
(d) For return of inter-state Cash Purchase
Cash/Bank A/c ...Dr.
To Purchases Return A/c
To Input IGST A/c
12.2 Double Entry Book Keeping—ISC XI

3. Purchase of Asset (a) For intra-state Purchase

Explanation: Input Credit for GST Paid Asset A/c ...Dr.
is allowed (except on Vehicles purchased Input CGST A/c ...Dr.
by Non-transport Enterprises) Input SGST A/c ...Dr.
To Cash/Bank A/c [Against Payment]
To Vendor’s A/c [Credit Purchase]
(b) For inter-state Purchase
Asset A/c ...Dr.
Input IGST A/c ...Dr.
To Cash/Bank A/c [Against Payment]
To Vendor’s A/c [Credit Purchase]
4. Rent Paid for Business Premises Rent A/c ...Dr.
Explanation: Input Credit for GST Paid is Input CGST A/c ...Dr.
allowed. Both CGST and SGST are levied at Input SGST A/c ...Dr.
half the prescribed rate of GST each. To Cash/Bank A/c [If paid]
To Rent Payable A/c [If payable]
5. Commission (Expense) (a) For intra-state
Explanation: Input Credit for GST Paid Commission Paid A/c ...Dr.
is allowed. Input CGST A/c ...Dr.
Input SGST A/c ...Dr.
To Cash/Bank A/c [If paid]
To Commission Payable A/c [If payable]
(b) For inter-state
Commission Paid A/c ...Dr.
Input IGST A/c ...Dr.
To Cash/Bank A/c [If paid]
To Commission Payable A/c [If payable]
6. Telephone Bill Telephone Expenses A/c ...Dr.
Explanation: Input Credit for GST Paid is Input CGST A/c ...Dr.
allowed. Both CGST and SGST are levied Input SGST A/c ...Dr.
at half the prescribed rate of GST each. To Cash/Bank A/c [If paid]
To Telephone/Expenses Payable A/c [If payable]
7. Insurance Premium Insurance Premium A/c ...Dr.
Explanation: Input Credit for GST Paid is Input CGST A/c ...Dr.
allowed. Input SGST A/c ...Dr.
To Cash/Bank A/c
8. Advertisement Expenses (a) For intra-state
Explanation: Input Credit for GST Paid Advertisement Expenses A/c ...Dr.
is allowed. Input CGST A/c ...Dr.
Input SGST A/c ...Dr.
To Cash/Bank A/c [If paid]
To Advertisement Expenses Payable A/c [If payable]
(b) For inter-state
Advertisement Expenses A/c ...Dr.
Input IGST A/c ...Dr.
To Cash/Bank A/c [If paid]
To Advertisement Expenses Payable A/c [If payable]
Accounting of Goods and Services Tax (GST) 12.3

9. Bank Charges Bank Charges A/c ...Dr.

Explanation: Input Credit for GST Paid Input CGST A/c ...Dr.
is allowed. Input SGST A/c ...Dr.
To Cash/Bank A/c
10. Printing and Stationery (a) For intra-state
Explanation: Input Credit of GST Paid is Printing and Stationery A/c ...Dr.
allowed. Input CGST A/c ...Dr.
Input SGST A/c ...Dr.
To Cash/Bank A/c [If paid]
To Expenses Payable A/c [If payable]
(b) For inter-state
Printing and Stationery A/c ...Dr.
Input IGST A/c ...Dr.
To Cash/Bank A/c [If paid]
To Expenses Payable A/c [If payable]
11. Freight and Cartage (a) For intra-state
Explanation: Input Credit for GST Paid Freight and Cartage A/c ...Dr.
is allowed. Input CGST A/c ...Dr.
Input SGST A/c ...Dr.
To Cash/Bank A/c [If paid]
To Expenses Payable A/c [If payable]
(b) For inter-state
Freight and Cartage A/c ...Dr.
Input IGST A/c ...Dr.
To Cash/Bank A/c [If paid]
To Expenses Payable A/c [If payable]

B. Journal entries of transactions on which GST claimed as Input GST is Reversed (i.e., cancelled):

S.No. Transactions and Explanations Journal Entry

1. Goods Distributed as Samples (a) If the Goods were purchased intra-state
Explanation: Input Credit taken at the Advertisement/Sample/Sales Promotion Expenses A/c ...Dr.
time of purchase of goods is cancelled, i.e., To Purchases A/c
reversed. GST Paid (CGST and SGST or To Input CGST A/c
IGST) is reversed because the goods are To Input SGST A/c
consumed by the business.
(b) If the Goods were purchased inter-state
Advertisement/Sample/Sales Promotion Expenses A/c ...Dr.
To Purchases A/c
To Input IGST A/c
2. Goods Lost by Fire or Theft (a) If the Goods were purchased intra-state
Explanation: Input Credit taken at the Loss of Goods by Fire or Theft A/c ...Dr.
time of purchase of goods is cancelled, To Purchases A/c
i.e., reversed. To Input CGST A/c
To Input SGST A/c
(b) If the Goods were purchased inter-state
Loss of Goods by Fire or Theft A/c ...Dr.
To Purchases A/c
To Input IGST A/c
12.4 Double Entry Book Keeping—ISC XI

3. Goods Given as Donation/Charity (a) If the Goods were purchased intra-state

Explanation: Input Credit taken at the Donation/Charity A/c ...Dr.
time of purchase of goods is cancelled, To Purchases A/c
i.e., reversed. GST Paid (CGST and SGST or To Input CGST A/c
IGST) is reversed because the goods are To Input SGST A/c
consumed by the business.
(b) If the Goods were purchased inter-state
Donation/Charity A/c ...Dr.
To Purchases A/c
To Input IGST A/c
4. Goods Taken by Proprietor (Owner) (a) If the Goods were purchased intra-state
for personal use Drawings A/c ...Dr.
Explanation: Input Credit taken at the To Purchases A/c
time of purchase of goods is cancelled, To Input CGST A/c
i.e., reversed. To Input SGST A/c
(b) If the Goods were purchased inter-state
Drawings A/c ...Dr.
To Purchases A/c
To Input IGST A/c
C. Journal entries of transactions on which GST is Charged and is Output GST:
GST charged is payable to the Government after set-off of Input GST. Thus, it is Output GST.
S.No. Transactions and Explanations Journal Entry
1. Sale of Goods and/or Services or Both (a) For intra-state Sale
Explanation: If intra-state transaction, Cash/Bank A/c ...Dr. [Cash Sale]
both CGST and SGST at half the prescribed Debtor’s A/c ...Dr. [Credit Sale]
rate of GST is levied. If inter-state To Sales A/c
transaction, IGST at the prescribed rate To Output CGST A/c
of GST is levied. To Output SGST A/c
(b) For inter-state Sale
Cash/Bank A/c ...Dr. [Cash Sale]
Debtor’s A/c ...Dr. [Credit Sale]
To Sales A/c
To Output IGST A/c
2. Sales Return (a) For intra-state Credit Sale
Explanation: Output GST, i.e., GST Charged Sales Return A/c ...Dr.
on sale is cancelled, i.e., reversed. Goods Output CGST A/c ...Dr.
were sold within the state, i.e., Intra-state, Output SGST A/c ...Dr.
both CGST and SGST were charged and To Debtor’s A/c
credited to Output CGST Account and (b) For intra-state Cash Sale
Input SGST Account, which now are Sales Return A/c ...Dr.
reversed. Goods were sold outside the Output CGST A/c ...Dr.
state, i.e., Inter-state, IGST was charged Output SGST A/c ...Dr.
and credited to Output IGST Account, To Cash/Bank A/c
which now is reversed.
(c) For inter-state Credit Sale
Sales Return A/c ...Dr.
Output IGST A/c ...Dr.
To Debtor’s A/c
(d) For inter-state Cash Sale
Sales Return A/c ...Dr.
Output IGST A/c ...Dr.
To Cash/Bank A/c
Accounting of Goods and Services Tax (GST) 12.5

3. Rent Received Cash/Bank A/c ...Dr. [If Received]

Rent Receivable A/c ...Dr. [If Receivable]
To Rent Received A/c
To Output CGST A/c
To Output SGST A/c
4. Commission (Income) (a) For intra-state Commission (Income)
Cash/Bank A/c ...Dr. [If Received]
Commission Receivable A/c ...Dr. [If Receivable]
To Commission (Income) A/c
To Output CGST A/c
To Output SGST A/c
(b) For inter-state Commission (Income)
Cash/Bank A/c ...Dr. [If Received]
Commission Receivable A/c ...Dr. [If Receivable]
To Commission (Income) A/c
To Output IGST A/c

D. Journal entries of transactions on which GST (CGST and SGST or IGST) is paid but Input
credit is not allowed.
If Input Credit of GST Paid is not allowed, GST Paid is an expense and is debited to Expense or
Asset Account.
S.No. Transaction Journal Entry
Food and Beverages Expenses Business Promotion Expenses A/c ...Dr.
(Such as Restaurant Bill) To Cash/Bank A/c

E. Journal entries of transactions on which GST (CGST and SGST or IGST) is paid under
Reverse Charge.
It means that the GST is not levied (charged) by the seller but is paid by the purchaser directly in
the Government Account and is allowed Input Credit of GST Paid under Reverse Charge.
S.No. Transaction Journal Entry
Payment of Fee to Lawyer, for use of (a) Professional Fee A/c ...Dr.
copyright To Cash/Bank A/c
(b) Input CGST A/c ...Dr.
Input SGST A/c ...Dr.
To Cash/Bank A/c
 CHAPTER
13
Trial Balance
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Trial Balance It is a statement prepared with the debit and credit balances of
the ledger accounts. The total of debit and credit columns should
be equal. Specimen of a Trial Balance (with imaginary amounts) is
as follows:
TRIAL BALANCE
as on ...
Heads of Accounts L.F. Debit Balance Credit Balance
` `
Capital A/c ... 80,000
Cash A/c 47,700 ...
Purchases A/c 79,000 ...
Sales A/c ... 50,000
Drawings A/c 1,500 ...
Discount Received A/c ... 200
Salaries A/c 2,000 ...
Total 1,30,200 1,30,200

2. Suspense Account Suspense Account is an account in which the difference in the Trial
Balance is transferred temporarily.

CHAPTER SUMMARY

• Trial Balance is a statement which shows the heads and balances of all the accounts appearing in the
Ledger and the Cash Book of an enterprise at any given date. It is not an account. It is prepared on a specific
date by taking the balances of various accounts as on that date. It may be prepared either by taking the
balance of each account or the total amounts of debit and credit items.

• The agreement of Trial Balance ensures arithmetical accuracy and not accounting accuracy.
• Functions of a Trial Balance are to:
(i) ascertain arithmetical accuracy of Ledger Accounts.
(ii) provide summary of each Ledger Account.
(iii) facilitate preparation of financial statements.
(iv) help in locating errors.
13.2 Double Entry Book Keeping—ISC XI

• Trial Balance with given Ledger balances means Trial Balance preparing from the balances of Ledger
Accounts.
• Trial Balance with given Ledger balances and additional information is prepared after recording unrecorded
transactions in the books of account.
FORMAT OF TRIAL BALANCE (With Possible Heads of Debit and Credit)
TRIAL BALANCE as on ...
Heads of Accounts L.F. Dr. (`) Cr. (`)
Capital 
Cash in Hand 
Bank 
Purchases 
Purchases Return 
Sales 
Sales Return 
Drawings 
Discount Received 
Discount Allowed 
Salaries 
Furniture (Fixed Assets) 
Raj Furniture House (Vendor) 
Electricity Charges 
Cheques in Hand 
Carriage Inwards 
Carriage Outwards 
Bad Debts 
Bad Debts Recovered 
Bank Overdraft 
Interest (Paid) 
Interest (Received) 
Bills Payable 
Bills Receivable 
Opening Stock 
Adjusted Purchases 
Closing Stock 
Rent (Paid) 
Rent (Received) 
Investments 
Provision for Doubtful Debts 
Wages 
Power and Fuel 
Reserve 
Insurance Premium 
Land and Building 
Plant and Machinery 
Provision for Depreciation 
Expenses Payable 

Total 
Trial Balance 13.3

Solved Questions
Illustration 1.
Following is the Trial Balance of S.K. Gupta on 30th September, 2019:
Heads of Accounts  L.F. Dr. Balance Cr. Balance
` `
Capital ................................................................................................................................................................ ... 4,50,000
A. Lal & Co. (Creditor)...................................................................................................................................... ... 20,000
B. Babu & Co. (Creditor).................................................................................................................................. ... 25,000
C. Chand & Co. (Creditor)............................................................................................................................... ... 25,000
Machinery ......................................................................................................................................................... 1,00,000 ...
Building .............................................................................................................................................................. 3,00,000 ...
Purchases........................................................................................................................................................... 90,000 ...
Vijay Sales .......................................................................................................................................................... 15,000 ...
Akash Sales........................................................................................................................................................ 10,000 ...
Bank ..................................................................................................................................................................... 5,000 ...
Total 5,20,000 5,20,000

You are required to redraft the above Trial Balance as it would appear after following
transactions had taken place:
(i) Mr. S.K. Gupta had taken a cash loan of ` 50,000 from Mr. K.G. Gupta, out of which he
paid ` 20,000 towards his debts to A. Lal & Co. receiving no discount, and he banked the
balance amount.
(ii) He received ` 5,000 from Vijay Sales. No discount is allowed for this payment.
(iii) He purchased goods of ` 20,000 on credit from Vikas Trading Co.
(iv) He sold one-fifth of his stock on credit for ` 15,000 to Amit & Co.
Solution: Before preparing the Trial Balance, please see the Working Notes.

TRIAL BALANCE OF MR. S.K. GUPTA as on 30th September, 2019

eads of Accounts  L.F.
H Dr. Balance Cr. Balance
` `
Capital A/c.......................................................................................................................................................... ... 4,50,000
Cash A/c.............................................................................................................................................................. 5,000 ...
Loan A/c.............................................................................................................................................................. ... 50,000
B. Babu & Co....................................................................................................................................................... ... 25,000
C. Chand & Co.................................................................................................................................................... ... 25,000
Vikas Trading Co............................................................................................................................................... ... 20,000
Vijay Sales........................................................................................................................................................... 10,000 ...
Akash Sales........................................................................................................................................................ 10,000 ...
Amit & Co............................................................................................................................................................ 15,000 ...
Purchases A/c.................................................................................................................................................... 1,10,000 ...
Sales A/c............................................................................................................................................................. ... 15,000
Bank A/c.............................................................................................................................................................. 35,000 ...
Machinery A/c.................................................................................................................................................. 1,00,000 ...
Building A/c....................................................................................................................................................... 3,00,000 ...
Total 5,85,000 5,85,000
13.4 Double Entry Book Keeping—ISC XI

Working Notes:
1. JOURNAL
Date Particulars J.F. Dr. (`) Cr. (`)

Cash A/c ...Dr. 50,000

To Loan A/c 50,000
(Being received a loan from K.G. Gupta)

A. Lal & Co. ...Dr. 20,000

Bank A/c ...Dr. 30,000
To Cash A/c 50,000
(Being the payment to creditors ` 20,000 and balance of the loan,
` 30,000 deposited into bank)

Cash A/c ...Dr. 5,000

To Vijay Sales 5,000
(Being the amount received from debtors)

Purchases A/c ...Dr. 20,000

To Vikas Trading Co. 20,000
(Being the goods purchased on credit)

Amit & Co. ...Dr. 15,000

To Sales A/c 15,000
(Being the goods sold on credit)

2. Ledger
Dr. CASH ACCOUNT Cr.
Date Particulars J.F. ` Date Particulars J.F. `

To Loan A/c 50,000 By A. Lal & Co. 20,000

To Vijay Sales 5,000 By Bank A/c 30,000
By Balance c/d 5,000
55,000 55,000

Dr. LOAN ACCOUNT Cr.

Date Particulars J.F. ` Date Particulars J.F. `

To Balance c/d 50,000

By
Cash A/c 50,000
50,000 50,000

Dr. A. LAL & CO. Cr.

Date Particulars J.F. ` Date Particulars J.F. `

To Cash A/c 20,000 By Balance b/d 20,000

Dr. B. BABU & CO. Cr.

Date Particulars J.F. ` Date Particulars J.F. `

To Balance c/d 25,000 By Balance b/d 25,000

Trial Balance 13.5

Dr. C. CHAND & CO. Cr.

Date Particulars J.F. ` Date Particulars J.F. `

To Balance c/d 25,000 By Balance b/d 25,000

Dr. VIKAS TRADING CO. Cr.

Date Particulars J.F. ` Date Particulars J.F. `

To Balance c/d 20,000

By
Purchases A/c 20,000

Dr. VIJAY SALES Cr.

Date Particulars J.F. ` Date Particulars J.F. `

To Balance b/d 15,000 By Cash A/c 5,000

By Balance c/d 10,000
15,000 15,000

Dr. AKASH SALES Cr.

Date Particulars J.F. ` Date Particulars J.F. `

To Balance b/d 10,000 By Balance c/d 10,000

Dr. AMIT & CO. Cr.

Date Particulars J.F. ` Date Particulars J.F. `

To Sales A/c 15,000 By Balance c/d 15,000

Dr. PURCHASES ACCOUNT Cr.

Date Particulars J.F. ` Date Particulars J.F. `

To Balance b/d 90,000 By Balance c/d 1,10,000

To Vikas Trading Co. 20,000
1,10,000 1,10,000

Dr. SALES ACCOUNT Cr.

Date Particulars J.F. ` Date Particulars J.F. `

To Balance c/d 15,000 By Amit & Co. 15,000

15,000 15,000

Dr. BANK ACCOUNT  Cr.

Date Particulars J.F. ` Date Particulars J.F. `

To Balance b/d 5,000 By Balance c/d 35,000

To Cash A/c 30,000
35,000 35,000
13.6 Double Entry Book Keeping—ISC XI

Illustration 2.
From the following Trial Balance (containing errors), prepare a correct Trial Balance:
Ledger Balances Dr. (`) Cr. (`)

Purchases (Not Adjusted)...................................................................................................................................... 60,000 ...

Reserve ................................................................................................................................................................. 20,000 ...
Sales ................................................................................................................................................................. ... 1,00,000
Purchases Return...................................................................................................................................................... 1,000 ...
Sales Return................................................................................................................................................................ ... 2,000
Opening Stock........................................................................................................................................................... 30,000 ...
Closing Stock............................................................................................................................................................. ... 40,000
Expenses ................................................................................................................................................................. ... 20,000
Outstanding Expenses........................................................................................................................................... 2,000 ...
Bank Balance.............................................................................................................................................................. 5,000 ...
Fixed Assets................................................................................................................................................................ 50,000 ...
Creditors ................................................................................................................................................................. ... 30,000
Debtors ................................................................................................................................................................. ... 80,000
Capital ................................................................................................................................................................. 94,000 ...
Suspense A/c.............................................................................................................................................................. 10,000 ...
Total 2,72,000 2,72,000

Solution: TRIAL BALANCE

as on ...
Heads of Accounts  L.F. Dr. (`) Cr. (`)

Purchases (Adjusted)...................................................................................................................................... 50,000 ...

Reserve ........................................................................................................................................................ ... 20,000
Sales ........................................................................................................................................................ ... 1,00,000
Purchases Return............................................................................................................................................. ... 1,000
Sales Return....................................................................................................................................................... 2,000 ...
Closing Stock.................................................................................................................................................... 40,000 ...
Expenses ........................................................................................................................................................ 20,000 ...
Outstanding Expenses.................................................................................................................................. ... 2,000
Bank Balance..................................................................................................................................................... 5,000 ...
Fixed Assets....................................................................................................................................................... 50,000 ...
Creditors ........................................................................................................................................................ ... 30,000
Debtors ........................................................................................................................................................ 80,000 ...
Capital ........................................................................................................................................................ ... 94,000
Total 2,47,000 2,47,000

Note: Adjusted Purchases = Opening Stock + Purchases – Closing Stock

= ` 30,000 + ` 60,000 – ` 40,000 = ` 50,000.
Trial Balance 13.7

Illustration 3.
Shri S.K. Sharma extracted the following Trial Balance from his books on 31st March, 2020:
Heads of Accounts Dr. (`) Cr. (`)
Capital ...................................................................................................................................................................... ... 14,90,000
Drawings ...................................................................................................................................................................... 6,00,000 ...
Stock (1st April, 2019)................................................................................................................................................... 5,00,000 ...
Trade Debtors................................................................................................................................................................. 5,90,000 ...
Trade Creditors............................................................................................................................................................... ... 5,36,800
Fixed Assets..................................................................................................................................................................... 3,06,000 ...
Purchases ...................................................................................................................................................................... 10,28,000 ...
Sales ...................................................................................................................................................................... ... 14,92,000
Miscellaneous Expenses............................................................................................................................................. 1,72,000 ...
Discount Received........................................................................................................................................................ ... 8,000
Returns Outward........................................................................................................................................................... ... 8,000
Cash at Bank.................................................................................................................................................................... 3,00,000 ...
Cash in Hand................................................................................................................................................................... 32,000 ...
Total 35,28,000 35,34,800

Subsequently, the following errors and omissions were discovered:

(i) A purchase of fixed assets costing ` 64,000 had been debited to Purchases Account.
(ii) A sales invoice of ` 30,000 entered in the Sales Book had not been posted to the customer’s
personal account.
(iii) A credit note for ` 6,000 issued by Shri S.K. Sharma to a customer had been completely
omitted from the books.
(iv) A credit balance of ` 3,200 in the purchases ledger had been omitted from the Trial Balance.
(v) The Sales Book was undercast by ` 20,000 on 31st March, 2020.
Draw up a correct Trial Balance.
Solution: TRIAL BALANCE as on 31st March, 2020
Heads of Accounts  L.F. Dr. (`) Cr. (`)

Capital ........................................................................................................................................................... ... 14,90,000

Drawings ........................................................................................................................................................... 6,00,000 ...
Stock (1st April, 2019)........................................................................................................................................ 5,00,000 ...
Trade Debtors: ` (5,90,000 + 30,000 – 6,000) (Notes 2 and 3)............................................................ 6,14,000 ...
Trade Creditors: ` (5,36,800 + 3,200) (Note 4).......................................................................................... ... 5,40,000
Fixed Assets: ` (3,06,000 + 64,000) (Note 1).............................................................................................. 3,70,000 ...
Purchases: ` (10,28,000 – 64,000) (Note 1)................................................................................................ 9,64,000 ...
Sales: ` (14,92,000 + 20,000) (Note 5).......................................................................................................... ... 15,12,000
Miscellaneous Expenses.................................................................................................................................. 1,72,000 ...
Discount Received............................................................................................................................................. ... 8,000
Returns Outward................................................................................................................................................ ... 8,000
Cash at Bank......................................................................................................................................................... 3,00,000 ...
Cash in Hand........................................................................................................................................................ 32,000 ...
Returns Inward (Note 3)................................................................................................................................... 6,000 ...
Total 35,58,000 35,58,000
13.8 Double Entry Book Keeping—ISC XI

Notes:

1. Purchase of fixed assets should be debited to Fixed Assets Account and not to Purchases Account.
So, balance of fixed assets should be increased and balance of Purchases Account should be decreased
by ` 64,000.

2. Sales invoice of ` 30,000 should be posted to customer’s personal account. So, trade debtors will increase
by ` 30,000.

3. Credit note issued to a customer for ` 6,000 regarding sales return (or returns inward) will decrease balance
of debtors and increase returns inward by the same amount.

4. A credit balance of ` 3,200 in the purchases ledger should be added in trade creditors.

5. Sales should be increased by ` 20,000 because Sales Book was undercast.

Illustration 4.
Total of the debit side of the Trial Balance of a machinery repairing company as on 31st March,
2020 is ` 1,66,590 and that of the credit side is ` 42,470. After checking following mistakes are
discovered:
Heads of Accounts Correct Balance Balance as it appears in
(as it should be) (`) the Trial Balance (`)

Opening Stock 14,900 14,800

Repairs 61,780 61,780
(But appears on the debit side)
Rent 2,160 2,400
Sundry Creditors 6,070 5,900
Sundry Debtors 8,060 8,310

What will be the correct total of the Trial Balance?

Solution:

ASCERTAINMENT OF CORRECT TOTAL OF TRIAL BALANCE

as on 31st March, 2020
Particulars Dr. (`) Cr. (`)

Total as per Trial Balance 1,66,590 42,470

Opening Stock Undercast (` 14,900 – ` 14,800) (+) 100 ...
Repair being Credit Balance (income) but shown as debit balance (–) 61,780 (+) 61,780
Rent overstated (` 2,400 – ` 2,160) (–) 240 ...
Sundry Creditors undercast (` 6,070 – ` 5,900) ... (+) 170
Sundry Debtors overstated (` 8,310 – ` 8,060) (–) 250 ...
Correct Total of the Trial Balance 1,04,420 1,04,420
Trial Balance 13.9

Illustration 5.
Following Trial Balance as on 31st January, 2020 was prepared from the books of A.K. Paul:
Heads of Accounts  L.F. Dr. Balance Cr. Balance
` `
Capital ........................................................................................................................................................ ... 6,00,000
Stock (1st January, 2020)............................................................................................................................... 3,82,500 ...
Purchases/Sales................................................................................................................................................ 4,48,700 6,18,100
Creditors ........................................................................................................................................................ ... 37,000
Reserve ........................................................................................................................................................ ... 18,000
Wages and Office Expenses......................................................................................................................... 54,250 ...
Building ........................................................................................................................................................ 3,80,000 ...
Bank ........................................................................................................................................................ 7,650 ...
Total 12,73,100 12,73,100

The undermentioned transactions took place during the month of February, 2020:

Feb. 3 Cash received from Sampat in part payment of an old account, previously `
written off as bad debts................................................................................................................................. 2,800
Feb. 5 Credit Sales......................................................................................................................................................... 37,750
Feb. 15 Cash Purchases.................................................................................................................................................. 41,000
Feb. 20 Cash Received from Debtors........................................................................................................................ 5,000
Allowed him discount..................................................................................................................................... 250
Feb. 21 Paid to Creditors............................................................................................................................................... 10,000
Feb. 28 Cash Sales............................................................................................................................................................ 16,300
Feb. 29 Paid wages and Office Expenses for the month................................................................................... 13,100

All payments are made by cheque and all amounts received are paid into the bank on receipt.

Required: 1. Post the opening balances and transactions into the Ledger.

2. Prepare a Trial Balance as on 29th February, 2020.

Solution: Ledger
Dr. CAPITAL ACCOUNT Cr.
Date Particulars J.F. ` Date Particulars J.F. `

2020 2020
Feb. 29 To Balance c/d 6,00,000 Feb. 1 By Balance b/d 6,00,000
March 1 By Balance b/d 6,00,000
13.10 Double Entry Book Keeping—ISC XI

Dr. STOCK ACCOUNT Cr.

Date Particulars J.F. ` Date Particulars J.F. `
2020 2020
Feb. 1 To Balance b/d 3,82,500 Feb. 29 By Balance c/d 3,82,500
March 1 To Balance b/d 3,82,500

Dr. PURCHASES ACCOUNT Cr.

Date Particulars J.F. ` Date Particulars J.F. `
2020 2020
Feb. 1 To Balance b/d 4,48,700 Feb. 29 By Balance c/d 4,89,700
Feb. 15 To Bank A/c 41,000
4,89,700 4,89,700
March 1 To Balance b/d 4,89,700

Dr. SALES ACCOUNT Cr.

Date Particulars J.F. ` Date Particulars J.F. `
2020 2020
Feb. 29 To Balance c/d 6,72,150 Feb. 1 By Balance b/d 6,18,100
Feb. 5 By Debtors A/c 37,750
Feb. 28 By Bank A/c 16,300
6,72,150 6,72,150
March 1 By Balance b/d 6,72,150

Dr. CREDITORS ACCOUNT Cr.

Date Particulars J.F. ` Date Particulars J.F. `
2020 2020
Feb. 21 To Bank A/c 10,000 Feb. 1 By Balance b/d 37,000
Feb. 29 To Balance c/d 27,000
37,000 37,000
March 1 By Balance b/d 27,000

Dr. RESERVE ACCOUNT  Cr.

Date Particulars J.F. ` Date Particulars J.F. `
2020 2020
Feb. 29 To Balance c/d 18,000 Feb. 1 By Balance b/d 18,000
March 1 By Balance b/d 18,000

Dr. WAGES AND OFFICE EXPENSES ACCOUNT  Cr.

Date Particulars J.F. ` Date Particulars J.F. `
2020 2020
Feb. 1 To Balance b/d 54,250 Feb. 29 By Balance c/d 67,350
Feb. 29 To Bank A/c 13,100
67,350 67,350
March 1 To Balance b/d 67,350
Trial Balance 13.11

Dr. BUILDING ACCOUNT  Cr.

Date Particulars J.F. ` Date Particulars J.F. `

2020 2020
Feb. 1 To Balance b/d 3,80,000 Feb. 29 By Balance c/d 3,80,000
3,80,000 3,80,000
March 1 To Balance b/d 3,80,000

Dr. BANK ACCOUNT  Cr.

Date Particulars J.F. ` Date Particulars J.F. `

2020 2020
Feb. 1 To Balance b/d 7,650 Feb. 15 By Purchases A/c 41,000
Feb. 3 To Bad Debts Recovered Feb. 21 By Creditors A/c 10,000
A/c (Note) 2,800 Feb. 29 By Wages and Office
Feb. 20 To Debtors A/c 5,000 Expenses A/c 13,100
Feb. 28 To Sales A/c 16,300
Feb. 29 To Balance c/d 32,350
64,100 64,100
March 1 By Balance b/d 32,350

Dr. BAD DEBTS RECOVERED ACCOUNT  Cr.

Date Particulars J.F. ` Date Particulars J.F. `

2020 2020
Feb. 29 To Balance c/d 2,800 Feb. 3 By Bank A/c (Note) 2,800
March 1 By Balance b/d 2,800

Dr. DEBTORS ACCOUNT  Cr.

Date Particulars J.F. ` Date Particulars J.F. `

2020 2020
Feb. 5 To Sales A/c 37,750 Feb. 20 By Bank A/c 5,000
Feb. 20 By Discount Allowed A/c 250
Feb. 29 By Balance c/d 32,500
37,750 37,750
March 1 To Balance b/d 32,500

Dr. DISCOUNT ALLOWED ACCOUNT  Cr.

Date Particulars J.F. ` Date Particulars J.F. `

2020 2020
Feb. 20 To Debtors A/c 250 Feb. 29 By Balance c/d 250
March 1 To Balance b/d 250
13.12 Double Entry Book Keeping—ISC XI

TRIAL BALANCE OF A.K. PAUL

as on 29th February, 2020
Heads of Accounts  L.F. Dr. Balance Cr. Balance
` `

Capital A/c ........................................................................................................................................................ ... 6,00,000

Stock A/c ........................................................................................................................................................ 3,82,500 ...
Purchases A/c.................................................................................................................................................... 4,89,700 ...
Sales A/c ........................................................................................................................................................ ... 6,72,150
Creditors A/c..................................................................................................................................................... ... 27,000
Reserve A/c........................................................................................................................................................ ... 18,000
Wages and Office Expenses A/c................................................................................................................. 67,350 ...
Building A/c....................................................................................................................................................... 3,80,000 ...
Bank A/c ........................................................................................................................................................ ... 32,350
Bad Debts Recovered A/c............................................................................................................................. ... 2,800
Debtors A/c........................................................................................................................................................ 32,500 ...
Discount Allowed A/c.................................................................................................................................... 250 ...

Total 13,52,300 13,52,300

Note: Any amount recovered regarding an old account, previously written off as bad debts, will be recorded in
the books of account by passing the following accounting entry:

Bank A/c ...Dr. ` 2,800

To Bad Debts Recovered A/c ` 2,800
Trial Balance 13.13

Unsolved Question

1. The following Trial Balance of Mr. Pradeep Chamoli was drafted by his Accountant. But due to imperfect
knowledge of the subject, it was prepared incorrectly. You are asked to redraft it.

TRIAL BALANCE
for the year ended 31st March, 2020
Heads of Accounts Dr. (`) Cr. (`)
Opening Stock................................................................................................................................................................ 49,770 ...
Closing Stock.................................................................................................................................................................. ... 61,740
Capital............................................................................................................................................................................... ... 3,00,000
Fixed Assets..................................................................................................................................................................... 2,37,000 ...
Sundry Creditors............................................................................................................................................................ ... 37,500
Sundry Debtors.............................................................................................................................................................. 62,010 ...
Returns Inward............................................................................................................................................................... 7,200 ...
Sales................................................................................................................................................................................... ... 3,07,800
Purchases......................................................................................................................................................................... 1,82,760 ...
Discount Allowed.......................................................................................................................................................... ... 2,280
Taxes................................................................................................................................................................................... 21,390 ...
Commission Received................................................................................................................................................. ... 2,610
Cash in Hand................................................................................................................................................................... 1,140 ...
Bank Overdraft............................................................................................................................................................... 33,000 ...
Interest Paid..................................................................................................................................................................... ... 3,300
Rent Received................................................................................................................................................................. 11,400 ...
Bills Payables................................................................................................................................................................... ... 24,000
Wages and Salaries....................................................................................................................................................... 94,200 ...
Bills Receivables............................................................................................................................................................. 45,000 ...
Export Duty..................................................................................................................................................................... ... 2,400
Returns Outward........................................................................................................................................................... ... 3,690
Carriage Inwards............................................................................................................................................................ 2,400 ...
Import Duty..................................................................................................................................................................... 3,600 ...
Carriage Outwards..................................................................................................................................................... ... 5,550
Total 7,50,870 7,50,870

GUIDE TO ANSWER

1. Correct Total of Trial Balance—` 7,20,000.

 CHAPTER
14
Bank Reconciliation Statement
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Bank Reconciliation Bank Reconciliation Statement is a statement prepared on a

Statement particular day to reconcile the bank balance as per Cash Book with
the balance as per Bank Pass Book or Bank Statement showing
entries causing difference between the two balances.
2. Bank Pass Book or Bank Pass Book or Bank Statement is a copy of account of the
Bank Statement account holder in the books of the bank.
3. Favourable or Debit It means surplus amount lying deposited with the bank. It is the
Balance as per Cash Book difference between debit side and credit side of the bank column of
the Cash Book, debit side being bigger.
4. Favourable or Credit It means surplus amount lying deposited with the bank. It is the
Balance as per Pass Book difference between credit side and debit side of the Bank Pass
or Bank Statement Book or Bank Statement, credit side being bigger.
5. Unfavourable or Credit It means amount overdrawn, i.e., drawn in excess of deposits. It is
Balance as per Cash Book the difference between credit side and debit side of the bank column
of the Cash Book, credit side being bigger.
6. Unfavourable or Debit It means amount overdrawn, i.e., drawn in excess of deposits. It is
Balance as per Bank Pass the difference between debit side and credit side of the Bank Pass
Book or Bank Statement Book or Bank Statement, debit side being bigger.
7. Overdraft A situation when the account holder withdraws more money from the
bank than the amount available in his/her account.
8. Corrected or Amended As a result of bank reconciliation, entries may have to be passed in
Cash Book the Cash Book. The Cash Book after recording such entries is known
as Corrected or Amended Cash Book.

CHAPTER SUMMARY

• Bank Reconciliation Statement is a statement prepared on a particular date reconciling the bank balance in
the Cash Book with the balance as per the Bank Pass Book or Bank Statement showing the causes of difference
between the two balances.
• Reasons or Causes of Difference can be as follows:
(i) Cheques issued but not yet presented for payment;
(ii) Cheques deposited but not yet cleared;
(iii) Interest allowed (credited) by the bank;
(iv) Interest and expenses charged by the bank;
(v) Interest and dividends collected by the bank;
(vi) Direct payments by the bank;
(vii) Direct payments into the bank by customer;
(viii) Dishonour of bills discounted with the bank;
14.2 Double Entry Book Keeping—ISC XI

(ix) Bills collected by the bank on behalf of customers; and

(x) Errors committed.
• Debit Balance as per Cash Book and Credit Balance as per Bank Pass Book means a favourable balance.
• Credit Balance as per Cash Book and Debit Balance as per Bank Pass Book means an unfavourable balance.
• Amended Cash Book is prepared to record unrecorded entries that have been debited and credited by
the bank and passing rectifying entries for errors in the Cash Book.
BANK RECONCILIATION STATEMENT—AT A GLANCE
Particulars Cash Book—Starting Balance Pass Book—Starting Balance
Favourable Overdraft Favourable Overdraft
Balance Balance
(Dr. Balance) (Cr. Balance) (Cr. Balance) (Dr. Balance)
1. Cheques issued but not yet presented for payment + – – +
2. Cheques deposited into Bank but not yet collected – + + –
3. Interest allowed by Bank but not entered in the Cash Book + – – +
4. Bank charges not entered in the Cash Book – + + –
5. Direct deposit into the bank by a customer + – – +
6. Direct payments from the bank not entered in the
Cash Book – + + –
7. Direct collections made by the Bank not entered in the
Cash Book + – – +
8. Cheque issued and payment received by the creditor but
not entered in the Cash Book – + + –
9. Cheque paid into the Bank but omitted to be entered in
the Cash Book + – – +
10. Dishonour of a cheque and Bill discounted with the Bank – + + –
11. Cheque entered in the Cash Book but not sent to the Bank – + + –

• When Favourable Bank Balance as per Cash Book is given:

Add: Those items which increase the Bank Pass Book favourable balance more than the Cash Book
favourable balance.
Deduct: Those items which decrease the Bank Pass Book favourable balance more than the Cash Book
favourable balance.
• When Bank Overdraft as per Cash Book is given:
Add: Those items which increase the Bank Pass Book overdraft more than the Cash Book overdraft.
Deduct: Those items which decrease the Bank Pass Book overdraft more than the Cash Book overdraft.
• When Favourable Bank Balance as per Bank Pass Book is given:
Add: Those items which increase the Cash Book favourable balance more than the Bank Pass Book
favourable balance.
Deduct: Those items which decrease the Cash Book favourable balance more than the Bank Pass Book
favourable balance.
• When Bank Overdraft as per Bank Pass Book is given:
Add: Those items which increase the bank overdraft of the Cash Book more than the Bank Pass Book
overdraft balance.
Deduct: Those items which increase the overdraft of the Cash Book more than the Bank Pass Book
overdraft balance
Bank Reconciliation Statement 14.3

Solved Questions
Illustration 1.
Prepare Bank Reconciliation Statement of Shri Krishan as on 31st March, 2020 from the
following information:
(i) Balance as per the Bank Pass Book is ` 10,000.
(ii) Bank collected a cheque of ` 500 on behalf of Shri Krishan but wrongly credited it to
Shri Kishan’s Account (another customer).
(iii) Bank recorded a cash deposit of ` 2,589 as ` 2,598.
(iv) Withdrawals column of the Pass Book undercast by ` 100.
(v) The credit balance of ` 1,500 as on Page 10 of the Bank Pass Book was recorded on
Page 11 as a debit balance.
(vi) The payment of a cheque of ` 350 was recorded twice in the Bank Pass Book.
(vii) The Bank Pass Book showed a credit for a cheque of ` 1,000 deposited by Shri Kishan
(another customer of the Bank).
(viii) Dividend directly collected by bank ` 125.
(ix) Bill discounted dishonoured not recorded in the Cash Book ` 2,500.
Solution: BANK RECONCILIATION STATEMENT as on 31st March, 2020
Particulars Plus Minus
Items Items
` `

Balance as per Bank Pass Book (Cr.) 10,000

Cheque wrongly credited to another customer’s account 500
Error in carrying forward 3,000
Cheque recorded twice in Bank Pass Book 350
Excess credit for Cash Deposit 9
Undercasting of withdrawals column of Bank Pass Book 100
Wrong credit given by bank 1,000
Dividend directly collected by bank 125
Bill discounted dishonoured not recorded in the Cash Book 2,500
Balance as per Cash Book (Dr.) (` 16,350 – ` 1,234) 15,116
16,350 16,350

Illustration 2.
Prepare Bank Reconciliation Statement from the following particulars:
(i) On 31st March, 2020, Cash Book showed a credit bank balance (i.e., bank overdraft) of ` 20,000.
(ii) Out of the total cheques amounting to ` 1,00,000 drawn, cheques aggregating ` 30,000
were encashed in March, cheques aggregating ` 40,000 were encashed in April and the
rest have not yet been presented.
(iii) Out of the total cheques amounting to ` 50,000 deposited, cheques aggregating ` 15,000
were credited in March, cheques aggregating ` 20,000 were credited in April, and the rest
have not yet been collected.
14.4 Double Entry Book Keeping—ISC XI

(iv) Bank has debited ` 5,000 on account of interest on overdraft and ` 1,000 as bank charges.
(v) Bank has credited ` 7,000 to the account being dividends on shares.
(vi) Bill Receivable of ` 10,000 (discounted with the bank in February) dishonoured on
31st March (but not yet recorded in the Cash Book).
Solution:
BANK RECONCILIATION STATEMENT
as on 31st March, 2020
Particulars Amount Amount
Details (`) `
Overdraft Balance as per Cash Book (Cr.) 20,000
Less: Cheques issued but not yet presented for payment 70,000
Dividend collected and credited by Bank 7,000 (77,000)
(57,000)
Add: Cheques deposited but not yet collected 35,000
Interest debited by Bank not recorded in Cash Book 5,000
Bank charges debited by Bank not recorded in Cash Book 1,000
Discounted Bill Receivable dishonoured not recorded in Cash Book 10,000 51,000
Balance as per Bank Pass Book (Cr.) (6,000)

The above solution can also be presented with two columns using ‘Plus’ and ’Minus’ method.
BANK RECONCILIATION STATEMENT
as on 31st March, 2020
Particulars Plus Minus
Items Items
` `
Overdraft as per Cash Book (Cr.) 20,000
Cheques drawn but not presented for payment till 31st March 70,000
Dividend collected and credited by the Bank 7,000
Cheques deposited but not collected till 31st March 35,000
Interest on overdraft and bank charges debited by Bank 6,000
Discounted bill receivable dishonoured 10,000
Balance as per Bank Pass Book (Cr.) (` 77,000 – ` 71,000) 6,000
77,000 77,000

Illustration 3.
From the following particulars, prepare Bank Reconciliation Statement and ascertain the
balance as per Cash Book on 31st March, 2020 in the books of D.K.:
(i) Bank Pass Book showed an overdraft of ` 15,000 on 31st March, 2020.
(ii) A cheque of ` 200 was deposited in the bank but not recorded in the Cash Book.
(iii) Cheques of ` 17,000 were issued but cheques amounting to ` 10,000 were presented for
payment up to 31st March, 2020.
(iv) Cheques of ` 10,000 were sent to the bank for collection. Out of these, cheques of
` 2,000 and of ` 1,000 were credited respectively on 7th April and 9th April, 2020 and
remaining cheques were credited before 31st March, 2020.
Bank Reconciliation Statement 14.5

(v) Bank paid ` 300 as Chamber of Commerce fee on behalf of D.K. which was not recorded
in the Cash Book.
(vi) Bank charged interest on overdraft ` 800.
(vii) ` 40 for bank charges were recorded two times in the Cash Book and bank expenses of
` 35 were not at all recorded in the Cash Book.
(viii) Payments side of the Cash Book was ` 1,000 short.
(ix) Bank received ` 200 as interest on debentures on behalf of D.K.

Solution: BANK RECONCILIATION STATEMENT

as on 31st March, 2020
Particulars Amount Amount
Details (`) `

Overdraft Balance as per Bank Pass Book (Dr.) 15,000

Add: Cheque deposited into Bank not recorded in Cash Book 200
Cheques issued but not presented for payment (` 17,000 – ` 10,000) 7,000
Bank charges recorded twice in Cash Book 40
Interest received on Debentures credited to account by Bank 200 7,440
22,440
Less: Cheques deposited but not yet credited (` 2,000 + ` 1,000) 3,000
Chamber of Commerce Fee paid by bank not recorded in Cash Book 300
Interest on Overdraft debited by bank 800
Bank Expenses debited by bank 35
Cash Book payments side casted short 1,000 5,135
Overdraft Balance as per Cash Book (Cr.) 17,305

Illustration 4.
My Bank Pass Book for Account No. 1 shows an overdraft of ` 65,000 on 31st March, 2020. This
does not match with the Cash Book balance which shows debit balance of ` 17,800. Following
differences were noted between Bank Pass Book and Cash Book.
Cheques amounting to ` 1,50,000 were paid into the bank in March out of which only
cheques amounting to ` 45,000 were credited by the bank. Cheques issued during March
amounted in all to ` 1,10,000. Out of these, cheques for ` 30,000 were unpaid on 31st
March, 2020. The bank has wrongly debited Account No. 1 with ` 5,000 in respect of a
cheque drawn on Account No. 2. The Account is debited with ` 1,500 for interest and
with ` 300 for bank charges. The bank has paid annual subscription of ` 1,000 to my club
as per standing instructions. The entries for interest, bank charges and subscription have
not yet been recorded in the Cash Book.
Prepare Bank Reconciliation Statement.
14.6 Double Entry Book Keeping—ISC XI

Solution: BANK RECONCILIATION STATEMENT (ACCOUNT NO. 1) as on 31st March, 2020

Particulars Amount Amount
Details (`) `
Overdraft Balance as per Bank Pass Book (Dr.) 65,000
Add: Cheques issued but not yet presented for payment 30,000
95,000
Less: Cheques deposited but not yet credited 1,05,000
Amount wrongly debited by Bank in Account No. 1 instead of Account No. 2 5,000
Amounts debited by Bank not recorded in Cash Book
— Interest 1,500
— Bank Charges 300
— Club Subscription 1,000 1,12,800
Balance as per Cash Book (Dr.) 17,800

The above solution can also be presented with two columns using ‘Plus’ and ’Minus’ method
as follows:
BANK RECONCILIATION STATEMENT (ACCOUNT NO. 1) as on 31st March, 2020
Particulars Plus Items (`) Minus Items (`)
Overdraft Balance as per Bank Pass Book (Dr.) 65,000
Cheques paid into the bank but not entered in the Bank Pass Book (` 1,50,000 – ` 45,000) 1,05,000
Cheques issued but not yet presented 30,000
Wrong debit to Account No. 1 instead of Account No. 2 5,000
Payment for charges made and entered in Bank Pass Book but not yet entered in Cash Book:
Interest 1,500
Bank charges 300
Club Subscription 1,000 2,800

Balance as per Cash Book (Dr.) (` 1,12,800 – ` 95,000) 17,800
1,12,800 1,12,800

Illustration 5.
Following are the entries recorded in the bank column of the Cash Book of Mr. V. K. Gupta for
the month ended 31st March, 2020:
Dr. CASH BOOK (BANK COLUMN ONLY) Cr.
Date Particulars ` Date Particulars `
2020 2020
March 15 To Cash A/c 36,000 March 1 By Balance b/d 40,000
March 21 To Roy 24,000 March 4 By John 2,000
March 22 To Kapoor 10,000 March 6 By Raj 400
March 31 To Balance c/d 7,640 March 15 By Kailash 240
March 20 By Joshi 35,000
77,640 77,640

On 31st March, 2020 Mr. V.K. Gupta received his Bank Statement. On perusal of the statement,
Mr. V.K. Gupta ascertained the following information:
(i) Cheques deposited but not credited by the bank ` 10,000.
(ii) Interest on securities collected by the bank but not recorded in the Cash Book ` 1,080.
(iii) Credit transfer not recorded in the Cash Book ` 200.
(iv) Dividend collected by the bank directly but not recorded in the Cash Book ` 1,000.
(v) Cheques issued but not presented for payment ` 37,400.
Bank Reconciliation Statement 14.7

(vi) Interest debited by the bank but not recorded in the Cash Book ` 1,000.
(vii) Bank charges not recorded in the Cash Book ` 340.
From the above information, prepare Bank Reconciliation Statement to ascertain the balance
as per the Bank Statement.
Solution: BANK RECONCILIATION STATEMENT as on 31st March, 2020
Particulars Plus Items Minus Items
` `
Bank Overdraft as per Cash Book (Cr.) 7,640
Cheques deposited but not credited 10,000
Interest on securities collected by the bank but not recorded in the Cash Book 1,080
Credit transfer not recorded in the Cash Book 200
Dividend collected by the bank directly but not recorded in the Cash Book 1,000
Cheques issued but not presented for payment 37,400
Interest debited by the bank but not recorded in the Cash Book 1,000
Bank charges not recorded in Cash Book 340
Bank Balance as per Bank Pass Book (Cr.) (` 39,680 – ` 18,980) 20,700
39,680 39,680

Illustration 6.
On 31st March, 2020, the Cash Book of a merchant showed a debit balance of ` 8,500. On
comparing the Cash Book with the Bank Pass Book, the following discrepancies were identified:
(a) Cheques issued for ` 6,000 were not presented at bank by 31st March, 2020.
(b) Cheques for ` 8,000 were deposited in bank but were not cleared.
(c) ` 20,000 being the proceeds of a Bill Receivable collected appear in the Bank Pass Book
but not in the Cash Book.
(d) A cheque for ` 1,000 received from X & Co. and deposited in Bank was dishonoured. No
advice of non-payment was received from bank till the 1st of next April, 2020.
(e) The bank has paid a Bill Payable amounting to ` 4,500 but it has not been entered in the
Cash Book.
(f) A Bill Receivable for ` 8,000 which was discounted with the bank was due this month. It
was dishonoured by the drawee on due date.
(g) A cheque for ` 5,100 was paid into bank but the bank credited the amount with ` 5,010
by mistake.
(h) A cheque for ` 500 was deposited into bank but the same was credited to a wrong account.
(i) ` 2,000 was deposited by a customer direct into bank.
(j) The bank received interest on debentures on behalf of the trader the amount being ` 2,500.
(k) A cheque for ` 1,500 received from a customer deposited into bank but the same was not
entered into the Cash Book.
(l) The bank paid Insurance Premium of ` 1,250.
(m) The bank charged ` 90 as their commission for collecting outstation cheques and allowed
interest of ` 100 on the trader’s balance.
(n) A cheque for ` 250 entered into the Cash Book was omitted to be banked.
Prepare a Bank Reconciliation Statement and show the balance as per Bank Pass Book.
14.8 Double Entry Book Keeping—ISC XI

Solution: BANK RECONCILIATION STATEMENT

as on 31st March, 2020
Particulars Amount Amount
Details (`) `
Balance as per Cash Book (Dr.) 8,500
Add: (a) Cheques issued but not yet presented for payment 6,000
(c) Bill Receivable collected by Bank but not recorded in Cash Book 20,000
(i) Amount directly deposited by a Customer 2,000
(j) Interest on debentures directly received by bank 2,500
(k) Cheque deposited into bank not recorded in Cash Book 1,500
(m) Interest on bank balance 100 32,100
40,600
Less: (b) Cheques deposited in bank but not collected 8,000
(d) Cheque deposited in bank dishonoured but not recorded in Cash Book 1,000
(e) Payment of bill payable by bank but not recorded in Cash Book 4,500
(f) Bill Receivable dishonoured and not entered in Cash Book 8,000
(g) Cheque deposited credited with lower amount (` 5,100 – ` 5,010) 90
(h) Cheque deposited but credited to wrong account 500
(l) Insurance premium paid by bank 1,250
(m) Bank charges 90
(n) Cheque recorded in Cash Book but not deposited in Bank 250 23,680
Balance as per Bank Pass Book (Cr.) 16,920

Illustration 7.
An extract from the Cash Book (Bank Column only) and Bank Pass Book of Mohan Das are
given below. Prepare Reconciliation Statement as on 31st March, 2020:
Dr. CASH BOOK (BANK COLUMN ONLY) Cr.
Date Particulars ` Date Particulars `

2020 2020
March 1 To Balance b/d 6,000 March 5 By Drawings A/c 1,500
March 4 To A. Roy 1,400 March 8 By Salary A/c 3,200
March 7 To Alam Ali 300 March 14 By Interest on Loan A/c 600
March 15 To Deshbandhu 900 March 18 By Ajit Brothers 1,500
March 22 To Interest on Investments A/c 1,230 March 22 By R. Panja & Sons 2,200
March 24 To Devi Das 700 March 27 By Bhulabhai & Co. 350
March 26 To Bal Ram & Co. 1,450 March 29 By Shiv Nath 1,800
March 29 To M. Jyoti 2,050 March 31 By Commission A/c 800
March 31 To Bal Ram & Co. 2,800 March 31 By Das Motors 850
March 31 By Balance c/d 4,030
16,830 16,830
Bank Reconciliation Statement 14.9

BANK PASS BOOK

(Mohan Das’s Account with Bank)
Date Particulars Withdrawals Deposits Dr. or Cr. Balance
` ` `

2020
March 1 By Balance b/d 6,000 Cr. 6,000
March 5 To Drawings 1,500 Cr. 4,500
March 6 By A. Roy 1,400 Cr. 5,900
March 8 To Salary 3,200 Cr. 2,700
March 10 By Alam Ali 300 Cr. 3,000
March 14 To Interest on Loan 600 Cr. 2,400
March 18 By Deshbandhu 900 Cr. 3,300
March 20 To Ajit Bros. 1,500 Cr. 1,800
March 20 By Interest on Investments 1,230 Cr. 3,030
March 25 To R. Panja & Sons 2,200 Cr. 830
March 28 By Devi Das 700 Cr. 1,530
March 30 By Dividend on Securities 1,300 Cr. 2,830
March 31 To Commission 800 Cr. 2,030
March 31 To Collection Charges 80 Cr. 1,950
March 31 To Electricity Charges 450 Cr. 1,500

Solution:
Reasons or Causes of Difference
(i) Cheques issued but not presented for payment: ` 350 + ` 1,800 + ` 850 = ` 3,000.
(ii) Dividend collected by Bank ` 1,300.
(iii) Cheques deposited but not yet collected: ` 1,450 + ` 2,050 + ` 2,800 = ` 6,300.
(iv) Collection charges ` 80 and Electricity charges ` 450.

A. If started with Dr. balance as per Cash Book

BANK RECONCILIATION STATEMENT
as on 31st March, 2020
Particulars Amount Amount
Details (`) `
Balance as per Cash Book (Dr.) 4,030
Add: Cheques issued but not presented for payment 3,000
Dividend collected by Bank 1,300 4,300
8,330
Less: Cheques deposited but not yet collected 6,300
Collection charges 80
Electricity charges 450 6,830
Balance as per Bank Pass Book (Cr.) 1,500
14.10 Double Entry Book Keeping—ISC XI

B. If started with Cr. balance as per Bank Pass Book

BANK RECONCILIATION STATEMENT as on 31st March, 2020
Particulars Amount Amount
Details (`) `
Balance as per Bank Pass Book (Cr.) 1,500
Add: Cheques deposited but not yet collected 6,300
Collection charges 80
Electricity charges 450 6,830
8,330
Less: Cheques issued but not presented for payment 3,000
Dividend collected by Bank 1,300 4,300
Balance as per Cash Book (Dr.) 4,030

Illustration 8.
Jagdeep’s Cash Book on 31st March, 2020 showed an overdraft balance of ` 12,100 on his
Account No. 1 at the bank.
On investigation it is found that:
(i) Cheque drawn amounting to ` 4,200 had not been presented to the bank for payment.
(ii) Cheque for ` 3,600 entered in the Cash Book and paid into the bank had not been
credited by the bank.
(iii) The receipts side of the Cash Book had been undercast by ` 1,000.
(iv) Bank charges of ` 50 entered in the Bank Statement had not been entered in the
Cash Book.
(v) A cheque for ` 5,200 drawn on the Account No. 1 had been charged by the bank
erroneously to Account No. 2.
(vi) Dividend of ` 300 paid directly to the bank had not been entered in the Cash Book.
(vii) A cheque for ` 700 received from a debtor paid into the bank, dishonoured and shown
as such by the bank but no entry of dishonour had been made in the Cash Book.
(viii) A cheque for ` 420 drawn by another customer of the bank bearing the same name had
been charged to Jagdeep’s Bank Account by error.
You are required to:
(a) show the necessary adjustments to be made in the Cash Book; and
(b) prepare Bank Reconciliation Statement for Account No. 1 as on 31st March, 2020.
Solution: In the Books of Jagdeep
CASH BOOK (CORRECTED)
Dr. BANK COLUMN ONLY Cr.
Date Particulars L.F. ` Date Particulars L.F. `
2020 2020
March 31 To Adjustment March 31 By Balance b/d 12,100
for undercasting 1,000 March 31 By Bank Charges 50
March 31 To Dividend 300 March 31 By Debtor— 700
March 31 To Balance c/d 11,550 Dishonoured cheque
12,850 12,850
Bank Reconciliation Statement 14.11

BANK RECONCILIATION STATEMENT

FOR ACCOUNT NO. 1
as on 31st March, 2020
Particulars Amount Amount
Details (`) `
Overdraft Balance as per Cash Book (Cr.) 11,550
Add: Cheque paid in but not yet credited 3,600
Cheque of another party wrongly debited to Account No. 1 420 4,020
15,570
Less: Cheque issued but not yet presented 4,200
Cheque drawn on Account No. 1 wrongly debited to Account No. 2 5,200 9,400
Overdraft Balance as per Bank Pass Book (Dr.) 6,170

Illustration 9.
Cash Book of a trader showed an overdraft balance of ` 32,750 on 31st March, 2020. On scrutiny
of the Cash Book and Bank Pass Book it was discovered that:
(a) On 22nd March, sundry cheques totalling ` 6,500 were sent to bank for collection, out of
which a cheque of ` 1,500 was wrongly recorded on the credit side of the Cash Book and
cheques amounting to ` 3,300 could not be collected by the bank till 6th April.
(b) A cheque for ` 4,000 was issued to a supplier on 28th March. This cheque was not presented
to Bank till 10th April.
(c) Bank had debited ` 2,000 towards interest on overdraft and ` 600 for bank charges, but
the bank advice was sent on 15th April.
(d) Payments side of the Bank Column of the Cash Book was undercast by ` 100.
(e) Cheques for ` 2,000 drawn for office expenses were not encashed till 2nd April.
(f) A cheque for ` 1,000 was issued to a creditor on 27th March and was omitted to be entered
in the Cash Book. It was, however, presented to bank within 31st March.
(g) Dividends amounting to ` 500 had been paid direct to the bank and not entered in the
Cash Book.
You are required to make necessary corrections in the Cash Book and starting with the amended
balance, prepare a Bank Reconciliation Statement as at 31st March, 2020.
Solution:
Dr. AMENDED CASH BOOK (BANK COLUMN) Cr.
` Particulars `
Particulars
To Customer (Debtor) 3,000 By Balance b/d 32,750
(Wrong Credit Earlier)* By Interest on Overdraft 2,000
To Dividends 500 By Bank Charges 600
To Balance c/d 32,950 By Error in Casting 100
By Sundry Creditors (Omitted) 1,000
36,450 36,450

* A cheque received for ` 1,500 was wrongly recorded on the credit side of the Cash Book. For the
rectification of error, Cash Book should be debited by ` 3,000.
14.12 Double Entry Book Keeping—ISC XI

BANK RECONCILIATION STATEMENT

as on 31st March, 2020
Particulars Amount Amount
Details (`) `

Overdraft Balance as per Amended Cash Book (Cr.) 32,950

Add: Cheque sent to the bank for collection not yet collected 3,300
36,250

Less: Cheque issued but not presented for payment 4,000
Cheques issued for office expenses not yet collected 2,000 6,000
Overdraft Balance as per Bank Pass Book (Dr.)
30,250

Illustration 10.
You are given the Bank Pass Book and Cash Book (Bank Column only) of Authentic Goods for
the month of March, 2020. You are required to prepare Amended Cash Book and then Bank
Reconciliation Statement from the Amended Cash Book.
BANK PASS BOOK
Date Particulars Withdrawals Deposits Dr. or Cr. Balance
` ` `
2020
March 1 By Balance b/d Cr. 1,10,000
March 4 By Mahesh (Clearing) 15,000 Cr. 1,25,000
March 7 To Anuj (Clearing) 5,000 Cr. 1,20,000
March 10 To Cash 10,000 Cr. 1,10,000
March 12 By Alok (Clearing) 7,500 Cr. 1,17,500
March 15 By Transfer 8,000 Cr. 1,25,500
March 22 To Jatinder (Clearing) 10,000 Cr. 1,15,500
March 28 By Ashutosh 5,000 Cr. 1,20,500
March 31 By Interest Collected 10,000 Cr. 1,30,500
March 31 To Bank Charges 500 Cr. 1,30,000

Dr. CASH BOOK (BANK COLUMN ONLY) Cr.

Date Particulars ` Date Particulars `
2020 2020
March 1 To Balance b/d 1,10,000 March 7 By Anuj 5,000
March 1 To Mahesh 15,000 March 10 By Cash 10,000
March 9 To Alok 7,500 March 18 By Jatinder 10,000
March 27 To Ashutosh 5,000 March 25 By LIC 15,000
March 28 To Ebony Homes 15,000 By M/s. M.R. Stores—Stationery 5,500
To Arth Hospitality 25,000 By MTNL—Telephone Expenses 19,000
March 31 To EICL 1,00,000 March 28 By Jatinder 20,000
By Anuj 20,000
By Jaspal 20,000
March 31 By Balance c/d 1,53,000
2,77,500 2,77,500
Bank Reconciliation Statement 14.13

Solution:
Difference between Cash Book and Bank Pass Book for which entries are to be passed:
(i) Interest ` 10,000 credited by Bank is not recorded in Cash Book.
(ii) Bank charges ` 500 charged by Bank is not recorded in Cash Book.
Difference for which entry is not to be passed:
(iii) Bank Transfer ` 8,000, it being wrong credit.
(iv) Cheques deposited but not yet credited: `
(a) Ebony Homes 15,000;
(b) Arth Hospitality 25,000; and
(c) EICL 1,00,000.
(v) Cheques issued but not yet presented for payment: `
(a) LIC 15,000
(b) M/s M.R. Stores (Stationery) 5,500
(c) MTNL (Telephone Expenses) 19,000
(d) Mr. Jatinder 20,000
(e) Mr. Anuj 20,000
(f) Mr. Jaspal 20,000

Dr. AMENDED CASH BOOK Cr.

Date Particulars ` Date Particulars `

2020 2020
March 1 To Balance b/d 1,10,000 March 7 By Anuj 5,000
March 1 To Mahesh 15,000 March 10 By Cash 10,000
March 9 To Alok 7,500 March 18 By Jatinder 10,000
March 27 To Ashutosh 5,000 March 25 By LIC 15,000
March 28 To Ebony Homes 15,000 March 25 By M/s M.R. Stores—Stationery 5,500
March 28 To Arth Hospitality 25,000 March 25 By MTNL—Telephone Expenses 19,000
March 28 To EICL 1,00,000 March 28 By Jatinder 20,000
March 31 To Interest 10,000 March 28 By Anuj 20,000
March 28 By Jaspal 20,000
March 31 By Bank Charges 500
March 31 By Balance c/d 1,62,500

2,87,500 2,87,500
14.14 Double Entry Book Keeping—ISC XI

BANK RECONCILIATION STATEMENT

as on 31st March, 2020
Particulars Amount Amount
Details (`) `
Balance as per Cash Book (Dr.) 1,62,500
Add: Cheques issued but not presented for payment:
LIC 15,000
M/s. M.R. Stores (Stationery) 5,500
MTNL (Telephone Expenses) 19,000
Jatinder 20,000
Anuj 20,000
Jaspal 20,000 99,500
Wrong Credit by Bank 8,000
2,70,000
Less: Cheques deposited but not yet credited:
Ebony Homes 15,000
Arth Hospitality 25,000
EICL 1,00,000 1,40,000
Balance as per Bank Pass Book (Cr.) 1,30,000

Advanced Level Questions

Illustration 11.
On Comparing the Cash Book of Mohan with the Bank Pass Book, following discrepancies
were noted:
(a) Out of ` 24,600 paid by cheques into the bank on 26th March, cheque amounting to
` 9,000 were collected on 8th April.
(b) Cheques amounting to ` 5,760 were deposited into bank on 27th March, but credit was
given for ` 4,560 only.
(c) Out of cheques amounting to ` 9,360 drawn on 25th March a cheque for ` 3,000 was
encashed on 3rd April.
(d) Cheques issued to creditors amounting to ` 24,000 on 26th March of which cheques of
` 3,600 were presented to bank up to 31st March.
(e) A cheque of ` 1,200 entered in Cash Book but omitted to be banked on 31st March.
(f) A cheque for ` 720 deposited into bank but omitted to be recorded in Cash Book.
(g) A bill receivable for ` 624 previously discounted (Discount ` 24) with the bank had been
dishonoured but advice was received on 3rd April.
(h) A bill for ` 12,000 was retired from bank under a rebate of ` 180 but the full amount was
credited in the bank column of Cash Book.
(i) A cheque of ` 1,296 credited in the Bank Pass Book on March 27 being dishonoured is
debited in the Bank Pass Book on 1st April. There was no entry in the Cash Book about
the dishonour of the cheque until 15th April.
(j) A cheque of ` 240 drawn on his Savings Account has been shown as drawn on Current
Account in Cash Book.
(k) A bill of ` 10,000 discounted with the bank at discount of ` 200 but inadvertently debited
the full amount to Cash Book.
Prepare Bank Reconciliation Statement as at 31st March, if the Debit Balance as per Cash Book
on 31st March, 2020 was ` 47,484.
Bank Reconciliation Statement 14.15

Solution: BANK RECONCILIATION STATEMENT

as on 31st March, 2020
Particulars Plus Minus
Items (`) Items (`)

Balance as per Cass Book (Dr.) 47,484

(a) Cheque deposited on 26th March but not yet collected till 31st March 9,000
(b) Cheque deposited on 27th March but not yet collected till 31st March 1,200
(c) Cheque issued on 25th March but not yet presented for payment till 31st March 3,000
(d) Cheque issued on 26th March but not yet presented for payment till 31st March 20,400
(e) A cheque entered in Cash Book but omitted to be banked 1,200
(f) A cheque deposited into bank but omitted to be entered in Cash Book 720
(g) Discounted Bill Receivable dishonoured, not yet entered in Cash Book 624
(h) Rebate on bill not entered in Cash Book 180
(j) Cheque drawn on Savings Bank Account but recorded in Current Account 240
(k) Bill discounted but full amount debited in Cash Book 200
Balance as per Bank Pass Book (Cr.) (` 72,024 – ` 12,224) 59,800
72,024 72,024

Note: Cheque of ` 1,296 in Point No. (i) credited in Bank Pass Book on 27th March, later debited in Bank Pass Book on
1st April, has no effect on Bank Reconciliation Statement as at 31st March, 2020.

Illustration 12.
Sen reconciled each month Cash Book with the Bank Statement. His Bank Reconciliation
Statement for the month of November, 2019 was as follows:
Particulars ` `

Bank Balance (Overdraft) as per Bank Statement on 30th November, 2019 53,000
Add: Cheques issued but yet to be presented to the Bank for Payment:
Kar 1,080
Bose 2,200
Das 520 3,800
56,800

The following is the extract of Bank column in the Cash Book for December, 2019 and a copy
of the Bank Statement for the same month:
Dr. CASH BOOK (BANK COLUMN ONLY) Cr.
Date Particulars L.F. ` Date Particulars L.F. `
2019 2019
Dec. 1 To X 32,000 Dec. 1 By Balance b/d 56,800
Dec. 4 To Y 10,000 Dec. 5 By A 580
Dec. 5 To Z 22,000 Dec. 8 By B 820
Dec. 19 To P 3,000 Dec. 16 By C 1,200
Dec. 23 To Q 7,000 Dec. 23 By D 3,500
Dec. 29 To R 4,200 Dec. 29 By E 650
Dec. 31 By Balance c/d 14,650
78,200 78,200
14.16 Double Entry Book Keeping—ISC XI

BANK STATEMENT
Date Particulars Dr. Cr. Balance
Withdrawals Deposits
` ` `
2019
Dec. 1 By Balance 53,000 (Dr.)
Dec. 1 To Kar 1,080 54,080 (Dr.)
Dec. 2 By X 32,000 22,080 (Dr.)
Dec. 4 By Y
10,000 12,080 (Dr.)
Dec. 4 To Bose 2,200 14,280 (Dr.)
Dec. 5 To General Insurance 900 15,180 (Dr.)
Dec. 5 By Z 22,000 6,820 (Cr.)
Dec. 8 To A 580 6,240 (Cr.)
Dec. 19 To C 1,200 5,040 (Cr.)
Dec. 19 To Bank Charges 990 4,050 (Cr.)
Dec. 22 By F 3,000 7,050 (Cr.)
Dec. 23 By Y Ltd. Credit Transfer 4,690 11,740 (Cr.)
Dec. 29 By Q 7,000 18,740 (Cr.)
Dec. 29 To Bank Commission 860 17,880 (Cr.)
Dec. 29 To X-refer to Drawer 32,000 14,120 (Dr.)

Prepare Amended Cash Book and Bank Reconciliation Statement as on 31st December, 2019.

Solution: List of Causes of Difference

1. Cheque deposited but not yet credited by Bank ` 4,200.
2. Amount credited by the Bank yet to be entered in the Cash Book ` 4,690 (Y Ltd.).
3. Cheques issued but not yet presented:
Das ` 520 + B ` 820 + D ` 3,500 + E ` 650 = ` 5,490.
4. Amount debited by the Bank yet to be entered in the Cash Book: General Insurance ` 900 +
Bank Charges ` 990 + Bank Commission ` 860 + Dishonour of Cheque ` 32,000 = ` 34,750.

Solution:
Dr. AMENDED CASH BOOK (BANK COLUMN) Cr.
Date Particulars ` Date Particulars `

2019 2019
Dec. 31 To Balance b/d 14,650 Dec. 31 By General Insurance (Premium) 900
Dec. 31 To Y Ltd. 4,690 Dec. 31 By Bank Charges 990
Dec. 31 To Balance c/d 15,410 Dec. 31 By Bank Commission 860
Dec. 31 By X 32,000
34,750 34,750
Bank Reconciliation Statement 14.17

BANK RECONCILIATION STATEMENT

as on 31st December, 2019
Particulars ` `
Bank Overdraft as per the Amended Cash Book 15,410
Less: Cheque issued but yet to be presented for payments 5,490 5,490
9,920
Add: Cheque deposited but not yet credited by the bank 4,200 4,200
Bank Balance as per the Bank Statement (Dr.) 14,120

Unsolved Questions
1. From the following particulars, prepare Bank Reconciliation Statement as on 31st March, 2020:
(i) Bank balance as per Cash Book ` 25,450.
(ii) A number of cheques were deposited in the Bank but on 31st March, 2020, a cheque for ` 500 was
not credited in the Pass Book.
(iii) Several cheques aggregating ` 5,000 were issued but only cheques for ` 4,500 were presented to
Bank for payment.
(iv) The Bank had directly collected dividend ` 400 and interest ` 300 but this was not entered in the
Cash Book.
(v) In accordance with instructions, the Bank had honoured a Bill for ` 2,000 but the debit note was sent
to the trader only on 2nd April, 2020.
(vi) Bank charges ` 20 were not entered in the Cash Book.
(vii) The debit balance for November was shown short in the Cash Book by ` 300.
(viii) The Bank Pass Book revealed that a cheque for ` 250 received from a person had been dishonoured,
but no entry was passed in the Cash Book.
2. Prepare Bank Reconciliation Statement as on 30th September, 2019 from the following particulars:
`
(i) Bank balance as per Bank Pass Book. 10,000
(ii) Cheque deposited into the Bank, but no entry was passed in the Cash Book. 500
(iii) Cheque received and entered in the Cash Book but not sent to bank. 1,200
(iv) Credit side of the Cash Book bank column casted short. 200
(v) Insurance premium paid directly by the bank under the standing advice. 600
(vi) Bank charges entered twice in the Cash Book. 20
(vii) Cheque issued but not presented to the bank for payment. 500
(viii) Cheque received entered twice in the Cash Book. 1,000
(ix) Bill discounted dishonoured not recorded in the Cash Book. 5,000
3. From the following particulars of a trader, prepare Bank Reconciliation Statement as on 31st March, 2020:
(i) Bank overdraft as per Cash Book ` 52,100.
(ii) During the month, cheques for a total amount of ` 94,400 were deposited into the bank, but of these,
one cheque for ` 11,160 has been entered into the Bank Pass Book on 5th April.
14.18 Double Entry Book Keeping—ISC XI

(iii) During the month, cheques for ` 89,580 were drawn in favour of creditors. Of them, one creditor
encashed his cheque for ` 38,580 on 7th April, whereas another for ` 4,320 has not yet been encashed.
(iv) As per standing instructions, the bank on 28th March paid out ` 10,500 to a creditor, but by mistake
the same has not been entered in the Cash Book.
(v) According to agreement, on 25th March, a debtor deposited directly ` 9,000 into the bank, but the
same has not been recorded in the Cash Book.
(vi) In the month of March the bank, without any intimation, debited his account for ` 120 as bank
charges and credited the same for ` 180 as interest.
4. From the following particulars, prepare Bank Reconciliation Statement: ` 
(i) Bank Overdraft as per Cash Book. 16,200
(ii) A cheque deposited as per Bank Statement, but not recorded in the Cash Book. 700
(iii) Debit side of the Bank Column casted short. 100
(iv) A cheque for ` 5,000 deposited but collection as per Bank Statement. 4,996
(v) A party’s cheque returned dishonoured as per Bank Statement only. 530
(vi) Bills collected directly by Bank. 3,500
(vii) Bank charges recorded twice in Cash Book. 25
(viii) A bill for ` 8,000 discounted for ` 7,960 returned dishonoured by the Bank,
Noting charges being charged. 15
(ix) Cheques deposited but not yet collected by the Bank. 2,320
(x) Cheques issued but not yet presented for encashment. 1,250
5. From the following information supplied by Deep, prepare his Bank Reconciliation Statement as on
31st March, 2020: `
(i) Bank overdraft as per Bank Pass Book. 3,30,000
(ii) Cheques issued but not presented for payment. 1,75,000
(iii) Cheques deposited but not collected. 2,10,000
(iv) Cheques recorded in the Cash Book but not sent to the bank for collection. 40,000
(v) Payments received from customers directly by the bank. 70,000
(vi) Bank charges debited in Bank Pass Book. 400
(vii) Premium of Life Insurance policy of Deep paid by bank as per standing instructions. 3,600
(viii) A bill for ` 60,000 dishonoured on 30th March, 2020 and bank paid Noting Charges. 200
This bill was discounted on 30th January, 2020.
6. What is Bank Reconciliation Statement? Prepare such a statement on 31st March, 2020 from the following
particulars:
(i) Ajay’s overdraft as per Bank Pass Book ` 12,000 as on 31st March.
(ii) On 30th March, cheques had been issued for ` 70,000 of which cheques of ` 3,000 only had been
encashed up to 31st March.
(iii) Cheques amounting to ` 3,500 had been paid into the bank for collection but of these cheques of
only ` 500 had been credited in the Bank Pass Book.
(iv) The bank has charged ` 500 as interest on overdraft and the intimation of which has been received
on 2nd April, 2020.
(v) The Bank Pass Book shows credit for ` 1,000 representing ` 400 paid by debtor of Ajay directly into the
bank and ` 600 collected directly by bank in respect of interest on Ajay’s investment. Ajay had no
knowledge of these items.
(vi) A cheque for ` 200 has been debited in bank column of Cash Book by Ajay, but it was not sent to
bank at all.
Bank Reconciliation Statement 14.19

7. From the following extract from the Bank Pass Book for January, 2020 and also the Cash Book for the month,
you are required to prepare Amended Cash Book and Bank Reconciliation Statement:
BANK PASS BOOK
Date Particulars Withdrawals Deposits Dr. or Cr. Balance
` ` `

2020
Jan. 1 By Balance b/d Cr. 10,000
Jan. 4 By Anil 70,000 Cr. 80,000
Jan. 4 By Sunil 50,000 Cr. 1,30,000
Jan. 7 To Cash 1,00,000 Cr. 30,000
Jan. 10 By Cash 2,20,000 Cr. 2,50,000
Jan. 15 By ATP & Co. 15,000 Cr. 2,65,000
Jan. 20 To MTNL 3,000 Cr. 2,62,000
Jan. 21 To BSES 5,000 Cr. 2,57,000
Jan. 23 To LIC (Standing Instruction) 50,000 Cr. 2,07,000
Jan. 27 By Interest Collected 2,500 Cr. 2,09,500
Jan. 27 By Cash 15,000 Cr. 2,24,500
Jan. 27 By Jagjeet 5,000 Cr. 2,29,500
Jan. 29 To Bank Charges 1,000 Cr. 2,28,500
Jan. 31 To Jagjeet (Cheque Returned) 5,000 Cr. 2,23,500
Jan. 31 To Bank Charges 200 Cr. 2,23,300

Dr. CASH BOOK (BANK COLUMNS ONLY) Cr.

Date Particulars L.F. ` Date Particulars L.F. `

2020 2020
Jan. 1 To Balance b/d 10,000 Jan. 7 By Cash 1,00,000
Jan. 4 To Anil 70,000 Jan. 15 By MTNL 3,000
Jan. 4 To Sunil 50,000 Jan. 15 By BSES 5,000
Jan. 10 To Cash (Sale Proceeds) 2,20,000 Jan. 27 By Staples Ltd. 6,000
Jan. 27 To Cash 15,000 Jan. 29 By BR & Co. (Stationery) 7,500
Jan. 27 To Jagjeet 5,000 Jan. 31 By Balance c/d 2,68,500
Jan. 28 To Harpreet 20,000
3,90,000 3,90,000

GUIDE TO ANSWERS

1. Balance as per Bank Pass Book—` 24,180.

2. Balance as per Cash Book (Dr.)—` 16,980.
3. Balance as per Bank Pass Book (Overdraft)—` 21,800.
4. Balance as per Bank Pass Book (Dr.)—` 21,494.
5. Overdraft Balance as per Cash Book—` 2,60,800.
6. Overdraft Balance as per Cash Book—` 76,300.
7. Balance as per Amended Cash Book (Dr.)—` 2,29,800.
 CHAPTER
15
Depreciation
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Depreciation Depreciation means fall in the value of an asset because of:

(i) usage, i.e., wear and tear; (ii) efflux of time;
(iii) obsolescence; or (iv) accident.
The term ‘Depreciation’ is associated with tangible fixed assets.
2. Depletion The term ‘Depletion’ is associated with extraction of natural resources like
quarries, mines, etc.
3. Amortisation The term is associated with writing off intangible assets.
4. Obsolescence It means decline in the economic value of the assets due to innovation or
improved technology, change in taste or fashion or inadequacy of existing
asset due to improved demand.
5. Original or Historical Cost It means cost incurred to acquire the asset up to the point it is ready for
use. It is the basis for depreciation.
6. Useful Life Useful life of the asset means the period for which the asset can be used
productively by the enterprise.
7. Residual Value It is the estimated sale value of the asset at the end of its useful economic
life.
8. Accumulated Depreciation It is the total depreciation already charged as expense in different
accounting periods. In other words, it is total depreciation provided on a
fixed asset till date.
9. Straight Line Method It is a method of providing depreciation under which net cost of the asset
(Historical Cost – Realisable Value) is written off equally over the useful
life of the asset.
10. Written Down Value It is a method of providing depreciation under which a percentage of
Method depreciation is applied every year on the book value, i.e., cost less
depreciation till date.

CHAPTER SUMMARY
• Depreciation is the cost of fixed asset that has expired because of its usage and/or efflux of time.
• Causes of Depreciation are (i) wear and tear, (ii) efflux of time, (iii) obsolescence and (iv) accidents.
• Objectives of providing depreciation are to:
(i) ascertain correct profit or loss. (ii) show a true and fair view of the financial position.
(iii) show the fixed assets at their correct values. (iv) retain funds out of profits for replacement.
(v) compliance of legal provisions.
• Depreciation can be recorded either (i) by crediting it to the respective Asset Account or (ii) by crediting
it to Provision for Depreciation Account or Accumulated Depreciation Account.
• Depreciation can be computed either as a (i) fixed percentage on original cost known as Straight Line
Method or (ii) fixed percentage on diminishing balance known as Written Down Value Method.
• Depreciation reduces the book value and not the market value of the depreciable fixed asset.
15.2 Double Entry Book Keeping—ISC XI

• An addition or extension to an existing asset which is of a capital nature and which becomes an integral
part of the existing asset, is depreciated over its estimated useful life.
• Heavy repairs which are of capital nature and which increase the useful life of the assets, are also added
to cost of such assets.
• All expenses which are incurred till the asset is ready for use such as freight, installation cost are included
in cost of the asset.
• GST (CGST and SGST or IGST) Paid on purchase of asset is not a cost because it is set off against GST
Collected. Hence, Asset Account is debited by the net amount, i.e., Gross Value – GST Paid.

Solved Questions
Illustration 1.
A firm, whose accounting year is the Financial year, purchased on 1st July, 2017 machinery
costing ` 30,000.
It purchased further machinery on 31st December, 2017 costing ` 20,000 and on 1st October,
2018 costing ` 10,000.
On 1st April, 2019, one-third of the machinery installed on 1st July, 2017 became obsolete and
was sold for ` 3,000.
Show Machinery Account as it would appear in the books of the firm, it being given that
machinery was depreciated by Fixed Instalment Method @ 10% p.a.
What would be the value of Machinery Account on 1st April, 2020?
Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `
2017 2018
July 1 To Bank A/c (Mach. I) 30,000 March 31 By Depreciation A/c:
Dec. 31 To Bank A/c (Mach. II) 20,000 Mach. I
(` 30,000 × 10/100 × 9/12) 2,250
Mach. II
(` 20,000 × 10/100 × 3/12 ) 500 2,750
March 31 By Balance c/d:
Mach. I ` (30,000 – 2,250) 27,750
Mach. II ` (20,000 – 500) 19,500
50,000 50,000
2018 2019
April 1 To Balance b/d: March 31 By Depreciation A/c:
Mach. I 27,750 Mach. I
Mach. II 19,500 (` 30,000 × 10/100 ) 3,000
Oct. 1 To Bank A/c (Mach. III) 10,000 Mach. II
(` 20,000 × 10/100) 2,000
Mach. III
(` 10,000 × 10/100 × 6/12) 500 5,500
March 31 By Balance c/d:
Mach. I
` (27,750 – 3,000) 24,750
Mach. II
` (19,500 – 2,000) 17,500
Mach. III
` (10,000 – 500) 9,500 51,750
57,250 57,250
Depreciation 15.3

2019 2019
April 1 To Balance b/d: April 1 By Bank A/c (Sale) 3,000
Mach. I 24,750 April 1 By Loss on Sale of Machine A/c (Note 2) 5,250
Mach. II 17,500 (Profit and Loss A/c)
Mach. III 9,500 2020
March 31 By Depreciation A/c:
Mach. I
[` (30,000 – 10,000) × 10/100] 2,000
Mach. II
(` 20,000 × 10/100) 2,000
Mach. III
(` 10,000 × 10/100) 1,000 5,000
By Balance c/d:
Mach. I (Note 3)
` (16,500 – 2,000) 14,500
Mach. II
` (17,500 – 2,000) 15,500
Mach. III
` (9,500 – 1,000) 8,500 38,500
51,750 51,750
2020
April 1 To Balance b/d 38,500
Notes:
1. Mach. I stands for Machine I and Mach. II stands for Machine II and so on.
2. Calculation of Gain (Profit)/Loss on Sale of Machine: `
Cost of Machine (1st July, 2017) (Mach. I; ` 30,000 × 1/3) 10,000
Less: Depreciation for 2017–18 (` 2,250 × 1/3) 750
Book value as on 1st April, 2018 9,250
Less: Depreciation for 2018–19 (` 3,000 × 1/3) 1,000
Book value as on 1st April, 2019 8,250
Less: Sale Proceeds 3,000
Loss on Sale of Machine 5,250
3. Book value as on 1st April, 2019 of remaining 2/3 (Mach. I) = ` 24,750 × 2/3 = ` 16,500.
Illustration 2.
On 1st July, 2018, R.K. Traders purchased an old machine for ` 28,000 and paid ` 4,600
for its repairs and installation. The machinery started functioning on 1st September, 2018.
Another new plant was purchased for ` 45,000 and incurred installation charges ` 3,000 on
1st January, 2019. On 31st January, 2020, the plant installed on 1st July, 2018 was sold for ` 27,400
due to some mechanical problem. Depreciation is charged @ 10% p.a. on Fixed Instalment
Basis. Show Machinery Account and Depreciation Account for 2 years ended 31st March, 2020.
Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `
2018 2019
July 1 To Bank A/c (Purchase) 28,000 March 31 By Depreciation A/c (Note 1) 3,102
To Bank A/c (Installation) 4,600 By Balance c/d 77,498
2019
Jan. 1 To Bank A/c (Purchase) 45,000
To Bank A/c (Installation) 3,000
80,600 80,600
2019 2020
April 1 To Balance b/d 77,498 Jan. 31 By Bank A/c (Sale) 27,400
By Loss on Sale of Machine A/c (Note 3) 581
(Profit and Loss A/c)
March 31 By Depreciation A/c (Note 2) 7,517
By Balance c/d 42,000
77,498 77,498
15.4 Double Entry Book Keeping—ISC XI

Dr. DEPRECIATION ACCOUNT Cr.

Date Particulars ` Date Particulars `
2019 2019
March 31 To Machinery A/c 3,102 March 31 By Profit and Loss A/c 3,102
2020 2020
March 31 To Machinery A/c 7,517 March 31 By Profit and Loss A/c 7,517

Notes:
1. Calculation of Depreciation for the year ended 31st March, 2019: `
Depreciation on ` 32,600 for 7 months @ 10% 1,902
Depreciation on ` 48,000 for 3 months @ 10% 1,200
3,102
2. Calculation of Depreciation for the year ended 31st March, 2020:
Depreciation on ` 48,000 for full year @ 10% 4,800
Depreciation on ` 32,600 for 10 months @ 10% 2,717
7,517
3. Calculation of gain (profit)/loss on Sale of Machine:
Value of the machine on 1st July, 2018 32,600
Less: Depreciation for 7 months @ 10% 1,902
Book Value on 1st April, 2019 30,698
Less: Depreciation for 10 months @ 10% 2,717
Book Value of the machine on the date of sale 27,981
Less: Sale Proceeds 27,400
Loss on Sale of Machine 581

Illustration 3.
You are given the following balances as on 1st April, 2019:
Machinery A/c ` 5,00,000
Provision for Depreciation A/c ` 1,16,000
Depreciation is charged on machinery @ 20% p.a. by the Diminishing Balance Method. A piece
of machinery purchased on 1st April, 2017 for ` 1,00,000 was sold on 1st October, 2019 for
` 60,000. Prepare Machinery Account and Provision for Depreciation Account for the year
ended 31st March, 2020.
Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `
2019 2019
April 1 To Balance b/d 5,00,000 Oct. 1 By Provision for Depreciation A/c 42,400
April 1 To Gain (Profit) on Sale of Machine A/c 2,400 Oct. 1 By Bank A/c 60,000
(Profit and Loss A/c) 2020
March 31 By Balance c/d 4,00,000
5,02,400 5,02,400
2020
April 1 To Balance b/d 4,00,000
Depreciation 15.5

Dr. PROVISION FOR DEPRECIATION ACCOUNT Cr.

Date Particulars ` Date Particulars `
2019 2019
Oct. 1 To Machinery A/c 42,400 April 1 By Balance b/d 1,16,000
(WN 1) Oct. 1 By Depreciation A/c (WN 1) 6,400
2020 2020
March 31 To Balance c/d 1,44,000 March 31 By Depreciation A/c (WN 2) 64,000
1,86,400 1,86,400
2020
April 1 By Balance b/d 1,44,000

Working Notes:
1. Depreciation provided on Machinery sold till 1st October, 2019:
`
For 2017–18 20,000
20
For 2018–19 (` 1,00,000 – ` 20,000) × 16,000
100
20 6
For 2019–20 (` 1,00,000 – ` 20,000 – ` 16,000) × ¥ 6,400
100 12 42,400
2. Calculation of Depreciation provided for 2019–20:
Balance of Provision for Depreciation on 1st April, 2019 1,16,000
Add: Depreciation provided on Machinery sold 6,400
   1,22,400
Less: Accumulated Depreciation on Machinery sold (WN 1) 42,400
Depreciation on the remaining Machinery 80,000
Cost of remaining Machinery (` 5,00,000 – ` 1,00,000) 4,00,000
Less: Depreciation on remaining Machinery (As above) 80,000
3,20,000
Depreciation provided during 2019–20 = ` 3,20,000 × 20/100 = ` 64,000.

Illustration 4.
On 1st April, 2016, X Ltd. purchased from Y Ltd. a plant costing ` 4,00,000 on instalment basis
payable as follows: `
On 1st April, 2016 1,00,000
On 1st October, 2016 1,00,000
On 1st April, 2017 1,00,000
On 1st April, 2018 1,00,000
The company spent ` 10,000 on transportation and installation of the plant. It was decided to
provide for depreciation by Straight Line Method. Useful life of the plant was estimated at
5 years. It was also estimated that at the end of the useful life, realisable value of the plant
would be ` 12,000 (gross) and dismantling cost of plant, to be paid by company was estimated
at ` 2,000. The plant was destroyed by fire on 31st March, 2020 and an insurance claim of
` 50,000 was admitted by the insurance company.
Prepare Plant Account and Provision for Depreciation Account if the company closes its books
on 31st March every year.
15.6 Double Entry Book Keeping—ISC XI

Solution:
Total Cost of Asset - Scrap Value
Annual Depreciation =
Estimated Useful Life of Plant (in years)

` 4,00,000 + ` 10,000 - ( ` 12,000 - ` 2,000)

=
5
` 4,00,000
= = ` 80,000 per year.
5
Dr. PLANT ACCOUNT Cr.
Date Particulars ` Date Particulars `
2016 2017
April 1 To Bank A/c (Cost) 1,00,000 March 31 By Balance c/d 4,10,000
To Bank A/c (Expenses) 10,000
To Supplier 3,00,000 4,10,000
4,10,000 4,10,000
2017 2018
April 1 To Balance b/d 4,10,000 March 31 By Balance c/d 4,10,000
4,10,000 4,10,000
2018 2019
April 1 To Balance b/d 4,10,000 March 31 By Balance c/d 4,10,000
4,10,000 4,10,000
2019 2020
April 1 To Balance b/d 4,10,000 March 31 By Provision for Depreciation A/c 3,20,000
March 31 By Bank A/c (Insurance Claim) 50,000
March 31 By Loss by Fire A/c (Bal. Fig.) 40,000
(Profit and Loss A/c)
4,10,000 4,10,000

Dr. PROVISION FOR DEPRECIATION ACCOUNT Cr.

Date Particulars ` Date Particulars `
2017 2017
March 31 To Balance c/d 80,000
March
31
By
Depreciation A/c 80,000
80,000 80,000
2018 2017
March 31 To Balance c/d 1,60,000 April 1 By Balance b/d 80,000
2018
March 31 By Depreciation A/c 80,000
1,60,000 1,60,000
2019 2018
March 31 To Balance c/d 2,40,000 April 1 By Balance b/d 1,60,000
2019
March 31 By Depreciation A/c 80,000
2,40,000 2,40,000

2020 2019
March 31 To Plant A/c (Transfer) 3,20,000 April 1 By Balance b/d 2,40,000
2020
March 31 By Depreciation A/c 80,000
3,20,000 3,20,000
Depreciation 15.7

Illustration 5.
M Ltd., which depreciates its machinery at 10% p.a. according to Diminishing Balance Method,
had balance on 1st April, 2019 of ` 9,82,000 (cost) in its Machinery Account and balance of
` 2,76,000 in Provision for Depreciation Account.

On 1st September, 2019, a new machine was purchased at ` 3,20,000 and paid ` 30,000 for its
carriage and installation. The machine started functioning from 1st September, 2019.
On 1st October, 2019, an old machinery was sold at ` 2,15,000 which was installed on
1st July, 2017 costing ` 3,88,000.
Show Machinery Account and Provision for Depreciation Account for the year ended
31st March, 2020.

Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `

2019 2019
April 1 To Balance b/d (cost) 9,82,000 Oct. 1 By Provision for Depreciation A/c 81,140
Sept. 1 To Bank A/c—Purchase 3,20,000 Oct. 1 By Bank A/c—Sale 2,15,000
To Cash A/c—Carriage and 30,000 Oct. 1 By Loss on Sale of Machine A/c (WN 1) 91,860
Installation (Profit and Loss A/c)
2020
March 31 By Balance c/d 9,44,000
13,32,000 13,32,000

2020
April 1 To Balance b/d 9,44,000

Dr. PROVISION FOR DEPRECIATION ACCOUNT Cr.

Date Particulars ` Date Particulars `

2019 2019
Oct. 1 To Machinery (WN 2) 81,140 April 1 By Balance b/d 2,76,000
2020 Oct. 1 By Depreciation A/c 16,150
March 31 To Balance c/d 2,69,726 2020
March 31 By Depreciation A/c (WN 3) 58,716
3,50,866 3,50,866
2020
April 1 By Balance b/d 2,69,726
15.8 Double Entry Book Keeping—ISC XI

Working Notes:
1. Calculation of Gain (Profit)/Loss on Sale of Machinery on 1st October, 2019: `
Value of sold Machine on 1st July, 2017 3,88,000
Less: Depreciation for 9 months @ 10% p.a. 29,100
Value on 1st April, 2018 3,58,900
Less: Depreciation for full year @ 10% p.a. 35,890
Value on 1st April, 2019 3,23,010
Less: Depreciation for 6 months @ 10% p.a. 16,150
Value on 1st October, 2019 3,06,860
Less: Sale proceeds 2,15,000
Loss on sale of machinery 91,860

2. Total depreciation charged on the machine sold = ` (29,100 + 35,890 + 16,150) = ` 81,140.
3. Calculation of depreciation on remaining machinery:
Value of machinery on 1st April, 2019 (cost) 9,82,000
Less: Cost of machine sold 3,88,000
Value of machinery (remaining) on 1st April, 2020 (at cost) 5,94,000
Provision for Depreciation Account balance on 1st April, 2020 2,76,000
Less: Total depreciation of the machine sold up to 1st April, 2019
(` 29,100 + ` 35,890) 64,990
Total depreciation of the remaining machinery up to 1st April, 2019 2,11,010
Value of remaining machinery (at cost) on 1st April, 2019 5,94,000
Less: Total Depreciation up to 1st April, 2019 charged 2,11,010
Written down value on 1st April, 2019 3,82,990
Depreciation on ` 3,82,990 for full year @ 10% p.a. 38,299
Depreciation on ` 3,50,000 for 7 months @ 10% p.a. 20,417
Total depreciation 58,716

Illustration 6.
On 1st April, 2019, the Machinery Account and Provision for Depreciation Account
of Mr. Akash Agarwal shows a balance of ` 94,000 and ` 37,400 respectively. On
31st July, 2019, a machine costing ` 56,000 was purchased and paid for its freight and installation
` 12,000. On 31st December, 2019, an old machine was sold at ` 23,600, which was installed on
1st September, 2017, at a cost of ` 45,000.

Depreciation is charged @ 10% p.a. by the Diminishing Balance Method. Show the Machinery
Account, Provision for Depreciation Account and Depreciation Account for the year ended 31st
March, 2020. Also, show position of the Machinery Account in the Balance Sheet.
Depreciation 15.9

Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `

2019 2019
April 1 To Balance b/d 94,000 Dec. 31 By Provision for Depreciation A/c 9,722
July 31 To Bank A/c 56,000 Dec. 31 By Bank A/c (Sale Proceeds) 23,600
To Cash A/c 12,000 Dec. 31 By Loss on Sale of Machine A/c (WN 1) 11,678
(Freight and Installation) (Profit and Loss A/c)
2020
March 31 By Balance c/d 1,17,000

1,62,000 1,62,000

Dr. DEPRECIATION ACCOUNT Cr.

Date Particulars ` Date Particulars `

2019 2020
Dec. 31 To Provision for Depreciation A/c 2,860 March 31 By Profit and Loss A/c 9,239
2020 —transferred
March 31 To Provision for Depreciation A/c 6,379
9,239 9,239

Dr. PROVISION FOR DEPRECIATION ACCOUNT Cr.

Date Particulars ` Date Particulars `
2019 2019
Dec. 31 To Machinery A/c (WN 3) 9,722 April 1 By Balance b/d 37,400
Dec. 31 By Depreciation A/c 2,860
2020 2020
March 31 To Balance c/d 36,917 March 31 By Depreciation A/c (WN 2) 6,379
46,639 46,639

BALANCE SHEET
as at 31st March, 2020
Liabilities ` Assets `
Machinery 1,17,000
Less: Provision for Depreciation 36,917 80,083
15.10 Double Entry Book Keeping—ISC XI

Working Notes:
1. Calculation of gain (profit) or loss on Sale of Machinery on 31st December, 2019: `
1st September, 2017 Purchased 45,000
31st March, 2018 Less: Depreciation @ 10% p.a. for 7 months 2,625
1st April, 2018 Book Value 42,375
31st March, 2019 Less: Depreciation @ 10% p.a. 4,237
1st April, 2019 Book Value 38,138
31st December, 2019 Less: Depreciation @ 10% p.a. for 9 months 2,860
Value on the date of sale 35,278
Less: Sale Proceeds 23,600
Loss on sale of machinery 11,678
2. Calculation of depreciation on the remaining machinery:
Written down value of Machinery on 1st April, 2019 (` 94,000 – ` 37,400) 56,600
Less: Book value (on 1st April, 2019) of the machine sold (as per WN 1) 38,138
Book value of the remaining old machinery 18,462
Depreciation on the remaining old machinery of ` 18,462 @ 10% p.a. 1,846
Depreciation on the machine purchased for ` 68,000 on 31st July, 2019 @ 10% p.a.
for 8 months 4,533
6,379

3. Accumulated depreciation balance of the machine sold transferred from Provision for Depreciation Account
to Machinery Account (` 2,625 + ` 4,237 + ` 2,860 = ` 9,722).

Illustration 7.
A Co. charged depreciation @ 20% p.a. on written down value. Machinery costing ` 1,00,000,
` 40,000 and ` 30,000 were purchased on 1st April, 2016, 1st October, 2017 and 1st January, 2019
respectively. On 1st January, 2020, machinery purchased on 1st October, 2017 was damaged
and replaced by a new machine costing ` 50,000. The damaged machinery was insured and
an insurance claim of ` 24,800 (after adjustment of value of scrap) was admitted by the
Insurance Co. The scrap was sold for ` 2,200.
Show Machinery Account and Accumulated Depreciation Account for the year ended
31st March, 2020.
Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `
2019 2020
April 1 To Balance b/d 1,70,000 Jan. 1 By Accumulated Depreciation A/c 15,520
(` 1,00,000 + ` 40,000 Jan. 1 By Cash A/c 2,200
+ ` 30,000) Jan. 1 By Insurance Co. 24,800
2020 March 31 By Balance c/d 1,80,000
Jan. 1 To Gain (Profit) on Sale of Machine A/c 2,520
(Profit and Loss A/c)
Jan. 1 To Cash A/c 50,000
2,22,520 2,22,520
Depreciation 15.11

Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Date Particulars ` Date Particulars `
2020 2019
Jan. 1 To Machinery A/c 15,520 April 1 By Balance b/d (WN 1 and 2) 61,500
(WN 1 and 3) 2020
March 31 To Balance c/d 68,740 Jan. 1 By Depreciation A/c 4,320
March 31 By Depreciation A/c 18,440
(` 10,240 + ` 5,700 + ` 2,500)
84,260 84,260

Working Notes:

1. CALCULUATION OF DEPRECIATION ON MACHINERY

Date of Purchase 1st April, 1st October, 1st January, 1st January,
2016 (`) 2017 (`) 2019 (`) 2020 (`)
Cost of Machinery 1,00,000 40,000 30,000 50,000
Depreciation for 2016–17 20,000 ... ... ...
WDV on 1st April, 2017 80,000 ... ... ...
Depreciation for 2017–18 16,000 4,000 ... ...
WDV on 1st April, 2018 64,000 36,000 ... ...
Depreciation for 2018–19 12,800 7,200 1,500 ...
(3 months)
WDV on 1st April, 2019 51,200 28,800 28,500 ...
Depreciation for 2019–20 10,240 4,320 5,700 2,500
(9 months) (3 months)

2. Balance of Accumulated Depreciation Account on 1st April, 2019

= (` 20,000 + ` 16,000 + ` 12,800) + (` 4,000 + ` 7,200) + ` 1,500 = ` 61,500.
3. Accumulated Depreciation on Machinery Sold = ` 4,000 + ` 7,200 + ` 4,320 = ` 15,520.

Illustration 8.
A firm writes off 95% of the cost of the machines over 10 years following Straight Line Method,
leaving the rest 5% as estimated scrap value. Full depreciation is provided even if an asset is
used only for part of the year.
On 31st December, 2018, the original cost of the machines in possession were:
(i) Machines purchased in 2007 or earlier ` 2,40,000
(ii) Machines purchased in 2010 ` 80,000
(iii) Machines purchased in 2014 ` 60,000
On 30th June, 2019, a machine purchased in 2007 for ` 20,000 was sold for ` 1,800. On
30th November 2019, a machine purchased in 2014 for ` 30,000 was sold for ` 10,000 and on
the same date a new machine was purchased for ` 90,000.
Show the Machinery Account and Provision for Depreciation Account for the year ending
31st December, 2019.
15.12 Double Entry Book Keeping—ISC XI

Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `
2019 2019
Jan. 1 To Balance b/d 3,80,000 June 30 By Provision for Depreciation A/c 19,000
(` 2,40,000 + ` 80,000 June 30 By Bank A/c (Sale) 1,800
+ ` 60,000) Nov. 30 By Provision for Depreciation A/c 17,100
June 30 To Gain on Sale of Machinery A/c 800 Nov. 30 By Bank A/c (Sale) 10,000
(Profit and Loss A/c) Nov. 30 By Loss on Sale of Machine A/c 2,900
Nov. 30 To Bank A/c 90,000 Dec. 31 By Balance c/d 4,20,000
4,70,800 4,70,800

Dr. PROVISION FOR DEPRECIATION ACCOUNT Cr.

Date Particulars ` Date Particulars `
2019 2019
June 30 To Machinery A/c 19,000 Jan. 1 By Balance b/d
(` 20,000 × 95/100) (` 2,28,000 + ` 68,400 + ` 28,500) 3,24,900
Nov. 30 To Machinery A/c 17,100 Nov. 30 By Depreciation A/c (Mach. III) 2,850
(` 14,250 + ` 2,850) Dec. 31 By Depreciation A/c (WN 4):
Dec. 31 To Balance c/d 3,10,650 Mach. I 7,600
Mach. III 2,850
Mach. IV 8,550 19,000
3,46,750 3,46,750

Working Notes:
1. Depreciation Balance on 1st January, 2019 `
(a) Machinery Purchased in 2007 or before 95% of ` 2,40,000 2,28,000
(b) Machinery Purchased in 2010
95 9
Depreciation for 9 Years = × ` 80,000 × 68,400
100 10
(c) Machinery Purchased in 2014
95 5
Depreciation for 5 years = × ` 60,000 × 28,500
100 10

2. Depreciation on Machinery Sold on 30th June, 2019 `

Original Value 20,000
95
Depreciation = × ` 20,000 19,000
100

3. Depreciation on Machinery Sold on 30th November, 2019 `

Original Value 30,000
95
Total Depreciation for 10 years = × ` 30,000 28,500
100
5
Depreciation Charged up to 2018 for 5 Years = × ` 28,500 14,250
10
1
Depreciation for 2019 = × ` 28,500 2,850
10
Depreciation on machinery sold on 30th November, 2019 (` 14,250 + ` 2,850) 17,100
Depreciation 15.13

4. Depreciation for 2019

On Machine II (` 80,000 × 95/100 × 1/10) 7,600
On Machine III (` 30,000 × 95/100 × 1/10) 2,850
On Machine IV (` 90,000 × 95/100 × 1/10) 8,550
19,000

Advanced Level Questions

Illustration 9.
Hopefull Ltd. write off depreciation @ 10% per annum on the diminishing balance. On 1st April, 2016,
the Machinery Account showed a balance of ` 2,98,000. It was discovered in the year 2016–17 that:
(i) Heavy repairs affected to Plant and Machinery (completed on 30th September, 2014) were
debited to Machinery Account. The amount was ` 30,000; and
(ii) A machine costing ` 12,000 was entered in the Purchases Book on 1st January, 2015. The
expenses on installation, ` 800, were debited to General Expenses Account.
Necessary corrections were made in the year 2016–17. On 30th September, 2016 a machine which
had costed ` 40,000 on 1st April, 2014 was sold for ` 29,000 and a new machine costing ` 58,000
was purchased on the same date, the expenses on installing the machine were ` 3,000.
Show the Machinery Account for the year ended 31st March, 2017.
Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `

2016 2016
April 1 To Balance b/d 2,98,000 April 1 By Profit and Loss A/c 25,650
To Gain (Profit) on Sale of Machine A/c 11,232 (Repairs) (WN 1)
(For machine purchased on Sept. 30 By Bank A/c (Sale) 29,000
1st Jan. 2015) (WN 2) By Depreciation A/c (WN 3) 1,620
Sept. 30 To Bank A/c (` 58,000 + ` 3,000) 61,000 (for 6 months)
By Loss on Sale of Machine A/c 1,780
(WN 3)
2017
March 31 By Depreciation A/c (WN 5) 28,168
March 31 By Balance c/d 2,84,014
3,70,232 3,70,232

Working Notes:
1. Calculation of Book Value of Heavy Repairs: `
Machine Account wrongly debited for repairs on 30th September, 2014 30,000
Less: Depreciation for 2014–15 (` 30,000 ×10/100 × 6/12) 1,500
Book Value as on 1st April, 2015 28,500
Less: Depreciation for 2015–16 (` 28,500 × 10/100) 2,850
Book Value as on 1st April, 2016 25,650
Amount credited to Machinery A/c and debited to Profit and Loss A/c
2. Calculation of Book Value of New Machine wrongly entered in the Purchases and Installation Expenses debited
to General Expenses Account: `
Machine purchased on 1st January, 2015 (` 12,000 + ` 800) 12,800
Less: Depreciation for 3 months (2014–15) (` 12,800 × 10/100 × 3/12) 320
Book Value as on 1st April, 2015 12,480
Less: Depreciation for 2015–16 (` 12,480 × 10/100) 1,248
Book Value as on 1st April, 2016 11,232
Amount debited to Machinery A/c and credited to Profit and Loss A/c
15.14 Double Entry Book Keeping—ISC XI

3. Calculation of Profit/Loss on Sale of Machine: `

Cost on 1st April, 2014 40,000
Less: Depreciation for 2014–15 4,000
Book Value on 1st April, 2015 36,000
Less: Depreciation for 2015–16 3,600
Book Value on 1st April, 2016 32,400
Less: Depreciation for 2016–17 for 6 months 1,620
Book Value as on 30th September, 2016 30,780
Less: Sale Price 29,000
Loss on Sale of Machine 1,780

4. Calculation of Book Value of Machinery (other than scrapped) (After Rectification of Errors) As on
1st April 2016: `
Unadjusted Book Value as on 1st April, 2016 2,98,000
Add: Book Value of machine purchased on 1st January, 2015 (WN 2) 11,232
3,09,232
Less: Book Value of repairs wrongly debited to Machinery A/c (WN 1) 25,650
2,83,582
Less: Book Value of Machine Sold (WN 3) 32,400
2,51,182

5. Calculation of Depreciation for 2016–17: `

A. On Old Machine (10% on ` 2,51,182) (WN 4) 25,118
B. On New Machine (` 61,000 ×10/100 × 6/12) 3,050
28,168

Illustration 10.
Gupta & Co. closes its accounts on 31st March, every year. It purchased the machineries as follows:
(i) Purchased machinery costing ` 1,20,000 on 1st July, 2014.
(ii) On 1st October, 2014, some machines purchased costing ` 1,20,000.
(iii) On 1st October, 2015, again purchased some machinery costing ` 20,000.
(iv) On 1st January, 2017, purchased a new machine for ` 60,000.
(v) A machine costing ` 40,000 which was purchased on 1st July, 2014 was sold for ` 12,000
on 1st April, 2016.
1
(vi) It charges depreciation @ 33 % on the Written Down Value Method.
3
(vii) It is the practice to charge depreciation for the full year even if the machinery is used
for a part of the year.
Prepare the Machinery Account in the books of Gupta & Co. for three years ending
31st March, 2017.
Depreciation 15.15

Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `
2014 2015
July 1 To Bank A/c 1,20,000 March 31 By Depreciation A/c 80,000
1
Oct. 1 To Bank A/c 1,20,000 (33 % of ` 2,40,000)
3
March 31 By Balance c/d 1,60,000
2,40,000 2,40,000
2015 2016
April 1 To Balance b/d 1,60,000 March 31 By Depreciation A/c 60,000
1
Oct. 1 To Bank A/c 20,000 (33 % of ` 1,80,000)
3
March 31 By Balance c/d 1,20,000
1,80,000 1,80,000
2016 2016
April 1 To Balance b/d 1,20,000 April 1 By Bank A/c (Sale) 12,000
By Loss on Sale of Machine A/c (WN 1) 5,778
2017 2017
Jan. 1 To Bank A/c 60,000 March 31 By Depreciation A/c (WN 2) 54,074
By Balance c/d 1,08,148
1,80,000 1,80,000

Working Notes:
1. Calculation of Loss on Sale of Machinery: `
Cost of Machinery on 1st July, 2014 40,000
Less: Depreciation for 2014–15 13,333
Book Value on 1st April, 2015 26,667
Less: Depreciation for 2015–16 8,889
Book Value on 1st April, 2016 17,778
Less: Amount realised on Sale 12,000
Loss on Sale of Machinery 5,778
2. Depreciation for 2016–17:
1
33 % on ` 1,62,222 (i.e., ` 1,20,000 + ` 60,000 – ` 17,778) = ` 54,074.
3
Illustration 11.
A company charges depreciation on Plant and Machinery under Written Down Value Method
@ 15% per annum. On 1st April, 2013 the balance in ledger stood at ` 4,60,000. Following
particulars are given relating to Plant and Machinery during the four years ended on
31st March, 2017:
1st September, 2013 : A machine purchased for ` 20,000 (installation expenses ` 1,000) on
1st May, 2011 was fully destroyed in an accident.
1st July, 2014 : Purchased a new machine costing ` 50,000 (installation expenses
` 2,500). A sum of ` 30,000 was paid on the same date and the balance
was paid in May, 2015.
31st August, 2015 : Plant purchased on 1st April, 2012 for ` 30,000 (installation expenses
` 1,500) was disposed off for ` 36,000.
1st November, 2016 : Some old machineries (Book Value on 1st April, 2013—` 10,000) were
sold for ` 4,000.
Show Plant and Machinery Account as it would appear in the books of the company for the four
years ended 31st March, 2017 assuming depreciation is charged even if the asset is sold or destroyed.
15.16 Double Entry Book Keeping—ISC XI

Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `

2013 2013
April 1 To Balance b/d 4,60,000 Sept. 1 By Depreciation A/c (WN 1) 962
By Loss on Accident of Machine A/c 14,434
(WN 1)
2014
March 31 By Depreciation A/c (WN 1) 66,691
[15% on ` 4,44,604 (i.e., ` 4,60,000
– ` 15,396)]
March 31 By Balance c/d 3,77,913
4,60,000 4,60,000
2014 2015
April 1 To Balance b/d 3,77,913 March 31 By Depreciation A/c:
July 1 To Bank A/c (` 30,000 + ` 2,500) 32,500 (` 3,77,913 × 15/100) 56,687
To Creditors for Machine A/c 20,000 (` 52,500 × 15/100 × 9/12) 5,906 62,593
(` 50,000 – ` 30,000) March 31 By Balance c/d 3,67,820
4,30,413 4,30,413
2015 2015
April 1 To Balance b/d 3,67,820 Aug. 31 By Bank A/c (Sale) 36,000
Aug. 31 To Gain (Profit) on Sale of Machine A/c 17,864 By Depreciation A/c (WN 2) 1,209
(WN 2) 2016
March 31 By Depreciation A/c 52,271
[15% on ` 3,48,475 (i.e., ` 3,67,820
– ` 19,345)]
March 31 By Balance b/d 2,96,204
3,85,684 3,85,684
2016 2016
April 1 To Balance b/d 2,96,204 Nov. 1 By Bank A/c (Sale) 4,000
By Depreciation A/c (WN 3) 537
By Loss on Sale of Machine A/c (WN 3) 1,604
2017
March 31 By Depreciation A/c 43,509
[15% on ` 2,90,063 (i.e., ` 2,96,204
– ` 6,141)] (WN 3)
March 31 By Balance c/d 2,46,554
2,96,204 2,96,204

Working Notes:
1. Calculation of Loss on Accident: `
Cost on 1st May, 2011 (` 20,000 + ` 1,000) 21,000
Less: Depreciation for 11 months (` 21,000 × 15/100 × 11/12) 2,887
Book Value on 1st April, 2012 18,113
Less: Depreciation for 2012–13 2,717
Book Value on 1st April, 2013 15,396
Less: Depreciation for 5 months (` 15,396 × 15/100 × 5/12) 962
Loss on Accident 14,434
Depreciation 15.17

2. Calculation of Profit on Sale of Machinery on 31st August, 2015: `

Cost on 1st April, 2012 (` 30,000 + ` 1,500) 31,500
Less: Depreciation for 2012–13 4,725
Book Value on 1st April, 2013 26,775
Less: Depreciation for 2013–14 4,016
Book Value on 1st April, 2014 22,759
Less: Depreciation for 2014–15 3,414
Book Value on 1st April, 2015 19,345
Less: Depreciation for 5 Months (` 19,345 × 5/12 × 15/100) 1,209
Book Value on 31st August, 2015 18,136
Less: Amount realised on sale 36,000
Gain (Profit) on Sale of Machinery 17,864

3. Calculation of Loss on Sale of Machinery on 1st November, 2016: `

Book Value on 1st April, 2013 10,000
Less: Depreciation for 2013–14 1,500
Book Value on 1st April, 2014 8,500
Less: Depreciation for 2014–15 1,275
Book Value on 1st April, 2015 7,225
Less: Depreciation for 2015–16 1,084
Book Value on 1st April, 2016 6,141
Less: Depreciation for 7 months (` 6,141 × 7/12 × 15/100) 537
Book Value on 1st November, 2016 5,604
Less: Amount realised on Sale 4,000
Loss on Sale of Machinery 1,604

Illustration 12.
A firm imported a machine on 1st October, 2016 for ` 2,00,000, paid custom duty and
freight ` 40,000 and incurred erection charges ` 60,000. Another machinery costing
` 1,00,000 was purchased from the local market on 1st April, 2017. On 1st October, 2018,
one-third of the imported machinery got out of order and was sold for ` 40,000. Another
machinery was purchased to replace the same for ` 50,000 on the same date. Depreciation is
to be charged at 20% per annum on the cost following Straight Line Method.
Accounts are closed each year on 31st March. You are required to show:
(i) Machinery Account for 2016–17, 2017–18 and 2018–19.
(ii) Machinery Account and Provision for Depreciation Account for 2016–17, 2017–18 and
2018–19.
Solution: (i) When only Machinery Account is prepared:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `
2016 2017
Oct. 1 To Bank A/c (Purchase Price) (M1) 2,00,000 March 31 By Depreciation A/c 30,000
Oct. 1 To Bank A/c (Freight) (M1) 40,000 (` 3,00,000 × 20/100 × 6/12)
Oct. 1 To Bank A/c (Erection Charges) (M1) 60,000 March 31 By Balance c/d 2,70,000
3,00,000 3,00,000
15.18 Double Entry Book Keeping—ISC XI

2017 2018
April 1 To Balance b/d 2,70,000 March 31 By Depreciation A/c:
April 1 To Bank A/c (Purchase) (M2) 1,00,000 M1 60,000
M2 20,000 80,000
March 31 By Balance c/d:
M1 (` 2,70,000 – ` 60,000) 2,10,000
M2 (` 1,00,000 – ` 20,000) 80,000 2,90,000
3,70,000 3,70,000
2018 2018
April 1 To Balance b/d: Oct. 1 By Bank A/c (Sale) 40,000
M1 2,10,000 By Depreciation A/c 10,000
M2 80,000 2,90,000 (1/3 × ` 3,00,000 × 20/100 × 6/12)
Oct. 1 To Bank A/c (M3) 50,000 By Loss on Sale of Machine A/c 20,000
(Purchase) (` 2,10,000 × 1/3) – (` 40,000
+ ` 10,000)
2019
March 31 By Depreciation A/c:
M1 40,000
M2 20,000
M3 (For 6 Months) 5,000 65,000
March 31 By Balance c/d:
M1 (` 1,40,000 – ` 40,000) 1,00,000
M2 (` 80,000 – ` 20,000) 60,000
M3 (` 50,000 – ` 5,000) 45,000 2,05,000
3,40,000 3,40,000
2019
April 1 To Balance b/d 2,05,000

(ii) When Machinery Account and Provision for Depreciation Account are prepared:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `
2016 2017
Oct. 1 To Bank A/c (Purchase Price) (M1) 2,00,000 March 31 By Balance c/d 3,00,000
To Bank A/c (Freight) (M1) 40,000
To Bank A/c (Installation Cost) (M1) 60,000
3,00,000 3,00,000
2017 2018
April 1 To Balance b/d 3,00,000 March 31 By Balance c/d 4,00,000
April 1 To Bank A/c (M2) 1,00,000
4,00,000 4,00,000
2018 2018
April 1 To Balance b/d 4,00,000 Oct. 1 By Bank A/c (Sale) 40,000
Oct. 1 To Bank A/c (M3) 50,000 By Provision for Depreciation A/c 40,000
By Loss on Sale of Machine A/c 20,000
2019
March 31 By Balance c/d 3,50,000
4,50,000 4,50,000
Depreciation 15.19

Dr. PROVISION FOR DEPRECIATION ACCOUNT Cr.

Date Particulars ` Date Particulars `
2017 2017
March 31 To Balance c/d 30,000 March 31 By Depreciation A/c (M1) 30,000
2018 2017
March 31 To Balance c/d: April 1 By Balance b/d 30,000
M1 90,000 2018
M2 20,000 1,10,000 March 31 By Depreciation A/c:
M1 60,000
M2 20,000 80,000
1,10,000 1,10,000
2018 2018
Oct. 1 To Machinery A/c 40,000 April 1 By Balance b/d 1,10,000
[(` 90,000 × 1/3) + (` 10,000)] Oct. 1 By Depreciation A/c 10,000
2019 2019
March 31 To Balance c/d: March 31 By Depreciation A/c:
M1 1,00,000 M1 40,000
M2 40,000 M2 20,000
M3 5,000 1,45,000 M3 5,000 65,000
1,85,000 1,85,000
2019
April 1 By Balance b/d 1,45,000

Unsolved Questions
1. An asset was purchased for ` 10,500 on 1st April, 2013. The scrap value was estimated to be ` 500 at the
end of its estimated useful life of 10 years. Straight Line Method of depreciation was used. The accounting
year ends on 31st March every year. The asset was sold for ` 600 on 31st March, 2020. Calculate:
(i) the depreciation expense for the year ended 31st March, 2014.
(ii) the net book value of the asset on 31st March, 2018.
(iii) the gain or loss on sale of the asset on 31st March, 2020.
2. X Ltd. imported a machine on 1st October, 2017 for ` 2,00,000, paid customs duty and freight ` 60,000
and incurred erection charges of ` 40,000. Another local machinery costing ` 1,00,000 was purchased on
1st April, 2018. On 1st October, 2019, one-third of the imported machine got out of order and was
sold for ` 40,000. Another machine was purchased to replace the same for ` 50,000 on the same date.
Depreciation is to be calculated @ 20% p.a. following Straight Line Method. Accounts are closed every year
on 31st March.
Show Machinery Account and Provision for Depreciation Account for 2017–18, 2018–19 and 2019–20.

GUIDE TO ANSWERS

1. (i) Depreciation Expense for the year ended 31st March, 2014—` 1,000; (ii) Net Book Value on 31st March,
2018—` 5,500; (iii) Loss on Sale of Asset on 31st March, 2020—` 2,900.
2. Balance of Machinery A/c (31st March, 2020)—` 3,50,000; Provision for Depreciation A/c (31st March, 2020)—
` 1,45,000 (M I—` 1,00,000, M II—` 40,000; M III—` 5,000); Loss on Sale of Machinery—` 20,000.
 CHAPTER
16
Provisions and Reserves
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Provision Provision is an amount set aside by charging it to profit to meet a

known liability, amount of which is not determined and is accounted
by making best estimate.

2. Reserve It is an amount set aside out of profit to meet an unknown contingency

or to strengthen the financial position.

3. Revenue Reserve It is the amount of reserve set aside out of revenue profit.

4. Capital Reserve It is the amount of capital profit transferred to Capital Reserve.

5. General Reserve It is the amount set aside out of profit not for any specific purpose.

6. Specific Reserve It is the amount set aside out of profit for a specific purpose, say,
Reserve for Expansion.

7. Secret Reserve It is a reserve which is not disclosed in the Balance Sheet.

8. Reserve Fund Amount of reserve invested outside the business, i.e., reserves
against which securities exist is termed as ‘Reserve Fund’.

CHAPTER SUMMARY

• Provision is made to meet known liability or contingent liability but the exact amount of which is not
ascertained.
• Reserve is an amount set aside out of profits to meet future contingencies or to strengthen the financial
position of the enterprise. Examples of reserves are: General Reserve, Reserve for Expansion, Dividend
Equalisation Reserve, etc.
• Reserves may be (i) Revenue Reserves or (ii) Capital Reserves:
(i) Revenue Reserves are created out of revenue profits available for distribution as dividend. Examples are:
General Reserve, Debentures Redemption Reserve, Dividend Equalisation Reserve, etc.
(ii) Capital Reserves are created out of capital profits. Examples are: Profit prior to incorporation, Profit on
sale of fixed assets, etc.
• Secret Reserve: The term ‘Secret Reserve’ is applied to a reserve the existence of which does not appear
in the Balance Sheet. It is also called ‘Hidden Reserve’.
 CHAPTER
17
Bill of Exchange
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Bill of Exchange It is a written instrument directing a person to pay the amount specified
in the bill to or to the order of specified person or to the bearer of the
instrument.
2. Promissory Note It is an instrument in writing being an undertaking by the maker to
pay the specified sum of money to or to the order of certain person
or to the bearer of the instrument.
3. Trade Bill It is the bill drawn and accepted for a business transaction.
4. Drawer The maker of a bill of exchange is known as the drawer.
5. Drawee The person on whom the bill is drawn and is thereby directed to
pay is known as the drawee.
6. Maker Maker is the person who makes the Promissory Note.
7. Payee Payee is the person named in the bill of exchange to whom the
amount is payable.
8. Cheque A cheque is an unconditional order, drawn upon a specified banker,
signed by the maker, directing the bank to pay on demand a certain
sum of money only to or to the order of a person or to the bearer
of the instrument.
9. Endorsement It means transfer of the instrument (bill or promissory note or
cheque) to another person.
10. Endorser The person who endorses the instrument is called the endorser.
11. Endorsee The person in whose favour the instrument is endorsed is called
the endorsee.
12. Tenor or Tenure of Bill The period in between the dates of drawing the bill and when it
becomes due for payment.
13. Date of Maturity The date on which the bill becomes due for payment.
14. Days of Grace A period of three days post date of maturity. It is a practice to add
the days of grace.
15. Honouring the Bill It means meeting the obligation to pay.
16. Dishonour of Bill A situation when the instrument (Bill) is not paid by the drawee on
the date of maturity.
17. Retirement of Bill It means that the drawee pays the bill before it becomes due
for payment.
18. Renewal of Bill It means replacement of the instrument with a new instrument with
the consent of the holder.
17.2 Double Entry Book Keeping—ISC XI

19. Discounting of Bill It means taking amount from the bank before the instrument (Bill)
becomes due for payment. Bank charges some amount called
Discounting Charges, for making the payment before due date.
20. Noting of a Bill It is a process by which the bill is presented for payment through a
Notary Public. Notary Public makes a noting to the effect that bill is
dishonoured.
21. Noting Charges Charges paid to the notary public on the dishonour of a bill to record
the facts of dishonour.

CHAPTER SUMMARY

• When a seller sells goods to a customer on credit, the customer or debtor gives a bill of exchange
duly accepted by him or a promissory note to the seller or creditor. This is known as Bill Receivable
because the creditor will get payment on this bill on maturity. From the debtor’s point of view, it is called
Bill Payable because he has to make the payment to the creditor.
• Bill of Exchange is an instrument in writing, containing an unconditional order, signed by the maker,
directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to
the bearer of the instrument.
• Parties to the Bill of Exchange are:
(i) The Drawer—the party who makes the bill.
(ii) The Drawee—the party who accepts the bill.
(iii) The Payee—the party to whom the amount is to be paid.
• Types of Bill of Exchange are:
(i) Trade Bill—a bill drawn and accepted for a business transaction.
(ii) Accommodation Bill—a bill drawn and accepted for mutual help.
• Advantages of Bill of Exchange are:
(i) Purchases and sales of goods can be made on credit.
(ii) Funds can be made available by discounting the bill.
(iii) Recovery of dues is easier, in case bill is dishonoured.
(iv) Bill can be endorsed in settlement of dues.
(v) Receipt of payment is certain.
(vi) Convenient means of remittance.
(vii) It is a valid evidence of debt.
• The date on which the term of the bill expires is called as Due Date of the Bill.
• The date which comes after adding three days to the due date of a bill, is called the date of maturity.
• Promissory Note is an instrument in writing (not being a bank note or a currency note) containing an
unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of
a certain person or to the bearer of the instrument.
• Parties to the Promissory Note are:
(i) The Maker—the party who makes the note.
(ii) The Payee—the party to whom the amount is to be paid.
• Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than
on demand and includes the electronic image of a truncated cheque and a cheque in the electronic form.
• Parties to the Cheque are:
(i) The Drawer—the party who makes the cheque.
(ii) The Drawee—the banker on whom the cheque is drawn and is directed to pay the amount of the cheque.
(iii) The Payee—the party to whom the amount of the cheque is to be paid.
Summary of accounting entries for Bill of Exchange is given on next page.
 ACCOUNTING ENTRIES FOR BILLS OF EXCHANGE (B/E) AT A GLANCE

Transactions In the Books of the Drawer In the Books of the

When the B/E is When the B/E is When the B/E is When the B/E is Drawee (Acceptor)
Retained Discounted Endorsed Sent to Bank for
Bill of Exchange

Collection

1. Sale of Goods on credit Debtor’s A/c ...Dr. Debtor’s A/c ...Dr. Debtor’s A/c ...Dr. Debtor’s A/c ...Dr. Purchases A/c ...Dr.
To Sales A/c To Sales A/c To Sales A/c To Sales A/c To Creditor’s A/c

2. Drawing of Bill of No Entry

Exchange

3. Acceptance of Bill of Bills Receivable A/c ...Dr. Bills Receivable A/c ...Dr. Bills Receivable A/c ...Dr. Bills Receivable A/c ...Dr. Drawer’s A/c ...Dr.
Exchange by the Debtor To Acceptor’s A/c To Acceptor’s A/c To Acceptor’s A/c To Acceptor’s A/c To Bills Payable A/c
(Debtor’s A/c) (Debtor’s A/c) (Debtor’s A/c) (Debtor’s A/c)

4. Treatment of Bills No Entry Bank A/c ...Dr. Endorsee’s A/c ...Dr. Bills Sent for No Entry
Discounting Charges A/c ...Dr. To Bills Receivable A/c Collection A/c ...Dr.
To Bills Receivable A/c To Bills Receivable A/c

5. Bill of Exchange is Cash/Bank A/c ...Dr. No Entry No Entry Bank A/c ...Dr. Bills Payable A/c ...Dr.
met on Due Date. To Bills Receivable A/c To Bills Sent for To Cash/Bank A/c
Collection A/c

6. Dishonour of a Bill of
Exchange on Due Date
(a) If Noting Charges Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Bills Payable A/c ...Dr.
(N.C) are not Incurred. To Bills Receivable A/c To Bank A/c To Endorsee’s A/c To Bills Sent for To Drawer’s A/c
Collection A/c
(b) If Noting Charges Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Bills Payable A/c ...Dr.
(N.C) are Incurred. (By Amount of B/R + N.C) (By Amount of B/R + N.C) (By Amount of B/R + N.C) (By Amount of B/R + N.C) Noting Charges A/c ...Dr.
To Bills Receivable A/c To Bank A/c To Endorsee’s A/c To Bills Sent for To Drawer’s A/c
To Cash A/c Collection A/c
To Cash/Bank A/c
17.3
 7. Retirement of a Bill of Cash A/c or No Entry No Entry No Entry Bills Payable A/c ...Dr.
17.4

Exchange under a Bank A/c ...Dr. To Cash/Bank A/c

Rebate before Due Date Rebate A/c ...Dr. To Rebate A/c
To Bills Receivable A/c

8. Renewal of a B/E
(a) Cancellation of Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Bills Payable A/c ...Dr.
old B/E To Bills Receivable A/c To Bank A/c To Endorsee’s A/c To Bills Sent for To Drawer’s A/c
Collection A/c
(b) Part Payment by Cash A/c ...Dr. Cash A/c ...Dr. Cash A/c ...Dr. Cash A/c ...Dr. Drawer’s A/c ...Dr.
the Drawee To Acceptor’s A/c To Acceptor’s A/c To Acceptor’s A/c To Acceptor’s A/c To Cash A/c
(c) Interest Charged Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Interest A/c ...Dr.
to Drawee To Interest A/c To Interest A/c To Interest A/c To Interest A/c To Drawer’s A/c
(d) Acceptance of Bills Receivable A/c ...Dr. Bills Receivable A/c ...Dr. Bills Receivable A/c ...Dr. Bills Receivable A/c ...Dr. Drawer’s A/c ...Dr.
New B/E To Acceptor’s A/c To Acceptor’s A/c To Acceptor’s A/c To Acceptor’s A/c To Bills Payable A/c

9. Treatment of a No Entry Bank A/c ...Dr. Endorsee’s A/c ...Dr. Bills Sent for No Entry
New Bill Discounting Charges A/c ...Dr. To Bills Receivable A/c Collection A/c ...Dr.
To Bills Receivable A/c To Bills Receivable A/c

10. Insolvency of the

Drawee
(a) Dishonour of Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Acceptor’s A/c ...Dr. Bills Payable A/c ...Dr.
New B/E To Bills Receivable A/c To Bank A/c To Endorsee’s A/c To Bills Sent for To Acceptor’s A/c
Collection A/c
(b) Receipt of Amount Cash A/c ...Dr. Cash A/c ...Dr. Cash A/c ...Dr. Cash A/c ...Dr. Drawer’s A/c ...Dr.
from the Acceptor Bad Debts A/c ...Dr. Bad Debts A/c ...Dr. Bad Debts A/c ...Dr. Bad Debts A/c ...Dr. To Cash A/c
To Acceptor’s A/c To Acceptor’s A/c To Acceptor’s A/c To Acceptor’s A/c To Deficiency A/c
   Or
Profit and Loss A/c

*Always Remember—When bill is dishonoured:

• In the books of Drawer: Acceptor’s Account is always debited with the total amount, i.e., the amount of the dishonoured bill plus noting charges (if any
incurred).
• In the Books of Drawee (Acceptor): Drawer’s Account is always credited with the total amount, i.e., the amount of the dishonouored bill plus noting charges
(if any incurred).
Double Entry Book Keeping—ISC XI
Bill of Exchange 17.5

Solved Questions
Illustration 1.
On 1st January, 2019, A received ` 25,000 in cash and two bills for ` 45,000 and ` 30,000 for
2 months each from B, duly accepted by the latter, against sale proceeds. The first bill was
endorsed to C in settlement of his account ` 45,500 and the second bill discounted from bank
@ 12% p.a. on the date of acceptance of bills. Both the bills were dishonoured on due date. C
has paid ` 100 and the bank has paid ` 80 as noting charges. B paid ` 20,000 and noting charges
in cash and accepted a new bill for balance at 3 months. The interest on balance @ 18% p.a.
was paid in cash.
On due date of the new bill, B became insolvent and no amount was recovered from his estate.
Pass Journal entries in the books of the Drawer and Drawee.

Solution: In the Books of A (Drawer)

JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2019
Jan. 1
B ...Dr. 1,00,000
To Sales A/c 1,00,000
(Being the goods sold to B)
Jan. 1 Cash A/c ...Dr. 25,000
Bills Receivable (I) A/c ...Dr. 45,000
Bills Receivable (II) A/c ...Dr. 30,000
To B 1,00,000
(Being the cash and acceptance for bills received)
Jan. 1
C ...Dr. 45,500
To Bills Receivable (I) A/c 45,000
To Discount Received A/c 500
(Being the bills receivable (I) endorsed to C in full settlement)
Jan. 1 Bank A/c ...Dr. 29,400
Discounting Charges A/c (` 30,000 × 12/100 × 2/12) ...Dr. 600
To Bills Receivable (II) A/c 30,000
(Being the bills receivable (II) discounted @ 12% p.a.)
March 4 B ...Dr. 45,100
Discount Received A/c ...Dr. 500
To C 45,600
(Being the bill for ` 45,000 dishonoured at maturity and
` 100 paid as noting charges)
March 4 B ...Dr. 30,080
To Bank A/c 30,080
(Being the amount of dishonoured bill and noting charges ` 80
debited to the drawee)
March 4 Cash A/c (` 20,000 + ` 100 + ` 80) ...Dr. 20,180
To B 20,180
(Being the cash received from B)
17.6 Double Entry Book Keeping—ISC XI

March 4 Cash A/c ...Dr. 2,475

To Interest A/c (` 55,000 × 18/100 × 3/12) 2,475
(Being the interest received)
March 4 Bills Receivable (III) A/c ...Dr. 55,000
To B 55,000
(Being the new bill accepted)
June 7 B ...Dr. 55,000
To Bills Receivable (III) A/c 55,000
(Being the bills receivable (III) dishonoured)
June 7 Bad Debts A/c ...Dr. 55,000
To B 55,000
(Being the amount due from B becoming irrecoverable)

In the Books of B (Drawee)

JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2019
Jan. 1 Purchases A/c ...Dr. 1,00,000
To A 1,00,000
(Being the purchases made from A)
Jan. 1
A ...Dr. 1,00,000
To Bills Payable (1) A/c 45,000
To Bills Payable (2) A/c 30,000
To Cash A/c 25,000
(Being the two acceptances given for total ` 75,000 and balance
paid in cash)
March 4 Bills Payable (1) A/c ...Dr. 45,000
Noting Charges A/c ...Dr. 100
To A 45,100
(Being the bill payable (1) dishonoured on due date)
March 4 Bills Payable (2) A/c ...Dr. 30,000
Noting Charges A/c ...Dr. 80
To A 30,080
(Being the bill payable (2) dishonoured)
March 4 A ...Dr. 20,180
To Cash A/c 20,180
(Being the part payment made along with noting charges)
March 4 Interest A/c ...Dr. 2,475
To Cash A/c 2,475
(Being the interest paid to A)
March 4 A ...Dr. 55,000
To Bills Payable (3) A/c 55,000
(Being the bill accepted for the balance amount)
June 7 Bills Payable (3) A/c ...Dr. 55,000
To A 55,000
(Being the bills payable (3) dishonoured on due date)
June 7 A ...Dr. 55,000
To Deficiency or Profit and Loss A/c 55,000
(Being the amount of unpaid bill transferred)
Bill of Exchange 17.7

Illustration 2.
On 12th February, 2019, X sold goods for ` 6,000 to Y. On 15th February, 2019, X drew three
bills of exchange worth ` 3,000, ` 2,000 and ` 1,000 payable after 3 months, 2 months and
1 month respectively. Y accepted all the bills and returned them to X immediately. X discounted
the first bill on 15th March, 2019 @ 10% p.a. with his bank. He endorsed the second bill to Z
on 20th February, 2019. He retained the third bill till maturity.
Y met the third bill on due date but dishonoured the first and the second bills. Noting charges
amounting to ` 25 for each of these two bills were incurred.
Y was declared insolvent and could pay only 50 paise in a rupee on 30th May, 2019 in
full settlement.
Pass Journal entries in the books of X and Y.

Solution:

JOURNAL OF X
Date Particulars L.F. Dr. (`) Cr. (`)

2019
Feb. 12 Y ...Dr. 6,000
To Sales A/c 6,000
(Being the goods sold to Y on credit)

Feb. 15 Bills Receivable (I, II & III) A/c ...Dr. 6,000

To Y 6,000
(Being the bills for ` 3,000, ` 2,000 and ` 1,000 accepted by

Y payable after 3 months, 2 months and 1 month respectively)

Feb. 20 Z ...Dr. 2,000

To Bills Receivable (II) A/c 2,000
(Being the bills receivable endorsed)

March 15 Bank A/c ...Dr. 2,947

Discounting Charges A/c ...Dr. 53
To Bills Receivable (I) A/c 3,000
(Being the bill receivable discounted with the bank and discounting
charges recorded)

March 18 Bank A/c ...Dr. 1,000

To Bills Receivable (III) A/c 1,000
(Being the bill held till maturity paid by the drawee)
17.8 Double Entry Book Keeping—ISC XI

April 18 Y ...Dr. 2,025

To Z 2,025
(Being the bill endorsed to Z returned dishonoured and noting
charges incurred by Z)

May 18 Y ...Dr. 3,025

To Bank A/c 3,025
(Being the bill discounted with the bank returned dishonoured and
noting charges incurred by bank)

May 30 Bank A/c ...Dr. 2,525

Bad Debts A/c ...Dr. 2,525
To Y 5,050
(Being 50% of the amount due from Y received and the balance
written off as bad debts)

Note: Banker’s discounting charge has been calculated for 64 days (March—16 days, April—30 days and
May—18 days).

JOURNAL OF Y
Date Particulars L.F. Dr. (`) Cr. (`)

2019
Feb. 12 Purchases A/c ...Dr. 6,000
To X 6,000
(Being the goods purchased from X on credit)

Feb. 15 X ...Dr. 6,000

To Bills Payable (I, II & III) A/c 6,000
(Being the bills for ` 3,000, ` 2,000 and ` 1,000 accepted in favour
of X payable after 3 months, 2 months and 1 month respectively)

March 18 Bills Payable (III) A/c ...Dr. 1,000

To Bank A/c 1,000
(Being the bill for ` 1,000 paid at maturity)

April 18 Bills Payable (II) A/c ...Dr. 2,000

Noting Charges A/c ...Dr. 25
To X 2,025
(Being the bill for ` 2,000 not paid at maturity and noting
charges payable)

May 18 Bills Payable (I) A/c ...Dr. 3,000

Noting Charges A/c ...Dr. 25
To X 3,025
(Being the bill for ` 3,000 not paid at maturity and noting
charges payable)

May 30 X ...Dr. 5,050

To Bank A/c 2,525
To Deficiency or Profit and Loss A/c 2,525
(Being 50% of the amount due to X paid and the balance transferred
to Deficiency or Profit and Loss Account)
Bill of Exchange 17.9

Illustration 3.
In the books of A there was a balance of ` 20,000 due from B on 31st March, 2019, which was
written off as bad debts in closing of the books on that date. On 10th July, 2019, B paid cash
` 18,000 in full and final settlement of his dues.
Further transactions took place between A and B as follows:
2019
Aug. 5 A sold goods to B valued at ` 25,000 which were paid by cheque ` 4,000 and a bill of
exchange for ` 21,000 at 1 month. A discounted the bill of exchange at the bank for ` 20,800.
Sept. 8 B’s bill was dishonoured and A was called upon to take it up. This he did by paying
noting charges of ` 100.
Sept. 9 B met his obligation for ` 21,000 with a bill at 2 months for the same amount, paid
cash for noting charges on the old bill and interest of ` 200 on the new bill.
Nov. 12 B met his bill by paying cash ` 11,000 and accepted a fresh bill at 2 months for
` 10,400 including interest.
Dec. 12 B having became insolvent paid final dividend of 40 paise in a rupee.
Show Journal entries in the books of A and necessary Ledger accounts in the books of B.

Solution: JOURNAL OF A
Date Particulars L.F. Dr. (`) Cr. (`)
2019
March 31 Bad Debts A/c ...Dr. 20,000
To B 20,000
(Being the amount due from B written off as bad debts)
March 31 Profit and Loss A/c ...Dr. 20,000
To Bad Debts A/c 20,000
(Being the bad debts transferred to Profit and Loss Account)
July 10 Cash A/c ...Dr. 18,000
To Bad Debts Recovered A/c 18,000
(Being the recovery of bad debts from B in full settlement of ` 20,000)
Aug. 5 B ...Dr. 25,000
To Sales A/c 25,000
(Being the goods sold)
Aug. 5 Bank A/c ...Dr. 4,000
Bills Receivable A/c ...Dr. 21,000
To B 25,000
(Being the receipt of a cheque for ` 4,000 and a bill of ` 21,000 from B)
Aug. 5 Bank A/c ...Dr. 20,800
Discounting Charges A/c ...Dr. 200
To Bills Receivable A/c 21,000
(Being the bill discounted with the banker for ` 20,800)
Sept. 8 B ...Dr. 21,100
To Bank A/c 21,100
(Being the bill dishonoured at maturity and noting charges paid ` 100)
Sept. 9 B ...Dr. 200
To Interest A/c 200
(Being the interest charged for the dishonour of bill)
17.10 Double Entry Book Keeping—ISC XI

Sept. 9 Cash A/c ...Dr. 300

To B 300
(Being the interest and noting charges paid by B in cash)
Sept. 9 Bills Receivable A/c ...Dr. 21,000
To B 21,000
(Being the new bill drawn on B for 2 months)
Nov. 12 B ...Dr. 21,000
To Bills Receivable A/c 21,000
(Being the bill cancelled for renewal)
Nov. 12 Cash A/c ...Dr. 11,000
To B 11,000
(Being the part payment received from B)
Nov. 12 B ...Dr. 400
To Interest A/c 400
(Being the interest charged on B for renewal of the bill)
Nov. 12 Bills Receivable A/c ...Dr. 10,400
To B 10,400
(Being a new bill drawn on B for 2 months)
Dec. 12 B ...Dr. 10,400
To Bills Receivable A/c 10,400
(Being the bill dishonoured due to insolvency of B)
Dec. 12 Bank A/c ...Dr. 4,160
Bad Debts A/c ...Dr. 6,240
To B 10,400
(Being 40% of the amount due from B received on final settlement)
In the Books of B
Dr. A’S ACCOUNT Cr.
Date Particulars ` Date Particulars `
2019 2019
March 31 To Balance c/d 20,000 March 31 By Balance b/d 20,000
2019 2019
July 10 To Cash/Bank A/c 18,000 April 1 By Balance b/d 20,000
July 10 To Discount Received A/c 2,000
20,000 20,000
2019 2019
Aug. 5 To Bank A/c 4,000 Aug. 5 By Purchases A/c 25,000
Aug. 5 To Bills Payable A/c 21,000 Sep. 8 By Bills Payable A/c 21,000
Sep. 9 To Cash A/c (` 100 + ` 200) 300 Sep. 8 By Noting Charges A/c 100
Sep. 9 To Bills Payable A/c 21,000 Sep. 9 By Interest A/c 200
Nov. 12 To Cash A/c 11,000 Nov. 12 By Bills Payable A/c 21,000
Nov. 12 To Bills Payable A/c 10,400 Nov. 12 By Interest A/c 400
Dec. 12 To Cash A/c 4,160 Dec. 12 By Bills Payable A/c 10,400
Dec. 12 To Deficiency A/c 6,240
78,100 78,100

Dr. BILLS PAYABLE ACCOUNT Cr.

Date Particulars ` Date Particulars `
2019 2019
Sept. 8 To A 21,000 Aug. 5 By A 21,000
Nov. 12 To A 21,000 Sep. 9 By A 21,000
Dec. 12 To A 10,400 Nov. 12 By A 10,400
52,400 52,400
Bill of Exchange 17.11

Dr. DISCOUNT RECEIVED ACCOUNT Cr.

Date Particulars ` Date Particulars `
2020 2019
March 31 To Profit and Loss A/c 2,000 July 10 By A 2,000

Dr. NOTING CHARGES ACCOUNT Cr.

Date Particulars ` Date Particulars `
2019 2020
Sept. 8 To A 100 March 31 By Profit and Loss A/c 100

Dr. INTEREST ACCOUNT Cr.

Date Particulars ` Date Particulars `
2019 2020
Sept. 9 To A 200 March 31 By Profit and Loss A/c 600
Nov. 12 To A 400
600 600

Dr. DEFICIENCY ACCOUNT Cr.

Date Particulars ` Date Particulars `
2020 2019
March 31 To Profit and Loss A/c 6,240 Dec. 12 By A 6,240

Illustration 4.
On 1st January, 2019, Gaurav drew on Chetan three Bills of Exchange in full settlement of claim.
The first ` 14,000 at one month, the second for ` 16,000 at two months and the third for ` 18,000
at three months. The bills were duly accepted by Chetan.
The first bill was endorsed by Gaurav to his creditor Tarun on 3rd January, 2019, the second bill was
discounted on 15th January, 2019, for ` 15,900 and the third bill was sent to Bank for collection
on 4th February 2019. All the bills were duly met on maturity except the second bill which was
dishonoured, noting charges being ` 240. Gaurav charged Chetan ` 300 for interest and drew on
him a fourth bill for two months for the amount due. The fourth bill was duly met on maturity.
Pass Journal entries in the books of Gaurav.
Solution: In the Books of Gaurav
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2019
Jan. 1 Bills Receivable A/c ...Dr. 48,000
To Chetan 48,000
(Being the three bills received from Chetan: No. I for ` 14,000 at one month,
No. II for ` 16,000 at two months and No. III for ` 18,000 at three months)
Jan. 3 Tarun ...Dr. 14,000
To Bills Receivable A/c 14,000
(Being the Bill No. I endorsed to Tarun, a creditor)
Jan. 15 Bank A/c ...Dr. 15,900
Discounting Charges A/c ...Dr. 100
To Bills Receivable A/c 16,000
(Being the Bill No. II discounted from Bank)
17.12 Double Entry Book Keeping—ISC XI

Feb. 4 Bills Sent for Collection A/c ...Dr. 18,000

To Bills Receivable A/c 18,000
(Being the Bill No. III sent to bank for collection)
March 4 Chetan ...Dr. 16,240
To Bank A/c 16,240
(Being the Bill No. II dishonoured, noting charges ` 240)
March 4 Chetan ...Dr. 300
To Interest A/c 300
(Being the Interest for 2 months charged to Chetan)
March 4 Bills Receivable A/c ...Dr. 16,540
To Chetan 16,540
(Being the Bill No. IV received from Chetan at two months)
April 4 Bank A/c ...Dr. 18,000
To Bills Sent for Collection A/c 18,000
(Being the Bill No. III collected by Bank)
May 7 Bank/Cash A/c ...Dr. 16,540
To Bills Receivable A/c 16,540
(Being the amount of Bill No. IV collected on matuirty)

Illustration 5.
Anil draws a bill of exchange on Bindu for goods supplied, for ` 10,000 dated 1st January at
three months. Bindu accepts the bill and thereafter on 4th January Anil discounts it with his
bank at 8 per cent per annum. The bill is dishonoured on presentation on the due date and the
bankers debit Anil with ` 20 noting expenses in addition to the value of the bill. Bindu pays
Anil cash ` 5,000 on 5th April and simultaneously accepts a fresh bill for the balance due by
him, including ` 300 for interest and noting expenses on the first bill. The bill is paid in time.
Journalise the above transactions in the books of Anil and Bindu.

Solution: In the Books of Anil

JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
Jan. 1 Bills Reveivable A/c ...Dr. 10,000
To Bindu 10,000
(Being the Bill accepted by Bindu for goods)
Jan. 4 Bank A/c ...Dr. 9,800
Discounting Charges A/c ...Dr. 200
To Bills Receivable A/c 10,000
(Being the discounting of Bindu’s Bill)
April 4 Bindu ...Dr. 10,020
To Bank A/c 10,020
(Being the dishonour of Bindu’s acceptance on presentation by the
Bank and the Noting Charge ` 20 incurred by Bank)
April 5 Bank A/c ...Dr. 5,000
To Bindu 5,000
(Being the part payment by Bindu against the bill dishonoured)
April 5 Bindu ...Dr. 300
To Interest A/c 300
(Being the interest charged in consideration of accepting a new bill)
Bill of Exchange 17.13

April 5 Bills Receivable A/c ...Dr. 5,320

To Bindu 5,320
(Being the Bill accepted by Bindu against dues of Bill together with
noting charges of ` 20 and interest of ` 300)
Bank A/c ...Dr. 5,320
To Bills Receivable A/c 5,320
(Being the cash received)

In the Books of Bindu

JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
Jan. 1 Anil ...Dr. 10,000
To Bills Payable A/c 10,000
(Being the acceptance of Anil’s bill given against purchase of goods)
April 4 Bills Payable A/c ...Dr. 10,000
Noting Charges A/c ...Dr. 20
To Anil 10,020
(Being the dishonour of Anil’s bill and ` 20 noting charges incurred by Anil)
April 5 Anil ...Dr. 5,000
To Bank A/c 5,000
(Being the part payment against dishonour of Anil’s bill)
April 5 Interest A/c ...Dr. 300
To Anil 300
(Being the interest payable for renewal of bill)
April 5 Anil ...Dr. 5,320
To Bills Payable A/c 5,320
(Being the acceptance of a bill against the dues of bill cancelled together
with noting charges and interest)
Bills Payable A/c ...Dr. 5,320
To Bank A/c 5,320
(Being the payment of Anil’s Bill)

Illustration 6.
Journalise the following transactions in the books of Ravi:
(i) Ravi’s acceptance to Dinesh for ` 10,000 renewed at 3 months on the condition that
` 2,000 be paid in cash immediately and the remaining amount will carry interest @ 10% p.a.
(ii) Ravi’s acceptance to Shyam for ` 5,000 is retired before the due date, rebate received
being ` 200.
(iii) Ravi gets Govinda’s acceptance for ` 12,000 at 2 months discounted at 12% p.a. Later, the
bill is dishonoured on the due date and the bank pays ` 50 as noting charges.

Solution: In the Books of Ravi

JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Bills Payable A/c ...Dr. 10,000
To Dinesh 10,000
(Being the bill cancelled for renewal)
17.14 Double Entry Book Keeping—ISC XI

Dinesh ...Dr. 2,000

To Bank A/c 2,000
(Being a part payment made)
Interest A/c (WN) ...Dr. 200
To Dinesh 200
(Being the interest payable to Dinesh for the extended period)
Dinesh ...Dr. 8,200
To Bills Payable A/c 8,200
(Being the acceptance of a new bill for the balance plus interest)
(ii) Bills Payable A/c ...Dr. 5,000
To Bank A/c 4,800
To Discount Received A/c 200
(Being the bill retired before maturity and discount received ` 200)
(iii) Bank A/c ...Dr. 11,760
Discounting Charges A/c ...Dr. 240
To Bills Receivable A/c 12,000
(Being the bill discounted for 2 months @ 12% p.a.)
Govinda ...Dr. 12,050
To Bank A/c 12,050
(Being the bill dishonoured and noting charges paid by bank ` 50)

Working Note: Interest = ` 8,000 × 10/100 × 3/12 = ` 200.

Illustration 7.
On 1st January, 2019, A sold goods of the value of ` 20,000 to B on credit and drew a bill for
3 months for the same amount which B accepted on the same date. The bill was discounted
for ` 19,700. On the due date, B notified his inability to meet the bill and requested A to
take it up and pay the noting charges of ` 150, which A did. The following day B met his
obligation with a bill at 2 months for the amount together with interest at 6% p.a. and paid
cash for noting charges. When the bill became due, B paid ` 10,000 and accepted a fresh bill at
3 months for ` 10,500. B became insolvent before this last bill became due and a first and final
dividend of 25 paise in the rupee was realised from his estate on 1st December, 2019.
Pass Journal entries in the books of A to record the above transactions.
Solution: In the Books of A
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2019
Jan. 1
B ...Dr. 20,000
To Sales A/c 20,000
(Being the goods sold to B on credit)
Jan. 1 Bills Receivable A/c ...Dr. 20,000
To B 20,000
(Being the acceptance received of the bill drawn on B for 3 months)
Bank A/c ...Dr. 19,700
Discounting Charges A/c ...Dr. 300
To Bills Receivable A/c 20,000
(Being the bill discounted for ` 19,700)
Bill of Exchange 17.15

April 4 B ...Dr. 20,150

To Bank A/c 20,150
(Being the bill dishonoured at maturity—noting charges
` 150 paid by bank)
April 5 Cash A/c ...Dr. 150
To B 150
(Being the noting charges received in cash)
April 5 B ...Dr. 200
To Interest A/c 200
(Being the interest charged for 2 months @ 6% p.a. on ` 20,000)
April 5 Bills Receivable A/c ...Dr. 20,200
To B 20,200
(Being a fresh bill drawn on B for 2 months)
June 8 B ...Dr. 20,200
To Bills Receivable A/c 20,200
(Being the bill dishonoured at maturity)
June 8 Cash A/c ...Dr. 10,000
To B 10,000
(Being the part payment received)
June 8 B ...Dr. 300
To Interest A/c 300
(Being the interest charged for the period extended)
June 8 Bills Receivable A/c ...Dr. 10,500
To B 10,500
(Being a further bill drawn on B for 3 months)
Sept. 11 B ...Dr. 10,500
To Bills Receivable A/c 10,500
(Being the 3rd bill also dishonoured)
Dec. 1 Bank A/c ...Dr. 2,625
Bad Debts A/c ...Dr. 7,875
To B 10,500
(Being a first and final dividend received from the estate of
B @ 25 paise in a rupee)

Illustration 8.
K owes ` 60,000 to Z. The debt is discharged by K on 1st June, 2019 by accepting two bills
of exchange drawn on him by Z—one for ` 40,000 at 2 months and the other for ` 20,000 at
3 months. The first bill is endorsed in favour of R, a creditor, in full settlement of his debt
for ` 42,000. The second bill is discounted with the bank at 15% p.a. on 4th June. Both the
bills were dishonoured, the noting charges in each case being ` 600. On 5th September,
K agreed to accept another bill for the total amount including interest @ 18% p.a. payable after
3 months. On the due date the bill was dishonoured. K was declared insolvent and a final
dividend @ 30% was realised from his estate.
Show the Journal entries in the books of Z and K.
17.16 Double Entry Book Keeping—ISC XI

Solution: In the Books of Z

JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2019
June 1 Bills Reveivable A/c ...Dr. 60,000
To K 60,000
(Being the acceptance received of the two bills of ` 40,000 and
` 20,000 drawn on K for 2 and 3 months respectively)
June 1 R ...Dr. 42,000
To Bills Receivable A/c 40,000
To Discount Received A/c 2,000
(Being the bill for ` 40,000 endorsed in favour of R in full settlement
of a debt of ` 42,000)
June 4 Bank A/c ...Dr. 19,250
Discounting Charges A/c ...Dr. 750
To Bills Receivable A/c 20,000
(Being the bill for ` 20,000 discounted @ 15% p.a.)
Aug. 4
K ...Dr. 40,600
Discount Received A/c ...Dr. 2,000
To R 42,600
(Being the bill for ` 40,000 dishonoured at maturity—noting charges ` 600)
Sept. 4 K ...Dr. 20,600
To Bank A/c 20,600
(Being the bill for ` 20,000 dishonoured at maturity—noting charges ` 600)
Sept. 5 K ...Dr. 3,363
To Interest A/c (Note) 3,363
(Being the interest charged for the extended period)
Sept. 5 Bills Receivable A/c ...Dr. 64,563
To K 64,563
(Being a new bill drawn for the balance plus interest duly accepted by K)
Dec. 8
K ...Dr. 64,563
To Bills Receivable A/c 64,563
(Being the bill dishonoured at maturity)
Bank A/c ...Dr. 19,369
Bad Debts A/c ...Dr. 45,194
To K 64,563
(Being a final dividend of 30% received in full settlement)

In the Books of K
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2019
June 1 Z ...Dr. 60,000
To Bills Payable A/c 60,000
(Being the acceptance given of two bills of ` 40,000 and ` 20,000
from Z respectively for 2 and 3 months)
Bill of Exchange 17.17

Aug. 4 Bills Payable A/c ...Dr. 40,000

Noting Charges A/c ...Dr. 600
To Z 40,600
(Being the bill for ` 40,000 dishonoured—noting charges ` 600)
Sept. 4 Bills Payable A/c ...Dr. 20,000
Noting Charges A/c ...Dr. 600
To Z 20,600
(Being the bill for ` 20,000 dishonoured—noting charges ` 600)
Sept. 5 Interest A/c ...Dr. 3,363
To Z (Note) 3,363
(Being the interest payable for the extended period)
Sept. 5 Z ...Dr. 64,563
To Bills Payable A/c 64,563
(Being the acceptance of a new bill for the balance plus interest)
Dec. 8 Bills Payable A/c ...Dr. 64,563
To Z 64,563
(Being the bill dishonoured at maturity)
Z ...Dr. 64,563
To Bank A/c 19,369
To Deficiency A/c 45,194
(Being a final dividend of 30% paid in full settlement)

Note: Interest for the extended period:

`
` 40,600 for 4 months @ 18% p.a. 2,436
` 20,600 for 3 months @ 18% p.a. 927
3,363

Illustration 9.
Record the following in the Journal:
(a) Our own acceptance to Gupta & Co. for ` 5,000 dishonoured due to omission of necessary
instructions to our bank. Gupta & Co., claims ` 5,200 including noting charges which is
settled by issue of cheque.
(b) Patil’s promissory note for ` 10,000 endorsed in favour of Wadekar was dishonoured.
Wadekar paid ` 250 as noting charges. We paid Wedekar by cheque and accepted from
Patil another bill for the amount due plus interest ` 300.
(c) Renewed our acceptance to Kaul & Bros. for ` 20,000 by cheque ` 8,000 and a new bill for
the balance at 3 months at 10% p.a. interest.
(d) Vijay Malhotra’s acceptance for ` 7,500 renewed for 2 months at 12% p.a. interest.
(e) Our acceptance to Mohan for ` 20,000 retired before the date, rebate allowed to us was ` 250.
( f ) Our acceptance to Ajay Verma for ` 12,000 was discharged by Arun Thaman’s acceptance
to us for a similar amount.
(g) Roy’s acceptance for ` 14,000 which we sent to the bank for collection was returned by the
bank as being dishonoured. Bank paid ` 200 as noting charges.
(h) Gaurav renewed a bill for ` 13,000 drawn by us by paying us ` 5,000 and accepting a new
bill for the balance for 2 months, interest at 12% p.a. being paid in cash forthwith.
17.18 Double Entry Book Keeping—ISC XI

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
(a) Bills Payable A/c ...Dr. 5,000
Noting Charges A/c ...Dr. 200
To Gupta & Co. 5,200
(Being our acceptance to Gupta & Co. dishonoured and noting
charges ` 200 paid by Gupta & Co.)
Gupta & Co. ...Dr. 5,200
To Bank A/c 5,200
(Being the payment made by cheque)
(b) Patil ...Dr. 10,250
To Wadekar 10,250
(Being the Patil’s promissory note for ` 10,000 endorsed in favour of
Wadekar dishonoured and noting charges ` 250 paid by Wadekar)
Wadekar ...Dr. 10,250
To Bank A/c 10,250
(Being the payment made by cheque)
Patil ...Dr. 300
To Interest A/c 300
(Being the interest charged for the extended period of credit)
Bills Receivable A/c ...Dr. 10,550
To Patil 10,550
(Being acceptance given by Patil for the amouont due ` 10,250
plus interest ` 300)
(c) Bills Payable A/c ...Dr. 20,000
To Kaul & Bros. 20,000
(Being the old acceptance to Kaul & Bros. cancelled)
Kaul & Bros. ...Dr. 8,000
To Bank A/c 8,000
(Being the part payment of the old bill made by cheque)
Interest A/c ...Dr. 300
To Kaul & Bros. 300
(Being interest @ 10% on ` 12,000—the balance of the
old bill—for 3 months)
Kaul & Bros. ...Dr. 12,300
To Bills Payable A/c 12,300
(Being the new acceptance given for 3 months for the balance of
the amount of old bill plus interest ` 300)
(d) Vijay Malhotra ...Dr. 7,500
To Bills Receivable A/c 7,500
(Being the Vijay Malhotra’s acceptance cancelled)
Vijay Malhotra ...Dr. 150
To Interest A/c 150
(Being the interest charged @ 12% p.a. for 2 months on ` 7,500)
Bills Receivable A/c ...Dr. 7,650
To Vijay Malhotra 7,650
(Being the new acceptance for 2 months received including interest)
Bill of Exchange 17.19

(e) Bills Payable A/c ...Dr. 20,000

To Bank A/c 19,750
To Rebate A/c 250
(Being our acceptance for ` 20,000 retired before due date for ` 19,750)
(f) Bills Payable A/c ...Dr. 12,000
To Bills Receivable A/c 12,000
(Being the acceptance to Ajay Verma discharged by endorsing
Arun Thaman’s acceptance in favour of Ajay Verma)
(g) Roy ...Dr. 14,200
To Bills Sent for Collection A/c 14,000
To Bank A/c 200
(Being the bills sent to the bank for collection dishonoured and noting
charges paid by bank debited to Roy and credited to Bank)
(h) Gaurav ...Dr. 13,000
To Bills Receivable A/c 13,000
(Being the Gaurav’s acceptance cancelled)
Cash A/c ...Dr. 5,000
To Gaurav 5,000
(Being part payment of the old bill received)
Cash A/c ...Dr. 160
To Interest A/c 160
(Being the interest on ` 8,000—balance of the bill—for 2 months @ 12% p.a.)
Bills Receivable A/c ...Dr. 8,000
To Gaurav 8,000
(Being the new acceptance for 2 months received from Gaurav)

Illustration 10.
On 1st January, 2019, A sold goods to the value of ` 10,000 to B on credit and draws a bill for
three months for the same amount. B accepts it and returns it to A. The bill was discounted for
` 9,850. On the due date, B notified his inability to meet the bill and requested A to take it up
and pay the noting charge of ` 175, which A did. The following day B met his obligation with
a bill at two months for the amount together with interest at 6% p.a. and paid cash for noting
charges. When the bill became due, B paid ` 5,000 and accepted a fresh bill at three months
for ` 5,250. B became insolvent before this last bill become due and a first and final divided of
60 paise in a rupee was received from his easte on 1st December, 2019.
Pass the necessary Journal entries in the books of A to record the above transaction.
Solution: JOURNAL OF A
Date Particulars L.F. Dr. (`) Cr. (`)
2019
Jan. 1
B ...Dr. 10,000
To Sales A/c 10,000
(Being the goods sold to B on credit)
Jan. 1 Bills Receivable A/c ...Dr. 10,000
To B 10,000
(Being the acceptance of the bill received from B)
17.20 Double Entry Book Keeping—ISC XI

? Bank A/c ...Dr. 9,850

Discounting Charges A/c ...Dr. 150
To Bills Receivable A/c 10,000
(Being the bill discounted for ` 9,850)

April 4 B ...Dr. 10,175

To Bank A/c 10,175
(Being the bill dishonoured at maturity—noting charges
` 175 paid)

April 5 Cash A/c ...Dr. 175

To B 175
(Being noting charges received in cash)

April 5 B ...Dr. 100

To Interest A/c 100
(Being the interest due @ 6% p.a. on ` 10,000 for 2 months)

April 5 Bills Receivable A/c ...Dr. 10,100

To B 10,100
(Being the acceptance of the fresh bill received from B)

June 8 B ...Dr. 10,100

To Bills Receivable A/c 10,100
(Being the bill dishonoured at maturity)

June 8 Cash A/c ...Dr. 5,000

To B 5,000
(Being the part payment received)

June 8 B ...Dr. 150

To Interest A/c 150
(Being the interest charged for the period extended,
(i.e., ` 5,250 – ` 5,100 = ` 150)

June 8 Bills Receivable A/c ...Dr. 5,250

To B 5,250
(Being a further bill drawn on B for 3 months and accepted by him)

Sept. 11 B ...Dr. 5,250

To Bills Receivable A/c 5,250
(Being the 3rd bill also dishonoured)

Dec. 1 Bank A/c (` 5,250 × 60/100) ...Dr. 3,150

Bad Debts A/c (` 5,250 × 40/100) ...Dr. 2,100
To B 5,250
(Being a first and final dividend received from the estate of B
@ 60 paise in a rupee)
Bill of Exchange 17.21

Advanced Level Questions

Illustration 11.
D owes ` 30,000 to S. The debt is discharged by D on 1st June, 2019 by accepting two bills of
exchange drawn on him by S—One for ` 20,000 at 2 months and the other for ` 10,000 at 3 months.
The first bill is endorsed in favour of C, a creditor, in full settlement of his debt for ` 21,000. The
second bill is discounted with the bank at 12% p.a. on 4th June. Both the bills were dishonoured
on the due date, the noting charges in each case being ` 500. On 5th September, D agreed to accept
another bill for the total amount including interest @ 15% p.a. payable after 3 months. On the due
date the bill was dishonoured. D was declared insolvent and his estate paid 60 paise in the rupee of
8th December, 2019. Show Journal entries in respect of the above in the books of S and D.
Solution: JOURNAL OF S
Date Particulars L.F. Dr. (`) Cr. (`)
2019
June 1 Bills Receivable A/c (1) ...Dr. 20,000
Bills Receivable A/c (2) ...Dr. 10,000
To D 30,000
(Being two bills of ` 20,000 and ` 10,000 drawn on D for
2 and 3 months respectively)
June 1 C ...Dr. 21,000
To Bills Receivable (1) A/c 20,000
To Discount Received A/c 1,000
(Being the bill for ` 20,000 endorsed in favour of C in full
settlement of a debt of ` 21,000)
June 4 Bank A/c ...Dr. 9,700
Discounting Charges A/c (` 10,000 × 12/100 × 3/12) ...Dr. 300
To Bills Receivable (2) A/c 10,000
(Being the bill for ` 10,000 discounted @ 12% p.a.)
August 4 D ...Dr. 20,500
Discount Received A/c ...Dr. 1,000
To C 21,500
(Being the bill for ` 20,000 dishonoured at maturity—noting
charges ` 500 paid by C)
Sept. 4 D ...Dr. 10,500
To Bank A/c 10,500
(Being the bill for ` 10,000 dishonoured at maturity—noting
charges ` 500 paid)
Sept. 5 D ...Dr. 1,419
To Interest A/c (WN) 1,419
(Being the interest charged for the extended period)
Sept. 5 Bills Receivable (New) A/c ...Dr. 32,419
To D (` 20,500 + ` 10,500 + ` 1,419) 32,419
(Being a new bill drawn on D for the balance plus interest)
Dec. 8 D ...Dr. 32,419
To Bills Receivable (New) A/c 32,419
(Being the fresh bill dishonoured due to D’s insolvency)
Dec. 8 Bank A/c ...Dr. 19,451*
Bad Debts A/c ...Dr. 12,968*
To S 32,419
(Being the first and final dividend received @ 60 paise
in a rupee of the net amount due)
17.22 Double Entry Book Keeping—ISC XI

In the Books of D
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2019
June 1 S ...Dr. 30,000
To Bills Payable A/c (1) 20,000
To Bills Payable A/c (2) 10,000
(Being the acceptance of two bills of ` 20,000 and ` 10,000 given
to S for 2 and 3 months respetively)
August 4 Bills Payable Ac ...Dr. 20,000
Noting Charges A/c ...Dr. 500
To S 20,500
(Being the bill for ` 20,000 dishonoured, noting charges ` 500)
Sept. 4 Bills Payable A/c ...Dr. 10,000
Noting Charges A/c ...Dr. 500
To S 10,500
(Being the bill for ` 10,000 dishonoured, noting charges ` 500)
Sept. 5 Interest A/c ...Dr. 1,419
To S (WN) 1,419
(Being the interest payable for the extended period)
Sept. 5 S ...Dr. 32,419
To Bills Payable A/c 32,419
(Being the acceptance of a new bill for the balance plus, noting charges)
Dec. 8 Bills Payable A/c ...Dr. 32,419
To S 32,419
(Being the bill dishonoured at maturity)
Dec. 8
S ...Dr. 32,419
To Bank A/c 19,451*
To Deficiency or Profit and Loss A/c 12,968*
(Being ` 19,451 paid to S and the balance amount not paid
due to insolvency)

Working Note: Calculation of Interest for the extended period (Ignoring days): `
` 20,500 for 4 months @ 15% p.a. (` 20,500 × 4/12 × 15/100) 1,025
` 10,500 for 3 months @ 15% p.a. (` 10,500 × 3/12 × 15/100) 394 (Approx.)
1,419
*Approximately.

Illustration 12.
A sold goods to B for ` 30,000 on 1st January, 2019. A drew upon him a three months bill for
the amount. B accepted the bill and returned it to A who discounted the bill @ 10% p.a with a
bank on 4th January. On the due date, the bill is dishonoured by B, the noting charges being
` 100. On 4th April, 2019, B makes an offer to A to pay him ` 10,000 by current date cheque on
account and to settle the balance by agreeing to accept one bill of exchange for ` 12,000 at one
month, and the other for the balance at three months—the latter including interest @ 8% p.a.
for both the bills. B accepts the arrangement. The first bill is met on the due date. But before
the maturity of the second bill, B becomes insolvent and a dividend of 50 paise in the rupee is
realised from his estate on 4th July, 2019.
Pass Journal entries in respect of the above in the books of A and B.
Bill of Exchange 17.23

Solution: In the Books of A

JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2019
Jan. 1
B ...Dr. 30,000
To Sales A/c 30,000
(Being the sale of goods to B)
Jan. 1 Bills Receivable A/c ...Dr. 30,000
To B 30,000
(Being the acceptance received)
Jan. 4 Bank A/c ...Dr. 29,250
Discounting Charges A/c ...Dr. 750
To Bills Receivables A/c 30,000
(Being the bill discounted with bank @ 10% p.a.)
April 4 B ...Dr. 30,100
To Bank A/c 30,100
(Being the bill dishonoured at maturity, noting charges ` 100)
April 4 Bank A/c ...Dr. 10,000
To B 10,000
(Being the part payment received from B)
April 4 B ...Dr. 242
To Interest A/c (WN 1) 242
(Being the interest charged for renewing the bill)
April 4 Bills Receivable A/c ...Dr. 12,000
To B 12,000
(Being the fresh bill drawn on B for 1 month and accepted by him)
April 4 Bills Receivable A/c (WN 2) ...Dr. 8,342
To B 8,342
(Being the another bill drawn on B for the balance along with
interest for both the bills)
May 7 Bank A/c ...Dr. 12,000
To Bills Receivable A/c 12,000
(Being the first bill honoured at maturity)
May 7
B ...Dr. 8,342
To Bills Receivable A/c 8,342
(Being the second bill dishonoured at maturity)
July 4 Bank A/c ...Dr. 4,171
Bad Debts A/c ...Dr. 4,171
To B 8,342
(Being 50% of the amount due from B received in full settlement)

Working Notes: `
1. Interest on ` 12,000 @ 8% p.a. for 1 month (` 12,000 × 8/100 × 1/12) 80
Add: Interest on ` 8,100 @ 8% p.a. for 3 months (` 8,100 × 8/100 × 3/12) 162
Total 242
2. ` 30,000 – (` 10,000 + ` 12,000) + ` 100 (Noting Charges) + ` 242 (Interest) = ` 8,342.
17.24 Double Entry Book Keeping—ISC XI

In the Books of B
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

2019
Jan. 1 Purchases A/c ...Dr. 30,000
To A 30,000
(Being the purchase of goods from A)

Jan. 1
A ...Dr. 30,000
To Bills Payable A/c 30,000
(Being the acceptance of the bill given to A)

April 4 Bills Payable A/c ...Dr. 30,000

Noting Charges A/c ...Dr. 100
To A 30,100
(Being the bill dishonoured by us at maturity and
noting charges payable)

April 4 A ...Dr. 10,000

To Bank A/c 10,000
(Being the part payment made)

April 4 Interest A/c ...Dr. 242

To A 242
(Being the interest payable to A for renewing the bill)

April 4 A ...Dr. 12,000

To Bills Payable A/c 12,000
(Being the acceptance of a bill for one month)

April 4 A ...Dr. 8,342

To Bills Payable A/c 8,342
(Being the acceptance of another bill for 3 months for the balance
amount with interest)

May 7 Bills Payable A/c ...Dr. 12,000

To Bank A/c 12,000
(Being the first bill discharged)

May 7 Bills Payable A/c ...Dr. 8,342

To A 8,342
(Being the bill for 3 months dishonoured due to insolvency)

July 4
A ...Dr. 8,342
To Bank A/c 4,171
To Deficiency or Profit and Loss A/c 4,171
(Being 50% of the amount due paid in full settlement and the balance in
A’s Account transferred to Deficiency or Profit and Loss Account)
Bill of Exchange 17.25

Unsolved Questions
1. On 15th March, 2019, X draws on Y two bills of exchange for ` 15,000 and ` 10,000 payable at 3 months. On
20th March, 2019, X endorses the first bill to his creditor A. On 1st April, 2019, A endorses the same bill to B.
The second bill is retained by X till maturity. On due date, those two bills are dishonoured, noting charges
for first and second bill being ` 300 and ` 200 respectively. Y then makes an offer to X to pay him ` 5,500
cash on account and to settle the balance plus interest @ 9% p.a. by agreeing to accept a bill of exchange
payable at 4 months. X accepts the arrangement. But this bill is also dishonoured due to insolvency of Y
and first and final dividend of 20% is received from Y’s estate.
Show Journal entries in the books of X and Y.
2. On 1st January, 2019, X received from Y three bills of exchange for ` 6,000, ` 8,000 and ` 10,000 for
6 months, 4 months and 3 months respectively. On 3rd January, the first bill was discounted by X with his
bank at a discount of 5% p.a. On 1st February, 2019, the 3rd bill was endorsed in favour of a creditor Z. The
second bill was retained till the due date. On due dates all the three bills were dishonoured.
Show necessary Journal entries in the books of X and Y.
3. B, being unable to meet his acceptance for ` 2,000 due on 15th June, approaches the drawer A (who is in
possession of the bill) on 30th June, with request to receive ` 800 in cash and draw a new bill on him for
the balance plus ` 15 for interest at 3 months’ date and cancel the old bill for ` 2,000. A agrees to this.
Pass entries in the books of A and B.
4. On 15th June, 2019, Mohan sold goods to Sohan valued at ` 20,000. He drew a 3 months bill for the amount
and discounted the same with his bank for ` 19,500. On due date, the bill was dishonoured and Mohan paid
the bank the amount due plus the noting charges of ` 500.
Draft Journal entries in the books of all the parties.
5. On 1st June, 2019, A sold goods to B for ` 25,000. B gave to A his acceptance payable 1 month after date.
Before maturity B requests A to renew it, which A does adding ` 1,000 to the new bill for interest.
Pass necessary Journal entries to record these transactions in the books of both A and B.
6. A sold goods to B on 1st September, 2019 for ` 16,000. B immediately accepted a 3 months bill for the
amount. On due date, B requested that the bill be renewed for a further period of 2 months. A agreed
provided interest at 9% p.a. was paid immediately in cash. To this B agreed. The second bill was met on due
date.
Give Journal entries in the books of A.
7. Amar sells goods to Bhola for ` 10,000. He draws upon Bhola a bill for the amount payable 3 months after
date. The bill is accepted by Bhola. Amar discounts the bill with his bank at a discount of ` 150 inclusive of
all charges. Bhola fails to meet this bill on maturity. Amar pays off his bank and his expenses amounting to
` 100. Bhola gives a fresh bill of 2 months’ date to Amar for ` 10,250, which he meets at maturity.
Show necessary Journal entries in Amar’s books.

GUIDE TO ANSWER

1. Interest on new bill—` 600; Bad Debts—` 16,480.

 CHAPTER
18
Capital and Revenue Expenditure/
Income
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Capital Expenditure Capital Expenditure is that expenditure which gives benefit of

enduring nature, i.e., the benefit of which extends to a period or
periods beyond the accounting period.
2. Revenue Expenditure Revenue Expenditure is that expenditure the benefit of which is
consumed or exhausted within the accounting period.
3. Deferred Revenue Deferred Revenue Expenditure is expense or loss incurred which is
Expenditure written off in more than one accounting period. They are categorised
as Fictitious Assets.
4. Capital Receipts Capital Receipts are those receipts which are not received in the
normal course of business, such as capital introduced, loan received,
premium received on issue of shares, etc.
5. Revenue Receipts Revenue Receipts are those receipts which are received in the normal
course of business, such as revenue from sale of goods and services.
6. Capital Profit Capital Profit is a profit which is not earned by the business in the
normal course of business. For example, gain on the sale of fixed
asset or gain on reissue of forfeited shares.
7. Revenue Profit Revenue Profit is the profit earned by the business in the normal
course of business, e.g., profit on sale of goods, discount received,
commission earned, etc.
8. Capital Loss Capital Loss is the loss which occurs on selling fixed assets or raising
capital (discount on issue of debentures).
9. Revenue Loss Revenue Loss is the loss which arises during the normal course of
business, i.e., in trading operations such as loss on sale of goods.

CHAPTER SUMMARY

• Capital Expenditure is the amount spent by an enterprise on purchase of fixed assets that are used in
the business to earn income and not intended for resale. The benefit of capital expenditure is not fully
consumed, i.e., exhausted in one accounting period but spreads over accounting periods.

• Treatment of Capital Expenditure Captial expenditure is debited to the Fixed Asset Account and is shown
in the Balance Sheet.
18.2 Double Entry Book Keeping—ISC XI

• Revenue Expenditure is the amount spent on running of the business. The benefit of revenue expenditure
expires within a financial year.

• Treatment of Revenue Expenditure Revenue Expenditure is shown on the debit side of Trading Account
or Profit and Loss Account.

• Capital Receipts are the receipts that are not received in the normal course of business activities. Examples:
Contribution towards capital, secured or unsecured loans, etc.

• Revenue Receipts are the receipts that are received out of the conduct of business. Examples: sales, fee
for services, etc.

• Capital Profit is the profit earned on the sale of fixed assets or on raising capital such as premium on issue
of shares.

• Revenue Profit is the profit earned out of the business activity.

• Capital Loss is the loss arising from sale of fixed assets or raising capital.

• Revenue Loss is the loss arising out of the business activity.

• Capital Income is the income earned by the business that is capital in nature.
• Revenue Income is the income earned by the business that is revenue in nature.
• Deferred Revenue Expenditure is expenditure in the nature of revenue expenditure, the benefit of which
extends beyond an accounting period. Example: Large expenditure incurred on advertisement, say to
introduce a new product.
• Treatment of Deferred Revenue Expenditure:
Deferred Revenue Expenditure is shown as:
(i) Amount to be written off in the Current Year is debited to the Profit and Loss Account, and
(ii) Unabsorbed or unwritten amount is shown on the assets side of the Balance Sheet.
 CHAPTER
19
Final Accounts and Concept of Trading
Account, Profit and Loss Account and
Balance Sheet (Without Adjustments),
Marshalling of Balance Sheet
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Financial Statements Financial Statements are the statements which show the financial
performance and financial position of the firm. They include Trading
Account, Profit and Loss Account and Balance Sheet.

2. Trading Account Trading Account is part of financial statements which shows gross
profit earned or gross loss incurred. It is credited with net sales,
other direct incomes and closing stock. It is debited by opening stock,
net purchases and other direct expenses, i.e., carriage inwards,
freight inwards, wages, etc.

3. Gross Profit It is excess of net sales over cost of goods sold.

4. Opening Stock Balance of goods in the beginning of the accounting year.

5. Closing Stock Goods remaining unsold at the end of the accounting year.

6. Cost of Goods Sold It is the total of opening stock, net purchases and direct expenses
less closing stock.

7. Profit and Loss Account Profit and Loss Account is an account in which all gains and losses
are recorded in order to ascertain net profit or net loss. It is credited
with the amount of gross profit and other incomes and debited with
indirect expenses. The difference between the totals of two sides is
either net profit (if total of credit side is bigger) or net loss (if total of
debit side is bigger).

8. Balance Sheet Balance Sheet is also a part of financial statements. It shows the
financial position of the firm. It is a statement to which balances of
assets, liabilities and capital accounts are transferred.

9. Grouping Grouping means placing items of same nature under a common head.

10. Marshalling Marshalling is arranging the assets and liabilities in a particular

order, i.e., in order of liquidity or in order of permanence.
19.2 Double Entry Book Keeping—ISC XI

CHAPTER SUMMARY

• Final Accounts include (i) Trading Account, (ii) Profit and Loss Account, and (iii) Balance Sheet. Final Accounts

are prepared on the basis of Trial Balance.

• Trading Account is the account, which shows the gross profit or gross loss. Its contents are revenue receipts

(such as sales, fee for services rendered, etc.) on the credit side and revenue expenditure (such as cost of

sales or services rendered on the debit side).

• Profit and Loss Account is the account which shows the net profit or net loss of the business for an

accounting period. It is credited with the gross profit and non-business revenue incomes and ‘debited with

gross loss and the indirect revenue expenses’.

• Balance Sheet is a statement which sets out the assets and liabilities of a firm or an institution as at a

certain date. It is true on that particular date as every transaction has an impact on the Balance Sheet.

• Marshalling means arrangement of assets and liabilities in a particular order in the Balance Sheet. Assets

may be arranged in the form of liquidity or permanence.

Format of Trading Account

Dr. TRADING ACCOUNT for the year ended ... Cr.

Particulars ` Particulars `

To Opening Stock ... By Sales ...

To Purchases ... Less: Returns Inward ... ...

Less: Returns Outward ... ... By Closing Stock ...

To Wages and Salaries ... By Abnormal Loss of Stock ...

To Freight Inwards ... By Gross Loss c/d* ...

To Carriage Inwards ... (Transferred to Profit and Loss A/c)

To Factory Power and Fuel ...

To Factory Expenses (e.g., Rent and Insurance) ...

To Gross Profit c/d* ...

(Transferred to Profit and Loss A/c)

... ...

*Either Gross Profit or Gross Loss will appear.

Final Accounts and Concept of Trading Account ... 19.3

Format of Profit and Loss Account

PROFIT AND LOSS ACCOUNT

Dr. for the year ended ... Cr.

Particulars ` Particulars `

To Gross Loss transferred from Trading A/c ... By Gross Profit transferred from Trading A/c ...
To Advertisement ... By Bad Debts Recovered ...
To Audit Fees ... By Commission Earned ...
To Bad Debts ... By Discount Received ...
To Bank Charges ... By Dividends on Shares ...
To Brokerage ... By Income from Investment ...
To Business Promotion Expenses ... By Interest Received ...
To Car Running and Maintenance Expenses ... By Miscellaneous Incomes ...
To Charity ... By Rent Received ...
To Commission ... By Net Loss* (Transferred to Capital A/c) ...
To Conveyance ...
To Depreciation ...
To Discount Allowed ...
To Electricity Expenses ...
To Freight and Carriage Outwards ...
To General Expenses ...
To Insurance Premium ...
To Interest ...
To Licence Fee ...
To Loss by Fire and Theft ...
To Office Expenses ...
To Postage ...
To Rent Paid ...
To Repairs ...
To Salaries ...
To Stationery and Printing ...
To Telephone Expenses ...
To Travelling Expenses ...
To Net Profit* (Transferred to Capital A/c) ...

... ...

* Either of the two shall appear.

19.4 Double Entry Book Keeping—ISC XI

Format of Balance Sheet. The items found in the Balance Sheet of a firm are given as following:
BALANCE SHEET OF ... as at ...
`
Liabilities Assets `
Sundry Creditors ... Cash in Hand ...
Bills Payable ... Cash at Bank ...
Bank Overdraft ... Bills Receivable ...
Employees’ Provident Fund ... Sundry Debtors/Book Debts ...
Loans and Advances Taken (Cr.) ... Loans and Advances Given (Dr.) ...
Reserves or Reserve Fund ... Closing Stock ...
Capital ... Loose Tools ...
Add: Interest on Capital ... Investments ...
Net Profit ... ... Furniture and Fittings ...
... Plant and Machinery ...
Less: Drawings ... Land and Building ...
Income Tax ... Business Premises ...
Interest on Drawings ... Patents and Trademarks, etc. ...
Net Loss ... ... ... Goodwill ...
 ... ...

(i) In the Order of Liquidity

BALANCE SHEET OF ... as at ...
`
Liabilities Assets `
Bills Payable ... Cash in Hand ...
Sundry Creditors ... Cash at Bank ...
Bank Overdraft ... Bills Receivable ...
Loans ... Debtors ...
Capital: Closing Stock ...
Opening Balance ... Investment ...
Add: Net Profit ... Furniture ...
... Plant and Machinery ...
Less: Drawings ... ... Land and Building ...
Goodwill ...
... ...

(ii) In the Order of Permanence

BALANCE SHEET OF ... as at ...
`
Liabilities Assets `
Capital: Goodwill ...
Opening Balance ... Land and Building ...
Add: Net Profit ... Plant and Machinery ...
... Furniture ...
Less: Drawings ... ... Investment ...
Loans ... Closing Stock ...
Bank Overdraft ... Debtors ...
Sundry Creditors ... Bills Receivable ...
Bills Payable ... Cash at Bank ...
Cash in Hand ...
... ...
Final Accounts and Concept of Trading Account ... 19.5

Solved Question
Illustration 1.

From the following information, prepare Trading Account for the year ended 31st March, 2020:
`
Cost of Goods Sold 15,00,000
Sales 24,00,000
Closing Stock 80,000

Solution: TRADING ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
Particulars ` Particulars `

To Cost of Goods Sold 15,00,000 By Sales 24,00,000

To Gross Profit c/d 9,00,000
(Transferred to Profit and Loss A/c)
24,00,000 24,00,000

Notes:
1. Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses – Closing Stock.
2. Closing Stock has not been shown in the credit side of the Trading Account because it has already been
adjusted while calculating the Cost of Goods Sold.
 CHAPTER
20
Final Accounts—With Adjustments
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Adjusting Entry It is an entry passed in the books of account to give effect to

transactions that should have been recorded in the books of account
but are not recorded.
2. Closing Stock It is the value of stock in hand at the end of the accounting year. It is
valued at cost or net realisable value (market value), whichever is less.
3. Outstanding Expenses They are expenses incurred during the year the benefit of which is
consumed or exhausted during the year but have not been paid.
For example, salary payable for the month of March is provided
being not paid.
4. Prepaid or Unexpired They are the expenses that have been paid but the benefit of which
Expenses is not consumed or exhausted during the year.
5. Accrued Income It is the income which has been earned but not received.
6. Income Received in It is the income which has not been earned but received during the
Advance or Unearned accounting year.
Income.
7. Depreciation It is the fall in value of fixed asset due to usage, efflux of time,
obsolescence or accident.
8. Bad Debt It is the debt that has become irrecoverable.
9. Provision for Doubtful It is the amount set aside out of profit to meet possible bad debts.
Debts This provision is made due to the Prudence Concept.
10. Provision for Discount It is the amount set aside out of profit to allow discount to debtors
on Debtors in future. This provision is made following the Prudence Concept.
11. Normal Loss Normal loss means loss due to nature of the product which will happen
and cannot be prevented say, loss due to evaporation of petrol.
12. Abnormal Loss Abnormal loss means loss by any abnormal reason or cause say,
due to fire or accident or theft.

CHAPTER SUMMARY

• Accrual Concept is a fundamental concept of accounting. Therefore, expenses whether paid or not, incomes
whether received or not, prepaid expenses and unearned incomes need to be adjusted.
• Adjustments are made for: (i) Proper matching of cost with revenue for ascertaining true and fair
view of the profit earned or loss incurred by the business entity for the accounting period and (ii) for showing
true and fair value of assets and liabilities of the business as on the last date of the accounting period.
• Adjustment is recorded on the basis of the Dual Aspect Concept meaning every adjustment must appear
at two places, one representing the debit and the other representing the credit.
20.2 Double Entry Book Keeping—ISC XI

Treatment of Items of Adjustment Appearing in the Trial Balance

Item given in Trial Balance Treatment in Profit and Loss Account Treatment in Balance Sheet
1. Closing Stock        — Shown in the Assets side as a Current Asset.
2. Outstanding       — Shown in the Liabilities side as a Current
Expenses Liability.
3. Prepaid Expenses        — Shown in the Assets side as a Current Asset.
4. Accrued Income       — Shown in the Assets side as a Current Asset.
5. Unearned Income/       — Shown in the Liabilities side as a Current
Income Received Liability.
in Advance
6. Depreciation Shown in the Debit side of the Profit        —
and Loss A/c.

Solved Questions
Illustration 1.
Given below is the Trial Balance of M/s. Gupta & Sons as at 31st March, 2020:
eads of Accounts
H Dr. Balances Cr. Balances
` `
Capital ..................................................................................................................... ... 7,20,000
Drawings ..................................................................................................................... 40,000 ...
Sales ..................................................................................................................... ... 10,15,000
Purchases ..................................................................................................................... 6,20,000 ...
Stock in Trade on 1st April, 2019 ..................................................................................................................... 20,000 ...
Sales Return ..................................................................................................................... 12,000 ...
Purchases Return ..................................................................................................................... ... 15,000
Sundry Debtors ..................................................................................................................... 80,000 ...
Sundry Creditors ..................................................................................................................... ... 30,000
Rent ..................................................................................................................... 22,000 ...
Electricity ..................................................................................................................... 16,000 ...
Other Expenses ..................................................................................................................... 32,000 ...
Wages ..................................................................................................................... 1,12,000 ...
Cash in Hand ..................................................................................................................... 1,22,000 ...
Cash at Bank ..................................................................................................................... 6,32,000 ...
Advance to Supplier ..................................................................................................................... 72,000 ...
Total 17,80,000 17,80,000

Additional Information:
(i) On scrutiny it is found that bank balance as per Bank Statement of Current Account on
31st March, 2020 was ` 5,78,000. A cheque of ` 70,000 was collected from a debtor returned
dishonoured and a cheque of ` 16,000 was deposited by another debtor directly.
(ii) Closing stock as on 31st March, 2020 was ` 40,000.
(iii) Purchases return ` 2,000 was wrongly posted as sales return but correctly debited to
Supplier’s Account.
(iv) Purchases Book is found overcast by ` 6,000.
(v) Sales Book is found undercast by ` 2,000.
You are required to: (1) redraft the Trial Balance, and (2) prepare Final Accounts of
M/s. Gupta & Sons.
Final Accounts—With Adjustments 20.3

Solution: M/s. Gupta & Sons

TRIAL BALANCE (Redrafted) as at 31st March, 2020
Heads of Accounts L.F. Dr. (`) Cr. (`)
Capital ... 7,20,000
Drawings 40,000 ...
Sales (` 10,15,000 + ` 2,000) (v) ... 10,17,000
Purchases (` 6,20,000 – ` 6,000) (iv) 6,14,000 ...
Stock in Trade (1.4.2019) 20,000 ...
Sales Return (` 12,000 – ` 2,000) (iii) 10,000 ...
Purchases Return (` 15,000 + ` 2,000) (iii) ... 17,000
Sundry Debtors (` 80,000 + ` 70,000 – ` 16,000) (i) and (ii) 1,34,000 ...
Sundry Creditors ... 30,000
Rent 22,000 ...
Electricity 16,000 ...
Other Expenses 32,000 ...
Wages 1,12,000 ...
Cash in Hand 1,22,000 ...
Cash at Bank (` 6,32,000 – ` 70,000 + ` 16,000) (i) and (ii) 5,78,000 ...
Advance to Supplier 72,000 ...
Suspense Account (Balancing Figure) 12,000 ...
Total 17,84,000 17,84,000

Note: Number given in the ( ) indicates rectifying entry given on the next page.

TRADING AND PROFIT AND LOSS ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
` Particulars
Particulars `
To Opening Stock 20,000 By Sales 10,17,000
To Purchases 6,14,000 Less: Sales Return 10,000 10,07,000
Less: Purchases Return 17,000 5,97,000 By Closing Stock 40,000
To Wages 1,12,000
To Gross Profit c/d 3,18,000
10,47,000 10,47,000
To Rent 22,000 By Gross Profit b/d 3,18,000
To Electricity 16,000
To Other Expenses 32,000
To Net Profit transferred to Capital A/c 2,48,000
3,18,000 3,18,000

BALANCE SHEET as at 31st March, 2020

Liabilities ` Assets ` 
Sundry Creditors 30,000 Cash in Hand 1,22,000
Capital: Cash at Bank 5,78,000
Opening Balance 7,20,000 Sundry Debtors 1,34,000
Add: Net Profit 2,48,000 Closing Stock 40,000
9,68,000 Advance to Suppliers 72,000
Less: Drawings 40,000 9,28,000 Suspense A/c 12,000
9,58,000 9,58,000

Note: The existence of Suspense Account in both redrafted Trial Balance and Balance Sheet implies that errors
still exist.
20.4 Double Entry Book Keeping—ISC XI

RECTIFYING JOURNAL ENTRIES

Date Particulars  L.F. Dr. (`) Cr. (`)

(i) Sundry Debtors A/c ...Dr. 70,000

To Bank A/c 70,000
(Being the cheque dishonoured)
(ii) Bank A/c ...Dr. 16,000
To Sundry Debtors A/c 16,000
(Being the amount deposited into bank directly by debtor)
(iii) Suspense A/c ...Dr. 4,000
To Purchases Return A/c 2,000
To Sales Return A/c 2,000
(Being the purchase return wrongly recorded as sales return, now rectified)
(iv) Suspense A/c ...Dr. 6,000
To Purchases A/c 6,000
(Being the overcasting in Purchases Book rectified)
(v) Suspense A/c ...Dr. 2,000
To Sales A/c 2,000
(Being the undercasting of Sales Book rectified)

Illustration 2.
From the books of M/s. Shyam Traders, following Trial Balance is prepared on 31st March, 2020:
Debit Balances ` Credit Balances ` 

Purchases (Adjusted) 1,93,500 Sales 3,00,000

Wages 23,250 Bank Overdraft 24,500
Carriage on Purchases 18,000 Interest on Investment 700
Prepaid Insurance on 1st April, 2019 625 Provision for Doubtful Debts 2,500
Bad Debts 600 Cash Discount 4,500
Rent and Insurance 7,750 Capital 71,175
Salary 13,500 Creditors 18,750
Debtors 37,500 Outstanding Wages on 31st March, 2020 900
Stock on 31st March, 2020 20,500
Investment 10,000
Cash 14,500
Accrued Interest on 31st March, 2020 800
Furniture 10,500
Plant and Machinery 50,000
Income Tax 22,000
4,23,025 4,23,025

Prepare (1) Trading and Profit and Loss Account for the year ended 31st March, 2020 and
(2) Balance Sheet as on that date, taking into consideration the adjustment given below:
(i) On 1st October, 2019 plant for ` 10,000 was purchased on credit but no entry was passed.
Final Accounts—With Adjustments 20.5

(ii) Outstanding Expenses: Rent ` 500, Salary ` 600.

(iii) Prepaid Expenses: Insurance ` 250, Wages ` 400.
(iv) Goods costing ` 2,750 were taken for personal use by the owner but no entry has
been made.
(v) Depreciate Plant and Machinery and Furniture @ 10% p.a.
(vi) Write off ` 500 from debtors as bad debts and create provision for doubtful debts @ 5%
and 2% provision for discount on debtors.

Solution: TRADING AND PROFIT AND LOSS ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
Particulars ` Particulars ` 

To Purchases (Adjusted) 1,93,500 By Sales 3,00,000

Less: Drawings 2,750 1,90,750
To Wages 23,250
Less: Prepaid 400 22,850
To Carriage on Purchases 18,000
68,400
To Gross Profit c/d
3,00,000 3,00,000

To Salaries 13,500 By Gross Profit b/d 68,400

Add: Outstanding 600 14,100 By Interest on Investment 700
To Rent and Insurance 7,750 By Cash Discount 4,500
Add: Outstanding Rent 500
8,250
Less: Prepaid Insurance on 31.3.2020 250
8,000
Add: Prepaid Insurance on 1.4.2019 625 8,625
To Bad Debts 600
Add: Further Bad Debts 500
Provision (New) 1,850
2,950
Less: Provision (Old) 2,500 450
To Provision for Discount on Debtors 703
To Depreciation:
on Plant and Machinery* 5,500
on Furniture 1,050 6,550
To Net Profit transferred to Capital A/c 43,172
73,600 73,600

*Depreciation on Plant and Machinery = ` 5,000 (i.e., ` 50,000 × 10/100) + ` 500 (i.e., ` 10,000 × 10/100 × 6/12)
= ` 5,500.
20.6 Double Entry Book Keeping—ISC XI

BALANCE SHEET as at 31st March, 2020

Liabilities ` Assets ` 
Current Liabilities: Current Assets:
Creditors 18,750 Cash 14,500
Supplier (Plant) 10,000 Accrued Interest 800
Bank Overdraft 24,500 Stock 20,500
Outstanding Expenses: Wages 900 Prepaid Insurance 250
Rent 500 Prepaid Wages 400
Salaries 600 2,000
Capital: Debtors 37,500
Opening Balance 71,175 Less: Further Bad Debts 500
Add: Net Profit 43,172 37,000
1,14,347 Less: Provision for Doubtful Debts 1,850
Less: Drawings 2,750 35,150
1,11,597 Less: Provision for Discount 703 34,447
Less: Income Tax (Note 1) 22,000 89,597 Investments 10,000
Fixed Assets:
Furniture 10,500
Less: Depreciation 1,050 9,450
Plant and Machinery
(` 50,000 + ` 10,000) 60,000
Less: Depreciation 5,500 54,500
1,44,847 1,44,847

Note: Income Tax to be taken as drawings of the proprietor.

Illustration 3.
From the following particulars extracted from the books of Saurab, prepare Trading and Profit
and Loss Account for the year ended 31st March, 2020 and Balance Sheet as at 31st March, 2020
after making necessary adjustments:
Particulars ` Particulars ` 
Saurab’s Capital Account (Cr.) 54,050 Sundry Debtors 12,000
Stock as on 1st April, 2019 23,400 Sundry Creditors 7,400
Sales 1,44,800 Loan from Dena Bank Ltd. @ 12% 10,000
Sales Return 4,300 Interest paid 450
Purchases 1,21,550 Printing and Stationery 1,700
Purchases Return 2,900 Advertisement 5,600
Carriage Inwards 9,300 Interest received 725
Rent 2,850 Audit fees 350
Salaries 4,650 Fire Insurance Premium 300
Cash at Bank 4,000 Travelling Expenses 1,165
Discount received 1,495 Postage and Telegrams 435
Investments @ 5% as on 1st April, 2019 2,500 Cash in Hand 190
Furniture (as on 1st April, 2019) 900 Deposits @ 10% as on 1st April, 2019 (Dr.) 15,000
Discount allowed 3,770 Drawings 5,000
General expenses 1,960
Final Accounts—With Adjustments 20.7

Adjustments:
(i) Value of Stock as on 31st March, 2020 is ` 39,300. This includes goods returned by
customers on 31st March, 2020 to the value of ` 1,500 of which no entry was passed.
(ii) Purchases include furniture purchased on 1st January, 2020 for ` 1,000.
(iii) Depreciation should be provided on furniture @ 13% p.a.
(iv) The Loan Account from Dena Bank in the books of Saurab was as follows:
2020 ` 2019 `
Mar. 31 To Balance c/d 10,000 April 1 By Balance b/d 5,000
2020
Mar. 31 By Bank A/c 5,000
10,000 10,000

(v) Sundry Debtors included ` 2,000 due from Rumant and Sundry Creditors included
` 1,000 due to him.
(vi) Interest paid included ` 300 paid to Dena Bank.
(vii) Interest received represents ` 100 from the Sundry Debtors and the balance on investments
and deposits.
(viii) Provide for interest payable to Dena Bank for interest receivable on investments and deposits.
(ix) Provide Provision for Doubtful Debts at 5% on the balance under “Sundry Debtors”. No
provision need to be created for the deposits. [CA (Foundation) Nov., 1994, Modified]

Solution: TRADING AND PROFIT AND LOSS ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
Particulars ` Particulars ` 
To Opening Stock 23,400 By Sales 1,44,800
To Purchases 1,21,550 Less: Sales Return
Less: Purchase of Furniture 1,000 (` 4,300 + ` 1,500) 5,800 1,39,000
1,20,550 By Closing Stock 39,300
Less: Purchases Return 2,900 1,17,650
To Carriage Inwards 9,300
To Gross Profit c/d 27,950
1,78,300 1,78,300
To Rent 2,850 By Gross Profit b/d 27,950
To Salaries Paid 4,650 By Interest Received 725
To Interest Paid 450 Add: Interest Accrued 1,000 1,725
Add: Outstanding 300 750 By Discount Received 1,495
To Printing and Stationery 1,700
To Advertisements 5,600
To Discount Allowed 3,770
To General Expenses 1,960
To Audit Fees 350
To Fire Insurance Premium 300
To Travelling Expenses 1,165
To Postage and Telegrams 435
To Depreciation on Furniture @ 13% p.a.:
on ` 900 for 12 months 117
on ` 1,000 for 3 months 33 150
To Provision for Doubtful Debts 475
To Net Profit transferred to Capital A/c 7,015
31,170 31,170
20.8 Double Entry Book Keeping—ISC XI

BALANCE SHEET OF SAURAB as at 31st March, 2020

Liabilities ` Assets ` 
Capital A/c: Fixed Assets:
Opening Balance 54,050 Furniture:
Add: Net Profit 7,015 Opening Balance 900
61,065 Add: Wrongly added in Purchases 1,000
Less: Drawings 5,000 56,065 1,900
Loans: Less: Depreciation 150 1,750
Loan from Dena Bank: Investments 2,500
Opening Balance 5,000 Current Assets:
Add: Further taken Closing Stock 39,300
on 31st March 5,000 10,000 Sundry Debtors 12,000
Interest Outstanding on Bank Loan 300 Less: Returns not entered 1,500
Current Liabilities: Adjusted in Creditors
Sundry Creditors 7,400 (Note) 1,000
Less: Adjusted in Debtors (Note) 1,000 6,400 9,500
Less: Provision for
Doubtful Debts 475 9,025
Interest Receivable 1,000
10% Deposits 15,000
Cash at Bank 4,000
Cash in Hand 190
72,765 72,765

Note: Sometimes, a person may be a debtor as well as creditor (in question Rumant is debtor as well as creditor) for
the business. When there is a self-balancing system, there will be two accounts of such a person, one in the
Debtor’s Ledger and another in the Creditor’s Ledger. In such a case, the account which has a smaller balance
is transferred to the account which has bigger balance by passing the following entry:
Sundry Creditors A/c ...Dr.
To Sundry Debtors A/c
While calculating the Provision for Doubtful Debts this should be taken into consideration.
Illustration 4.
Following is the Trial Balance of Hari as at 31st March, 2020:
Particulars Dr. (`) Cr. (`)
Hari’s Capital A/c..................................................................................................................................................................... ... 76,690
Stock on 1st April, 2019........................................................................................................................................................ 46,800 ...
Sales............................................................................................................................................................................................ ... 3,89,600
Returns Inward........................................................................................................................................................................ 8,600 ...
Purchases.................................................................................................................................................................................. 3,21,700 ...
Returns Outward.................................................................................................................................................................... ... 5,800
Carriage Inwards..................................................................................................................................................................... 19,600 ...
Rent and Taxes......................................................................................................................................................................... 4,700 ...
Salaries and Wages................................................................................................................................................................ 9,300 ...
Sundry Debtors....................................................................................................................................................................... 24,000 ...
Sundry Creditors..................................................................................................................................................................... ... 14,800
Bank Loan @ 14% p.a............................................................................................................................................................. ... 20,000
Bank Interest ........................................................................................................................................................................... 1,100 ...
Printing and Stationery Expenses.................................................................................................................................... 14,400 ...
Bank Balance............................................................................................................................................................................ 8,000 ...
Discount Earned..................................................................................................................................................................... ... 4,440
Furniture and Fittings........................................................................................................................................................... 5,000 ...
Discount Allowed................................................................................................................................................................... 1,800 ...
General Expenses................................................................................................................................................................... 11,450 ...
Insurance................................................................................................................................................................................... 1,300 ...
Postage and Telegrams Expenses..................................................................................................................................... 2,330 ...
Cash Balance............................................................................................................................................................................ 380 ...
Travelling Expenses............................................................................................................................................................... 870 ...
Drawings................................................................................................................................................................................... 30,000 ...
Total 5,11,330 5,11,330
Final Accounts—With Adjustments 20.9

The following adjustments are to be made:

(i) Included among the Debtors is ` 3,000 due from Ram and included among the Creditors
` 1,000 due to him.
(ii) Provision for Doubtful Debts be created @ 5% and for Discount @ 2% on Sundry Debtors.
(iii) Depreciation on Furniture and Fittings @ 10% shall be written off.
(iv) Personal Purchases of Hari of ` 600 had been recorded in the Purchases Book.
(v) Interest on Bank Loan shall be provided for the whole year.
(vi) A quarter of the amount of Printing and Stationery Expenses is to be carried forward to
the next year.
(vii) Credit Purchase Invoice amounted to ` 400 had been omitted from the books.
(viii) Stock on 31st March, 2020 was ` 78,600.
Prepare (a) Trading and Profit and Loss Account for the year ended 31st March, 2020 and
(b) Balance Sheet as at 31 March, 2020. [CA (Foundation) Nov., 1995, Modified]

Solution: TRADING AND PROFIT AND LOSS ACCOUNT OF HARI

Dr. for the year ended 31st March, 2020 Cr.
Particulars ` Particulars ` 
To Opening Stock 46,800 By Sales 3,89,600
To Purchases 3,21,700 Less: Returns Inward 8,600 3,81,000
Add: Omitted Purchases 400 By Closing Stock* 78,600
Less: Drawings 600
3,21,500
Less: Returns Outward 5,800 3,15,700
To Carriage Inwards 19,600
To Gross Profit c/d 77,500
4,59,600 4,59,600
To Rent and Taxes 4,700 By Gross Profit b/d 77,500
To Salaries and Wages 9,300 By Discount Earned 4,440
To Bank Interest 1,100
Add: Outstanding 1,700 2,800
To Printing and Stationery 14,400
Less: Prepaid 3,600 10,800
To Discount Allowed 1,800
To General Expenses 11,450
To Insurance 1,300
To Postage and Telegrams 2,330
To Travelling Expenses 870
To Provision for Doubtful Debts (WN 1) 1,150
To Provision for Discount on Debtors (WN 1) 437
To Depreciation on Furniture 500
To Net Profit transferred to Capital A/c 34,503
81,940 81,940

* Closing stock is physically verified at the year end. Thus, closing stock includes goods costing ` 400, the credit
purchase invoice in respect of which has been omitted from books.
20.10 Double Entry Book Keeping—ISC XI

BALANCE SHEET OF HARI as at 31st March, 2020

Liabilities ` Assets ` 
Capital A/c: Fixed Assets:
Opening Balance 76,690 Furniture and Fittings 5,000
Add: Profit 34,503 Less: Depreciation 500 4,500
1,11,193 Current Assets:
Less: Drawings: Stock 78,600
Cash 30,000 Sundry Debtors 23,000
Goods 600 30,600 80,593 Less: Provision for
Loan: Doubtful Debts 1,150
Bank Loan 20,000 21,850
Bank Interest due 1,700 Less: Provision for Discount 437 21,413
Current Liabilities: Bank Balance 8,000
Sundry Creditors (WN 2) 14,200 Cash Balance 380
Prepaid Printing and Stationery Expenses 3,600
1,16,493 1,16,493

Working Notes:
1. Calculation of Provisions: `
(a) Debtors as per Trial Balance 24,000
(b) Less: Due from Ram 1,000
(c) Debtors subject to provision (a – b) 23,000
(d) Less: Provision for Doubtful Debts @ 5% on ` 23,000 1,150
(e) Debtors considered good (c – d) 21,850
(f) Less: Provision for Discount on Debtors @ 2% on ` 21,850 437
21,413
2. Closing Creditors:
Creditors (given) + Purchase invoice omitted – Set off in respect of Ram = ` 14,800 + ` 400 – ` 1,000
= ` 14,200.
Illustration 5.
From the following particulars, prepare Trading and Profit and Loss Account of Raman for the
year ended 31st March, 2020 and Balance Sheet as at 31st March, 2020:
Particulars Dr. (`) Cr. (`)
Building................................................................................................................................................................................. 5,00,000 ...
Machineries......................................................................................................................................................................... 2,00,000 ...
Furniture............................................................................................................................................................................... 1,00,000 ...
Cash at Bank........................................................................................................................................................................ 90,000 ...
Cash in Hand....................................................................................................................................................................... 10,000 ...
15% p.a. loan obtained by Raman on 1st April, 2019 on mortgage of his building.................................. ... 3,00,000
Raman’s Capital.................................................................................................................................................................. ... 5,20,000
Sundry Debtors.................................................................................................................................................................. 5,00,000 ...
Sundry Creditors................................................................................................................................................................ ... 4,00,000
Stock on 1st April, 2019................................................................................................................................................... 1,20,000 ...
Purchases............................................................................................................................................................................. 25,00,000 ...
Sales....................................................................................................................................................................................... ... 32,20,000
Sales Return......................................................................................................................................................................... 1,20,000 ...
Purchases Return............................................................................................................................................................... ... 1,00,000
Rent........................................................................................................................................................................................ 60,000 ...
Establishment Expenses................................................................................................................................................. 1,80,000 ...
Electricity Charges............................................................................................................................................................ 15,000 ...
Telephone Charges........................................................................................................................................................... 10,000 ...
Commission on Sales....................................................................................................................................................... 30,000 ...
Insurance Premium........................................................................................................................................................... 10,000 ...
Bad Debts............................................................................................................................................................................. 20,000 ...
Bills Receivable................................................................................................................................................................... 75,000 ...
Total 45,40,000 45,40,000
Final Accounts—With Adjustments 20.11

You are required to provide for depreciation on Building at 5% p.a.; on Machinery at 25% p.a.;
on Furniture at 10% p.a. Provision for Doubtful Debts is to be made at 5% on Sundry Debtors.
Raman’s manager is entitled to a commission of 10% on the net profit after charging his
commission. Closing Stock was not taken on 31st March but only on 7th April.
Following transactions had taken place during the period from 1st April to 7th April: Sales
` 2,50,000; Purchases ` 1,50,000; Stock on 7th April was ` 1,80,000 and the rate of gross profit on
sales was 20%. Insurance premium mentioned in the Trial Balance was in respect of building
and machineries. Interest on mortgage loan to be provided up to 31st March, 2020.
[CA (Foundation) May, 1997, Modified]
Solution: TRADING AND PROFIT AND LOSS ACCOUNT OF RAMAN
Dr. for the year ended 31st March, 2020 Cr.
Particulars ` Particulars ` 
To Opening Stock 1,20,000 By Sales 32,20,000
To Purchases 25,00,000 Less: Sales Return 1,20,000 31,00,000
Less: Purchases Return 1,00,000 24,00,000 By Closing Stock (WN 1) 2,30,000
To Gross Profit c/d 8,10,000
33,30,000 33,30,000
To Rent 60,000 By Gross Profit b/d 8,10,000
To Establishment Expenses 1,80,000
To Electricity Charges 15,000
To Telephone Charges 10,000
To Commission on Sales 30,000
To Insurance Premium 10,000
To Bad Debts 20,000
To Interest on Loan 45,000
To Depreciation on Building 25,000
To Depreciation on Machineries 50,000
To Depreciation on Furniture 10,000
To Provision for Doubtful Debts 25,000
To Manager’s Commission (WN 2) 30,000
To Net Profit transferred to Capital A/c 3,00,000
8,10,000 8,10,000

BALANCE SHEET OF RAMAN as at 31st March, 2020

Liabilities ` Assets ` 
Current Liabilities: Current Assets:
Outstanding Manager’s Commission 30,000 Cash in Hand 10,000
Sundry Creditors 4,00,000 Cash at Bank 90,000
Loans: Sundry Debtors 5,00,000
15% p.a. Loan (on Mortgage Less: Provision for Doubtful Debts 25,000 4,75,000
of Building) 3,00,000 Bills Receivable 75,000
Add: Interest due 45,000 3,45,000 Closing Stock 2,30,000
Capital Account: Fixed Assets:
Opening Balance 5,20,000 Furniture 1,00,000
Add: Net Profit 3,00,000 8,20,000 Less: Depreciation 10,000 90,000
Machineries 2,00,000
Less: Depreciation 50,000 1,50,000
Building 5,00,000
Less: Depreciation 25,000 4,75,000
15,95,000 15,95,000
20.12 Double Entry Book Keeping—ISC XI

Working Notes:
1. Calculation of Closing Stock on 31st March, 2020: `
(a) Stock as on 7th April, 2020 1,80,000
(b) Add: Cost of Goods sold between 1st April, 2020 to 7th April, 2020 (80% of ` 2,50,000) 2,00,000
(c) Less: Cost of Purchases between 1st April, 2020 to 7th April, 2020 1,50,000
Value of stock as on 31st March, 2020 2,30,000
2. Manager’s Commission:
Profit before charging commission = ` 3,30,000
Manager’s Commission = ` 3,30,000 × 10/110 = ` 30,000.
Illustration 6.
Following is the Trial Balance of Arihant as at 31st March, 2020:
Particulars Dr. (`) Cr. (`)
Capital................................................................................................................................................................................... ... 14,00,000
Drawings.............................................................................................................................................................................. 75,000 ...
Opening Stock.................................................................................................................................................................... 80,000 ...
Purchases............................................................................................................................................................................. 16,20,000 ...
Freight on Purchases........................................................................................................................................................ 15,000 ...
Wages.................................................................................................................................................................................... 1,10,000 ...
Sales....................................................................................................................................................................................... ... 25,00,000
Salaries.................................................................................................................................................................................. 1,00,000 ...
Travelling Expenses.......................................................................................................................................................... 23,000 ...
Miscellaneous Expenses................................................................................................................................................. 35,000 ...
Printing and Stationery................................................................................................................................................... 27,000 ...
Advertisement Expenses................................................................................................................................................ 25,000 ...
Postage and Telegrams................................................................................................................................................... 13,000 ...
Discounts Allowed............................................................................................................................................................ 7,600 ...
Discount Received............................................................................................................................................................ ... 14,500
Bad Debts written off (after adjusting recovery of bad debts of ` 6,000 written off during 2018–19) ... 14,000 ...
Building................................................................................................................................................................................. 10,00,000 ...
Machinery............................................................................................................................................................................ 75,000 ...
Furniture............................................................................................................................................................................... 40,000 ...
Debtors................................................................................................................................................................................. 1,50,000 ...
Provision for Doubtful Debts........................................................................................................................................ ... 19,000
Creditors............................................................................................................................................................................... ... 1,60,000
12% Investments (Purchased on 1st January, 2020)............................................................................................. 6,00,000 ...
Bank Balance....................................................................................................................................................................... 83,900 ...
Total 40,93,500 40,93,500

Adjustments:
(i) Closing Stock ` 2,50,000. Its Net Realisable Value (Market Value) was ` 2,25,000.
(ii) Goods worth ` 5,000 were taken for personal use, but no entry was made in the books.
(iii) Machinery worth ` 35,000 purchased on 1st April, 2017 was wrongly written off to Profit
and Loss Account. This asset is to be brought into account on 1st April, 2019 charging
depreciation at 10% p.a. by Straight Line Method up to 31st March, 2020.
(iv) Depreciate Building @ 2½% p.a., Machinery @ 10% p.a. and Furniture @ 10% p.a.
(v) Provision for Doubtful Debts should be 6% on Debtors.
(vi) The Manager is entitled to a commission of 5% of Net Profit after charging his commission.
Prepare Trading and Profit and Loss Account for the year ended 31st March, 2020 and Balance
Sheet as at that date.
Final Accounts—With Adjustments 20.13

Solution: TRADING AND PROFIT AND LOSS ACCOUNT for the year ended 31st March, 2020
Particulars ` Particulars ` 
To Opening Stock 80,000 By Sales 25,00,000
To Purchases 16,20,000 By Closing Stock 2,25,000
Less: Drawings
(Goods for Personal Use) 5,000 16,15,000
To Freight on Purchases 15,000
To Wages 1,10,000
To Gross Profit c/d 9,05,000
27,25,000 27,25,000
To Depreciation: By Gross Profit b/d 9,05,000
Building 25,000 By Discount Received 14,500
Machinery (WN 2) 11,000 By Bad Debts Recovered 6,000
Furniture 4,000 40,000 By Interest Accrued on Investments 18,000
To Salaries 1,00,000
To Travelling Expenses 23,000
To Miscellaneous Expenses 35,000
To Printing and Stationery 27,000
To Advertisement Expenses 25,000
To Postage and Telegrams 13,000
To Discount Allowed 7,600
To Provision for Doubtful Debts (WN 1) 10,000
To Manager’s Commission Outstanding 31,567
(5/105 × ` 6,62,900)
To Net Profit transferred to Capital A/c 6,31,333
9,43,500 9,43,500

BALANCE SHEET as at 31st March, 2020

Liabilities ` Assets ` 
Capital 14,00,000 Building 10,00,000
Less: Drawings (Cash) 75,000 Less: Depreciation 25,000 9,75,000
Drawings (Goods) 5,000 80,000 Machinery 75,000
13,20,000 Add: Profit and Loss A/c (WN 2) 28,000
Add: Net Profit 6,31,333 1,03,000
Machinery Purchased Less: Depreciation 11,000 92,000
on 1st April, 2017 wrongly Furniture 40,000
written off, Capitalised Less: Depreciation 4,000 36,000
on 1st April, 2019 [WN 2(i )] 28,000 19,79,333 Debtors 1,50,000
Creditors 1,60,000 Less: Provision for Doubtful Debts 9,000 1,41,000
Outstanding Manager’s Commission 31,567 Investments 6,00,000
Accrued Interest on Investments 18,000
Bank Balance 83,900
Closing Stock 2,25,000
21,70,900 21,70,900

Working Notes:
1. Dr. PROVISION FOR DOUBTFUL DEBTS ACCOUNT Cr.
Particulars ` Particulars ` 
To Bad Debts A/c (` 14,000 + ` 6,000) 20,000 By Balance b/d 19,000
To Balance c/d (6% on ` 1,50,000) 9,000 By Profit and Loss A/c (Balancing Figure) 10,000
29,000 29,000
20.14 Double Entry Book Keeping—ISC XI

2. (i) Book Value of Machinery wrongly charged to Profit and Loss A/c = Original Cost – Depreciation for 2 years
= ` 35,000 – (` 35,000 × 10% × 2) = ` 28,000 (Machinery Capitalised on 1st April, 2019)
(ii) Calculation of Depreciation on Machinery: `
(a) On Machinery wrongly charged to Profit and Loss A/c (on SLM Basis) (` 35,000 × 10/100) 3,500
(b) On other Machinery (10% of ` 75,000) 7,500
11,000
3. Since Net Realisable Value (Market Value) ` 2,25,000 of closing stock is lower than its cost, closing stock is
taken at ` 2,25,000.

Illustration 7.
Pass adjusting and closing entries in the books of Banerjee & Co. for the following adjustments:
(a) Salaries outstanding ` 10,000.
(b) Insurance paid ` 5,000 including paid in advance ` 1,000.
(c) Goods purchased from Amitabh & Co. ` 2,000 and taken into stock but omitted to be
recorded in the Purchases Book. Purchases given in the Trial Balance 30,000.
(d) Goods worth ` 1,000 given as charity, and worth ` 4,500 distributed as samples.
(e) Interest accrued on securities but not received ` 2,500.
(f) Apprenticeship premium ` 30,000 received in the beginning of the accounting period was
for three years.
(g) Charge depreciation on furniture of ` 60,000 at 10%.
(h) Wages paid to the firm’s own workmen for erection of machinery ` 3,000 was debited to
Wages Account. Wages given in the Trial Balance is ` 40,000.
(i) A cheque amounting to ` 10,000 received from a customer was dishonoured. The returned
cheque was correctly entered in the Cash Book but was posted therefrom to Machinery Account.
(j) A dishonoured Bills Receivable for ` 12,000 returned by the Bank with whom it had been
discounted, had been credited to Bank Account and debited to Bills Receivable Account.
(k) Make a provision for doubtful debts at 5%. Sundry Debtors given in the Trial Balance ` 42,000.
Solution: In the Books of Banerjee & Co.
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

(a) (i) Salaries A/c ...Dr. 10,000

To Salaries Outstanding A/c 10,000
(Being the adjusting entry for salaries outstanding)
(ii) Profit and Loss A/c ...Dr. 10,000
To Salaries A/c 10,000
(Being the closing entry for transfer of salary to Profit and Loss Account)
(b) (i) Prepaid Insurance A/c ...Dr. 1,000
To Insurance A/c 1,000
(Being the adjusting entry for prepaid insurance)
(ii) Profit and Loss A/c ...Dr. 4,000
To Insurance A/c (` 5,000 – ` 1,000) 4,000
(Being the closing entry for insurance)
(c) Purchases A/c ...Dr. 2,000
To Amitabh & Co. 2,000
(Being adjusting entry for goods purchased but not recorded)
Final Accounts—With Adjustments 20.15

(d) (i) Charity A/c ...Dr. 1,000

Advertisement A/c ...Dr. 4,500
To Purchases A/c 5,500
(Being adjusting entry for goods given as charity and as samples)
(ii) Trading A/c ...Dr. 26,500
To Purchases A/c (` 30,000 + ` 2,000 – ` 5,500) 26,500
(Being the closing entry for purchases)
(e) (i) Accrued Interest on Securities A/c ...Dr. 2,500
To Interest on Securities A/c 2,500
(Being adjusting entry for accrued interest)
(ii) Interest on Securities A/c ...Dr. 2,500
To Profit and Loss A/c 2,500
(Being the closing entry for interest on securities)
(f) (i) Apprentice Premium A/c ...Dr. 20,000
To Apprentice Premium Received in Advance A/c 20,000
(Being the adjusting entry for apprenticeship Premium)
(ii) Apprentice Premium A/c (` 30,000 – ` 20,000) ...Dr. 10,000
To Profit and Loss A/c 10,000
(Being the closing entry for apprentice premium)
(g) (i) Depreciation on Furniture A/c ...Dr. 6,000
To Furniture A/c 6,000
(Being adjusting entry for depreciation on furniture)
(ii) Profit and Loss A/c ...Dr. 6,000
To Depreciation on Furniture A/c 6,000
(Being the closing entry for depreciation on furniture)
(h) (i) Machinery A/c ...Dr. 3,000
To Wages A/c 3,000
(Being the adjusting entry for wrongly debiting the Wages Account)
(ii) Trading A/c ...Dr. 37,000
To Wages A/c (` 40,000 – ` 3,000) 37,000
(Being the closing entry for wages)
(i) Sundry Debtors A/c ...Dr. 10,000
To Machinery A/c 10,000
(Being the adjusting entry for wrongly debiting the Machinery A/c
(j) Sundry Debtors A/c ...Dr. 12,000
To Bills Receivable A/c 12,000
(Being the adjusting entry for wrongly debiting the Bills Receivable
dishonoured to Bills Receivable Account)
(k) Profit and Loss A/c ...Dr. 3,200
To Provision for Doubtful Debts A/c 3,200
(Being the adjusting and closing entry for provision for doubtful debts)
[5/100 (` 42,000 + ` 10,000 + ` 12,000)]
20.16 Double Entry Book Keeping—ISC XI

Illustration 8.
From the following Trial Balance of Ganesh, prepare Trading and Profit and Loss Account for the
year ending 31st March, 2020 and Balance Sheet as on that date after taking into consideration
the adjustments given at the end of the Trial Balance.

TRIAL BALANCE
as on 31st March, 2020
Particulars Dr. (`) Cr. (`)

Sales................................................................................................................................................................................... ... 7,40,000

Purchases (adjusted).................................................................................................................................................... 6,99,200 ...
Wages................................................................................................................................................................................ 900 ...
Capital A/c........................................................................................................................................................................ ... 48,500
Insurance Expenses (Accidental Insurance of Employees)............................................................................. 300 ...
Carriage in........................................................................................................................................................................ 400 ...
Carriage out..................................................................................................................................................................... 500 ...
Lighting............................................................................................................................................................................. 600 ...
Rates and Insurance (Including Premium of ` 300 p.a. paid up to 30th September, 2020)................ 400 ...
Stock as on 31st March, 2020.................................................................................................................................... 61,250 ...
Cash in hand and at bank........................................................................................................................................... 1,750 ...
Discount earned............................................................................................................................................................ ... 600
Buildings........................................................................................................................................................................... 30,000 ...
Discount allowed........................................................................................................................................................... 100 ...
Debtors ............................................................................................................................................................................ 6,000 ...
Creditors........................................................................................................................................................................... ... 20,000
Furniture........................................................................................................................................................................... 8,000 ...
Dividends received....................................................................................................................................................... ... 300
Total 8,09,400 8,09,400

Adjustments:

(i) Insurance Expenses includes employers contribution ` 150. Wages are shown ‘net’ after
deducting insurance contribution borne by the employers.
(ii) Owing to the nature of employment, some employees are housed in the building of the
business. The rental value of such portion is assessed at ` 500 p.a.
(iii) Sales as shown in the Trial Balance include the sale of old furniture (effected half way
through the year) realising ` 200. The book value of the furniture at the commencement
of the period was ` 300. The depreciation has been written off at 20% p.a.
(iv) The manager is to get a commission of 1/5th on the net profits after charging his
commission but before considering income from dividend.
(v) Depreciate building by 5%.
Final Accounts—With Adjustments 20.17

Solution: Ganesh
TRADING AND PROFIT AND LOSS ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
` Particulars
Particulars `
To Purchases (Adjusted) 6,99,200 By Sales 7,40,000
To Wages 900 Less: Sale of Furniture 200 7,39,800
Add: Accidental Insurance 150
Add: Rental Value of Building 500 1,550
(WN 1)
To Carriage Inwards 400
To Gross Profit c/d 38,650
7,39,800 7,39,800
To Insurance Expenses 150 By Gross Profit b/d 38,650
(` 300 – ` 150) By Discount Earned 600
To Carriage Outwards 500 By Dividend Received 300
To Rates and Insurance 400 By Rental Value of Building Occupied
Less: Prepaid 150 250 by Employees 500
To Lighting 600
To Discount allowed 100
To Loss on Sale of Furniture (WN 2) 70
To Depreciation on:
Building 1,500
Furniture 1,570 3,070
To Manager’s Commission (WN 3) 5,835
To Net Profit transferred to Capital A/c 29,475
40,050 40,050

BALANCE SHEET OF GANESH

as at 31st March, 2020
`
Liabilities Assets `
Sundry Creditors 20,000 Cash in Hand and at Bank 1,750
Manager’s Commission due 5,835 Sundry Debtors 6,000
Capital 48,500 Closing Stock 61,250
Add: Net Profit 29,475 77,975 Prepaid Insurance 150
Furniture 8,000
Less: Book Value of Furniture Sold 300
7,700
Less: Depreciation 1,540 6,160
Building 30,000
Less: Depreciation 1,500 28,500
1,03,810 1,03,810
20.18 Double Entry Book Keeping—ISC XI

Working Notes:
1. Accidental Insurance and rental value of building occupied by workers are part of wages.
2. Calculation of depreciation on furniture and loss on sale of furniture: `
(i) Furniture sold: Book Value at the beginning 300
Less: Depreciation for 6 months (` 300 × 20/100 × 6/12) 30
Book Value of the Furniture at the time of Sale 270
Less: Selling Price 200
Loss on Sale of Furniture 70
(ii) Furniture in Hand [` 8,000 – ` 300 (Book Value of Furniture Sold)] 7,700
Depreciation 20% of ` 7,700 1,540
Add: 6 months depreciation on furniture sold [WN 2 (i)] 30
Total Depreciation on Furniture 1,570
3. Calculation of Manager’s Commission:
Net Profit before dividend income
= ` (38,650 + 600 + 500 – 150 – 500 – 250 – 600 – 100 – 70 – 3,070) = ` 35,010
Manager’s commission = ` 35,010 × 20/120 = ` 5,835.

Illustration 9.
From the following Trial Balance of Sachin as on 31st March, 2020, prepare Trading and Profit
and Loss Account for the year ended 31st March, 2020 and a Balance Sheet as on that date, after
making the necessary adjustments as given hereunder:
Particulars Dr. (`) Cr. (`)
Sachin’s Capital Account............................................................................................................................................. ... 1,60,000
Sachin’s Drawings.......................................................................................................................................................... 24,000 ...
Furniture and Fixtures................................................................................................................................................. 8,000 ...
Plant and Machinery.................................................................................................................................................... 60,000 ...
Patents (Expected Life 10 years from 01.04.2019)............................................................................................. 40,000 ...
Stock on 01.04.2019..................................................................................................................................................... 40,000 ...
Purchases......................................................................................................................................................................... 1,70,000 ...
Salaries.............................................................................................................................................................................. 14,800 ...
Wages................................................................................................................................................................................ 30,000 ...
Sundry Debtors.............................................................................................................................................................. 20,400 ...
Sales................................................................................................................................................................................... ... 2,64,000
Cash in Hand................................................................................................................................................................... 13,250 ...
Land................................................................................................................................................................................... 28,350 ...
Loan from Kapil (@ 6% on 01.10.2019).................................................................................................................. ... 20,000
Postage and Fax............................................................................................................................................................. 3,000 ...
Rent.................................................................................................................................................................................... 7,200 ...
Bad Debts......................................................................................................................................................................... 800 ...
Sundry Creditors............................................................................................................................................................ ... 24,000
Discount............................................................................................................................................................................ ... 1,200
Carriage Inwards............................................................................................................................................................ 400 ...
Interest on Loan............................................................................................................................................................. 300 ...
Insurance.......................................................................................................................................................................... 1,600 ...
Travelling Expenses...................................................................................................................................................... 1,000 ...
Sundry Expenses........................................................................................................................................................... 600 ...
Cash at Bank.................................................................................................................................................................... 20,500 ...
Bank Overdraft............................................................................................................................................................... ... 15,000
Total 4,84,200 4,84,200
Final Accounts—With Adjustments 20.19

Adjustments:
(i) Stock on 31st March, 2020 is valued at ` 30,000.
(ii) A new machine was installed on 1st April, 2019 for ` 3,000. No entry in this respect was
passed in the books. Wages ` 1,000 paid for installation of the machine were debited to
Wages Account.
(iii) Of the sundry debtors ` 200 are bad and to be written off. You are required to maintain a
provision for doubtful debts @ 5% on debtors and a provision for discount on debtors @ 2%.
(iv) Goods costing ` 2,000 were distributed as samples for publicity.
(v) Depreciate plant and machinery at 20% and furniture and fixtures at 10%.
(vi) Goods costing ` 1,000 were sent to a customer for ` 1,200 on 27th March, 2020 on sale or
return basis. This was recorded as actual sale.

Solution: TRADING AND PROFIT AND LOSS ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
Particulars ` Particulars ` 
To Opening Stock 40,000 By Sales 2,64,000
To Purchases 1,70,000 Less: Goods Sent on
Less: Samples 2,000 1,68,000 Approval Basis 1,200 2,62,800
To Carriage Inwards 400 By Closing Stock 30,000
To Wages 30,000 Add: Stock with
Less: Installation charges 1,000 29,000 Customer at Cost 1,000 31,000
To Gross Profit c/d 56,400
2,93,800 2,93,800
To Salaries 14,800 By Gross Profit b/d 56,400
To Postage and Fax 3,000 By Discount Received 1,200
To Rent and Taxes 7,200
To Insurance 1,600
To Tranvelling Expenses 1,000
To Sundry Expenses 600
To Interest on Loan 300
Add: Accrued Interest 300 600
To Advertisement 2,000
(Samples)
To Bad Debts 800
Add: Further Bad Debts 200
1,000
Add: New Provision for
Doubtful Debts 950 1,950
To Provision for discount on
Debtors 361
To Depreciation on:
Plant and Machinery:
Old 12,000
New 800
Furniture 800
Patents 4,000 17,600
To Net Profit transferred to Capital A/c 6,889
57,600 57,600
20.20 Double Entry Book Keeping—ISC XI

BALANCE SHEET as at 31st March, 2020

Liabilities ` Assets ` 
Loan from Kapil 20,000 Cash in Hand 13,250
Add: Accrued Interest 300 20,300 Cash at Bank 20,500
Sundry Creditors 24,000 Closing Stock 30,000
Supplier of Machinery 3,000 Add: Goods on Approval 1,000 31,000
Bank Overdraft 15,000 Sundry Debtors 20,400
Capital 1,60,000 Less: Goods on Approval 1,200
Add: Net Profit 6,889 19,200
1,66,889 Less: Bad Debts 200
Less: Drawings 24,000 1,42,889 19,000
Less: Provision for Doubtful Debts 950
18,050
Less: Provision for Discount on Debtors 361 17,689
Furniture and Fixtures 8,000
Less: Depreciation 800 7,200
Plant and Machinery 60,000
Add: New Machinery (` 3,000 + ` 1,000) 4,000
64,000
Less: Depreciation (` 12,000 + ` 800) 12,800 51,200
Patents 40,000
Less: Written off 4,000 36,000
Land 28,350
2,05,189 2,05,189

Illustration 10.
From the following Trial Balance and information, prepare Trading and Profit and Loss Account
of Ajit for the year ended 31st March, 2020 and a Balance Sheet as on that date:
Particulars Dr. (`) Cr. (`)
Capital............................................................................................................................................................................... ... 1,00,000
Drawings.......................................................................................................................................................................... 12,000 ...
Land and Building......................................................................................................................................................... 90,000 ...
Plant and Machinery.................................................................................................................................................... 20,000 ...
Furniture........................................................................................................................................................................... 5,000 ...
Sales................................................................................................................................................................................... ... 1,40,000
Returns Outward........................................................................................................................................................... ... 6,000
Debtors............................................................................................................................................................................. 18,400 ...
Loan from Atal on 1.7.2019 @ 6% p.a..................................................................................................................... ... 30,000
Purchases......................................................................................................................................................................... 80,000 ...
Returns Inward............................................................................................................................................................... 5,000 ...
Carriage............................................................................................................................................................................. 10,000 ...
Sundry Expenses........................................................................................................................................................... 600 ...
Printing and Stationery............................................................................................................................................... 500 ...
Insurance Expneses...................................................................................................................................................... 1,000 ...
Provision for Doubtful Debts.................................................................................................................................... ... 1,000
Provision for Discount on Debtors.......................................................................................................................... ... 380
Bad Debts......................................................................................................................................................................... 400 ...
Opening Stock on 1.4.2019 ...................................................................................................................................... 21,300 ...
Salaries and Wages....................................................................................................................................................... 18,500 ...
Creditors........................................................................................................................................................................... ... 12,000
Trade Expenses............................................................................................................................................................... 800 ...
Cash at Bank.................................................................................................................................................................... 4,600 ...
Cash in Hand................................................................................................................................................................... 1,280 ...
Total 2,89,380 2,89,380
Final Accounts—With Adjustments 20.21

Additional Information:
(i) Value of Closing Stock on 31st March, 2020 was ` 27,300.
(ii) Fire occurred on 23rd March, 2020 and general goods of ` 10,000 were destroyed. The
insurance company accepted claim for ` 6,000 only and paid the claim money on 10th
April, 2020.
(iii) Bad debts amounting to ` 400 are to be written off. Provision for doubtful debts is to be
made at 5% and for discount at 2% on debtors.
(iv) Received ` 6,000 worth of goods on 27th March, 2020 but the Invoice of purchases was
not recorded in Purchases Book.
(v) Ajit took away goods worth ` 2,000 for personal use but no record was made thereof.
(vi) Charge depreciation at 2% on Land and Building, 20% on plant and machinery and 5%
on furniture.
(vii) Insurance prepaid amounts to ` 200.

Solution: TRADING AND PROFIT AND LOSS ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
Particulars ` Particulars ` 

To Opening Stock 21,300 By Sales 1,40,000

To Purchases 80,000 Less: Returns Inward 5,000 1,35,000
Less: Returns Outward 6,000 By Loss of Stock by Fire 10,000
74,000 By Closing Stock 27,300
Add: Omitted Purchases 6,000
80,000
Less: Drawings 2,000 78,000
To Carriage 10,000
To Gross Profit c/d 63,000
1,72,300 1,72,300
To Sundry Expenses 600 By Gross Profit b/d 63,000
To Printing and Stationery 500 By Provision for Discount on Debtors 380
To Insurance Expenses 1,000 Less:  Provision Required 342 38
Less: Prepaid 200 800
To Bad Debts 400
Add: Additional 400
Add: New Provision 5/100 of
(` 18,400 – ` 400) 900
1,700
Less: Old Provision 1,000 700
To Salaries and Wages 18,500
To Trade Expenses 800
To Loss of Stock by fire 4,000
To Interest on Loan 1,350
(` 30,000 × 6/100 × 9/12)
To Depreciation:
Land and Building 1,800
Plant and Machinery 4,000
Furniture 250 6,050
To Net Profit transferred to Capital A/c 29,738
63,038 63,038
20.22 Double Entry Book Keeping—ISC XI

BALANCE SHEET OF MR. AJIT as at 31st March, 2020

Liabilities ` Assets ` 
Current Liabilities: Current Assets:
Creditors 12,000 Cash in Hand 1,280
Add: Omitted Purchases 6,000 18,000 Cash at Bank 4,600
Loan: Debtors 18,400
Loan from Atal 30,000 Less: Further Bad Debts 400
Add: Interest 1,350 31,350 18,000
Capital: Less: Provision for Doubtful
Opening Balance 1,00,000 Debts @ 5% 900
Add: Net Profit 29,738 17,100
1,29,738 Less: Provision for Discount 342 16,758
Less: Drawings: (in Cash) 12,000 Closing Stock 27,300
(in Goods) 2,000 14,000 1,15,738 Insurance Company (Claim) 6,000
Prepaid Insurance 200
Fixed Assets:
Land and Building 90,000
Less: Depreciation 1,800 88,200
Plant and Machinery 20,000
Less: Depreciation 4,000 16,000
Furniture 5,000
Less: Depreciation 250 4,750

1,65,088 1,65,088

Illustration 11.
From the following Trial Balance of Samar as on 31st March, 2020, you are requested to prepare
Trading and Profit and Loss Account for the year ended 31st March, 2020 and a Balance Sheet
as on that date after making necessary adjustments.
Particulars Dr. (`) Cr. (`)
Sundry Debtors.............................................................................................................................................................. 5,00,000 ...
Sundry Creditors............................................................................................................................................................ ... 2,00,000
Outstanding liabilities for expenses....................................................................................................................... 55,000 ...
Wages................................................................................................................................................................................ 1,00,000 ...
Carriage Outward.......................................................................................................................................................... 1,10,000 ...
Carriage Inward.............................................................................................................................................................. 50,000 ...
General Expenses.......................................................................................................................................................... 70,000 ...
Cash Discount................................................................................................................................................................. 20,000 ...
Bad Debts......................................................................................................................................................................... 10,000 ...
Motor car.......................................................................................................................................................................... 2,40,000 ...
Printing and Stationery............................................................................................................................................... 15,000 ...
Furniture and Fittings.................................................................................................................................................. 1,10,000 ...
Advertisement................................................................................................................................................................ 85,000 ...
Insurance.......................................................................................................................................................................... 45,000 ...
Salesman’s Commission.............................................................................................................................................. 87,500 ...
Postage and Telephone............................................................................................................................................... 57,500 ...
Salaries.............................................................................................................................................................................. 1,60,000 ...
Rates and Taxes.............................................................................................................................................................. 25,000 ...
Capital Account.............................................................................................................................................................. ... 14,43,000
Drawings.......................................................................................................................................................................... 20,000 ...
Purchases......................................................................................................................................................................... 15,50,000 ...
Sales................................................................................................................................................................................... ... 19,87,500
Stock on 1st April, 2019............................................................................................................................................... 2,50,000 ...
Cash at Bank.................................................................................................................................................................... 60,000 ...
Cash in Hand................................................................................................................................................................... 10,500 ...
Total 36,30,500 36,30,500
Final Accounts—With Adjustments 20.23

The following adjustments are to be made:

(i) Stock on 31st March, 2020 was valued at ` 7,25,000.
(ii) A provision for Doubtful Debts is to be created to the extent of 5% on Sundry Debtors.
(iii) Depreciate Furniture and Fittings by 10% and Motor Car by 20%.
(iv) Samar had withdrawn goods worth ` 25,000 during the year.
(v) Sales include goods worth ` 75,000 sent out to Chand on approval and remain unsold on
31st March, 2020. The cost of the goods was ` 50,000.
(vi) The salesmen were entitled to a commission of 5% on total sales.
(vii) Debtors include ` 25,000 bad debts.
(viii) Printing and Stationery expenses of ` 55,000 relating to 2018–19 had not been provided
in that year but were paid in 2019–20 by debiting outstanding liabilities.
(ix) Purchases include purchase of furniture worth ` 50,000.
Solution: TRADING AND PROFIT AND LOSS ACCOUNT OF SAMAR
Dr. for the year ended 31st March, 2020 Cr.
` Particulars
Particulars `
To Opening Stock 2,50,000 By Sales: 19,87,500
To Purcahses 15,50,000 Less: Goods sent on approval
Less: Drawings 25,000 basis (at selling price) 75,000 19,12,500
Purchases of Furniture 50,000 14,75,000 By Closing Stock 7,25,000
To Wages 1,00,000 Add: Stock on approval basis
To Carriage Inwards 50,000 (at cost) 50,000 7,75,000
To Gross Profit c/d 8,12,500
26,87,500 26,87,500
To Salaries 1,60,000 By Gross Profit b/d 8,12,500
To Postage and Telephone 57,500
To Insurance 45,000
To Rates and Taxes 25,000
To General Expenses 70,000
To Printing and Stationery 15,000
To Depreciation:
on existing furniture 11,000
on additional furniture 5,000
on motor car 48,000 64,000
To Salesmen’s Commission 87,500
Add: Outstanding Commision
(5% of ` 19,12,500 – ` 87,500)
(` 95,625 – ` 87,500) 8,125 95,625
To Advertisement 85,000
To Carriage Outwards 1,10,000
To Bad Debts 10,000
Add: Further Bad Debts 25,000
Required provision for
Doubtful Debts
(5% of ` 4,00,000) 20,000 55,000
To Discount 20,000
To Net Profit transferred to Capital A/c 10,375
8,12,500 8,12,500
20.24 Double Entry Book Keeping—ISC XI

BALANCE SHEET OF SAMAR as at 31st March, 2020

Liabilities `  Assets ` 
Capital 14,43,000 Furniture and Fittings 1,10,000
Add: Net Profit 10,375 Add: Addition during the year 50,000
14,53,375 1,60,000
Less: Drawings Less: Depreciation 16,000 1,44,000
(` 20,000 + ` 25,000) 45,000 Motor Car 2,40,000
14,08,375 Less: Depreciation 48,000 1,92,000
Less: Printing and Stationery Closing Stock 7,25,000
of Last Year 55,000 13,53,375 Add: Stock on Approval Basis 50,000 7,75,000
Salesmen’s Commission Outstanding 8,125 Sundry Debtors 5,00,000
Sundry Creditors 2,00,000 Less: Goods sent on Approval Basis 75,000
4,25,000
Less: Bad Debts 25,000
4,00,000
Less: Provision for Doubtful Debts 20,000 3,80,000
Cash at Bank 60,000
Cash in Hand 10,500
15,61,500 15,61,500

Illustration 12.
Given below is the Trial Balance of Ramesh as on 31st March, 2020:
Particulars Dr. (`) Cr. (`)
Land and Building......................................................................................................................................................... 1,20,000 ...
Office Machinery........................................................................................................................................................... 70,000 ...
Furniture and Fittings.................................................................................................................................................. 20,000 ...
Stock on 1st April, 2019............................................................................................................................................... 16,000 ...
Purchases......................................................................................................................................................................... 90,000 ...
Sales................................................................................................................................................................................... ... 2,20,000
Salaries.............................................................................................................................................................................. 20,000 ...
Bad Debts......................................................................................................................................................................... 10,000 ...
Debtors............................................................................................................................................................................. 35,000 ...
Creditors........................................................................................................................................................................... ... 40,000
Sales Return..................................................................................................................................................................... 10,000 ...
Rent.................................................................................................................................................................................... 15,000 ...
Advertisement................................................................................................................................................................ 18,000 ...
Drawings.......................................................................................................................................................................... 5,000 ...
Loan to Ashok @ 16% p.a. on 1st October, 2019................................................................................................. 20,000 ...
Wages................................................................................................................................................................................ 33,000 ...
Interest on Loan to Ashok.......................................................................................................................................... ... 1,000
Bills Receivable............................................................................................................................................................... 10,000 ...
Trademark........................................................................................................................................................................ 8,000 ...
Provision for Doubtful Debts.................................................................................................................................... ... 8,000
Discount............................................................................................................................................................................ 1,000 ...
Wages Payable................................................................................................................................................................ ... 2,000
Capital............................................................................................................................................................................... ... 1,90,000
Bank Overdraft............................................................................................................................................................... ... 40,000
Total 5,01,000 5,01,000
Final Accounts—With Adjustments 20.25

Additional Information:
(i) The value of stock on 31st March, 2020, ` 30,000.
(ii) Sales include ` 5,000 for the goods sold on approval to Hemant. Goods are sold at a profit
of 25% on cost. Approval was not received till 31st March.
(iii) Furniture purchased during the year for ` 5,000 was wrongly debited to Purchases Book.
(iv) A cheque of ` 8,000 received from customers was deposited in the bank in the last week
of March. It was reported to have been dishonoured.
(v) Samples costing ` 4,000 were distributed during the year.
(vi) Write off further bad debts ` 2,000. Also create a provision for doubtful debts at 10% on
debtors.
(vii) Depreciate furniture by 10% and office machinery by 5%.
repare Trading and Profit and Loss Account for the year ended 31st March, 2020 and a Balance
P
Sheet as on that date.

Solution:
TRADING AND PROFIT AND LOSS ACCOUNT OF RAMESH
Dr. for the year ended 31st March, 2020 Cr.
` Particulars
Particulars `
To Opening Stock 16,000 By Sales 2,20,000
To Purchases 90,000 Less: Sales on Approval 5,000
Less: Transferred to Furniture A/c 5,000 2,15,000
85,000 Less: Sales Return 10,000 2,05,000
Less:
Samples 4,000 81,000 By
Closing Stock 30,000
To Wages 33,000 By Stock with Customers
1,09,000 on Approval (At Cost)
To Gross Profit c/d 4,000
2,39,000 2,39,000
To Salaries 20,000 By Gross Profit b/d 1,09,000
To Prov. for Doubtful Debts (New) 3,600 By Interest on Loan to Ashok 1,000
Add: Bad Debts (` 10,000 + ` 2,000) 12,000 Add: Accrued Interest 600 1,600
15,600
Less: Existing Provision 8,000 7,600
To Rent, Rates and Taxes 15,000
To Advertisement 18,000
To Discount 1,000
To Samples 4,000
To Depreciation on Furniture 2,500
To Depreciation on Machinery 3,500
To Net Profit transferred to Capital A/c 39,000
1,10,600 1,10,600
20.26 Double Entry Book Keeping—ISC XI

BALANCE SHEET OF RAMESH as at 31st March, 2020

Liabilities ` Assets `
Capital 1,90,000 Land and Building 1,20,000
Add: Net Profit 39,000 Machinery 70,000
2,29,000 Less: Depreciation 3,500 66,500
Less: Drawings 5,000 2,24,000 Furniture 20,000
Creditors 40,000 Add: Transfer from Purchases 5,000
Wages Payable 2,000 25,000
Bank Overdraft 40,000 Less: Depreciation 2,500 22,500
Add: Dishonour of Cheque 8,000 48,000 Loan to Ashok 20,000
Bills Receivable 10,000
Trademark 8,000
Debtors 35,000
Less: Sale on Approval 5,000
30,000
Further Bad Debts 2,000
28,000
Add: Cheque Dishonour 8,000
36,000
Less: Provision
for Doubtful Debts 3,600 32,400
Accrued Interest 600
Closing Stock 30,000
Stock with customers on Approval 4,000
3,14,000 3,14,000

Illustration 13.
From the following Trial Balance and additional information, prepare the Trading and Profit and
Loss Account of Mukul for the year ended 31st March, 2020 and Balance Sheet as at that date:
Particulars Dr. (`) Cr. (`)
Drawings.......................................................................................................................................................................... 10,000 ...
Capital ............................................................................................................................................................................ ... 1,70,000
Plant and Machinery.................................................................................................................................................... 1,10,000 ...
Sales................................................................................................................................................................................... ... 1,65,000
Purchases......................................................................................................................................................................... 84,000 ...
Sales Return..................................................................................................................................................................... 5,000 ...
Purchases Return........................................................................................................................................................... ... 4,000
Bad Debts......................................................................................................................................................................... 5,000 ...
Bad Debts Recovered................................................................................................................................................... ... 26,450
Freight Inwards.............................................................................................................................................................. 5,000 ...
Freight Outwards........................................................................................................................................................... 7,000 ...
Discount............................................................................................................................................................................ 2,000 1,000
Commission..................................................................................................................................................................... 4,000 3,000
Rent.................................................................................................................................................................................... 3,000 4,000
Interest ............................................................................................................................................................................ 2,500 3,000
Office and Administrative Expenses....................................................................................................................... 6,000 ...
Selling and Distribution Expenses.......................................................................................................................... 10,000 ...
Creditors........................................................................................................................................................................... ... 2,02,000
Debtors ............................................................................................................................................................................ 2,15,000 ...
Bills Payable..................................................................................................................................................................... ... 5,600
Bills Receivable............................................................................................................................................................... 10,000 ...
Loan Given....................................................................................................................................................................... 20,000 ...
Loans Taken..................................................................................................................................................................... ... 50,000
Investments..................................................................................................................................................................... 50,000 ...
Opening stock................................................................................................................................................................ 54,000 ...
Cash in hand.................................................................................................................................................................... 5,000 ...
Cash at Dena Bank........................................................................................................................................................ 45,550 ...
Bank overdraft at Canara Bank................................................................................................................................. ... 20,000
Wages and Salaries....................................................................................................................................................... 1,000 ...
Total 6,54,050 6,54,050
Final Accounts—With Adjustments 20.27

Additional Information:
(i) Closing Stock at market price as at 31st March, 2020 was ` 61,500. However, its cost was
` 80,000.
(ii) Provide for depreciation on Plant and Machinery @ 10% p.a.
(iii) Goods costing ` 10,000 were destroyed due to fire on 30th March, 2020. The Insurance
Company accepted claim to the extent of 60% only and paid the claim money on
10th April, 2020.
(iv) Goods worth ` 10,000 were sent to a customer on approval basis and have been accounted
in the books as actual sale. These goods remained unapproved on 31st March, 2020. The
cost of such goods was ` 8,000.
(v) Received credit purchase invoice of ` 10,500 on 27th March, 2020 and recorded in the
books but the goods were not received till the end of the accounting year.
(vi) Manager is entitled to a commission of 5% of net profit after charging the commission.

Solution:
TRADING AND PROFIT AND LOSS ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
` Particulars
Particulars `
To Opening Stock 54,000 By Sales A/c 1,65,000
To Purchases 84,000 Less: Sales Return 5,000
Less: Purchases Return 4,000 80,000 Goods Sent for Approval 10,000 1,50,000
To Freight Inwards 5,000 By Loss of Stock due to Fire 10,000
To Wages and Salaries 1,000 By Closing Stock (Note 1) 61,500
To Gross Profit c/d 1,00,000 Add: Goods Sent for Approval 8,000
Goods in Transit (Note 3) 10,500 80,000
2,40,000 2,40,000
To Bad Debts 5,000 By Gross Profit b/d 1,00,000
To Freight Outwards 7,000 By Commission 3,000
To Rent 3,000 By Interest 3,000
To Interest 2,500 By Rent Received 4,000
To Commission 4,000 By Bad Debts Recovered 26,450
To Discount 2,000 By Discount 1,000
To Office and Administrative Expenses 6,000
To Selling and Distribution Expenses 10,000
To Depreciation on Plant and Machinery 11,000
To Loss of Stock due to Fire 10,000
Less: Insurance Claim admitted 6,000 4,000
To Manager’s Commission (Note 4) 3,950
5/105 of ` 82,950 (i.e., ` 1,37,450 – ` 54,500)
To Net Profit transferred to Capital A/c 79,000
1,37,450 1,37,450
20.28 Double Entry Book Keeping—ISC XI

BALANCE SHEET
as at 31st March, 2020
`
Liabilities Assets `

Capital: Fixed Assets:

Opening Balance 1,60,000 Plant and Machinery 1,10,000
Add: Net Profit 79,000 Less: Depreciation 11,000 99,000
Additional Capital 10,000 Investments 50,000
2,49,000 Current Assets:
Less: Drawings 10,000 2,39,000 Debtors 2,15,000
Loan 50,000 Less: Goods sent for approval 10,000 2,05,000
Current Liabilities: Bills Receivable 10,000
Creditors 2,02,000 Loan 20,000
Bills Payable 5,600 Closing Stock:
Bank Overdraft at Canara Bank 20,000 Stock in Hand 61,500
Manager’s Commission Outstanding 3,950 With Customers for Approval 8,000
In transit 10,500 80,000
Insurance Co. (Claim due) 6,000
Cash in Hand 5,000
Cash at Dena Bank 45,550
5,20,550 5,20,550

Notes:

1. Closing Stock is valued at (market price) i.e., ` 61,500 as per Prudence Concept that Closing Stock is valued
at cost or net realisable value (market price), whichever is lower.
2. Goods with customers (not yet approved as sales) are treated as unsold and included in closing stock at cost
` 8,000.
3. Received credit purchase invoice of ` 10,500 on 27th March, 2020 and recorded in the books but the goods
were not received till the end of accounting year. Hence, the same are treated as part of Closing Stock
(Goods-in-Transit).
4. Manager’s commission may be calculated as follows:
Let total commission payable be X

X = 5/100 (Profit before commission – commission)

X = 1/20 (` 82,950 – X)

20X = ` 82,950 – X

21X = ` 82,950

X = ` 82,950/21 = ` 3,950.
Final Accounts—With Adjustments 20.29

Illustration 14.
The following is the Trial Balance of Bhavesh as on 31st March, 2020:
Particulars Dr. (`) Cr. (`)
Cash in Hand.......................................................................................................................................................................... 5,000 ...
Land and Building................................................................................................................................................................ 80,000 ...
Plant and Machinery........................................................................................................................................................... 50,000 ...
Debtors.................................................................................................................................................................................... 25,000 ...
Creditors.................................................................................................................................................................................. ... 40,000
Stock on 1st April, 2019...................................................................................................................................................... 10,000 ...
15% Investment on 1st April, 2019 ............................................................................................................................... 20,000 ...
Purchases................................................................................................................................................................................ 95,000 ...
Sales........................................................................................................................................................................................... ... 1,90,000
Bank Overdraft....................................................................................................................................................................... ... 20,000
Wages....................................................................................................................................................................................... 28,000 ...
Salaries..................................................................................................................................................................................... 16,000 ...
Rent........................................................................................................................................................................................... 15,000 ...
Bad Debts................................................................................................................................................................................ 6,000 ...
Drawings................................................................................................................................................................................. 5,000 ...
Bills Receivable...................................................................................................................................................................... 15,000 ...
Bills Payable............................................................................................................................................................................ ... 21,000
Carriage Inwards................................................................................................................................................................... 6,000 ...
Customs Duty on Purchases............................................................................................................................................. 16,000 ...
Fire Insurance Premium..................................................................................................................................................... 4,000 ...
Advertisement....................................................................................................................................................................... 30,000 ...
Provision for Doubtful Debts........................................................................................................................................... ... 2,000
Interest on Investments..................................................................................................................................................... ... 2,000
Sundry Expenses.................................................................................................................................................................. 11,000 ...
Furniture.................................................................................................................................................................................. 20,000 ...
General Reserve.................................................................................................................................................................... ... 25,000
Capital...................................................................................................................................................................................... ... 1,57,000
Total 4,57,000 4,57,000

Additional Information:
(i) Stock on 31st March, 2020 was valued at ` 40,000.
(ii) Included in debtors are ` 8,000 due from Ram and included in creditors are ` 6,000 due
to Ram.
(iii) Bills Receivable include a bill of ` 5,000 received from Mohan, which has been
dishonoured.
(iv) Sales include ` 5,000 for the goods sold on approval basis. Approval was not received
till 31st March. Goods are sold at a profit of 25% on cost.
(v) Wages include ` 5,000 spent on the erection of machinery on 1st April, 2019.
(vi) Provision for doubtful debts is to be maintained at 5% of debtors.
(vii) Prepaid rent amounted to ` 2,000.
(viii) Depreciate machinery by 10%.
repare Trading and Profit and Loss Account for the year ended 31st March, 2020 and Balance
P
Sheet as on that date.
20.30 Double Entry Book Keeping—ISC XI

Solution: TRADING AND PROFIT AND LOSS ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
`
Liabilities Assets `
To Opening Stock 10,000 By Sales 1,90,000
To Purchases 95,000 Less: Goods Sent on Approval 5,000 1,85,000
Add: Customs Duty 16,000 1,11,000 By Closing Stock 40,000
To Wages 28,000 Add: Stock with Customers
Less: For Machine 5,000 23,000 at cost (` 5,000 × 100/125) 4,000 44,000
To Carriage Inwards 6,000
To Gross Profit c/d 79,000
2,29,000 2,29,000
To Salaries 16,000 By Gross Profit b/d 79,000
To Rent 15,000 By Interest on Investments 2,000
Less: Prepaid 2,000 13,000 Add: Accrued Interest 1,000 3,000
To Bad Debts 6,000 By Provision for Doubtful Debts 2,000
To Fire Insurance Premium 4,000 Less: New Provision for
To Advertisement 30,000 Doubtful Debts 950 1,050
To Sundry Expenses 11,000 By Net Loss transferred to Capital A/c 2,450
To Depreciation on Machinery
[10/100 (` 50,000 + ` 5,000)] 5,500
85,500 85,500

BALANCE SHEET
as at 31st March, 2020
`
Liabilities Assets `
Capital 1,57,000 Land and Building 80,000
Less: Drawings 5,000 Plant and Machinery 50,000
1,52,000 Add: Installation Cost 5,000
Less: Net Loss 2,450 1,49,550 55,000
Bank Overdraft 20,000 Less: Depreciation 5,500 49,500
Bills Payable 21,000 Furniture 20,000
Creditors 40,000 15% Investments 20,000
Less: Common Debts 6,000 34,000 Prepaid rates and taxes 2,000
General Reserve 25,000 Bills Receivable 15,000
Less: Dishonoured 5,000 10,000
Accrued Interest 1,000
Debtors 25,000
Less: Sale on approval 5,000
Common Debts 6,000
Add: Bill Receivable Dishonoured 5,000
19,000
Less: Provision for Doubtful
Debts 950 18,050
Closing Stock ` (40,000 + 4,000) 44,000
Cash in Hand 5,000
2,49,550 2,49,550
Final Accounts—With Adjustments 20.31

Illustration 15.
Following is the Trial Balance of Mahesh as on 31st March, 2020. Prepare Trading and
Profit and Loss Account for the year ending on 31st March, 2020 and a Balance Sheet as at
31st March, 2020 from it:
Debit Balances ` Credit Balances ` 
Opening Stock 75,000 Sales 6,30,000
Machinery (Purchased on 1.7.2019) 1,90,000 10% Bank Loan (taken on 1st July, 2019) 50,000
Furniture (Purchased on 1.7.2019) 1,00,000 Capital Account 5,19,000
Debtors 2,07,000 Creditors 90,000
Bills Receivable 10,000 Bills Payable 15,600
12% Investment (Purchased on 1.7.2019) 50,000 Purchases Return 5,000
Cash in Hand 10,000 Discount Received 1,000
Cash at Bank 5,000 Commission 3,750
Purchases 5,25,000 Interest Received 3,000
Sales Return 10,000 Bad Debts Recovered 2,500
Wages 18,500
Carriage Inwards 500
Carriage Outwards 350
Rent 3,000
Insurance 3,600
Salaries 11,200
Discount Allowed 2,000
Bad Debts 5,000
Interest on Bank Loan 2,500
Selling and Distribution Expenes 15,800
Income Tax Paid 1,000
Drawings 10,650
Loose Tools 3,750
Building 60,000
13,19,850 13,19,850

Additional Information:
(i) Rent is payable at the rate of ` 300 per month. Insurance Premium was paid for the year
ending on 30th June, 2020.
(ii) Remuneration of ` 2,000 paid to Ashok, a temporary employee, stands debited to his
Personal Account.
One-third of the commission received is in respect of work to be done next year.
(iii) Provide depreciation at 10% p.a. on Machinery and 10% on Furniture. Depreciate
Building by 5%.
(iv) Sundry Debtors include ` 5,000 which had become bad. Create provision for doubtful
debts @ 10% and create a provision for discount on debtors @ 2%.
(v) A fire occurred on 10th March, 2020 in the godown and stock of ` 10,000 was destroyed,
it was fully insured but the insurance company admitted the claim to the extent of
60% only.
(vi) Goods costing ` 20,000 were taken by Mahesh for his personal use but no entry has been
made in the books of account.
(vii) Goods costing ` 30,000 were distributed as samples but no entry has been made in the
books of account.
(viii) Manager is entitled to a commission of 10% on Net Profit before charging his commission.
20.32 Double Entry Book Keeping—ISC XI

(ix) Wages include a sum of ` 4,000 spent on the erection of a cycle shed for employees and
visitors. Wages ` 10,000 paid for erection of machinery have been debited to Wages Account.
(x) Stock on 31st March, 2020 was valued at ` 93,600. Loose tools are valued at ` 1,250.
Solution: TRADING AND PROFIT AND LOSS ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
` Particulars
Particulars `
To Opening Stock 75,000 By Sales 6,30,000
To Purchases 5,25,000 Less: Sales Return 10,000 6,20,000
Less: Purchases Return 5,000 By Closing Stock 93,600
5,20,000
Less: Loss of Stock by Fire 10,000
5,10,000
Less: Goods taken for
Personal Use 20,000
4,90,000
Less: Goods distributed
as samples 30,000 4,60,000
To Wages 18,500
Less: Cost of Erection of a Cycle
Shed (Building) 4,000
14,500
For Erection of Machinery 10,000 4,500
To Carriage Inwards 500
To Gross Profit c/d 1,73,600
7,13,600 7,13,600
To Carriage Outwards 350
To Rent Paid 3,000 By Gross Pofit b/d 1,73,600
Add: Outstanding 600 3,600 By Discount Received 1,000
To Insurance Paid 3,600 By Bad Debts Recovered 2,500
Less: Prepaid 900 2,700 By Interest Received 3,000
To Salaries 11,200 Add: Accrued Interest 1,500 4,500
Add: Salary to Ashok 2,000 13,200 [(` 50,000 × 12/100 × 9/12)
To Discount Allowed 2,000 – ` 3,000]
To Bad Debts 5,000 By Commission 3,750
Add: Further Bad Debts 5,000 10,000 Less:  Received in Advance 1,250 2,500
To Interest on Bank Loan Paid 2,500
Add: Outstanding 1,250 3,750
To Selling and Distribution Expenses 15,800
To Provision for Doubtful Debts 20,000
To Provision for Discount on Debtors 3,600
To Depreciation on:
Machinery 15,000
(` 2,00,000 × 10/100 × 9/12)
Furniture (` 1,00,000 × 10/100) 10,000
Building (` 64,000 × 5/100) 3,200 28,200
To Loss on Revaluation of Loose Tools 2,500
To Loss of Stock by Fire (` 10,000 – ` 6,000) 4,000
To Sales Promotion Expenses (Samples) 30,000
To Manager’s Commission (10/100 × ` 44,400) 4,440
To Net Profit transferred to Capital A/c 39,960
1,84,100 1,84,100
Final Accounts—With Adjustments 20.33

BALANCE SHEET
as at 31st March, 2020

`
Liabilities Assets `

Current Liabilities Current Assets

Creditors 90,000 Cash in Hand 10,000
Bills Payable 15,600 Cash at Bank 5,000
Outstanding Rent 600 Debtors 2,07,000
Unearned Commission 1,250 Less: Further Bad Debts 5,000
Manager’s Commission 4,440 2,02,000
Bank Loan 50,000 Less: Salary to Ashok 2,000
Add: Outstanding Interest 1,250 51,250 2,00,000
Capital Less: Provision for Doubtful Debts 20,000
Opening Balance 5,19,000 1,80,000
Add: Net Profit 39,960 Less: Provision for Discount on
5,58,960 Debtors 3,600 1,76,400
Less: Drawings 10,650 Bills Receivable 10,000
Income Tax 1,000 Prepaid Insurance 900
Goods taken for Loose Tools (` 3,750 – ` 2,500) 1,250
Personal Use 20,000 31,650 5,27,310 Insurance Company (Claim) 6,000
Accrued Interest on Investment 1,500
Closing Stock 93,600
12% Investment 50,000
Fixed Assets
Machinery (` 1,90,000 + ` 10,000) 2,00,000
Less: Depreciation 15,000 1,85,000
Furniture 1,00,000
Less: Depreciation 10,000 90,000
Building 60,000
Add: Cost of Cycle Shed 4,000
64,000
Less: Depreciation 3,200 60,800
6,90,450 6,90,450

Note: Depreciation on furniture has been charged for the full year because a flat rate of 10% (and not
10% p.a.) has been given, whereas depreciation on machinery has been charged for 9 months from
1st July to 31st March.

Illustration 16.
From the following Trial Balance of Ajay, you are required to prepare Trading and Profit and
Loss Account for the year ending 31st March, 2020 and a Balance Sheet as on that date:
20.34 Double Entry Book Keeping—ISC XI

Particulars Dr. (`) Cr. (`)

Purchases.................................................................................................................................................................................. 1,30,295 ...

Sales............................................................................................................................................................................................ ... 1,80,500
Cash in Hand............................................................................................................................................................................ 500 ...
Cash at Bank............................................................................................................................................................................. 9,500 ...
Stock on 1st April, 2019........................................................................................................................................................ 40,000 ...
Wages......................................................................................................................................................................................... 22,525 ...
Sales Return ............................................................................................................................................................................. 2,400
Purchases Return.................................................................................................................................................................... ... 195
Repairs........................................................................................................................................................................................ 1,675 ...
Debtors ..................................................................................................................................................................................... 30,000 ...
Creditors.................................................................................................................................................................................... ... 30,305
Bad Debts.................................................................................................................................................................................. 2,310 ...
Discount Allowed................................................................................................................................................................... 800
Discount Received................................................................................................................................................................. ... 530
Capital........................................................................................................................................................................................ ... 37,500
Interest on Loan...................................................................................................................................................................... 600 ...
Salaries....................................................................................................................................................................................... 8,000 ...
Postage and Telegram.......................................................................................................................................................... 800 ...
Freight Inwards....................................................................................................................................................................... 500 ...
Insurance................................................................................................................................................................................... 1,000 ...
Charity........................................................................................................................................................................................ 125 ...
Rent............................................................................................................................................................................................. 2,000 ...
Machinery................................................................................................................................................................................. 16,000 ...
Loan @ 12% p.a........................................................................................................................................................................ ... 20,000
Total 2,69,030 2,69,030

Adjustments:
(i) Purchases include a machine purchased on 1st October, 2019 for ` 4,000 and Wages
include ` 2,000 paid on its installation.
(ii) Provide for depreciation on Machinery @ 10% p.a.
(iii) Value of Stock on 31st March, 2020 was ` 40,925.
(iv) Salaries unpaid ` 800 and Rent is paid up to 30th June, 2020.
(v) Write off further bad debts ` 400 and create a provision of 5% on debtors for doubtful debts.
(vi) Prepaid Insurance is ` 300.
Final Accounts—With Adjustments 20.35

Solution: TRADING AND PROFIT AND LOSS ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
` Particulars
Particulars `
To Opening Stock 40,000 By Sales 1,80,500
To Purchases 1,30,295 Less: Sales Return 2,400 1,78,100
Less: Machine Purchased 4,000 By Closing Stock 40,925
Purchases Return 195 4,195 1,26,100
To Wages 22,525
Less: Wages for Inst. of Machine 2,000 20,525
To Freight Inwards 500
To Gross Profit c/d 31,900
2,19,025 2,19,025
To Repairs 1,675 By Gross Profit b/d 31,900
To Discount Allowed 800 By Discount Received 530
To Interest on Loan 600
Add: Outstanding 1,800 2,400
To Salaries 8,000
Add: Outstanding 800 8,800
To Postage and Telegram 800
To Insurance 1,000
Less: Prepaid 300 700
To Charity 125
To Rent 2,000
Less: Prepaid 400 1,600
To Provision for Doubtful Debts 1,480
To Bad Debts 2,310
Add: Further Bad Debts 400 2,710
To Depreciation on Machinery @ 10%:
On ` 16,000 1,600
On ` 6,000 for Half Year 300 1,900
To Net Profit transferred to Capital A/c 9,440
32,430 32,430

BALANCE SHEET as at 31st March, 2020

Liabilities ` Assets `

Outstanding Salaries 800 Cash in Hand 500

Creditors 30,305 Cash at Bank 9,500
Outstanding Interest on Loan 1,800 Rent Prepaid 400
Loan @ 12% p.a. 20,000 Insurance Prepaid 300
Capital 37,500 Debtors 30,000
Add: Net Profit 9,440 46,940 Less: Further Bad Debts 400
29,600
Less: Provision for Doubtful Debts 1,480 28,120
Stock 40,925
Machinery 16,000
Add: New Machinery 4,000
Wages for Installation 2,000
22,000
Less: Depreciation 1,900 20,100
99,845 99,845
20.36 Double Entry Book Keeping—ISC XI

Illustration 17.
Following is the Trial Balance of Kiran as on 31st March, 2020. Compile his Trading and Profit
and Loss Account for the year ended 31st March, 2020 and Balance Sheet as on that date, bearing
in mind the adjustments given, which must be incorporated.
Particulars Dr. (`) Particulars Cr. (`)

Drawings 24,450 Capital 3,30,000

Purchases 2,75,000 Creditors 42,000
Cash and Bank balances 19,000 Bank Overdraft 7,500
Wages 19,000 Sales 4,00,000
Printing and Stationery 2,700 Bank Loan 1,50,000
Audit Fees 1,500 General Reserve 58,000
Commission 6,000 Advertisement — Outstanding Expenses 3,000
Returns Inward 5,000 Returns Outward 4,400
Legal charges 10,600 Commission and Discounts 2,750
(Retainership fee for 2 years)
Debtors 85,000
Freight 8,400
Bank Interest 7,200
Carriage — Delivery to clients 6,500
Fixed Assets 4,50,000
Fuel and Power 13,800
Expenses prepaid in the earlier
accounting year 3,500
Advertisement expenses 15,000
Expenses for current year 45,000
9,97,650 9,97,650

Adjustments:
1. Closing Stock cost is ` 65,000 though the net realisable value (market value) is lower by ` 5,000.
2. Goods worth ` 4,000 were taken home, without recording the accounting entry.
3. Depreciation rate for assets 10% p.a.
4. Goods of the value of ` 5,000 were burnt and the insurance company admitted the claim
for ` 3,000 only. This fact is not accounted for. (ISC 1991, Modified)
Solution: Kiran
Dr. TRADING AND PROFIT AND LOSS ACCOUNT for the year ended 31st March, 2020 Cr.
` Particulars
Particulars `
To Purchases 2,75,000 By Sales 4,00,000
Less: Returns Outward 4,400 Less: Returns Inward 5,000 3,95,000
2,70,600 By Goods Lost by Fire 5,000
Less: Goods used for By Closing Stock (Note 1) 60,000
personal purpose 4,000 2,66,600
To Freight 8,400
To Wages 19,000
To Fuel and Power 13,800
To Gross Profit c/d 1,52,200
4,60,000 4,60,000
Final Accounts—With Adjustments 20.37

To Printing and Stationery 2,700 By Gross Profit b/d 1,52,200

To Audit fees 1,500 By Commission and Discounts 2,750
To Commission 6,000
To Legal charges 5,300
To Bank interest 7,200
To Carriage Outwards 6,500
To Advertisement expenses 15,000
To Other expenses (` 45,000 + ` 3,500) 48,500
To Depreciation 45,000
To Goods Lost by Fire (` 5,000 – ` 3,000) 2,000
To Net Profit transferred to Capital A/c 15,250
1,54,950 1,54,950

BALANCE SHEET
as at 31st March, 2020
`
Liabilities Assets `
Capital Fixed Assets
Balance as on 1st April, 2019 3,30,000 Cost 4,50,000
Add: Net Profit 15,250 Less: Depreciation 45,000 4,05,000
3,45,250 Current Assets
Less: Drawings (` 24,450 + ` 4,000) 28,450 3,16,800 Stock-in-Trade (Cost ` 65,000) (Note 1) 60,000
General Reserve 58,000 Debtors 85,000
Non-current Liabilities Insurance claim 3,000
Bank Loan 1,50,000 Legal charges (Advance) 5,300
Current Liabilities Cash and Bank 19,000
Bank Overdraft 7,500
Creditors 42,000
Outstanding Expenses: Advertisement (Note 2) 3,000
5,77,300 5,77,300

Notes:
1. As per Prudence Concept or Convention of Conservatism, Closing Stock is valued at cost or net realisable
value (market value), whichever is less. Thus, Closing Stock is taken at net realisable value (market value), it
being lower than cost price.
2. Outstanding Advertisement Expenses of ` 3,000 appears in Trial Balance. It means that adjustment
entry for Outstanding Advertisement Expenses has already been passed in the books of account. At
the time of preparation of Final Accounts, Outstanding Advertisement Expenses will be shown as liability
in the Balance Sheet.
20.38 Double Entry Book Keeping—ISC XI

Advanced Level Questions

Illustration 18.
Following balances were extracted from the books of Modern Traders on 31st March, 2020:
Particulars ` Particulars `

Capital 8,50,000 Sales 12,00,000

Drawings 50,000 Postage and Courier 8,000
Plant and Machinery 4,00,000 Bad Debts 4,000
Accumulated Depreciation 90,000 Provision for Doubtful Debts 8,000
Stock on 1st April, 2019 1,50,000 Discount Received 4,000
Purchases 8,20,000 Rent Revenue 12,000
Sundry Debtors 2,06,000 Insurance 7,000
Furniture 50,000 Salaries 2,00,000
Freight Inwards 20,000 Wages 13,000
Carriage Outwards 5,000 Cash in Hand 62,000
Rent, Rates and Taxes 46,000 Cash at Bank 2,55,000
Printing and Stationery 8,000 General Reserve 50,000
Sundry Creditors 95,000 Input IGST 20,000
Input CGST 15,000 Output IGST 45,000
Input SGST 15,000

Prepare Profit and Loss Account for the year ended 31st March, 2020 and the Balance Sheet

as at that date giving effect to the following:
(a) Closing Stock valued at cost was ` 1,72,000 whereas its net realisable value (market
value) was ` 1,50,000.
(b) Wages Outstanding were ` 5,000.
(c) Provision for Doubtful Debts is to be maintained at 5% of Sundry Debtors.
(d) Depreciate Plant and Machinery by 10% and Furniture by 5% on Written Down
Value Method.
(e) Sundry Creditors include ` 10,000 due to Nayak who is also included in Sundry
Debtors at ` 15,000.
(f) New furniture for ` 12,000 was purchased on 1st April, 2019. Old furniture valued at
` 2,000 was exchanged and balance was paid by cheque. Purchase of furniture was
recorded at the net value of furniture, i.e., ` 10,000.
(g) A fire occurred on 27th March, 2020 destroying stock costing ` 10,000. Insurance
company conveyed acceptance of claim of ` 7,500 on 10th April, 2020. Final Accounts
were prepared on 1st July, 2020.
Final Accounts—With Adjustments 20.39

Solution:
Dr. TRADING AND PROFIT AND LOSS ACCOUNT for the year ended 31st March, 2020 Cr.
` Particulars
Particulars `
To Opening Stock 1,50,000 By Sales 12,00,000
To Purchases 8,20,000 By Closing Stock 1,50,000
To Freight Inwards 20,000 By Loss of Stock by Fire 10,000
To Wages 13,000
Add: Outstanding 5,000 18,000
To Gross Profit c/d 3,52,000
13,60,000 13,60,000
To Postage and Courier 8,000 By Gross Profit b/d 3,52,000
To Printing and Stationery 8,000 By Discount Received 4,000
To Rent, Rates and Taxes 46,000 By Rent 12,000
To Carriage Outwards 5,000
To Depreciation on Plant and Machinery 31,000
To Bad Debts 4,000
Add: Provision for Doubtful
Debts (Required) 9,800
13,800
Less: Provision for Doubtful
Debts (Old) 8,000 5,800
To Insurance 7,000
To Salaries 2,00,000
To Depreciation on Furniture (5% of ` 50,000) 2,500
To Loss of Stock by Fire (` 10,000 – ` 7,500) 2,500
To Net Profit transferred to Capital A/c 52,200
3,68,000 3,68,000

BALANCE SHEET as at 31st March, 2020

`
Liabilities Assets `

Capital 8,50,000 Plant and Machinery 4,00,000

Less: Drawings 50,000 Less: Accumulated Depreciation 1,21,000 2,79,000
8,00,000 (` 90,000 + 10% of ` 3,10,000)
Add: Net Profit 52,200 8,52,200 Sundry Debtors 2,06,000
Outstanding Wages 5,000 Less: Amount due from Nayak 10,000
General Reserve 50,000 1,96,000
Sundry Creditors 95,000 Less: Provision for Doubtful Debts 9,800 1,86,200
Less: Amount due to Nayak 10,000 85,000 Input SGST A/c 5,000
Cash in Hand 62,000
Cash at Bank 2,55,000
Furniture 50,000
Less: Depreciation 2,500 47,500
Insurance Company 7,500
Closing Stock 1,50,000
9,92,200 9,92,200

Notes:
1. Modern Traders filed the claim for loss by fire for ` 10,000. Since the accounts were finalised on 1st July, 2020
and Insurance Company admitted claim for ` 7,500, Loss of Stock by fire of ` 2,500 is debited to Profit and
Loss Account.
2. Old furniture, which was exchanged for ` 2,000, had the same book value. Hence, no entry is passed.
20.40 Double Entry Book Keeping—ISC XI

3. Input IGST shall be first adjusted against Output IGST. Thereafter, balance in Input CGST ` 15,000 shall be adjusted
against Output IGST and balance in Input SGST shall be adjusted against Output IGST leaving a balance of
` 5,000.
Illustration 19.
Following Trial Balance was extracted from the books of Mohan on 31st March, 2020:
Particulars Debit Credit
Balances Balances
` `
Capital ............................................................................................................................................. ... 3,00,000
Drawings ............................................................................................................................................. 50,000 ...
Debtors ............................................................................................................................................. 2,00,000 ...
Creditors ............................................................................................................................................. ... 1,00,000
Loan ............................................................................................................................................. ... 95,000
Interest on Loan ............................................................................................................................................. 3,000 ...
Cash ............................................................................................................................................. 20,000 ...
Provision for Doubtful Debts..................................................................................................................................... ... 7,000
Stock on 1st April, 2019 ............................................................................................................................................. 68,000 ...
Motor Vehicles ............................................................................................................................................. 1,00,000 ...
Bank ............................................................................................................................................. 35,000 ...
Land and Building ............................................................................................................................................. 1,20,000 ...
Bad Debts ............................................................................................................................................. 5,000 ...
Purchases ............................................................................................................................................. 6,60,000 ...
Sales ............................................................................................................................................. ... 11,00,000
Purchases Return ............................................................................................................................................. ... 15,000
Sales Return ............................................................................................................................................. 80,000 ...
Carriage Outwards ............................................................................................................................................. 25,000 ...
Carriage Inwards ............................................................................................................................................. 30,000 ...
Salaries ............................................................................................................................................. 90,000 ...
Rent and Insurance ............................................................................................................................................. 30,000 ...
Advertising ............................................................................................................................................. 35,000 ...
Discount Received ............................................................................................................................................. ... 5,000
General Expenses ............................................................................................................................................. 34,000 ...
Bills Receivable ............................................................................................................................................. 60,000 ...
Bills Payable ............................................................................................................................................. ... 20,000
Rent Received ............................................................................................................................................. ... 3,000
Total   16,45,000 16,45,000

Prepare Trading and Profit and Loss Account for the year ended 31st March, 2020 and

Balance Sheet as at that date after taking into account the following:
(a) Stock as on 31st March, 2020 was valued at ` 70,000.
(b) All debtors are considered good for recovery.
(c) Depreciate Motor Vehicles by 20%.
Final Accounts—With Adjustments 20.41

(d) Bank intimation of customer’s cheque of ` 10,000 being dishonoured is not recorded
in the books.
(e) Travelling expenses of ` 5,000 paid to sales person was wrongly debited to his Personal
Account and was included in debtors.
(f) Amount of ` 6,000 received from Ronit was credited to his account and was included
in creditors. This amount was written off as bad debt in previous year.
(g) Drawings included an amount of ` 2,000 being amount drawn in cash. It was used by
Mohan for purchase of stationery used in business.

Solution:
Dr. TRADING AND PROFIT AND LOSS ACCOUNT for the year ended 31st March, 2020 Cr.
` Particulars
Particulars `

To Opening Stock 68,000 By Sales 11,00,000

To Purchases 6,60,000 Less: Sales Return 80,000 10,20,000
Less: Purchases Return 15,000 6,45,000 By Closing Stock 70,000
To Carriage Inwards 30,000
To Gross Profit c/d 3,47,000
10,90,000 10,90,000
To General Expenses 34,000 By Gross Profit b/d 3,47,000
To Advertising 35,000 By Rent Received 3,000
To Rent and Insurance 30,000 By Discount Received 5,000
To Salaries 90,000 By Bad Debts Recovered 6,000
To Carriage Outwards 25,000 By Provision for Doubtful Debts (Written Back) 2,000
To Interest on Loan 3,000 (` 7,000 – ` 5,000)
To Stationery 2,000
To Travelling Expenses 5,000
To Depreciation on Motor Vehicles 20,000
To Net Profit transferred to Capital A/c 1,19,000
3,63,000 3,63,000

BALANCE SHEET as at 31st March, 2020

`
Liabilities Assets `

Capital 3,00,000 Debtors 2,00,000

Less: Drawings (` 50,000 – ` 2,000) 48,000 Less: Travelling Expenses
2,52,000 to Sales Person 5,000
Add: Net Profit 1,19,000 3,71,000 1,95,000
Loan 95,000 Add: Customer’s cheque Dishonoured 10,000 2,05,000
Creditors 1,00,000 Bank (` 35,000 – ` 10,000) 25,000
Less: Amount of Bad Debts Recovered 6,000 94,000 Cash 20,000
Bills Payable 20,000 Motor Vehicles 1,00,000
Less: Depreciation 20,000 80,000
Land and Building 1,20,000
Bills Receivable 60,000
Closing Stock 70,000
5,80,000 5,80,000
20.42 Double Entry Book Keeping—ISC XI

Unsolved Questions
1. Following Trial Balance as on 31st March, 2020 is extracted from the books of Mohan:
Heads of Accounts Dr. (`) Cr. (`)
Mohan’s Capital A/c................................................................................................................................................ ... 3,00,000
Mohan’s Drawings.................................................................................................................................................... 12,500 ...
Furniture...................................................................................................................................................................... 50,000 ...
Plant and Machinery............................................................................................................................................... 70,000 ...
Stock on 1st April, 2019.......................................................................................................................................... 45,000 ...
Bills Receivable.......................................................................................................................................................... 10,000 ...
Bills Payable................................................................................................................................................................ ... 15,000
Sundry Debtors......................................................................................................................................................... 1,40,000 ...
Sundry Creditors....................................................................................................................................................... ... 1,60,000
Purchases.................................................................................................................................................................... 2,00,000 ...
Sales.............................................................................................................................................................................. ... 3,75,000
Carriage Inwards....................................................................................................................................................... 2,500 ...
Carriage Outwards................................................................................................................................................... 1,250 ...
Freight.......................................................................................................................................................................... 3,000 ...
Manufacturing Wages............................................................................................................................................ 55,000 ...
Fuel and Power.......................................................................................................................................................... 2,000 ...
Factory Expenses...................................................................................................................................................... 13,500 ...
Salaries......................................................................................................................................................................... 45,000 ...
Rent............................................................................................................................................................................... 15,000 ...
Prepaid Rent............................................................................................................................................................... 6,000 ...
Outstanding Salaries............................................................................................................................................... ... 5,000
Discount....................................................................................................................................................................... 1,000 2,000
Printing and Stationery.......................................................................................................................................... 1,500 ...
General Expenses..................................................................................................................................................... 4,500 ...
Cash in Hand.............................................................................................................................................................. 10,750 ...
Cash at Bank............................................................................................................................................................... 1,68,500 ...
Provision for Doubtful Debts............................................................................................................................... ... 2,000
Provision for Discount on Debtors..................................................................................................................... ... 1,000
Bad Debts.................................................................................................................................................................... 3,000 ...
Total 8,60,000 8,60,000

Additional Information:
Errors:
(a) Purchases include sales return of ` 5,000 and sales include purchases return of ` 4,000.
(b) Goods withdrawn by the proprietor for own consumption ` 2,000 were included in purchases.
(c) Wages paid for installation of plant and machinery amounting to ` 2,000 were included in Wages Account.
(d) Samples distributed for publicity costing ` 2,500, but not recorded in the books.
(e) An advance of ` 5,000 to a supplier was wrongly included in the list of Sundry Debtors.
(f ) A dishonoured bill receivable for ` 2,000 returned by the Bank with whom it had been discounted, had
been credited to Bank Account and debited to Bills Receivable Account.

Adjustments:
(i) Charge depreciation on plant and machinery @ 15% and on furniture @ 10%.
(ii) Create provision for doubtful debts @ 5% and provision for discount on debtors at 2%.
(iii) Closing stock is valued at ` 80,000.
Prepare Trading and Profit and Loss Account for the year ended 31st March, 2020.
Final Accounts—With Adjustments 20.43

2. Following is the Trial Balance of M/s. Radha Krishna & Co. as on 31st March, 2020:
Debit Balances ` Credit Balances ` 
Stock on 1st April, 2019 85,000 S. Radhakrishna’s capital 5,00,000
Purchases 4,57,500 Bills Payable 40,000
Salaries 64,000 Sundry Creditors 1,95,000
Wages 33,500 Loans on Mortgage 2,50,000
Building 4,60,000 Returns Outward 5,000
Plant and Machinery 2,00,000 Sales 8,05,000
Furniture and Fittings 25,500 Provision for Doubtful Debts 5,000
Rent 24,000
Carriage Inwards 3,500
Dock charges 27,000
Sundry Debtors 3,20,000
Bills Receivable 35,000
Insurance 4,500
Discount 2,500
General Expenses 3,500
Rates and Taxes 14,500
Customs Duty 23,000
Repairs 7,000
Bad Debts 10,000
18,00,000 18,00,000

Prepare Trading and Profit and Loss Account and Balance Sheet taking into consi­deration the following
adjustments:
(a) Provide for interest on loan for the year at 12% p.a.
(b) Create 5% provision on Debtors for Doubtful Debts.
(c) Stocks taken on 31st March, 2020 were ` 1,27,500.
(d) Depreciation to be charged on Furniture and Fittings at 10%, Plant and Machinery at 5% and Building at 2.5%.
3. Following are the Ledger Accounts of Rustomji for the year ended 31st March, 2020:

Ledger Accounts ` Ledger Accounts `

Building 30,000 Cash in Hand 670

Sundry Debtors 19,000 Bad Debts 200
Sundry Creditors 38,000 Loan from Mohan 5,000
Income Tax 2,050 Investments 13,000
Loose Tools 2,000 Provision for Doubtful Debts 3,200
Cash at Bank 32,400 Insurance 1,700
Sundry Expenses 3,980 Furniture 6,000
Purchases 3,14,000 Stock on 1st April, 2019 54,700
Bank Interest (Cr.) 150 Capital 94,780
Wages 20,000 Discount Received 1,070
Carriage Inwards 2,240 Discount Allowed 1,260
Sales 3,70,000 Drawings 4,000
Motor Van 25,000 Bills Payable 20,000
20.44 Double Entry Book Keeping—ISC XI

You are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2020 and
Balance Sheet as on that date.
You are also given the following information:
(a) Of the Sundry Debtors ` 600 are bad and should be written off.
(b) Maintain a provision of 5% on Sundry Debtors for Doubtful Debts.
(c) Dividend accrued and due on investment is ` 270.
(d) Insurance paid in advance ` 200, Wages outstanding ` 900.
(e) Stock on 31st March, 2020 was valued at ` 30,000 and loose tools were valued at ` 1,600.
(f ) Depreciation on Building 5% and on 40% Motor Van.
(g) Provide for interest at 12% p.a. due on loan raised on 1st June, 2019.

4. The Trial Balance of Shanmuganathan as on 31st March, 2020 was as follows:

Particulars Dr. (`) Particulars Cr. (`)

Purchases 1,60,000 Sales 2,52,400

Carriage Inwards 2,505 Provision for Doubtful Debts 5,200
Sundry Debtors 50,200 Sundry Creditors 30,526
Opening Stock 26,725 Bills Payable 3,950
Manufacturing Wages 23,137 Outstanding Wages 2,000
Salaries 5,575 Trade Expenses accrued but not paid 700
Furniture 7,250 Capital A/c 50,000
Advertisement 3,000
Postage 1,226
Power and Fuel 1,350
Trade Expenses 5,831
Bad Debts 525
Loan at 15% p.a. to Subbu,
1st December, 2019 3,000
Cash in Hand and at Bank 50,000
Drawings A/c 4,452
   3,44,776    3,44,776

Prepare Trading and Profit and Loss Account for the year ended 31st March, 2020 and Balance Sheet as on
that date taking into account the following information:
(a) Depreciate Furniture at 10% p.a.
(b) Sundry Debtors include an item of ` 500 due from a customer who has become insolvent and nothing
is recoverable from his estate.
(c) Provision for Doubtful Debts is to be maintained at 5% on Sundry Debtors.
(d) Goods of the value of ` 1,500 have been destroyed by fire and the Insurance Company has admitted
a claim for ` 1,000.
(e) Stock on 31st March, 2020 was ` 12,550.
Final Accounts—With Adjustments 20.45

5. From the following Trial Balance of M/s. Shradha & Sons as on 31st March, 2020, prepare Trading and Profit
and Loss Account and Balance Sheet:
Particulars Debit Credit
` `
Capital ........................................................................................................................................................ ... 8,00,000
Drawings ........................................................................................................................................................ 1,80,000 ...
Sales ........................................................................................................................................................ ... 15,50,000
Purchases ........................................................................................................................................................ 8,26,000 ...
Stock on 1.4.2019 ........................................................................................................................................................ 4,20,000 ...
Returns Outward ........................................................................................................................................................ ... 16,000
Carriage Inwards ........................................................................................................................................................ 12,000 ...
Wages ........................................................................................................................................................ 40,000 ...
Power ........................................................................................................................................................ 60,000 ...
Machinery ........................................................................................................................................................ 5,00,000 ...
Furniture ........................................................................................................................................................ 1,40,000 ...
Rent ........................................................................................................................................................ 2,20,000 ...
Salary ........................................................................................................................................................ 1,50,000 ...
Insurance ........................................................................................................................................................ 36,000 ...
8% Bank Loan ........................................................................................................................................................ ... 2,50,000
Debtors ........................................................................................................................................................ 2,06,000 ...
Creditors ........................................................................................................................................................ ... 1,89,000
Cash in Hand ........................................................................................................................................................ 15,000 ...
Total   28,05,000 28,05,000

Adjustments:
(i) Closing Stock ` 6,40,000.
(ii) Wages outstanding ` 24,000.
(iii) Bad Debts ` 6,000.
(iv) Provision for Doubtful Debts to be 5%.
(v) Rent is paid for 11 months.
(vi) Insurance premium is paid per annum, benefit of which will end on 31st May, 2020.
(vii) Loan from the bank was taken on 1st October, 2019.
(viii) Provide depreciation on machinery @ 10% and on furniture @ 5%.

GUIDE TO ANSWERS
1. Gross Profit—` 1,40,500; Net Profit—` 46,497; Balance Sheet Total—` 5,11,997.
[Hints:
1. Rectification Entries. (a) Dr. Sales Return A/c and Cr. Purchases A/c by ` 5,000; Dr. Sales A/c and
Cr. Purchases Return A/c by ` 4,000. (b) Dr. Drawings A/c and Cr. Purchases A/c by ` 2,000. (c) Dr. Plant
and Machinery A/c and Cr. Wages A/c by ` 2,000. (d) Dr. Advertisement or Sales Promotion Expenses
A/c and Cr. Purchases A/c by ` 2,500. (e) Dr. Advance to Supplier and Cr. Sundry Debtors by ` 5,000.
(f ) Dr. Sundry Debtors and Cr. Bills Receivable A/c by ` 2,000.
Calculation of Purchases. Purchases – Returns Inward wrongly included in Purchases – Returns
2.
Outward – Goods drawn by Proprietor – Free Samples = ` 1,86,500.]
5. Gross Profit—` 8,24,000; Net Profit—` 3,21,000; Balance Sheet Total—` 14,34,000.
 CHAPTER
21
Rectification of Errors
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Trial Balance Trial Balance is a statement showing balances of various accounts

in the ledger and the Cash Book at a particular date.
2. One-sided Errors Errors that affect the debit or credit side of an account.
3. Two-sided Errors Errors that affect two or more accounts.
4. Error of Recording It means recording the entry in subsidiary books wrongly.
5. Error of Posting It means an entry being not posted at all or partially or being posted
by wrong amount or to the wrong account.
6. Error of Balancing It means calculating the balance in account wrongly.
7. Error of Casting It means a mistake committed in totalling.
8. Error in Carrying Forward It means a mistake committed in carrying forward the total of one
page to the next page.
9. Error of Principle It means recording a transaction in the books of account which is
not in accordance with the accounting principles.This error involves
an incorrect allocation of expenditure or receipt between Capital
and Revenue.
10. Error of Omission It means an error committed whereby a transaction is omitted to be
recorded.
11. Error of Commission Error caused by wrong recording of transactions.
12. Compensating Errors Errors that compensate each other.
13. Suspense Account It is an account opened to temporarily tally the Trial Balance.
14. Rectifying Entries Entries made in books of account for correction of errors.

CHAPTER SUMMARY

• Trial Balance is prepared to check the arithmetical accuracy of the posting into the ledger accounts.
The two sides of the Trial Balance must be equal, i.e., the total of debit side must be equal to total of credit side.
Disagreement of a Trial Balance means that there are errors in books of account. Some of the errors affect
the agreement of the Trial Balance and are disclosed by the Trial Balance.
• Errors which affect the Trial Balance
(i) Posting of one aspect of the Journal entry in the Ledger.
(ii) Posting a Journal entry on the wrong side of an account.
(iii) Wrong total of subsidiary books.
(iv) Posting correct amount in one account and wrong amount in the other account.
(v) Wrong totalling or balancing of a Ledger account.
(vi) Omission to enter an account balance in the Trial Balance.
(vii) Balance of an account written in the wrong column in the Trial Balance.
• Errors which do not affect Trial Balance
(i) Errors of principle.
(ii) Compensating errors.
(iii) Error of complete omission.
(iv) Posting correct amount and on the correct side but in the wrong account.
21.2 Double Entry Book Keeping—ISC XI

(v) Recording wrong amount in the books of the original entry.

(vi) Recording both aspects of a transaction twice in the books of account.

• Types of Errors
Errors of Principle. It means transactions are recorded in contravention of accounting principles.
(i)
Error of Omission. If a transaction is omitted from being recorded completely or partially, it is known
(ii)
as an error of omission.
Error of Commission. Transaction wrongly written in the Subsidiary Book or in the Ledger or wrong
(iii)
posting or wrong balancing is known as error of commission.
Compensating Error. When an error is committed and it is nullified by another error, it is known as
(iv)
a compensating error.
• Errors may be such as affect only one account—one-sided errors or they affect both the accounts—
two-sided errors.
• Suspense Account. In order to avoid the delay in the preparation of Final Accounts, the difference in the Trial
Balance is put to Suspense Account (which is an account of a temporary nature). When errors are located,
entries are passed with the help of Suspense Account and when all errors affecting the Trial Balance are
located, the Suspense Account stands closed.

Solved Questions

Illustration 1.
Rectify the following errors found in the books of Mr. Dutt. The Trial Balance as on 31st March,
2020 showed excess credit of ` 493. The difference was posted to the Suspense Account.
(i) An amount of ` 100 was received from D. Das on 31st March, 2020, but had been entered
in the Cash Book on 4th April, 2020.
(ii) The total of Returns Inward Book for March had been cast short by ` 100.
(iii) The purchase of a table for office use costing ` 300 had been passed through the Purchases
Book.
(iv) ` 375 paid for wages to workmen for making showcases had been charged to the Wages
Account.
(v) A purchase of ` 67 had been posted to the Creditor’s Account as ` 60.
(vi) A cheque for ` 200 received from P.C. Joshi had been dishonoured and was debited to
the Allowances Account.
(vii) ` 1,000 paid for the purchase of a motor cycle for Mr. Dutt had been charged to the
Miscellaneous Expenses Account.
(viii) Goods amounting to ` 100 had been returned by a customer and were taken into stock,
but no entry in respect thereof was made in the books.
(ix) A sale of ` 200 to Singhi & Co., was wrongly credited to their account.
Solution:
The following entries should be passed on 31st March, 2020:
RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Bank ...Dr. 100
To D. Das (Note) 100
(Being the amount received)
(ii) Returns Inward A/c ...Dr. 100
To Suspense A/c 100
(Being the mistake in totalling the Returns Inward Book corrected)
Rectification of Errors 21.3

(iii) Furniture A/c ...Dr. 300

To Purchases A/c 300
(Being the purchase of furniture wrongly entered in
Purchases Book, now corrected)
(iv) Furniture A/c ...Dr. 375
To Wages A/c 375
(Being the wages paid to workmen for making showcases which should
be capitalised and not charged to the Wages Account)
(v) Suspense A/c ...Dr. 7
To Creditor’s A/c 7
(Being the mistake in crediting the Creditor’s Account less by ` 7,
now corrected)
(vi) P.C. Joshi ...Dr. 200
To Allowances A/c 200
(Being the  cheque of P.C. Joshi dishonoured previously debited to the
Allowances Account)
(vii) Drawings A/c ...Dr. 1,000
To Miscellaneous Expenses A/c 1,000
(Being the motor cycle purchased for Mr. Dutt debited to his Drawings Account
instead of the Miscellaneous Expenses Account as previously done by mistake)
(viii) Returns Inward A/c ...Dr. 100
To Debtor’s A/c 100
(Being goods returned by a customer, now recorded)
(ix) Singhi & Co. ...Dr. 400
To Suspense A/c 400
(Being the correction of the mistake by which the amount of Singhi & Co.
was credited by ` 200 instead of being debited)
Dr. SUSPENSE ACCOUNT Cr.
Date Particulars ` Date Particulars `
2020 2020
March 31 To Difference in March 31 By Returns Inward A/c 100
Trial Balance 493 March 31 By Singhi & Co. 400
March 31 To Creditor’s A/c 7
500 500
Note: The entry already passed in the Cash Book on 4th April, 2020 will be reversed by entering on the credit
side of the Cash Book: “By D. Das (to reverse entry wrongly passed on 4th April) ` 100”.
Illustration 2.
Rectify the following errors by passing Journal entries:
(i) Preeti was paid cash ` 2,800 but Jyoti was debited by ` 2,000.
(ii) Tables and chairs purchased for ` 5,000 were debited to the Purchases Account.
(iii) Wages amounting to ` 7,000 for machinery erection were debited to the Wages Account.
(iv) Machinery written off by ` 1,000 has not been posted to the Depreciation Account.
(v) Goods purchased for ` 1,000 for the proprietor’s use were debited to the Purchases Account.
(vi) Goods purchased for ` 5,000 were posted as ` 500 to the Purchases Account.
(vii) Goods purchased for ` 200 were posted as ` 2,000 to the Purchases Account.
(viii) ` 1,000 received from Preeti was debited to her account.
(ix) Returns Inward Book for December was totalled short by ` 1,000.
(x) A Purchases return of ` 1,000 to Ranbir was not recorded.
(xi) A credit sale of old furniture to Mohan for ` 1,700 omitted to be posted.
21.4 Double Entry Book Keeping—ISC XI

Solution: RECTIFYING JOURNAL ENTRIES

Date Particulars L.F. Dr. (`) Cr. (`)
(i) Preeti ...Dr. 2,800
To Jyoti 2,000
To Suspense A/c 800
(Being the cash paid to Preeti wrongly debited to Jyoti, now rectified)
(ii) Furniture A/c ...Dr. 5,000
To Purchases A/c 5,000
(Being the purchase of tables and chairs debited to Purchases, now rectified)
(iii) Machinery A/c ...Dr. 7,000
To Wages A/c 7,000
(Being the wages paid for machinery erection wrongly debited to
Wages A/c, now rectified)
(iv) Depreciation A/c ...Dr. 1,000
To Suspense A/c 1,000
(Being the depreciation on Machinery not posted to Depreciation A/c, now posted)
(v) Drawings A/c ...Dr. 1,000
To Purchases A/c 1,000
(Being the goods purchased for proprietor now debited to Drawings A/c)
(vi) Purchases A/c ...Dr. 4,500
To Suspense A/c 4,500
(Being the goods purchased for ` 5,000 recorded as ` 500, now rectified)
(vii) Suspense A/c ...Dr. 1,800
To Purchases A/c 1,800
(Being the goods purchased for ` 200 recorded as ` 2,000, now rectified)
(viii) Suspense A/c ...Dr. 2,000
To Preeti 2,000
(Being ` 1,000 received from Preeti debited to her account, now rectified)
(ix) Returns Inward A/c ...Dr. 1,000
To Suspense A/c 1,000
(Being the Returns Inward Book short totalled for December, now rectified)
(x) Ranbir ...Dr. 1,000
To Purchases Return A/c 1,000
(Being the purchase return of ` 1,000 to Ranbir, now recorded)
(xi) No Journal Entry is to be passed as it has already been correctly passed in the
Journal. Merely posting in both the accounts in the ledger is required.

Illustration 3.
The books of account of Kapil for the year ended 31st March, 2020, were closed with diference
in the Trial Balance carried forward. Subsequently, the following errors were detected:
(i) ` 1,500 being the total of discount column on the credit side of the Cash Book was not
posted in the Ledger.
(ii) Closing Stock was overstated by ` 9,000 being casting error in the schedule of inventory.
Rectification of Errors 21.5

(iii) Return outwards book was undercast by ` 150.

(iv) A credit sale of ` 870 was wrongly posted as ` 780 to the Customer’s Account in the
Sales Ledger.
(v) ` 6,000 being the cost of purchase of furniture for office was entered in the Purchases Book.
Pass rectifying entries, prepare the Suspense Account and find the effect of correction on profit
as on 31st March, 2020.
Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Suspense A/c ...Dr. 1,500
To Profit and Loss Adjustment A/c 1,500
(Being the discount rectified was not posted from
Cash Book to Ledger, now rectified)
(ii) Profit and Loss Adjustment A/c ...Dr. 9,000
To Stock in Trade A/c 9,000
(Being the Closing Stock was overcast by ` 9,000, now rectified)
(iii) Suspense A/c ...Dr. 150
To Profit and Loss Adjustment A/c 150
(Being the Returns Outward Book undercast, now rectified)
(iv) Customer’s A/c ...Dr. 90
To Suspense A/c 90
(Being the credit sale of ` 870 was wrongly posted as ` 780,
to the customer’s account, now rectified)
(v) Furniture A/c ...Dr. 6,000
To Profit and Loss Adjustment A/c 6,000
(Being the purchase of furniure was wrongly entered
in Purchases Account, now rectified)
(vi) Kapil’s Capital A/c ...Dr. 1,350
To Profit and Loss Adjustment A/c 1,350
(Being the loss on rectification of wrong transactions transferred
to Capital Account)

Dr. SUSPENSE ACCOUNT Cr.

` Particulars
Particulars `
To Profit and Loss Adjustment A/c 1,500 By Balance b/d (Balancing Figure) 1,560
To Profit and Loss Adjustment A/c 150 By Customer’s A/c 90
1,650 1,650

Dr. PROFIT AND LOSS ADJUSTMENT ACCOUNT Cr.

` Particulars
Particulars `
To Stock in Trade A/c 9,000 By Suspense A/c 1,500
By Suspense A/c 150
By Furniture A/c 6,000
By Kapil’s Capital A/c (Loss Transferred) 1,350
9,000 9,000

Note: Effect of correct profit as on 31st March, 2020:

Profit will be reduced by ` 1,350 subject to depreciation on furniture of ` 6,000.
21.6 Double Entry Book Keeping—ISC XI

Illustration 4.
Give Journal entries to rectify the following errors:
(i) A credit sale of ` 4,230 to Ram omitted to be recorded.
(ii) A credit sale of ` 4,230 to Ram entered as ` 4,320.
(iii) A credit sale of ` 4,230 to Ram entered as sale to Shyam.
(iv) A credit sale of ` 4,230 to Ram entered as sale to Shyam ` 4,320.
(v) A credit sale of ` 4,230 to Ram passed through the Purchases Book.
(vi) A credit sale of ` 4,230 to Ram entered in Purchases Book as ` 4,320.
(vii) A credit sale of ` 4,230 to Ram entered as Purchase from Shyam.
(viii) A credit sale of ` 4,230 to Ram entered as purchase from Shyam ` 4,320.
(ix) Sales Book overcast by ` 500.
(x) Total of Sales Book ` 4,230 on page 25 is brought forward on page 26 as ` 4,320.
(xi) Total of Sales Book ` 5,000 omitted to be posted.
Solution: RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Ram ...Dr. 4,230
To Sales A/c 4,230
(Being credit sale omitted to be recorded, now recorded)
(ii) Sales A/c ...Dr. 90
To Ram 90
(Being sale of ` 4,230 recorded as ` 4,320, now rectified)
(iii) Ram ...Dr. 4,230
To Shyam 4,230
(Being sale to Ram recorded as sale to Shyam, now rectified)
(iv) Ram ...Dr. 4,230
Sales A/c ...Dr. 90
To Shyam 4,320
(Being sale to Ram ` 4,230 recorded as sale to Shyam ` 4,320, now rectified)
(v) Ram ...Dr. 8,460
To Sales A/c 4,230
To Purchases A/c 4,230
(Being sale to Ram recorded as purchase, now rectified)
(vi) Ram ...Dr. 8,550
To Sales A/c 4,230
To Purchases A/c 4,320
(Being sale of ` 4,230 recorded as purchase of ` 4,320, now rectified)
(vii) Ram ...Dr. 4,230
Shyam ...Dr. 4,230
To Sales A/c 4,230
To Purchases A/c 4,230
(Being sale to Ram recorded as purchase from Shyam, now rectified)
(viii) Ram ...Dr. 4,230
Shyam ...Dr. 4,320
To Sales A/c 4,230
To Purchases A/c 4,320
(Being sale to Ram ` 4,230 recorded as purchase from Shyam ` 4,320,
now rectified)
Rectification of Errors 21.7

(ix) Sales A/c ...Dr. 500

To Suspense A/c 500
(Being the Sales Book overcast, now rectified)
(x) Sales A/c ...Dr. 90
To Suspense A/c 90
(Being total of Sales Book ` 4,230 brought forward as ` 4,320, now rectified)
(xi) Suspense A/c ...Dr. 5,000
To Sales A/c 5,000
(Being total of Sales Book omitted to be posted, now rectified)

Illustration 5.
Pass necessary Journal entries rectifying the following errors which were detected after
preparation of Trial Balance:
(i) A credit sale of ` 5,000 to Mohan omitted to be posted.
(ii) A credit sale of ` 5,000 to Mohan posted as ` 5,500.
(iii) A credit sale of ` 5,000 to Mohan credited to his account.
(iv) A credit sale of ` 5,000 to Mohan credited to his account as ` 500.
(v) A credit sale of ` 5,000 to Mohan posted to the debit of Sohan.
(vi) A credit sale of ` 5,000 to Mohan posted to the debit of Sohan as ` 5,600.
(vii) A credit sale of ` 5,000 to Mohan posted to the credit of Sohan.
(viii) A credit sale of ` 5,000 to Mohan posted to the credit of Sohan as ` 50,000.
(ix) A credit sale of an old machine of ` 5,000 to Mohan recorded as sale of goods.
(x) A credit sale of ` 5,000 to Mohan passed through the Purchases Book and posted
therefrom to the debit of Mohan.
(xi) A credit sale of ` 5,000 to Mohan entered in the Purchases Book as ` 5,200 and posted
therefrom to the credit of Sohan as ` 5,000.
(xii) Goods (Cost ` 3,500, Sale Price ` 4,000) taken by John, the proprietor, for his personal
use recorded in the Sales Book.

Solution: RECTIFYING JOURNAL ENTRIES

Date Particulars L.F. Dr. (`) Cr. (`)
(i) Mohan ...Dr. 5,000
To Suspense A/c 5,000
(Being omission of posting to Mohan, now rectified)
(ii) Suspense A/c ...Dr. 500
To Mohan 500
(Being excess debit to Mohan, now rectified)
(iii) Mohan ...Dr. 10,000
To Suspense A/c 10,000
(Being wrong side posting, now rectified)
(iv) Mohan ...Dr. 5,500
To Suspense A/c 5,500
(Being posting on wrong side with wrong amount, now rectified)
(v) Mohan ...Dr. 5,000
To Sohan 5,000
(Being posting to wrong account, now rectified)
21.8 Double Entry Book Keeping—ISC XI

(vi) Mohan ...Dr. 5,000

Suspense A/c ...Dr. 600
To Sohan 5,600
(Being posting to wrong account with wrong amount, now rectified)
(vii) Mohan ...Dr. 5,000
Sohan ...Dr. 5,000
To Suspense A/c 10,000
(Being the wrong posting, now rectified)
(viii) Mohan ...Dr. 5,000
Sohan ...Dr. 50,000
To Suspense A/c 55,000
(Being posting to wrong Account on wrong side with wrong
amount, now rectified)
(ix) Sales A/c ...Dr. 5,000
To Machinery A/c 5,000
(Being sale of machine recorded as sale of goods, now rectified)
(x) Suspense A/c ...Dr. 10,000
To Sales A/c 5,000
To Purchases A/c 5,000
(Being a sale recorded as purchases, now rectified)
(xi) Sohan ...Dr. 5,000
Mohan ...Dr. 5,000
Suspense A/c ...Dr. 200
To Sales A/c 5,000
To Purchases A/c 5,200
(Being sale recorded as purchase with wrong amount and wrong posting
therefrom, now rectified)
(xii) Sales A/c ...Dr. 4,000
Drawings A/c ...Dr. 3,500
To John’s Capital A/c 4,000
To Purchases A/c 3,500
(Being the goods taken by the proprietor for his personal use recorded
in Sales Book, now rectified)

Illustration 6.
Rectify the following errors found in the books of Mr. R.K. Sharma. The Trial Balance had
` 1,860 excess credit. The difference has been posted to a Suspense Account.
(i) The total of Returns Inward Book has been cast ` 2,000 short.
(ii) The purchase of an office table costing ` 10,000 has been passed through the Purchases
Day Book.
(iii) ` 7,500 paid for wages to workman for making showcases had been charged to
Wages Account.
(iv) A purchase of ` 1,340 had been posted to the Creditor’s Account as ` 600.
(v) A cheque for ` 4,000 received from Mr. P.C. Jain had been dishonoured and was passed
to the debit of ‘Allowances Account’.
After rectification, reflect the transactions in the Suspense Account.
Rectification of Errors 21.9

Solution: In the Books of R.K. Sharma

RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Returns Inward A/c ...Dr. 2,000
To Suspense A/c 2,000
(Being the Returns Inward Book cast short by ` 2,000, now rectified)
(ii) Furniture A/c ...Dr. 10,000
To Purchases A/c 10,000
(Being purchase of office table passed through the Purchases Day Book,
now rectified)
(iii) Furniture A/c ...Dr. 7,500
To Wages A/c 7,500
(Being wages paid for making showcases wrongly debited to Wages
Account, now rectified)
(iv) Suspense A/c ` (1,340 – 600) ...Dr. 740
To Creditor’s A/c 740
(Being purchases of ` 1,340 wrongly credited to Creditor’s Account for ` 600,
now rectified)
(v) Mr. P.C. Jain ...Dr. 4,000
To Allowances A/c 4,000
(Being a cheque received from Mr. P.C Jain dishonoured but debited to
Allowances Account, now rectified)

Dr. SUSPENSE ACCOUNT Cr.

Particulars ` Particulars `
To Difference in Trial Balance 1,860 By Returns Inward A/c 2,000
To Creditor’s A/c 740 By Balance c/d (Note) 600
2,600 2,600

Note:  The balance in the Suspense Account indicates that there are still some undetected errors in the books.

Illustration 7.
The Trial Balance extracted from a set of books of Mr. B.K. Banerjee showed a difference which
was placed in a Suspense Account. Subsequently, following mistakes were detected:
(i) A cheque for ` 1,000 received from Raj was dishonoured and returned by the bank had
been credited to the Bank Account and debited to Sundry Creditors Account.
(ii) Several items of furniture sold for ` 5,000 had been entered in the Sales Day Book.
(iii) Goods purchased from Mr. V.K. Gupta for ` 310 had been posted to the debit of his
Account as ` 130.
(iv) ` 1,200 for goods sold on credit to Ajeet had been omitted to be entered in his account.

Show the necessary entries to rectify these errors and also indicate the amount of the difference
in the Trial Balance.
21.10 Double Entry Book Keeping—ISC XI

Solution: In the Books of B.K. Banerjee

RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Raj ...Dr. 1,000
To Sundry Creditors A/c 1,000
(Being cheque dishonoured wrongly debited to Sundry Creditors Account,
now rectified)
(ii) Sales A/c ...Dr. 5,000
To Furniture A/c 5,000
(Being old furniture sold was wrongly entered in the Sales Day Book,
now rectified)
(iii) Suspense A/c (` 310 + ` 130) ...Dr. 440
To V.K. Gupta 440
(Being purchases from V.K. Gupta for ` 310 was wrongly debited
to his account by ` 130, now rectified)
(iv) Ajeet ...Dr. 1,200
To Suspense A/c 1,200
(Being goods sold to Ajeet on credit had been omitted to be entered
in his account, now recorded)
Dr. SUSPENSE ACCOUNT Cr.
Particulars ` Particulars `
To Difference in Trial Balance 760 By Ajeet 1,200
(Balancing Figure)
To V.K. Gupta 440
1,200 1,200

Illustration 8.
The difference in Trial Balance is kept in Suspense Account. Before preparing the final accounts,
the following errors were detected:
(a) Purchase for ` 540 was written in Sales Day Book, but was posted to the correct side of
Party’s Account.
(b) Salary Account total ` 12,600 on page 32 was carried over to the next page as ` 1,260 on
the wrong side.
(c) Interest on overdraft ` 650 was not posted to the Ledger from the Cash Book.
(d) ` 600 collected from a party in respect of the old dues from his which had been written
off as bad two years ago, was credited to the Party’s Account.
Show rectification entries and Suspense Account, state to what exent the Profit and Loss Account
would have been affected if the above errors had not been detected and corrected.
(ICWA (Inter)—Adapted)
Solution: RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
(a) Purchases A/c ...Dr. 540
Sales A/c ...Dr. 540
To Suspense A/c 1,080
(Being Purchases wrongly posted through Sales Day Book, now rectified)
Rectification of Errors 21.11

(b) Salary A/c (` 12,600 + ` 1,260) ...Dr. 13,860

To Suspense A/c 13,860
(Being total of Salary Account ` 12,600 carried forward to next page as
` 1,260 on the wrong side, now rectified)
(c) Interest A/c ...Dr. 650
To Suspense A/c 650
(Being interest on overdraft not posted to the ledger from
cash book, now recorded)
(d) Party’s A/c ...Dr. 600
To Bad Debts Recovered A/c 600
(Being bad debt recovered wrongly credited to Party’s Account,
now rectified)

Dr. SUSPENSE ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d (Balancing Figure) 15,590 By Purchases A/c 540
By Sales A/c 540
By Salary A/c 13,860
By Interest A/c 650
15,590 15,590

EFFECT OF RECTIFICATION OF ERRORS ON NET PROFIT

Items (a) (b) (c) (d) Total
Increase (`) ... ... ... 600 600
Decrease (`) 1,080 13,860 650 ... 15,590
Decrease in Net Profit = ` 14,990
Note: When bad debt is recovered, Cash Account is debited and Bad Debts Recovered Account is credited. At the
end of the accounting period, it is transferred to the credit side of the Profit and Loss Account.

Illustration 9.
Rectify the following errors by passing Journal entries and determine their effect on the Profit
and Loss Account of the concern:
(i) Returns Inward Book for December was short-totalled by ` 100.
(ii) ` 5,810 being cash paid to Kishan Chand was debited to Ram Chand as ` 5,010.
(iii) ` 1,500 worth of furniture purchased on credit was debited to Purchases Account.
(iv) A purchase made for ` 500 was posted to the Purchases Account as ` 50.
(v) Wages paid for the erection of machinery amounting to ` 700 was debited to Wages
Account.
(vi) Goods purchased for proprietor’s use for ` 1,000 was debited to Purchases Account.
(vii) A sum of ` 1,000 written off from machinery has not been posted to Depreciation Account.
(viii) ` 1,000 received from Raghu has been debited to Sunder.
(ix) ` 5,000 received from Radhey Mohan was debited to his account.
(x) Purchase returns of ` 2,000 to Shri Hari Kishan were not recorded in the books.
21.12 Double Entry Book Keeping—ISC XI

Solution: RECTIFYING JOURNAL ENTRIES

Date Particulars L.F. Dr. (`) Cr. (`)

(i) Returns Inward A/c ...Dr. 100

To Suspense A/c 100
(Being Returns Inward Book undercast by ` 100, now rectified)

(ii) Kishan Chand ...Dr. 5,810

To Ram Chand 5,010
To Suspense A/c 800
(Being cash of ` 5,810 paid to Kishan Chand wrongly debited to
Ram Chand as ` 5,010, now rectified)

(iii) Furniture A/c ...Dr. 1,500

To Purchases A/c 1,500
(Being purchase of furniture wrongly debited to Purchases Account,
now rectified)

(iv) Purchases A/c ...Dr. 450

To Suspense A/c 450
(Being purchase of ` 500 wrongly posted as ` 50 to the Purchases
Account, now rectified)

(v) Machinery A/c ...Dr. 700

To Wages A/c 700
(Being wages paid for erection of machinery wrongly debited to
Wages Account, now rectified)

(vi) Drawings A/c ...Dr. 1,000

To Purchases A/c 1,000
(Being goods purchased to personal use wrongly debited to
Purchases Account, now recorded)

(vii) Depreciation A/c ...Dr. 1,000

To Suspense A/c 1,000
(Being depreciation on machinery not posted to Depreciation Account,
now rectified)

(viii) Suspense A/c ...Dr. 2,000

To Sunder 1,000
To Raghu 1,000
(Being ` 1,000 received from Raghu wrongly debited to Sunder’s
Account, now rectified)

(ix) Suspense A/c ...Dr. 10,000

To Radhey Mohan ( ` 5,000 × 2) 10,000
(Being cash received from Radhey Mohan of ` 5,000 wrongly debited
to his account, now rectified)

(x) Hari Kishan ...Dr. 2,000

To Returns Outward A/c 2,000
(Being purchases return to Hari Kishan not recorded in the books,
now recorded)
Rectification of Errors 21.13

EFFECT OF RECTIFICATION OF ERRORS ON NET PROFIT

Items (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Total
Increase (`) ... ... 1,500 ... 700 1,000 ... ... ... 2,000 5,200
Decrease (`) 100 ... ... 450 ... ... 1,000 ... ... ... 1,550
Net Increase in Profit = ` 3,650

Illustration 10.
Following errors were identified in the accounts of Sohan Lal & Sons for the year ended
31st March, 2020:
(i) A builder’s bill for ` 27,000 for the erection of a small shed was debited to Repairs Account.
(ii) A cheque for ` 3,000 received from Rahim Bux & Co. was dishonoured and debited to
Trade Expenses Account.
(iii) Goods to the value of ` 1,500 returned by Gupta Bros. were included in stock, but no
entry was made in the books.
(iv) Repairs to plant amounting to ` 5,670 had been charged to Plant and Machinery Account.
(v) Wages paid to the firm’s own workmen for making certain additions to machinery
amounting to ` 5,500 were posted to Wages Account.
(vi) A cheque for ` 750 received from Lala Ram was credited to the account of Sita Ram and
debited incorrectly to Cash Account.
(vii) A sum of ` 1,000 drawn by the proprietor for personal use was debited to Travelling
Expenses Account.
Pass Journal entries to rectify these errors. Which of these errors, if any, will cause disagreement
of the Trial Balance? Give reasons for your answer.
Solution: (i) In the Books of Sohan Lal & Sons
RECTIFTYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Building A/c ...Dr. 27,000
To Repairs A/c 27,000
(Being a builder’s bill for the erection of a small shed wrongly debited
to Repairs Account, now corrected)
(ii) Rahim Bux & Co. ...Dr. 3,000
To Trade Expenses A/c 3,000
(Being a cheque received from Rahim Bux & Co. got dishonoured and was
wrongly debited to Trade Expenses Account, now rectified)
(iii) Returns Inward A/c ...Dr. 1,500
To Gupta Bros. 1,500
(Being goods returned by Gupta Bros. omitted to be recorded, now recorded)
(iv) Repairs A/c ...Dr. 5,670
To Plant and Machinery A/c 5,670
(Being repairs to plant and machinery wrongly debited to Plant and
Machinery Account, now corrected)
(v) Plant and Machinery A/c ...Dr. 5,500
To Wages A/c 5,500
(Being wages paid for making certain additions to machinery wrongly
debited to Wages Account, now rectified)
21.14 Double Entry Book Keeping—ISC XI

(vi) (a) Sita Ram ...Dr. 750

To Lala Ram 750
(Being cheques received from Lala Ram wrongly credited to
Sita Ram instead of to Lal a Ram, now corrected)
(b) Bank A/c ...Dr. 750
To Cash A/c 750
(Being cheque received from Lala Ram wrongly debited to
Cash Account instead of to Bank Account, now rectified)
(vii) Drawings A/c ...Dr. 1,000
To Travelling Expenses A/c 1,000
(Being amount drawn by the proprietor wrongly debited to
Travelling Expenses Account, now corrected)

(ii) Effect of Errors on the Disagreement of the Trial Balance

All the errors given in the problem do not affect the agreement of the Trial Balance because
these errors are errors of complete omission in a subsidiary book or errors of posting to the
correct side but in the wrong account or errors of principle or compensating errors. These errors
do not affect the agreement of the Trial Balance because figures of debit and credit remain the
same by such errors.

Illustration 11.
An accountant prepared a Trial Balance which revealed a difference in the books of account.
He put the difference in a newly opened Suspense Account. Subsequently, he detected the
following errors:
(a) A dishonoured bill receivable for ` 15,000 returned by the bank had been credited to the
Bank Account and debited to Bills Receivable Account.
(b) Sundry items of plant sold for ` 10,000 had been entered in the Sales Book, the total of
which had been posted to the Sales Account.
(c) ` 100 discount received from a creditor had been duly entered in his account but not posted
to Discount Received Account.
(d) Goods worth ` 2,000 returned by Gaurav were recorded in the Sales Book and were posted
accordingly.
(e) Goods purchased from a merchant for ` 5,450 had been posted to the credit of his account
as ` 4,540.
(f) An item of ` 100 entered in the Sales Return Book had been posted to the debit of the
customer who returned the goods.
(g) An entry of ` 1,450 representing the selling price of goods returned to Shiv had been made
in Returns Outwards Book and posted. The amount should have been ` 1,300, the invoice
value of the goods in question.
(h) Goods worth ` 1,500 taken by the proprietor had been omitted to be recorded in the books.
(i) Amount of ` 4,200 received from Mr. Rahim which was written off as bad debt last year
has been credited to his account.
(j) On scrutinising the accounts of a defaulting cashier it was discovered that he had received
` 20,000 from customers and ` 10,000 from cash sales and had paid ` 4,800 to a creditor
(after deducting ` 200 for discount), but none of these transactions were recorded in the
books of account.
Rectification of Errors 21.15

Pass Journal entries to rectify the above mentioned errors. Ascertain the total amount of
difference in Trial Balance.
Solution: RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
(a) Acceptor’s A/c ...Dr. 15,000
To Bills Receivable A/c 15,000
(Being bill dishonoured wrongly debited to Bills Receivable Account
and not to the Acceptor’s Account, now rectified)
(b) Sales A/c ...Dr. 10,000
To Plant A/c 10,000
(Being a sale of sundry items of plant wrongly credited to the
Sales Account intead of Plant Account, now rectified)
(c) Suspense A/c ...Dr. 100
To Discount Received A/c 100
(Being rectification of the discount allowed by a creditor omitted to be
posted to Discount Received Account)
(d) Returns Inward A/c ...Dr. 2,000
Sales A/c ...Dr. 2,000
To Gaurav 4,000
(Being goods returned by Garuav wrongly entered in the Sales Book,
now rectified)
(e) Suspense A/c ...Dr. 910
To Merchant’s A/c 910
(Being rectification of a less credit given to Merchant Account)
(f) Suspense A/c ...Dr. 200
To Customer’s A/c 200
(Being goods worth ` 100 returned by a customer wrongly debited
to him instead of being credited, now rectified)
(g) Returns Outward A/c ...Dr. 150
To Shiv 150
(Being goods returned charged at selling price and not at invoice price
at which these were purchased, now rectified)
(h) Drawings A/c ...Dr. 1,500
To Purchases A/c 1,500
(Being goods taken by the proprietor omitted to be recorded,
now recorded)
(i) Mr. Rahim ...Dr. 4,200
To Bad Debts Recovered A/c 4,200
(Being the amount received from Mr. Rahim written off as
irrecoverable last year wrongly credited to Mr. Rahim instead
of Bad Debts Recovered Account, now stands corrected)
(j) Cash A/c ...Dr. 30,000
To Customers’ A/c 20,000
To Sales A/c 10,000
(Being cash received from debtors and cash sales omitted to be
recorded, now recorded)
21.16 Double Entry Book Keeping—ISC XI

Creditor’s A/c ...Dr. 5,000

To Cash A/c 4,800
To Discount Received A/c 200
(Being cash paid to a creditor and discount allowed by him omitted
to be recorded, now recorded)
Cashier’s A/c ...Dr. 25,200
To Cash A/c 25,200
(Being cash defaulted by the cashier)

Dr. SUSPENSE ACCOUNT Cr.

Particulars ` Particulars `
To Discount Received A/c 100 By Difference in Books as per Trial Balance 1,210
To Merchant’s A/c 910 (Balancing Figure)
To Customer’s A/c 200

1,210 1,210

Note: Suspense Account indicates that there was a difference of ` 1,210 in the Trial Balance before deducting
the errors. Debit side of the Trial Balance exceeded credit side by ` 1,210.

Illustration 12.
Raj prepared his Trial Balance as on 31st March, 2020 with a difference of ` 41,016.
TRIAL BALANCE as on 31st March, 2020
Heads of Accounts L.F.  Dr. (`) Cr. (`)
Capital ... 10,00,256
Plant and Machinery 2,50,000 ...
Furniture 26,500 ...
Car 4,85,000 ...
Building 6,20,000 ...
Cash 69,000 ...
Bank 72,000 ...
Depreciation 46,500 ...
Opening Stock 45,800 ...
Purchases 6,90,000 ...
Wages 1,90,000 ...
Manufacturing Expenses 2,06,000 ...
Salary 1,20,000 ...
Rent 2,40,000 ...
Postage and Telephone 89,000 ...
Electricity 94,000 ...
General Expenses 12,500 ...
Sales ... 10,25,000
Interest ... 4,500
Fixed Assets 2,50,000 ...
Outstanding Expenses ... 63,500
Sundry Debtors 96,000 ...
Sundry Creditors ... 2,00,060
Unsecured Loan ... 13,50,000
Suspense 41,016 ...
Total 36,43,316 36,43,316
Rectification of Errors 21.17

On analysis you have found the following errors:

`
1. Sales Return considered as Purchases 2,693
2. Purchases Return considered as Sales 4,923
3. Ramu who is a creditor considered as Debtor 22,500
4. Sales register’s total actually was 10,52,000
5. Receipts side of the Bank Book for the month of March undercast by 80,000
6. Salary advance wrongly considered as outstanding expenses 12,000
7. Discount received not considered in Trial Balance 984
8. Sundry Debtors undercast by 10,000
You are required to pass Journal entries to rectify the above errors and prepare a rectified Trial
Balance. Also show the Suspense Account.

Solution: In the Books of Raj

RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
2020
March 31 Sales Return A/c ...Dr. 2,693
To Purchases A/c 2,693
(Being sales return considered as purchases, now rectified)
March 31 Sales A/c ...Dr. 4,923
To Purchases Return A/c 4,923
(Being purchases return considered as sales, now rectified)
March 31 Suspense A/c ...Dr. 45,000
To Sundry Creditors A/c 22,500
To Sundry Debtors A/c 22,500
(Being creditor considered as debtor, now rectified)
March 31 Suspense A/c ...Dr. 27,000
To Sales A/c 27,000
(Being sales undercast, now adjusted)
March 31 Bank A/c ...Dr. 80,000
To Suspense A/c 80,000
(Being Bank Book undercast, now rectified)
March 31 Advance Salary A/c ...Dr. 12,000
Outstanding Expenses A/c ...Dr. 12,000
To Suspense A/c 24,000
(Being salary advance considered as outstanding expenses, now rectified)
March 31 Suspense A/c ...Dr. 984
To Discount Received A/c 984
(Being discount received not considered, now adjusted)
March 31 Sundry Debtors A/c ...Dr. 10,000
To Suspense A/c 10,000
(Being debtors undercast, now adjusted)
21.18 Double Entry Book Keeping—ISC XI

TRIAL BALANCE as on 31st March, 2020

Heads of Accounts L.F.  Dr. (`) Cr. (`)
Capital ... 10,00,256
Plant and Machinery 2,50,000 ...
Furniture 26,500 ...
Car 4,85,000 ...
Building 6,20,000 ...
Cash 69,000 ...
Bank 1,52,000 ...
Depreciation 46,500 ...
Opening Stock 45,800 ...
Purchases 6,87,307 ...
Sales Return 2,693 ...
Wages 1,90,000 ...
Manufacturing Expenses 2,06,000 ...
Salary 1,20,000 ...
Rent 2,40,000 ...
Postage and Telephone 89,000 ...
Electricity 94,000 ...
General Expenses 12,500 ...
Sales ... 10,47,077
Purchases Return ... 4,923
Interest ... 4,500
Fixed Assets 2,50,000 ...
Outstanding Expenses ... 51,500
Advance Salary 12,000 ...
Sundry Debtors 83,500 ...
Sundry Creditors ... 2,22,560
Unsecured Loan ... 13,50,000
Discount Received ... 984
Total 36,81,800 36,81,800

Dr. SUSPENSE ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d 41,016 By Bank A/c 80,000
To Sundry Creditors A/c 22,500 By Advance Salary A/c 12,000
To Sundry Debtors A/c 22,500 By Outstanding Expenses A/c 12,000
To Sales A/c 27,000 By Sundry Debtors A/c 10,000
To Discount Received A/c 984
1,14,000 1,14,000

Illustration 13.
Following errors committed by the accountant of Sita Dye Chemicals:
(a) Cash ` 3,500 paid to Triman Chemicals posted as ` 5,300.
(b) Purchase of Stationery worth ` 1,500 remained unposted from the Cash Book.
(c) ` 2,600 paid for purchase of new office furniture charged to Office Expenses Account
(Ignore depreciation).
(d) Credit sales to Trivedi & Co., of ` 4,000 was posted to the credit of their account.
(e) Purchase of ` 4,200 from Mantri & Co. was passed through the Sales Day Book as ` 2,400.
Rectification of Errors 21.19

How would you rectify the errors assuming that:

(i) They were detected after preparing Trial Balance, but before preparing final accounts (the
difference being taken to Suspense Account)?
(ii) They were detected after preparing final accounts?
(Narrations to Journal Entries not required)
Solution:
(i) When errors are rectified after preparing the Trial Balance but before preparing Final Accounts:

RECTIFYING JOURNAL ENTRIES

Date Particulars L.F. Dr. (`) Cr. (`)
(a) Suspense A/c ...Dr. 1,800
To Triman Chemicals 1,800
(b) Stationery A/c ...Dr. 1,500
To Suspense A/c 1,500
(c) Furniture A/c ...Dr. 2,600
To Office Expenses A/c 2,600
(d) Trivedi & Co. ...Dr. 8,000
To Suspense A/c 8,000
(e) Purchases A/c ...Dr. 4,200
Sales A/c ...Dr. 2,400
To Mantri & Co. 6,600

(ii) When errors are rectified after preparing Final Accounts:

RECTIFYING JOURNAL ENTRIES

Date Particulars L.F. Dr. (`) Cr. (`)
(a) Suspense A/c ...Dr. 1,800
To Triman Chemicals 1,800
(b) Profit and Loss Adjustment A/c ...Dr. 1,500
To Suspense A/c 1,500
(c) Furniture A/c ...Dr. 2,600
To Profit and Loss Adjustment A/c 2,600
(d) Trivedi & Co. ...Dr. 8,000
To Suspense A/c 8,000
(e) Profit and Loss Adjustment A/c ...Dr. 6,600
To Mantri & Co. 6,600
Capital A/c ...Dr. 5,500
To Profit and Loss Adjustment A/c 5,500

Note: Profit and Loss Adjustment Account has been given debit or credit in place of nominal accounts
because errors have been discovered after the preparation of final accounts. The last entry relates
to balance of Profit and Loss Adjustment Account transferred to Capital Account being loss due to
rectification of all errors.
21.20 Double Entry Book Keeping—ISC XI

Illustration 14.
Trial Balance of P.K. Traders as at 31st March, 2020 did not match. In order to close the books, the
accountant placed the difference to the newly opened Suspense Account and carried forward
this difference to the next period for necessary adjustments. Later, the following errors arising
in 2019–20 were identified:
(a) A purchase of ` 1,620 was recorded in the Day Book as ` 620 and posted to debit side of
Supplier’s Account as ` 260.
(b) Sales Day Book was overcast by ` 1,000 in January, 2020.
(c) Furniture purchased for ` 25,000 cash was posted to the Purchases Account in the Ledger.
(d) Credit sale of ` 970 was posted to the credit of the Customer’s Account as ` 790.
(e) ` 500 allowed as cash discount to a trade debtor was not debited to the Discount Allowed Account.
Pass the necessary Journal entries to rectify these errors and show Suspense Account, Profit
and Loss Adjustment Account and state the ultimate effect of these correcting entries in the
books for 2019–20.
Solution: In the Books of M/s. P.K. Traders
RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
2020
April 1 Profit and Loss Adjustment A/c (` 1,620 – ` 620) ...Dr. 1,000
(a) Suspense A/c (` 260 + ` 620) ...Dr. 880
To Supplier’s A/c 1,880
(Being purchase of ` 1,620 entered in the Purchase Book as ` 620 but
posted to the debit of Supplier’s A/c as ` 260, now rectified)
(b) Profit and Loss Adjustment A/c ...Dr. 1,000
To Suspense A/c 1,000
(Being Sales Day Book overcast by ` 1,000, now rectified)
(c) Furniture A/c ...Dr. 25,000
To Profit and Loss Adjustment A/c 25,000
(Being furniture purchased has been posted to the Purchases Account,
now rectified)
(d) Customer’s A/c (` 970 + ` 790) ...Dr. 1,760
To Suspense A/c 1,760
(Being credit sale of ` 970 wrongly posted to the credit of Customer’s
Account, as ` 790, now rectified)
(e) Profit and Loss Adjustment A/c ...Dr. 500
To Suspense A/c 500
(Being discount allowed not posted to Discount Allowed Account,
now rectified)
(f) Profit and Loss Adjustment A/c ...Dr. 22,500
To Capital A/c 22,500
(Being the net adjusted profit transferred to Capital Account)
Dr. SUSPENSE ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d (Balancing Figure) 2,380 By Profit and Loss Adjustment A/c 1,000
To Supplier’s A/c 880 By Customer’s A/c 1,760
By Profit and Loss Adjustment A/c 500
3,260 3,260
Rectification of Errors 21.21

Dr. PROFIT AND LOSS ADJUSTMENT ACCOUNT Cr.

Particulars ` Particulars `
To Supplier’s A/c 1,000 By Furniture A/c 25,000
To Suspense A/c 1,000
To Suspense A/c 500
To Capital A/c (Balancing Figure) 22,500
25,000 25,000

Effect of Corrections:
(i) Suspense Account will be nil;
(ii) Sundry Debtors Account will be increased by ` 1,760;
(iii) Sundry Creditors Account will be increased by ` 1,880;
(iv) Furniture Account will be increased by ` 25,000;
(v) Capital Account will be increased due to increase in profit by ` 22,500; subject to depreciation on furniture
wrongly posted to the Purchases Account.

Illustration 15.
There was a difference in Trial Balance of Sushant, a trader, on 31st March, 2020 and the
difference in books was carried to a Suspense Account and the books were closed. Subsequently,
on going through the books, the following errors were located:
(a) ` 2,296 paid for repairs of motor car, was debited to Motor Car Account as ` 696.
(b) A sale of ` 1,400 to J. Das entered in the Sales Book as ` 2,120.
(c) A cash discount of ` 800 received was entered in the Cash Book but was not posted in the ledger.
(d) ` 400 being purchase returns posted to the debit of Purchases Account.
(e) The purchase of a machine on 1st April, 2019 for ` 24,000 was entered in the Purchases
Book.
(f) While carrying forward total of one page in N. Das’s Account, the amount of ` 1,000 was
written on the credit side instead of the debit side.
(g) A cheque of ` 6,192 received from S. Das (after allowing a discount of ` 92) was endorsed
to P. Ghosh in full settlement for ` 7,000. The cheque was finally dishonoured but no entry
is passed in the books.
Give Journal entries to rectify the above errors and prepare Suspense Account.
Solution: In the Books of Sushant
RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
2020
April 1 Profit and Loss Adjustment A/c ...Dr. 2,296
(a) To Motor Car A/c 696
To Suspense A/c 1,600
(Being repairs to motor car of ` 2,296 wrongly debited to Motor Car
Account as ` 696, now rectified)
(b) Profit and Loss Adjustment A/c ...Dr. 720
To J. Das 720
(Being a sale of ` 1,400 wrongly entered in the Sales Day Book
as ` 2,120, now rectified)
21.22 Double Entry Book Keeping—ISC XI

(c) Suspense A/c ...Dr. 800

To Profit and Loss Adjustment A/c 800
(Being discount received entered in the cash book but wrongly not
posted in Ledger, now rectified)

(d) Suspense A/c ...Dr. 800

To Profit and Loss Adjustment A/c 800
(Being purchase returns of ` 400 posted wrongly to the debit of
Purchases Account, now rectified)

(e) Machinery A/c (Note) ...Dr. 24,000

To Profit and Loss Adjustment A/c 24,000
(Being purchase of machinery for ` 24,000 entered wrongly in the
Purchases Day Book, now rectified)

(f) N. Das ...Dr. 2,000

To Suspense A/c 2,000
(Being a debit amount of ` 1,000 wrongly carried forward as
credit amount, now rectified)

(g) S. Das (` 6,192 + ` 92) ...Dr. 6,284

Profit and Loss Adjustment A/c ...Dr. 716
To P. Ghosh 7,000
(Being a cheque of ` 6,192 received from Mr. S. Das endorsed to
P. Ghosh for full settlement of ` 7,000 and dishonoured but no
entry was passed, now rectified)

Profit and Loss Adjustment A/c ...Dr. 21,868

To Capital A/c 21,868
(Being net profit transferred to Capital Account)

Note: For lack of information regarding depreciation rate, no effect has been given in the Profit and Loss
Adjustment Account.

Dr. SUSPENSE ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d (Balancing Figure) 2,000 By Profit and Loss Adjustment A/c 1,600
To Profit and Loss Adjustment A/c 800 By N. Das 2,000
To Profit and Loss Adjustment A/c 800
3,600 3,600

Dr. PROFIT AND LOSS ADJUSTMENT ACCOUNT Cr.

Particulars ` Particulars `

To Motor Car A/c 696 By Suspense A/c 800

To Suspense A/c 1,600 By Suspense A/c 800
To J. Das 720 By Machinery A/c 24,000
To P. Ghosh 716
To Capital A/c (Balancing Figure) 21,868
25,600 25,600
Rectification of Errors 21.23

Illustration 16.
Sumant has matched his Trial Balance by placing the difference in Suspense Account and has
prepared a Trading and Profit and Loss Account and the Balance Sheet. On subsequent scrutiny,
errors as detailed below were identified. Rectify these errors and ascertain the amount carried
to Suspense Account:
(i) A sale of goods to Kamal for ` 3,500 has been credited to his account.
(ii) Goods purchased from Dharam amounting to ` 7,500 were entered in the Purchases Day
Book but were omitted from Dharam’s Account in the Ledger.
(iii) A computer printer purchased for ` 5,000 was debited to Purchases Account.
(iv) Goods returned to S. Sen of ` 750 were debited to P. Sen’s Account.
(v) Repair to office car of ` 7,500 were debited to the Office Car Account.
(vi) Goods sold to R. Banerjee valued at ` 7,300 have been posted into his account as ` 3,700.
Will the above rectification affect the profit figure? if so, to what extent.
Solution: In the Books of Sumant
RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Kamal (` 3,500 × 2) ...Dr. 7,000
To Suspense A/c 7,000
(Being sale of goods to Kamal for ` 3,500 wrongly credited to his account,
now rectified )
(ii) Suspense A/c ...Dr. 7,500
To Dharam 7,500
(Being goods purchased from Dharam not credited to his account,
now rectified)
(iii) Printer A/c ...Dr. 5,000
To Profit and Loss Adjustment A/c 5,000
(Being purchase of printer passed through Purchases Account,
now rectified)
(iv) S. Sen ...Dr. 750
To P. Sen 750
(Being goods returned to S. Sen wrongly debited to P. Sen Account,
now rectified)
(v) Profit and Loss Adjustment A/c ...Dr. 7,500
To Office Car A/c 7,500
(Being repair to car debited to Office Car Account, now rectified)
(vi) R. Banerjee ...Dr. 3,600
To Suspense A/c 3,600
(Being goods sold to R. Banerjee for ` 7,300 wrongly posted to his
account as ` 3,700, now rectified)
Capital A/c ...Dr. 2,500
To Profit and Loss Adjusment A/c 2,500
(Being net loss transferred to Capital Account)
Dr. SUSPENSE ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d (Balancing Figure) 3,100 By Kamal 7,000
To Dharam 7,500 By R. Banerjee 3,600
10,600 10,600
21.24 Double Entry Book Keeping—ISC XI

Dr. PROFIT AND LOSS ADJUSTMENT ACCOUNT Cr.

Particulars ` Particulars `
To Office Car A/c 7,500 By Printer A/c 5,000
By Capital A/c (Balancing Figure) 2,500
7,500 7,500

Illustration 17.
On preparing a Trial Balance on 31st March, 2020, Ashish observed that the credit balances
exceeded debit balances and he transferred this difference to Suspense Account to tally the
Trial Balance. Following errors were subsequently identified:
(a) ` 7,200 owing by a customer had been omitted from the schedule of sundry debtors.
(b) The total of the Returns Inward Book was added ` 100 more.
(c) Wages outstanding ` 25,000 had not been taken into account.
(d) A sale of ` 5,010 had been entered in the Sales Book as ` 7,050 and posted to the credit of
the customer.
(e) Goods costing ` 10,000 were went to a customer on sale or return basis for ` 11,500.
These had been recorded in the books as actual sales but no information regarding their
acceptance by the customer was received up to 31st March, 2020.
(f) Unexpired insurance ` 2,500 has not been taken into account while preparing Profit and
Loss Account for the year 2019–20.
(g) On 20th March, 2020 a sum of ` 50,000 spent on extension of building had been wrongly
debited to Repairs to Building Account.
(h) Cash ` 10,000 paid to M. Roy was credited to the account of N. Roy.
ou are required to give Journal entries to rectify the errors in a way so as to show the current
Y
year’s profit or loss correctly.
Solution: RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
(a) Sundry Debtors A/c ...Dr. 7,200
To Suspense A/c 7,200
(Being the omission of a balance of a customer from the schedule of
a sundry debtors, now added. It is a trial balance error, so it does not
affect an account)
(b) Suspense A/c ...Dr. 100
To Profit and Loss Adjustment A/c 100
(Being overcasting of the Returns Inward Book, now rectified.
Last year’s profit was decreased by ` 100 because of the excess
returns inwards, so Profit and Loss Adjustment Account has
been credited)
(c) Profit and Loss Adjustment A/c ...Dr. 25,000
To Outstanding Wages A/c 25,000
(Being outstanding wages not recorded, now recorded. Last year’s
profit was overstated by ` 25,000 because of not recording of
outstanding wages, so Profit and Loss Adjustment Account has
been given debit)
Rectification of Errors 21.25

(d) Profit and Loss Adjustment A/c ...Dr. 2,040

Customer’s A/c ...Dr. 12,060
To Suspense A/c 14,100
(Being a sale of ` 5,010 wrongly entered in the Sales Book as ` 7,050
and posted to the credit of the customer, now corrected)
Note: Last year’s profit was increased by ` 2,040 because of excess of
sale of ` 2,040 (i.e., ` 7,050 – ` 5,010), so Profit and Loss Adjustment
Account has been debited with ` 2,040. Customer’s Account has
been debited with ` 12,060 (i.e., ` 7,050 + ` 5,010) because Customer’s
Account was credited with ` 7,050 instead of being debited
with ` 5,010.
(e) Stock A/c ...Dr. 10,000
Profit and Loss Adjustment A/c ...Dr. 1,500
To Customer’s A/c 11,500
(Being goods costing ` 10,000 sent to a customer on sale or return
basis wrongly treated as actual sales for ` 11,500, now rectified)
(f) Unexpired Insurance A/c ...Dr. 2,500
To Profit and Loss Adjustment A/c 2,500
(Being unexpired insurance not recorded, now recorded. Last year’s
profit was understated by ` 2,500 because of the higher amount of
insurance, so Profit and Loss Account has been credited)
(g) Building A/c ...Dr. 50,000
To Profit and Loss Adjustment A/c 50,000
(Being amount spent on extension of building wrongly debited to
Repairs Account, now corrected)
(h) M. Roy ...Dr. 10,000
N. Roy ...Dr. 10,000
To Suspense A/c 20,000
(Being cash paid to M. Roy wrongly credited to N. Roy instead of being
debited to M. Roy, now corrected)
Profit and Loss Adjustment A/c (Note) ...Dr. 24,060
To Capital A/c 24,060
(Being profit due to rectification of all errors—balance of Profit and
Loss Adjustment Account—transferred to Capital Account)
Note:
Dr. PROFIT AND LOSS ADJUSTMENT ACCOUNT Cr.
Particulars ` Particulars `
To Outstanding Wages A/c 25,000 By Suspense A/c 100
To Suspense A/c 2,040 By Unexpired Insurance A/c 2,500
To Customer’s A/c 1,500 By Building A/c 50,000
To Capital A/c (Balancing Figure) 24,060
52,600 52,600

Illustration 18.
Balaji tallied his Trial Balance placing the difference in the Suspense Account. But, he finds the
following mistakes and needs your help in correcting Trial Balance. With the data given below
you are asked to prepare:
(a) Profit and Loss Adjustment Account for the year ended 31st March, 2020.
21.26 Double Entry Book Keeping—ISC XI

(b) Corrected Trial Balance as on 31st March, 2020.

(i) Profit before the following corrections—` 22,950.
(ii) Purchase of goods from Gayathri recorded as ` 5,900 instead of ` 9,500.
(iii) Payment to Padma posted to Priya’s Account—` 22,200.
(iv) Electricity bill of residence posted to Electricity Expenses Account—` 18,000.
(v) Cash Balance as on 31st March, 2020 recorded as ` 90,000 instead of ` 9,000.
(vi) Cash sale ` 45,000 not recorded at all.
(vii) Salary to Pappu debited to his Personal Account.
(viii) Depreciation on Car provided at 15% instead of 20%.
(ix) Credit card expenses of Balaji debited to Interest Account—` 15,000.
(x) Loan from Yamini shown as cash sale—` 12,500.
TRIAL BALANCE
as on 31st March, 2020
Heads of Accounts  Dr. (`) Cr. (`)
Profit and Loss ... 22,950
Gayathri 3,600 ...
Padma ... 22,200
Priya 22,200 ...
Cash 90,000 ...
Pappu 24,000 ...
Car 42,500 ...
Suspense ... 81,000
Capital ... 56,150
Total 1,82,300 1,82,300

(ICWA—Foundation)
Solution: (a) In the Books of Balaji
PROFIT AND LOSS ADJUSTMENT ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
Particulars ` Particulars `
To Gayathri (` 9,500 – ` 5,900) 3,600 By Balance b/d 22,950
To Pappu 24,000 By Capital A/c (Electricity Bill) 18,000
To Depreciation on Car (WN 2) 2,500 By Cash A/c (Cash Sale) 45,000
To Loan from Yamini’s A/c 12,500 By Capital (Credit Card Expenses) 15,000
To Balance c/d 58,350
1,00,950 1,00,950

(b) TRIAL BALANCE

as on 31st March, 2020 (after corrections)
Heads of Accounts  Dr. (`) Cr. (`)
Profit and Loss ... 58,350
Cash ( WN 1) 54,000 ...
Loan from Yamini ... 12,500
Car 40,000 ...
Capital (WN 3) ... 23,150
Total 94,000 94,000
Rectification of Errors 21.27

Working Notes:
1. Cash Balance as on 31st March, 2020 `
Balance as per the Trial Balance 90,000
Less: Suspense (` 90,000 – ` 9,000) 81,000
9,000
Add: Cash Sales 45,000
54,000
2. Difference in Depreciation Charges
Car as per Trial Balance 42,500
Value of car before depreciation @ 15% (` 42,500 × 100/85) 50,000
Deprecaition at 20% on ` 50,000 10,000
Less: Depreciation at 15% on ` 50,000 7,500
Additional depreciation to be charged 2,500
3. Capital Account
Balance as per Trial Balance 56,150
Less: Electricity Bill 18,000
Credit Card Expenses 15,000 33,000
23,150
Illustration 19.
A bookkeeper while preparing his Trial Balance finds that the debit exceeds by ` 7,250. For
preparing the Final Accounts he places the difference in Suspense Account. In the next year,
the following errors were discovered:
(i) A sale of ` 4,000 has been passed through the Purchases Book. The entry in Customer’s
Account has been correctly recorded.
(ii) Goods worth ` 2,500 taken by the proprietor for his use have been debited to
Repairs Account.
(iii) A Bill Receivable for ` 1,300 received from Krishna has been dishonoured on maturity
but no entry was passed.
(iv) Salary ` 650 paid to Manhad has been debited to his Personal Account.
(v) A purchase of ` 750 from Raghubir has been debited to his account. Purchases Account
has been correctly debited.
(vi) A sum of ` 2,250 written off as depreciation on furniture has not been debited to Depre-
ciation Account.
Pass Journal entries for rectifying the above errors and prepare the Suspense Account.
Solution: RECTIFYING JOURNAL ENTRIES
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Suspense A/c ...Dr. 8,000
To Profit and Loss Adjustment A/c 8,000
(Being the rectification of a credit sale wrongly passed
through the Purchases Book)
(ii) Drawings A/c ...Dr. 2,500
To Profit and Loss Adjustments A/c 2,500
(Being the goods withdrawn for personal use wrongly debited to
Repairs Account, now rectified)
(iii) Krishna ...Dr. 1,300
To Bills Receivable A/c 1,300
(Being the entry for bill drawn on Krishna dishonoured on maturity)
21.28 Double Entry Book Keeping—ISC XI

(iv) Profit and Loss Adjustment A/c ...Dr. 650

To Manhad 650
(Being the salary paid to Manhad wrongly debited to his
Personal Account, now rectified)
(v) Suspense A/c ...Dr. 1,500
To Raghubir 1,500
(Being the goods purchased from Raghubir wrongly debited to
his account, now rectified)
(vi) Profit and Loss Adjustment A/c ...Dr. 2,250
To Suspense A/c 2,250
(Being the depreciation of furniture not posted to depreciation
account, now rectified)

Dr. SUSPENSE ACCOUNT Cr.

` Particulars
Particulars `

To Profit and Loss Adjustment A/c 8,000 By Balance b/d 7,250

To Raghubir 1,500 By Profit and Loss Adjustment A/c 2,250
9,500 9,500

Unsolved Questions

1. The book keeper of a firm found that his Trial Balance was out (excess credit) by ` 742. He placed the amount
in a Suspense Account and subsequently found the following errors:
(i) A discount of ` 178 was allowed to Ramesh but in his account only ` 100 is recorded.
(ii) The credit side of R. Ray’s Account in the Ledger has been overcast by ` 100.
(iii) A sale of ` 375 to Kohli was entered in the Sales Book as ` 735.
(iv) From the Purchases Book, Bose’s Account was debited with ` 175.
(v) Cash ` 250 received from Maitra against debt previously written off was credited to his account.
(vi) Purchase of office furniture worth ` 750 on credit from Delhi Furnitures was entered in the Purchases
Book.
(vii) While carrying forward the total of the Sales Book from one page to another the amount of ` 11,358
was written as ` 11,538.
(viii) The proprietor took goods of the value of ` 150 for his domestic consumption. No record of it has been
made in the books.
(ix) Repairs bill for the proprietor’s personal car, ` 410, has been paid by the firm and debited to the Repairs
Account.
(x) A sale to Kassim of ` 700 has been entered in the Purchases Book.
Rectify the errors by means of suitable Journal entries and show the Suspense Account.
2. A merchant while balancing his books finds that it is out with excess credit of ` 850. Being required to
prepare the final accounts, he places the difference to a newly opened Suspense Account which he carried
forward to the next year. In the next year, the following mistakes were discovered:
(i) A dishonoured bill of exchange receivable for ` 10,000 returned by the bank had been credited to the
Bank Account and debited to Bills Receivable Account.
(ii) Discount amounting to ` 50 from a creditor had been duly entered in his account but not posted to
Discount Received Account.
(iii) A cheque for ` 4,000 received from Amar was dishonoured and had been posted to the debit of Sales
Return Account.
Rectification of Errors 21.29

(iv) An amount of ` 950 due from Kailash, which has been written off as bad in the past, was unexpectedly
recovered in the previous year, and had been credited to the personal account of Kailash.
(v) A discount allowed to A. Chaudhary had been posted to his account as ` 80 in place of ` 180.
(vi) Goods purchased from B. Banerjee amounting to ` 100 had been posted to the credit of his account
as ` 1,100.
Pass Journal entries for rectifying above mistakes. Prepare the Suspense Account and show the ultimate
result of the mistakes on the last year’s Profit and Loss Adjustment Account. Also, pass a Journal entry for
transferring the balance of Profit and Loss Adjustment Account.
3. The Trial Balance extracted from the books of Ram on 31st March, 2020 had not agreed. In 2020–21 the
following errors were discovered:
(i) The total of a page of the Sales Book was carried forward to the next page as ` 6,785 instead of ` 6,587.
(ii) The total of Purchases Book was ` 1,000 short.
(iii) A sale of ` 350 to Dutta was entered in the Sales Book as ` 530.
(iv) Cash received ` 150 from M. Roy was debited to the account of N. Roy.
` 580 spent on repairs to the Delivery Van was debited to Motor Vehicles Account at ` 580.
(v)
(vi) The total of the discount column in the Cash Book on the debit side was ` 385 on a page but was
carried forward to the next page as ` 538.
(vii) Goods returned, ` 200, by Mirza were not entered in the books at all.
You are required to give Journal entries to rectify the errors in a way not to affect the profit or loss
for 2020–21.
4. Shiv Mohan closes his books on 31st March every year. In August, 2020, he found that his books for the year
2019–20 contained some errors in spite of an agreed Trial Balance. The errors were:
` 800 paid for purchase of Office Furniture was posted to the Purchases Account.
(i)
(ii) The Sales Book was overcast by ` 250.
` 275 paid for freight on machinery purchased was debited to Freight Account with ` 525.
(iii)
(iv) Closing Stock was overstated by ` 3,000 by a wrong casting in the inventory.
(v) An amount of ` 700 was received in full settlement for a customer after allowing him a discount of
` 70, but while writing the books, the amount received was entered in the discount column and the
discount allowed was entered in the amount column.
(vi) A cheque of ` 7,330 received from Mr. Rao, after allowing him a discount of ` 70 was endorsed to
Mr. Ray in full settlement for ` 7,500. The cheque was dishonoured but no entry for dishonour was
passed in the books.
Give Journal entries to rectify the above errors.
5. A bookkeeper on taking out a Trial Balance as on 31st March, 2020, found that it did not agree. He imme-
diately proceeded to check the entries in the books and discovered the following errors:
(i) A cheque from A for ` 150 had been correctly entered in the Cash Book but had been posted to the
credit of A as ` 100.
(ii) Goods returned by the firm B amounting to ` 80 had been recorded in the Sales Return Book but the
entry had not been posted to the Personal Account.
(iii) A sale of ` 365 to C had been correctly entered in the Sales Book but was posted as ` 360.
(iv) Goods of ` 5,000 (Purchase Cost) taken by the proprietor have not been entered in the books.
(v) Goods of an invoice value of ` 300 had been returned by E and were taken into stock but the returns
had not been entered in the books.
Pass rectifying Journal entries.
21.30 Double Entry Book Keeping—ISC XI

6. Pass rectifying entries for the following transactions:

(i) A sum of ` 1,500 owed by R. Gupta, a customer, had been omitted from the list of Sundry Debtors.
(ii) The balance in the account of Mr. Rahim ` 1,000 had been written off as bad but no other account has
been debited.
(iii) An addition in the Returns Inward Book had been cast ` 100 short.
(iv) A cheque for ` 200 drawn for the Petty Cash Account has been posted in the account of Asif.
(v) A cheque of ` 150 received from Sharad has been dishonoured and debited in the Discount Account.
(vi) Ramesh’s Account was credited with ` 840 twice instead of once.
7. A bookkeeper of a trading concern, having failed to agree the Trial Balance, opened a Suspense Account
and entered the difference in the Trial Balance. The following errors were subsequently discovered:
(i) Sales Book was overcast by ` 200.
(ii) Purchased furniture for ` 300 was passed through the invoice book and from there the Furniture House
Account was credited with ` 30.
(iii) Sold goods to Ram for ` 55 was credited as ` 550.
(iv) Purchases Book was overcast by ` 80.
(v) Purchases Return Book was carried forward as ` 122 instead of ` 112.
(vi) Sold goods worth ` 20 entered in the Sales Book as ` 200.
You are required to find out the difference in the Trial Balance and create the Suspense Account.
Pass necessary rectification Journal entries.
8. Following errors were found in the books of Gupta Traders on 31st March, 2020:
(i) Machinery repair expenses worth ` 1,200 were included in the cost of Machinery.
(ii) An amount of ` 200 withdrawn by the proprietor for his personal use was debited to the Travelling
Expenses Account.
(iii) A cheque of ` 3,000 received from Ramesh was credited to Mahesh’s Account.
(iv) Cheque worth ` 500 received from Shiv Govind was dishonoured and was debited to the Allowances
Account.
(v) Goods returned by a customer worth ` 600 was included in the stock but no entry was made in the books.
` 7,000 was spent on the extension of the building but was debited to the Repairs Account.
(vi)
Pass necessary Journal entries for rectification of errors in the books of Gupta Traders.

GUIDE TO ANSWERS

2. Total of Suspense Account—` 1,000;

For transferring the balance of Profit and Loss Adjustment A/c:
Dr. Profit and Loss Adjustment A/c and Cr. Capital A/c—` 5,000.
3. Profit of current year will reduce by ` 2,005 and will be debited to Capital Account.
4. Current year’s profit will be decreased by ` 1,395 and will be debited to Capital Account.
Accounts from Incomplete Records 22.1

CHAPTER
22
Accounts from Incomplete Records
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Incomplete Records Incomplete records is a system in which accounting records are not
kept according to Dual Aspect Concept (Principle). In some of the
transactions, both aspects are recorded, while in others one aspect
is recorded or it is not recorded at all.
2. Single Entry System It is an incomplete double entry system varying with circumstances.
The records maintain under the Single Entry System are termed as
Incomplete Records.
3. Statement of Affairs It is a statement of assets and liabilities. The excess of assets over
liabilities represents proprietor’s capital.
Assets – Liabilities = Capital
4. Capital Amount invested by the owner.
5. Drawings Money or goods taken (withdrawn) by the proprietor from the business
for his/her personal use.

CHAPTER SUMMARY

• Single Entry System is a system in which accounting records are not kept strictly according to the double
entry principles of Book Keeping. Since all the transactions are not recorded strictly on the double entry
principle, it is not possible to prepare a Trial Balance and check the arithmetical accuracy of the books
of account.
Single Entry System is very simple, economical and time saving system for recording transactions.
• Disadvantages of Single Entry System are: (i) Arithmetical accuracy of accounts cannot be proved;
(ii) Difficult to detect fraud; (iii) True profit cannot be known; (iv) No control on Assets; (v) True financial
position of business cannot be ascertained; (vi) Not Acceptable to Tax Authorities.
• Profit under the Single Entry System is determined by any of the following two methods:
(i) Statement of Affairs Method and (ii) Conversion Method.
• Statement of Affairs Method. Under the method a statement, which shows assets on one side and the
liabilities on the other is prepared. The difference between the totals of the two sides is taken as the capital.
• Ascertainment of Profit or Loss. Under this method, Statement of Affairs at the end of the year and in
the beginning of the year are prepared to determine closing and opening capitals. The capital is adjusted
as to capital introduced and drawings made to determine profit earned during the year. We can express it
mathematically as follows:
Profit/(Loss) = Closing Capital – Additional Capital + Drawings – Opening Capital.
22.2 Double Entry Book Keeping—ISC XI

Solved Questions
Illustration 1.

Ashok does not maintain his accounts on complete double entry system. He started his business
with Cash ` 36,000, Furniture ` 32,000, Stock ` 18,000, and Machinery ` 60,000 on 1st April,
2019. His position on 31st March, 2020 was as follows:

Stock in Trade ` 27,000, Cash in Hand ` 22,600, Debtors ` 42,000, Creditors ` 23,000, Loan from
Ganesh ` 14,000, Computer ` 25,000 and Stationery Stock ` 1,400.

Additional Information:
(i) Machinery of ` 26,000 and Furniture of ` 18,000 (excluding household furniture) were
purchased during the year on 1st July, 2019 and on 31st October, 2019 respectively.
Depreciation @ 10% p.a. is to be charged on the above assets.
(ii) A bank loan of ` 28,000 was taken on 1st April, 2019 for purchasing various fixed assets.
Interest charged by the bank for the said loan amounting to ` 980 not yet paid.
(iii) Out of the debtors ` 1,600 is to be written off as bad debt and provision for doubtful debt
is to be created @ 5% on debtors.
(iv) Cash withdrawn from the business for personal use ` 20,000.
(v) Household furniture was purchased for ` 4,000 but payment was made through
business cash.
(vi) Life Insurance Policy of the proprietor matured and the amount was brought into
business ` 25,000.
You are required to prepare a Statement of Profit or Loss for the period ended 31st March, 2020
and a Statement of Affairs as on that date.

Solution: STATEMENT OF AFFAIRS (Before Adjustments)

as at 31st March, 2020
`
Liabilities Assets `

Capital (Balancing Figure) 1,89,000 Machinery (` 60,000 + ` 26,000) 86,000

(being the excess of assets over liabilities) Furniture (` 32,000 + ` 18,000) 50,000
Creditors 23,000 Debtors 42,000
Loan from Ganesh 14,000 Computer 25,000
Bank Loan 28,000 Closing Stock 27,000
Stationery Stock 1,400
Cash in Hand 22,600
    2,54,000   2,54,000
Accounts from Incomplete Records 22.3

STATEMENT OF PROFIT OR LOSS

for the year ended 31st March, 2020
Particulars ` `
Capital as per Statement of Affairs as at 31st March, 2020 1,89,000
Add: Drawings:
Household Furniture Purchased 4,000
Cash Withdrawn for Personal Use 20,000 24,000
2,13,000
Less: Additional Capital (Life Insurance Policy matured and brought that amount into the Business) 25,000
1,88,000
Less: Opening Capital: (Cash of ` 36,000, furniture ` 32,000, Stock ` 18,000,
and Machinery ` 60,000 = ` 1,46,000) 1,46,000
Trading Profit/Profit before Adjustments/Gross Profit 42,000
Less: Adjustments:
Interest on Loan 980
Bad Debts 1,600
Provision for Doubtful Debt @ 5% of ` 40,400 (i.e., ` 42,000 – ` 1,600) 2,020
Depreciation on Machinery (WN) 7,950
Depreciation on Furniture (WN) 3,950 16,500
Net Profit for the year  25,500

STATEMENT OF AFFAIRS (After Adjustments)

as at 31st March, 2020
`
Liabilities Assets `

Capital (Opening) 1,46,000 Machinery 86,000

Add: Additional Capital 25,000 Less: Depreciation 7,950 78,050
Net Profit 25,500 Furniture 50,000
1,96,500 Less:  Depreciation 3,950 46,050
Less: Drawings 24,000 1,72,500 Computer 25,000
Loan from Ganesh 14,000 Debtors 42,000
Bank Loan 28,000 Less: Bad Debts 1,600
Creditors 23,000 40,400
Outstanding Expenses: Less: Provision for
Interest on Loan 980 Doubtful Debts 2,020 38,380
Closing Stock 27,000
Stationery Stock 1,400
Cash in Hand 22,600
    2,38,480  2,38,480

Working Note:
Calculation of Depreciation on Machinery and Furniture: ` `
Depreciation on Machinery: 10% on ` 60,000 for full year 6,000
10% on ` 26,000 for 9 months 1,950 7,950
Depreciation on Furniture: 10% on ` 32,000 for full year 3,200
10% on ` 18,000 for 5 months 750 3,950
22.4 Double Entry Book Keeping—ISC XI

Illustration 2.
Sooraj started business with capital of ` 90,000 on 1st April, 2019. He keeps his books of account
on Single Entry System.
The following data is available from his Cash Book for the year ended 31st March, 2020:
`
Purchase of Furniture (on 1st May, 2019) 21,000
Purchase of Machinery (on 30th June, 2019) 65,000
Cash Sales 36,000
Cash Purchases 19,600
Cash Received from Customers 42,000
Paid to Suppliers 37,800
Sundry Expenses 11,200
Drawings 17,000
Sale of Personal Land 39,000
Cashed Personal FDR 10,000
Deposit in SBI Fixed Deposit Account 25,000
Received Interest from SBI Fixed Deposit Account 2,400
His position on 31st March, 2020 was as under:
Debtors 34,900
Creditors 12,400
Closing Stock 11,700
Outstanding Expenses 3,000
Prepaid Expenses 1,400
Computer (Purchased on 1st September, 2019 from M/s Star Computers) 27,000
Following adjustments are to be made:
(i) All fixed assets are to be depreciated @ 10% p.a.
(ii) Provision for doubtful debt is to be created @ 5% on debtors.
From the above information, ascertain his profit or loss for the year ended 31st March, 2020
and prepare his statement of affairs as on that date.
Solution: As the closing cash in hand is not given, a Cash Account is prepared for calculating
the closing Cash Balance.
In the Books of Sooraj
Dr. CASH ACCOUNT/CASH BOOK Cr.
` Particulars
Particulars `
To Capital A/c 90,000 By Purchases 19,600
To Sales 36,000 By Furniture 21,000
To Debtors (Received from Customers) 42,000 By Machinery 65,000
To Capital (Sale of Personal Land) 39,000 By Creditors (Paid to Suppliers) 37,800
To Capital (Cashed Personal FDR) 10,000 By Sundry Expenses 11,200
To Interest (Received from Bank) 2,400 By Drawings 17,000
By Investment (SBI Fixed Deposit Account) 25,000
By Balance c/d 22,800
    2,19,400   2,19,400
Accounts from Incomplete Records 22.5

STATEMENT OF AFFAIRS (Before Adjustment)

as at 31st March, 2020
`
Liabilities Assets `

Capital 1,66,400 Machinery 65,000

(Being the excess of Assets over Liabilities) Furniture 21,000
Creditors 12,400 Computer 27,000
Outstanding Expenses 3,000 Debtors 34,900
M/s Star Computers 27,000 Investments 25,000
Closing Stock 11,700
Prepaid Expenses 1,400
Cash in Hand 22,800
    2,08,800   2,08,800

STATEMENT OF PROFIT OR LOSS

for the year ended 31st March, 2020
Particulars ` `
Capital as per Statement of Affairs at 31st March, 2020 1,66,400
Add: Drawings: 17,000
1,83,400
Less: Additional Capital:
Sale of Personal Land 39,000
Cashed Personal FDR 10,000 49,000
1,34,400
Less: Opening Capital 90,000
Gross Profit/Profit before Adjustments 44,400
Less: Adjustments:
Depreciation on Machinery (30th June, 2019 to 31st March, 2020, i.e., for 9 months) 4,875
Depreciation on Furniture (1st May, 2019 to 31st March, 2020, i.e., for 11 months) 1,925
Depreciation on Computer (1st September, 2019 to 31st March, 2020, i.e., for 7 months) 1,575
Provision for Doubtful Debts (5% of ` 34,900) 1,745 10,120
Net Profit for the year  34,280

FINAL OR REVISED STATEMENT OF AFFAIRS

as at 31st March, 2020
`
Liabilities Assets `
Capital (Opening): 90,000 Machinery 65,000
Add: Additional Capital 49,000 Less: Depreciation 4,875 60,125
Net Profit 34,280 Furniture 21,000
1,73,280 Less: Depreciation 1,925 19,075
Less: Drawings 17,000 1,56,280 Computer 27,000
Creditors 12,400 Less: Depreciation 1,575 25,425
Outstanding Expenses 3,000 Investment 25,000
M/s Star Computers 27,000 Debtors 34,900
Less: Provision for Doubtful Debts 1,745 33,155
Closing Stock 11,700
Prepaid Expenses 1,400
Cash in Hand 22,800
    1,98,680  1,98,680
22.6 Double Entry Book Keeping—ISC XI

Illustration 3.
Nikita after retirement from service started on 1st July, 2019 a business of fancy goods with
a capital of 1,15,000 out of her gratuity receipts. She keeps her books under the single entry
system. She submits following particulars of her business as on 31st March, 2020:
`
Furniture 18,000
Machinery 24,000
10% Investments 21,000
Debtors 34,000
Creditors 19,000
Closing Stock 20,600
Cash in Hand 11,700
Balance as per the Bank Pass Book 20,400
The following adjustments are to be made:
(i) An advance of ` 700 paid to an employee against his salary that will be due in April,
2020 has now been identified.
(ii) Investment was made on 1st August, 2019 and interest not yet received.
(iii) Business travelling included the proprietor’s personal travelling for which she is to be
charged ` 1,750.
(iv) Stationery of ` 1,480 was consumed by the family members of Nikita.
(v) Cheques amounting to ` 1,900 drawn in favour of suppliers, but not yet presented for
payment.
(vi) An amount of ` 28,000 was withdrawn by Nikita from the business for her personal use,
but out of the said fund she purchased a computer at ` 15,000 for her business use.
(vii) Depreciate machinery and furniture by ` 2,500 and ` 1,400 respectively.
(viii) Out of the debtors, ` 900 is to be written off as bad debts and provision for doubtful
debts is to be created @ 5% on debtors.
You are required to show the Statement of Profit or Loss for the year ended 31st March, 2020
and the final Statement of Affairs as on that date.
Solution: STATEMENT OF AFFAIRS (Before Adjustment)
as at 31st March, 2020
`
Liabilities Assets `
Capital (Balancing Figure) 1,45,000 Machinery 24,000
(Being the excess of Assets over Liabilities) Furniture 18,000
Creditors 19,000 Computer 15,000
10% Investments 21,000
Debtors (` 34,000 – ` 900) 33,100
Closing Stock 20,600
Accrued interest on Investment 1,400
Prepaid Salaries 700
Cash at Bank (` 20,400 – ` 1,900) 18,500
Cash in Hand 11,700
    1,64,000   1,64,000
Accounts from Incomplete Records 22.7

STATEMENT OF PROFIT OR LOSS

for the year ended 31st March, 2020
Particulars ` `
Capital as per Statement of Affairs as on 31st March, 2020 1,45,000
Add: Drawings:
Cash Withdrawn 28,000
Less: Computer Purchases for Business 15,000 13,000
Proprietor’s Personal Travelling 1,750
Stationery Consumed by the Family Members of the Proprietor 1,480 16,230
1,61,230
Less: Opening Capital 1,15,000
Trading Profit/Profit before Adjustments (Gross Profit) 46,230
Less: Adjustments:
Depreciation on Machinery 2,500
Depreciation on Furniture 1,400
Provision for Doubtful debts @ 5% on debtors 1,655 5,555
Net Profit for the year  40,675

REVISED STATEMENT OF AFFAIRS (AFTER ADJUSTMENT)

as at 31st March, 2020
`
Liabilities Assets `
Capital (Opening) 1,15,000 Machinery 24,000
Add: Net Profit 40,675 Less: Depreciation 2,500 21,500
1,55,675 Furniture 18,000
Less: Drawings 16,230 1,39,445 Less: Depreciation 1,400 16,600
Creditors 19,000 Computer 15,000
10% Investment 21,000
Debtors 33,100
Less: Provision for
Doubtful Debts 1,655 31,445
Closing Stock 20,600
Accrued Interest on
Investments (WN 1) 1,400
Prepaid Salaries 700
Cash at Bank (WN 2) 18,500
Cash in Hand 11,700
    1,58,445  1,58,445

Working Notes:
1. Interest on Investment is due but not received for 8 months (August to March)
10 8
= ` 21, 000 ¥ ¥ = ` 1, 400.
100 12
2. Balance as per Bank Pass Book is given and as such Bank Balance as per Cash Book has been calculated by
adjusting the unpresented cheques amounted to ` 1,900 as under:
`
Balance as per Bank Pass Book 20,400
Less:  Unpresented Cheques 1,900
Balance as per Cash Book 18,500
22.8 Double Entry Book Keeping—ISC XI

Unsolved Questions

1. Sanjay does not maintain his books of account on complete double entry system. He started his business
with ` 1,65,000. He submits the following particulars of his business as on 31st March, 2020:

` `
Machinery 65,000 Prepaid Expenses 1,600
Furniture 22,000 Outstanding Expenses 800
Debtors 21,800 Cash in Hand 23,700
Creditors 16,400 Cash at Bank 21,000
Closing Stock 30,700 Investments 20,000
Following adjustments are to be made:
(i) Sanjay cashed his FDR amounting to ` 10,000 and brought the money into business oo 1st May, 2019.
(ii) He withdrew ` 8,000 from his business, cash for his personal expenses.
(iii) Depreciate machinery and furniture @ 10% p.a.
(iv) His house rent and school fees of his son amounting to ` 2,400 p.m. were paid from the business cash.
(v) Make provision for doubtful debts @ 5% on debtors.
From the above information, ascertain his profit or loss for the year ended 31st March, 2020 and prepare
his statement of affairs as on that date.
2. Samual keeps his books under Single Entry System. His financial position on 1st April, 2019 and 31st March,
2020 was as given below:
1st April, 2019 31st March, 2020
` `
Cash in Hand 12,800 31,400
Cash at Bank 26,000 19,500
Prepaid Expenses 900 1,200
Debtors 43,800 56,300
Creditors 16,300 19,700
Investments 30,000 30,000
Outstanding Expenses 500 800
Closing Stock 15,900 23,100
Land and Building 1,25,000 1,05,000
Machinery 55,000 75,000
Furniture 24,000 34,000
Additional Information:
(i) Machinery and Furniture are to be depreciated @ 10% p.a.
(ii) Cash withdrawn by Samual ` 900 p.m. from the business cash regularly.
(iii) Make a provision for doubtful debts @ 5% on debtors.
(iv) Proprietor’s house rent ` 1,000 p.m. was paid from the business cash regularly.
(v) Accrued interest on investment ` 700.
(vi) He sold his personal jewellery and brought that money into the business ` 18,000.
You are required to prepare a Statement of Profit or Loss for the period ended 31st March, 2020 and draw
a Statement of Affairs as on that date.
Accounts from Incomplete Records 22.9

3. Ramesh owns a general store in Delhi and does not maintain his accounts as per Double Entry System. His
assets and liabilities on 1st April, 2019 were as follows:
Bills Payable ` 2,000; Creditors ` 3,310; Stock and Debtors ` 18,600; Bank and Cash ` 6,710 and Machine
` 15,000.
His position on 31st March, 2020 was as follows:
Machine ` 15,000; Debtors ` 9,320; Motor Cycle ` 12,000; Cash in Hand ` 3,000; Bank balance as per bank
statement ` 5,930; Stock ` 13,400 and Creditors ` 8,700.
During the year he had withdrawn ` 4,500 for household needs and a motor cycle was purchased for
business use. A cheque of ` 700 issued in March, 2020 was not presented up to 31st March, 2020. Ascertain
the amount of profit of the trader for the year ended 31st March, 2020 after making the following adjustments:
(i) Write off ` 400 as bad debts and provide 5% provision for doubtful debts.
(ii) Provide 8% depreciation on machine and 10% on motor cycle.
(iii) Capital introduced during the year ` 5,000.
Also, prepare the Statement of Affairs as on 31st March, 2020 after incorporating all adjustments.
4. Suresh had ` 3,00,000 in bank on 1st January, 2019 when he started his business. He closed his books of
account on 31st March, 2020. His single entry books (in which he did not maintain any account for the bank)
showed his position as follows:
31st March, 2019 31st March, 2020
` `
Cash in Hand 2,000 3,000
Stock in Trade 19,000 29,000
Debtors 1,000 2,000
Creditors 5,000 3,000
On 1st April, 2019, he began drawing ` 700 per month for his personal expenses from the Cash Book of the
business. His account in the bank had the following entries:
Deposits Withdrawals
` `
1st January 2019 3,00,000 ...
1st January 2019 to 31st March, 2019 ... 2,23,000
1st April, 2019 to 31st March, 2020 2,30,000 2,70,000
The above withdrawals included payments by cheques of ` 2,00,000 and ` 60,000 respectively during the
period from 1st January, 2019 to 31st March, 2019 and on 1st March, 2020 for the purchase of machinery
for the business. The deposits after 1st January, 2020 consisted wholly of sale price received from customers
by cheques.
Draw up Suresh’s Statement of Affairs as at 31st March, 2019 and 31st March, 2020 respectively and work
out his profit or loss for the year ended 31st March, 2020.

GUIDE TO ANSWERS
1. [Hint: Capital (31st March, 2020) (before Adjustments)—` 1,88,600.
Gross Profit (Trading Profit before Adjustments)—` 44,960.
Total of Statement of Affairs (After Adjustments)—` 2,00,360.]
Note: As the date of purchase of Machinery and Furniture is not given, depreciation is to be charged
on average basis, i.e., for 6 months. Depreciation on Machinery—` 3,250; Depreciation on
Furniture—` 1,100.
22.10 Double Entry Book Keeping—ISC XI

2. [Hint: Opening Capital ` 3,16,600; Closing Capital (before Adjustments of Net Profit, Drawings and
Additional Capital)—` 3,55,700; Trading Profit (Gross Profit)—` 43,900; Net Profit—` 31,685; Closing
Capital (After adjustments of Net Profit, Fresh Capital and Drawings)—` 3,43,485; Total of Statement
of Affairs (After Adjustments)—` 3,63,985.]
Note: Depreciation on Machinery and Furniture:
When the date of Purchase of Fixed Assets is not given, depreciation is to be charged on average
basis, i.e., for 6 months.
Depreciation on Machinery = 10% of ` 55,000 + 10% of ` 20,000 (for 6 months) = ` 6,500.
Depreciation on Furniture = 10% of ` 24,000 + 10% of ` 10,000 (for 6 months) = ` 2,900.

3. Net Profit—` 10,504; Total of Statement of Affairs (31st March, 2020)—` 54,704.
[Hint: Capital (1st April, 2019)—` 35,000; Bank Balance as per Cash Book—` 5,930 – ` 700 = ` 5,230.]

4. Opening Capital (31st March, 2019)—` 2,94,000

[` 77,000 (Bank) + ` 2,000 (Cash) + ` 19,000 (Stock) + ` 1,000 (Debtors) + ` 2,00,000 (Machinery) – ` 5,000
(Creditors) = ` 2,94,000]
Closing Capital (31st March, 2020)—` 3,28,000
[` 37,000 (Bank) + ` 3,000 (Cash) + ` 29,000 (Stock) + ` 2,000 (Debtors) + ` 2,60,000 (Machinery) – ` 3,000
(Creditors) = ` 3,28,000]
Net Profit for the year—` 42,400
[Hint: Cash at Bank (31st March, 2020) = Opening Balance (1st April, 2019) + Deposits – Withdrawals
= ` 77,000* + ` 2,30,000 – ` 2,70,000 = ` 37,000.
*` 3,00,000 – ` 2,23,000 = ` 77,000.]
Non-Trading Organisation
CHAPTER
23
MEANING OF KEY TERMS USED IN THE CHAPTER

1. Non-Trading Organisations Non-Trading Organisations are those organisations whose main

objective is not to earn profit but to render services to its members
and to the society.
2. Receipts and Payments Receipts and Payments Account is a summary of Cash and Bank
Account transactions prepared at the end of the accounting period. It records
all receipts and payments, whether of revenue or capital nature, and
irrespective of the period to which they relate.
3. Income and Expenditure Income and Expenditure Account is the summary of income and
Account expenditures of the year. It is like a Profit and Loss Account. It shows
surplus or deficit. It is prepared on accrual basis of accounting.
4. Surplus Excess of income over expenditure of a Non-Trading Organisation is
termed as surplus.
5. Deficit Excess of expenditure over income of a Non-Trading Organisation is
termed as deficit.
6. Subscription Amount received on an annual basis at the time of renewal of the
membership by a non-trading organisation.
7. Entrance Fees/Admission It is the amount which the members pay to a club or association at
Fees the time of becoming a member.
8. Legacy Amount received by an organisation from a deceased person under
his will.
9. Donation It is the amount donated to the organisation in cash or kind.
(a)  General Donation When the donor does not specify any condition for using the amount
of donation, it is known as general donation.
(b)  Specific Donation When donation is for a specific purpose, say for the construction of
a room or pavilion, it is known as specific donation.
10. Life Membership Fee It is the amount received from a member in lump sum for which he
is given the membership of the organisation for the whole life.
11. Fund Based Accounting It is a system of accounting whereby donations, incomes, etc., relating
to a particular fund are credited to it and expenses are debited.

CHAPTER SUMMARY

• Non-Trading Organisations are voluntary organisations, which are set up not for earning profits but for rendering
services to its members and to the society. Examples are: schools, hospitals, literary societies, etc. Their main sources
of income may be donations, legacies, subscriptions, life membership fees, entrance fees, grants, etc.
• Their main objective may be social, educational, religious or charitable and they take the form of clubs,
societies or charitable bodies and so on. They do not earn profit. They provide service to their members
and to the society.
23.2 Double Entry Book Keeping—ISC XI

• These organisations prepare the Receipts and Payments Account, Income and Expenditure Account and
the Balance Sheet.
• Receipts and Payments Account is a summary of transactions appearing in the Cash Book showing receipts
and payments under appropriate heads along with cash and bank balances in the beginning and at the
end of the accounting period.
• Income and Expenditure Account is an account drawn at the end of an accounting period to show the
results of the activities of such organisations. It shows either surplus, i.e., excess of income over expenditure,
or deficit, i.e., excess of expenditure over income. Being a nominal account, it is drawn on the same lines
as the Profit and Loss Account.
• Balance Sheet of a non-trading organisation is prepared in the same manner as we do in the case of a
trading concern. It is prepared to show the financial position of a non-trading organisation on the last day
of the accounting year.

Treatment of Special Items

• Entrance Fee/Admission Fee. It is capitalised and added to Capital Fund.
• Life Membership Fee. These receipts are of non-recurring nature and should be added to Capital Fund in
the Balance Sheet. In other words, it is capitalised.
• Special Receipt. It is not credited to Income and Expenditure Account but is shown on the liabilities side
of the Balance Sheet. Example: Contributions towards Annual Dinner.
• Donation. General donations, not meant for specific purpose, are credited to Income and Expenditure
Account. Specific donations are shown in the Balance Sheet.
• Sale of Assets. Gain (Profit) on sale of asset is credited to Income and Expenditure Account and loss on
sale of asset is debited to Income and Expenditure Account.
• Sale of Old Newspapers, Magazines and Periodicals. It is credited to Income and Expenditure Account.
• Subscriptions. It is treated as income. Current year’s subscriptions are calculated as follows: `
Subscriptions Received during the year ...
Add: Subscriptions outstanding for the year ...
Subscriptions received in advance in the beginning of the year ... ...
...
Less: Subscriptions outstanding in the beginning of the year ...
Subscriptions received in advance at the end of the year ... ...
Subscriptions to be shown in the Income and Expenditure Account ...
• Cost of Consumable items (Stationery used/Medicine Consumed):
Opening Stock of Stationery/Medicines ...
Add: Purchases of stationery/medicines during the year ...
...
Less: Closing stock of stationery/medicines ...
Cost of stationery used/medicines consumed during the year ...
• Calculation of Expenses for the Current Year:
Cash paid during the year ...
Add: Outstanding expenses for the current year ...
Prepaid expenses in the beginning of the year ... ...
...
Less: Expenses outstanding for the last year ...
Prepaid at the end of the year ... ...
Expenses for the current year ...

• Treatment of Items of Expenses and Income Relating to a Specific Fund: If an organisation has established
a fund for a specific purpose, the expenses relating to it and also incomes from it are debited and credited
respectively to that particular Fund. Balance of the fund is shown on the liabilities side of the Balance Sheet.
• Endowment Fund. It is a fund that arises from a gift and its income is devoted for a specific purpose. It
is considered as a capital receipt and is shown on the liabilities side of the Balance Sheet.
Non-Trading Organisation 23.3

Solved Questions

Illustration 1 (Preparation of Subscription Account).

(a) The final accounts of a sports club are prepared annually on financial year basis. On
31st March, 2019, subscriptions in arrear amounted to ` 8,700 and subscriptions received in
advance for the year 2019–20 amounted to ` 7,100. During the year, ` 1,21,400 were received
in respect of subscriptions including ` 7,500 arrears for the year ended 31st March, 2019 and
` 10,800 in advance for the year ended 31st March, 2021. On 31st March, 2020, subscriptions
in arrears amounted to ` 5,300. Calculate the amount of subscriptions to be credited to
Income and Expenditure Account by preparing Subscription Account for the year ended
31st March, 2020.
(b) Prepare the Subscription Account if the Outstanding Subscription for 2019–20 amounted to
` 5,300, other things remaining the same. Also prepare Subscription Outstanding Account
and Subscription Received in Advance Account in this case.
Solution:
(a) Dr. SUBSCRIPTIONS ACCOUNT Cr.
Date Particulars ` Date Particulars `
2019 2019
April 1 To Subscriptions Outstanding A/c 8,700 April 1 By Subscriptions Received in
(in the beginning) Advance A/c 7,100
(in the beginning)
2020 2020
March 31 To Income and Expenditure A/c 1,14,300 March 31 By Bank A/c 1,21,400
(Balancing Figure) March 31 By Subscriptions Outstanding A/c:
March 31 To Subscription Received in (at the end)
Advance A/c 10,800 for 2018–19
(at the end) (` 8,700 – ` 7,500) 1,200
for 2019–20
(` 5,300 – ` 1,200) 4,100 5,300
1,33,800 1,33,800

(b) Dr. SUBSCRIPTIONS ACCOUNT Cr.

Date Particulars ` Date Particulars `
2019 2019
April 1 To Subscriptions Outstanding A/c 8,700 April 1 By Subscriptions Received in
(in the beginning) Advance A/c 7,100
(in the beginning)
2020 2020
March 31 To Income and Expenditure A/c 1,15,500 March 31 By Bank A/c 1,21,400
(Balancing Figure) March 31 By Subscriptions Outstanding A/c:
March 31 To Subscription Received in 10,800 (at the end)
Advance A/c for 2018–19 1,200
(at the end) for 2019–20 5,300 6,500
1,35,000 1,35,000
23.4 Double Entry Book Keeping—ISC XI

Dr. SUBSCRIPTIONS OUTSTANDING ACCOUNT Cr.

Date Particulars ` Date Particulars `

2019 2019
April 1 To Balance b/d 8,700 April 1 By Subscriptions A/c (Transfer) 8,700
2020 2020
March 31 To Subscriptions A/c 6,500 March 31 By Balance c/d
6,500
15,200 15,200

Dr. SUBSCRIPTIONS RECEIVED IN ADVANCE ACCOUNT Cr.

Date Particulars ` Date Particulars `

2019 2019
April 1 To Subscriptions A/c 7,100 April 1 By Balance b/d 7,100
(Transfer)
2020 2020
March 31 To Balance c/d 10,800 March 31 By Subscriptions A/c 10,800
17,900 17,900

Illustration 2.
Prepare the “Subscription Account” from the following items for the year ending on
31st March, 2020:
`
(i) Subscriptions in arrear as on 31st March, 2019 500
(ii) Subscriptions received in advance as on 31st March, 2019 for 2019–20 1,100
(iii) Total Subscriptions received during 2019–20 (including ` 400 for
2018–19, ` 1,200 for 2020–21 and ` 300 for 2021–22). 35,400
(iv) Subscriptions outstanding for 2019–20. 400
Solution:
Dr. SUBSCRIPTIONS ACCOUNT Cr.
Date Particulars ` Date Particulars `
2019 2019
April 1 To Subscriptions in Arrear A/c 500 April 1 By Subscriptions Received
(Beginning) in Advance A/c (Beginning) 1,100
2020 2020
March 31 To Income and Expenditure A/c 35,000 March 31 By Cash A/c 35,400
(Balancing Figure) March 31 By Subscriptions in Arrear A/c:
March 31 To Subscription Received (End) 2018–19 100
in Advance A/c: 2019–20 400 500
(End) for 2020–21 1,200
for 2021–22 300 1,500
37,000 37,000
Non-Trading Organisation 23.5

Illustration 3 (Subscription written off).

From the following information, prepare Subscriptions Account for the year ending
31st March, 2020:
31st March, 2019 31st March, 2020
` `
Subscriptions in Arrears 20,000 18,000
Subscriptions in Advance 13,000 11,000
During the year ending 31st March, 2020, subscriptions received were ` 2,10,000 (including
` 6,000 of arrears from previous year) and subscription arrears of previous years were written
off ` 4,000.
Solution:
Dr. SUBSCRIPTIONS ACCOUNT Cr.
` Particulars
Particulars `
To Subscriptions in Arrears A/c 20,000 By Subscriptions Received in Advance A/c 13,000
To Income and Expenditure A/c 2,14,000 By Bank A/c 2,10,000
(Balancing Figure) By Subscriptions written off A/c 4,000
To Subscriptions Received in Advance A/c 11,000 By Subscriptions Outstanding A/c 18,000
2,45,000 2,45,000

Illustration 4 (Calculation of Sundry Expenses).

How are the following items dealt while preparing the Income and Expenditure Account for
the year ended 31st March, 2019 and the Balancing Sheet as on that date:
Sundry Expenses paid during 2019–20 ` 40,000.
As on 1st April, 2019 As on 31st March, 2020
` `
Sundry Expenses Outstanding 5,000 9,000
Sundry Expenses Paid in Advance 8,000 7,000

Solution: INCOME AND EXPENDITURE ACCOUNT (AN EXTRACT)

Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `
To Sundry Expenses A/c (WN) 45,000

BALANCE SHEET (AN EXTRACT)

as at 31st March, 2020
Liabilities ` Assets `

Outstanding Sundry Expenses 9,000 Prepaid Sundry Expenses 7,000

Working Note: Current Sundry Expenses = Sundry Expenses paid during the year + Outstanding Expenses
(Current Year) and Advance paid (Last Year) – Outstanding
Expenses (Last Year) and Advance Paid (Current Year)
23.6 Double Entry Book Keeping—ISC XI

Or
Dr. SUNDRY EXPENSES ACCOUNT Cr.
` Particulars
Particulars `
To Prepaid Sundry Expenses A/c 8,000 By Outstanding Sundry Expenses A/c 5,000
(in the beginning) (in the beginning)
To Cash A/c 40,000 By Income and Expenditure A/c 45,000
To Outstanding Sundry Expenses A/c 9,000 (Balancing Figure)
(at the end) By Prepaid Sundry Expenses A/c 7,000
(at the end)
57,000 57,000

Illustration 5.
Show what amount will appear in Income and Expenditure Account for the year ending
31st March, 2020 and Balance Sheet as at that date in each of the following cases:
Case (a): Prize fund as at 31st March, 2019—` 12,000. Donations for prizes received during
the year 2019-20—` 2,800; Prizes awarded ` 2,000; 10% Prize Fund Investments as
at 31st March, 2019—` 12,000. Interest received on Prize Fund Investments ` 600.
Case (b): Stock of stationery on 31st March, 2019—` 3,000. Creditors of stationery on
31st March, 2019—` 2,000; advance paid for stationery carried forward from
2018-19—` 200; Amount paid for stationery during the year 2019-20—` 10,800, Stock
of stationery on 31st March, 2020—` 500, creditors for stationery on 31st March,
2020—` 1,300 and advance paid for stationery on 31st March, 2020—` 300.
Case (c): Subscription outstanding as on 31st March, 2019—` 2,000, subscription received
in advance on 31st March, 2019—` 3,000. Amount of subscription received during
2019-20—` 35,000 out of which ` 1,500 related to 2018-19 and ` 800 related
to 2020-21. On 31st March, 2020, subscription outstanding for 2019-20 amounted
to ` 1,300.
Solution:
Case (a) BALANCE SHEET (ONLY RELEVANT ITEMS)
as at 31st March, 2020
`
Liabilities Assets `

Prize Fund 12,000 Prize Fund Investments 12,000

Add: Donations for Prizes 2,800 Accrued Interest on Prize Fund Investments* 600
Interest Received on
Prize Fund Investments* 600
Accrued Interest 600
16,000
Less: Prizes Awarded 2,000 14,000

`
*Yearly interest on prize fund investment (10% of ` 12,000) 1,200
Less: Interest received during the year 600
Accrued interest 600
Non-Trading Organisation 23.7

Case (b)
Dr. CREDITORS FOR STATIONERY ACCOUNT Cr.
` Particulars
Particulars `

To Balance b/d (Advance in the Beginning) 200 By Balance b/d (Creditors in the Beginning) 2,000
To Bank A/c 10,800 By Stationery A/c (Credit Purchases)* 10,000
To Balance c/d (Creditors at the end) 1,300 (Balancing Figure)
By Balance c/d (Advance at the end) 300
12,300 12,300

Dr. STOCK OF STATIONERY ACCOUNT Cr.

` Particulars
Particulars `

To Balance b/d 3,000 By Income and Expenditure A/c

To Creditors for Stock of Stationery (Transfer)* 10,000 (Stationery Consumed) (Balancing Figure) 12,500
By Balance c/d 500
13,000 13,000

INCOME AND EXPENDITURE ACCOUNT (AN EXTRACT)

Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `

To Stationery Consumed 12,500

BALANCE SHEET (AN EXTRACT)

as at 31st March, 2020
`
Liabilities Assets `

Creditors for Stationery 1,300 Advance for Stationery 300

Stock of Stationery 500

Case (c)
Dr. SUBSCRIPTIONS ACCOUNT Cr.
` Particulars
Particulars `
To Outstanding Subscription A/c 2,000 By Advance Subscription A/c 3,000
To Income and Expenditure A/c 37,000 By Bank A/c 35,000
(Balancing Figure) By Outstanding Subscription A/c:
To Advance Subscription (2020-21) 800 2018-19 (` 2,000 – ` 1,500) 500
2019-20 1,300 1,800
39,800 39,800

INCOME AND EXPENDITURE ACCOUNT (AN EXTRACT)

Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `

By Subscription A/c 37,000

23.8 Double Entry Book Keeping—ISC XI

BALANCE SHEET (AN EXTRACT) as at 31st March, 2020

`
Liabilities Assets `
Subscription Received in Advance 800 Subscription Outstanding:
2018-19 500
2019-20 1,300 1,800

Illustration 6.
A summary of Receipts and Payments of Medical Aid Society for the year ended 31st March,
2020 is given below:
Dr. RECEIPTS AND PAYMENTS ACCOUNT Cr.
Receipts ` Payments `
To Cash in Hand 7,000 By Payment for Medicines 30,000
To Subscriptions 50,000 By Honorarium to Doctors 10,000
To Donations 14,500 By Salaries 27,500
To Interest on Investments @ 7% p.a. 7,000 By Sundry Expenses 500
To Charity Show Proceeds 10,000 By Equipment Purchased 15,000
By Charity Show Expenses 1,000
By Cash in Hand 4,500
88,500 88,500

Donations are to be capitalised.

Additional Information:
1st April, 31st March,
2019 (` ) 2020 (`)
Subscriptions Due 500 1,000
Subscriptions Received in Advance 1,000 500
Stock of Medicines 10,000 15,000
Amount Due to Medicine Suppliers 8,000 12,000
Value of Equipment 21,000 30,000
Value of Building 40,000 38,000
You are required to prepare the Income and Expenditure Account for the year ended
31st March, 2020 and the Balance Sheet as at that date.
Solution: Medical Aid Society
INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `
To Medicines Consumed (WN 4) 29,000 By Subscriptions (WN 2) 51,000
To Honorarium to Doctors 10,000 By Interest on Investments 7,000
To Salaries 27,500 By Charity Show Proceeds 10,000
To Sundry Expenses 500 By Deficit—Excess of Expenditure over Income 8,000
To Charity Show Expenses 1,000
To Depreciation:
On Equipment (WN 6) 6,000
On Building 2,000
76,000 76,000
Non-Trading Organisation 23.9

BALANCE SHEET as at 31st March, 2020

Liabilities ` Assets `

Capital Fund (WN 1) 1,69,500 Building 40,000

Add: Donations 14,500 Less: Depreciation 2,000 38,000
1,84,000 Equipment 21,000
Less: Deficit—Excess of Expenditure Add: Purchases 15,000
over Income 8,000 1,76,000 36,000
Subscriptions Received in Advance 500 Less: Depreciation (WN 6) 6,000 30,000
Creditors for Medicines 12,000 Stock of Medicines 15,000
Investments (WN 5) 1,00,000
Subscriptions Outstanding 1,000
Cash in Hand 4,500
1,88,500 1,88,500

Working Notes:
1. BALANCE SHEET as at 1st April, 2019
Liabilities ` Assets `

Subscriptions Received in Advance 1,000 Building 40,000

Creditors for Medicines 8,000 Equipment 21,000
Capital Fund (Balancing Figure) 1,69,500 Stock of Medicines 10,000
Subscriptions Due 500
Investments (WN 5) 1,00,000
Cash in Hand 7,000
1,78,500 1,78,500

2. Subscriptions Income for the year ended 31st March, 2020: `

Subscriptions Received during the year 50,000
Add: Subscriptions Due (31st March, 2020) 1,000
Subscriptions Received in Advance (31st March, 2019) 1,000 2,000
52,000
Less: Subscriptions Received in Advance (31st March, 2020) 500
Subscriptions Due (31st March, 2019) 500 1,000
Subscriptions Income for the year ended 31st March, 2020 51,000

3. Dr. CREDITORS FOR MEDICINES ACCOUNT Cr.

Date Particulars ` Date Particulars `

? To Cash A/c (Payment) 30,000 2019

2020 April 1 By Balance b/d 8,000
March 31 To Balance c/d 12,000 April 1 By Medicines A/c (Purchases) 34,000
(Balancing Figure)
42,000 42,000

4. Medicines Consumed = Opening Stock + Purchases – Closing Stock

= ` 10,000 + ` 34,000 (WN 3) – ` 15,000 = ` 29,000.

5. Interest on investments received ` 7,000 in 2019–20 indicates that there were investments in the beginning
of 2019–20. The rate of interest is 7%. So, the value of investments = 100/7 × ` 7,000 = ` 1,00,000.
23.10 Double Entry Book Keeping—ISC XI

6. Dr. EQUIPMENT ACCOUNT Cr.

Date Particulars ` Date Particulars `
2019 2020
April 1 To Balance b/d 21,000 March 31 By Income and Expenditure A/c 6,000
? To Cash A/c (Purchases) 15,000 (Bal. Fig.) (Depreciation)
March 31 By Balance c/d 30,000
36,000 36,000

Illustration 7.
Following is the summary of the cash transactions of a literary society for the year ended
31st March, 2020:
Dr. EQUIPMENT ACCOUNT Cr.
` Payments `
Receipts
Cash Balance on 1st April, 2019 31,900 Rent and Rates 16,800
Entrance Fees 25,500 Wages 24,500
Subscriptions 1,60,000 Lighting 7,200
Donations 16,500 Lecture Fees 43,500
Life Membership Subscriptions 25,000 Books 21,300
Interest on Fixed Deposit 1,200 Office Expenses 45,000
Profit from Entertainment 4,400 Fixed Deposit @ 6% p.a. on 1st October, 2019 80,000
Cash at Bank on 31st March, 2020 24,200
Cash in Hand on 31st March, 2020 2,000
2,64,500 2,64,500

In the beginning of the year, the society possessed books worth ` 2,00,000 and furniture valued at
` 85,000. Ordinary subscriptions in arrear in the beginning of the year amounted to ` 3,500 and
at the end of the year ` 4,500. Six months rent, ` 6,000 was due both in the beginning and at the
end of the year. Provide ` 5,000 as depreciation on furniture and ` 11,300 as depreciation on books.
Prepare the society’s Income and Expenditure Account for the year ended 31st March, 2020
and its Balance Sheet as at that date. [CS (F), June 2010, Modified]

Solution: INCOME AND EXPENDITURE ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `
To Rent and Rates 16,800 By Subscriptions 1,60,000
Add: Outstanding (End) 6,000 Add: Arrears at the end 4,500
22,800 1,64,500
Less: Outstanding (Beginning) 6,000 16,800 Less: Arrears in the beginning 3,500 1,61,000
To Wages 24,500 By Donations 16,500
To Lighting 7,200 By Interest on Fixed Deposit 1,200
To Lecture Fees 43,500 Add: Interest Outstanding 1,200 2,400
To Office Expenses 45,000 (WN 1)
To Depreciation On: By Profit from Entertainment 4,400
Furniture 5,000
Books 11,300 16,300
To Surplus i.e., Excess of
Income over Expenditure 31,000
1,84,300 1,84,300
Non-Trading Organisation 23.11

BALANCE SHEET as at 31st March, 2020

`
Liabilities Assets `
Capital Fund (WN 2) 3,14,400 Furniture 85,000
Add: Surplus 31,000 Less: Depreciation 5,000 80,000
Entrance Fees 25,500 Books 2,00,000
Life Membership Add: Purchases 21,300
Subscriptions 25,000 3,95,900 2,21,300
Outstanding Rent 6,000 Less: Depreciation 11,300 2,10,000
Fixed Deposit 80,000
Accrued Interest on FD (WN 1) 1,200
Subscription Receivable 4,500
Cash at Bank 24,200
Cash in Hand 2,000
4,01,900 4,01,900

Working Notes:
1. Calculation of Interest Outstanding on Fixed Deposit: `
Interest on ` 80,000 for 6 months @ 6% p.a. 2,400
Less: Interest on FD received 1,200
Interest Outstanding on Fixed Deposit 1,200
2. Calculation of Capital Fund as on 1st April, 2019:
BALANCE SHEET as at 1st April, 2019
`
Liabilities Assets `
Rent Outstanding 6,000 Cash in Hand 31,900
Capital Fund (Balancing Figure) 3,14,400 Subscriptions in Arrear 3,500
Books 2,00,000
Furniture 85,000
3,20,400 3,20,400

Illustration 8.
Given below is the Receipts and Payments Account of the Marigold Cricket Club for the year
ended 31st March, 2020:
RECEIPTS AND PAYMENTS ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
Receipts ` Payments `
To Members’ Subscriptions 30,000 By Equipment Purchased 2,000
To Members’ Admission Fees 1,000 By Expenses for Tournament 1,000
To Sale of Old Balls and Bats 50 By Telephone 300
To Donations 10,000 By Grass Seeds 200
To Tournament Receipts 4,000 By Municipal Tax 400
To Loan from Bank 10,000 By Salaries 5,000
To Catering Receipts 12,000 By Catering Expenses 8,000
To Sale of Lawn mower (Book value ` 600) 800 By Purchase of Tinned Provision 3,000
By Balance c/d 47,950
67,850 67,850
23.12 Double Entry Book Keeping—ISC XI

Other Information:
1.4.2019 31.3.2020
` `
(i) Subscriptions Due 400 900
(ii) Salaries Due 1,000 2,000
(iii) Value of Equipment 10,000 11,000
(iv) Value of Building 20,000 18,000
(v) Municipal Tax Paid in Advance ... 120
(vi) Stock of Tinned Provision 1,000 1,400
(vii) Telephone Bill Outstanding 50 100
(viii) Donations and Surplus Amount from Tournament should be kept in a Reserve Account.
(ix) Loan from Bank was taken on 1st September, 2019 at 18% p.a.

You are required to prepare the Income and Expenditure Account for the year ended
31st March, 2020 and the Balance Sheet as at that date. (ISC 1996, Modified)

Solution: Marigold Cricket Club

INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `
To Telephone 300 By Subscriptions 30,000
Add: Telephone Bill Add: Due (31.3.2020) 900
Outstanding (31.3.2020) 100 30,900
400 Less: Due (1.4.2019) 400 30,500
Less: Telephone Bill By Profit from Catering (WN 2) 1,400
Outstanding (1.4.2019) 50 350 By Profit on Sale of Lawn mower 200
To Grass Seeds 200 By Sale of Old Balls and Bats 50
To Municipal Tax (` 400 – ` 120) 280
To Salaries 5,000
Add: Due (31.3.2020) 2,000
7,000
Less: Due (1.4.2019) 1,000 6,000
To Interest on Bank Loan 1,050
(` 10,000 × 18/100 × 7/12)
To Depreciation:
On Building 2,000
On Equipment 400 2,400
To Surplus, i.e., Excess of Income over
Expenditure transferred to Capital Fund 21,870
32,150 32,150
Non-Trading Organisation 23.13

BALANCE SHEET
as at 31st March, 2020
Liabilities ` Assets `

Capital Fund: Building 20,000

As on 1.4.2019 (WN 1) 30,350 Less: Depreciation 2,000 18,000
Add: Admission Fees 1,000 Equipment 10,000
Surplus for the year 21,870 53,220 Less: Book value of
Reserve: Lawn mower Sold 600
Donations 10,000
9,400
Surplus from Tournament Add: Purchases 2,000
(` 4,000 – ` 1,000) 3,000 13,000 11,400
Loan from Bank 10,000 Less: Depreciation 400 11,000
Add: Interest Accrued for 7 Months 1,050 11,050 Stock of Tinned Provision 1,400
Creditors for Expenses: Cash 47,950
Salaries 2,000 Subscriptions in Arrear 900
Telephone 100 2,100 Municipal Tax Paid in Advance 120
79,370 79,370

Working Notes:

1. BALANCE SHEET
as at 1st April, 2019
Liabilities ` Assets `

Creditors for Expenses: Building 20,000

Salaries 1,000 Equipment 10,000
Telephone 50 1,050 Stock of Tinned Provision 1,000
Capital Fund (Balancing Figure) 30,350 Subscriptions in Arrear 400
31,400 31,400

2. Dr. CATERING ACCOUNT Cr.

Particulars ` Particulars `

To Opening Stock of Tinned Provision 1,000 By Receipts 12,000

To Purchase of Tinned Provision 3,000 By Closing Stock of Tinned Provision 1,400
To Expenses 8,000
To Profit transferred to
Income and Expenditure A/c 1,400

13,400 13,400
23.14 Double Entry Book Keeping—ISC XI

Illustration 9.
Following is the Receipts and Payments Account of a Sports Club for the year ended
31st December, 2019:
RECEIPTS AND PAYMENTS ACCOUNT
Dr. for the year ended 31st December, 2019 Cr.
` Payments
Receipts `
To Balance b/d 7,500 By Salaries 14,000
To Subscriptions (Including ` 2,000 By Match Expenses 28,000
for the year 2018) 40,000 By 12% Investment 40,000
To Donations 15,000 (Purchased on 1st January, 2019)
To Life Membership Fees 35,000 By Sports Materials 15,000
To Sale of Furniture at Book Value 5,000 By Printing and Stationery 12,000
To Entrance Fees 10,000 By Honorarium 5,000
To Interest on 10% Investment for full year 20,000 By Furniture 15,000
To Match Fund 40,000 By Newspapers, Magazines and Journals 10,000
To Donation for Building Fund 45,000 By Books 35,000
To Sale of Newspapers (Old) 2,500 By Municipal Taxes 6,000
By Balance c/d 40,000
2,20,000 2,20,000

Additional Information:

(i) The position of the Club on 1st January, 2019 was as follows:

`
Subscriptions due 3,000
Furniture 10,000
Books 20,000
Building 1,25,000
Stock of Sports Materials 4,500
Creditors for Printing 2,500
(ii) The Club has 1,000 members each paying an annual subscription of ` 50. 20 members
paid their subscription in advance in 2018. In the year 2019, subscription was received
in advance from 15 members.
(iii) Municipal Taxes are paid every year on 1st April.
(iv) One member donated a Billiards Table worth ` 50,000.
(v) Books were worth ` 46,000 on 31st December, 2019 and stock of sports materials on that
date amounted to ` 4,000.
(vi) 12% investments include ` 30,000 invested from donations received for building fund.
Prepare Income and Expenditure Account for the year ended 31st December, 2019 and a Balance
Sheet as on that date.
Non-Trading Organisation 23.15

Solution:
INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st December, 2019 Cr.
`
Expenditure Income `
To Salaries 14,000 By Subscriptions 40,000
To Sports Materials: Add: Advance Received
Opening Stock 4,500 (2018) 1,000
Add: Purchases 15,000 Outstanding
19,500 (2019) 11,750 (WN 1) 12,750
Less: Closing Stock 4,000 15,500 52,750
To Printing and Stationery 12,000 Less: Outstanding
Less: Creditors for 2018 2,500 9,500 (2018) 2,000
To Honorarium 5,000 Received in
To Newspapers, Magazines and Journals 10,000 Advance
To Depreciation on Books (2019) 750 2,750 50,000*
(` 20,000 + ` 35,000 – ` 46,000) 9,000 By Donations 15,000
To Municipal Taxes 6,000 By Interest on 10% Investments 20,000
Add: Prepaid (2018) (6,000 × 3/12) 1,500 By Sale of Newspapers (Old) 2,500
7,500 By Accrued Interest on 12% Investment 1,200
Less: Prepaid (2019) 1,500 6,000 (10,000 × 12/100) (WN 2)
To Surplus, i.e., excess of Income
over Expenditure 19,700
88,700 88,700

*It can also be calculated as (1,000 × ` 50) = ` 50,000.

BALANCE SHEET
as at 31st December, 2019
`
Liabilities Assets `

Subscriptions Received in Advance (15 × ` 50) 750 Building 1,25,000

Match fund 40,000 Furniture 10,000
Less: Match Expenses 28,000 12,000 Addition 15,000
Donation for Billiards Table 50,000 25,000
Donation for Building Fund 45,000 Less: Sold 5,000 20,000
Add: Accrued Interest 3,600 48,600 Books (` 20,000 + ` 35,000 – ` 9,000) 46,000
(` 30,000 × 12/100) Stock of Sports Materials 4,000
Capital Fund (WN 3) 3,68,000 10% Investments 2,00,000
Add: Surplus 19,700 12% Investments 40,000
Life Membership Fees 35,000 Accrued Interest on 12% Investment 4,800
Entrance Fees 10,000 4,32,700 Billiards Table 50,000
Prepaid Municipal Taxes 1,500
Subscriptions Outstanding:
2018 (` 3,000 – ` 2,000) 1,000
2019 11,750 12,750
Cash in Hand 40,000
5,44,050 5,44,050
23.16 Double Entry Book Keeping—ISC XI

Working Notes:
1.  Calculation of Subscription Due at the end of the year:
Dr. SUBSCRIPTION ACCOUNT Cr.
` Particulars
Particulars `
To Subscriptions Due A/c 3,000 By Subscriptions Received in Advance A/c
To Income and Expenditure A/c (1,000 × ` 50) 50,000 2018 (20 × ` 50) 1,000
To Subscriptions received in Advance By Bank A/c 40,000
2019 (` 50 × 15) 750 By Subscription Due:
2018 (` 3,000 – ` 2,000) 1,000
2019 (Balancing Figure) 11,750
53,750 53,750

2. 12% Investment on 1st January, 2019—` 40,000

[Includes ` 30,000 invested from donations received [Remaining investment (` 40,000 – 30,000 = ` 10,000)
for building, so interest of this (30,000 × 12/100 is general investment, so interest on 12% investment
= ` 3,600) should be credited to Building Fund] (10,000 × 12/100 = ` 1,200) is treated as income and
credited to Income and Expenditure A/c]
3. BALANCE SHEET as at 31st December, 2018
`
Liabilities Assets `
Creditors for Printing 2,500 Cash in Hand 7,500
Subscriptions Received in Advance (20 × ` 50) 1,000 Prepaid Municipal Taxes 1,500
Capital Fund (Balancing Figure) 3,68,000 Subscriptions Outstanding 3,000
Furniture 10,000
Books 20,000
Building 1,25,000
10% Investments (` 20,000 × 100/10) 2,00,000
Stock of Sports Materials 4,500
3,71,500 3,71,500

Illustration 10.
Prepare the Income and Expenditure Account of Lions Club for the year ended 31st March, 2020
and the Balance Sheet as at that date from the following:
Dr. RECEIPTS AND PAYMENTS ACCOUNT for the year ended 31st March, 2020 Cr.
` Payments `
Receipts
To Balance b/d: By Salary:
Cash 20,000 Secretary 60,000
Bank 1,20,000 1,40,000 Staff 50,000 1,10,000
To Subscriptions: By Canteen Expenses 1,20,000
2018–19 5,000 By Newspapers, Magazines and Journals 9,000
2019–20 55,000 By Miscellaneous Expenses 16,000
2020–21 4,000 64,000 By Construction of Building 1,50,000
To Interest from Bank 10,000 By Balance c/d:
To Sale of Old Furniture 20,000 Cash 13,000
To Sale of Old Newspapers 4,000 Bank 40,000 53,000
To Canteen Collections 1,20,000
To Donation for Building 1,00,000
4,58,000 4,58,000
Non-Trading Organisation 23.17

Additional Information: 31st March, 2019 31st March, 2020

` `
(i) Subscriptions outstanding as on 10,000 6,000
(ii) Subscriptions in advance as on 2,000 4,000
(iii) Outstanding salary of staff 10,000 20,000
(iv) Prepaid canteen expenses 10,000 15,000
(v) Furniture at book value 1,40,000 ...
(vi) Building (under construction) 1,50,000 4,00,000
(vii) Fixed Deposits with Bank 1,00,000 1,00,000
(viii) Building fund 2,00,000 ...

Book value of furniture sold during the year was ` 15,000 and depreciation on furniture is
charged @ 10% p.a. on closing balance.

Solution:
Lions Club
INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `
To Salary: By Subscriptions (WN 2) 58,000
Secretary 60,000 By Interest from Bank 10,000
Staff 50,000 By Profit on Sale of Furniture (WN 1) 5,000
1,10,000 By Sale of Old Newspapers 4,000
Add: Outstanding Salary of Staff By Canteen Collections 1,20,000
(31st March, 2020) 20,000 By Excess of Expenditure over Income
1,30,000 transferred to Capital Fund (Deficit) 75,500
Less: Outstanding Salary of Staff (Balancing Figure)
(31st March, 2019) 10,000 1,20,000
To Canteen Expenses 1,20,000
Add: Prepaid
(31st March, 2019) 10,000
1,30,000
Less: Prepaid
(31st March, 2020) 15,000 1,15,000
To Newspapers, Magazines and Journals 9,000
To Miscellaneous Expenses 16,000
To Depreciation on Furniture (WN 1) 12,500
2,72,500 2,72,500
23.18 Double Entry Book Keeping—ISC XI

BALANCE SHEET
as at 31st March, 2020
`
Liabilities Assets `

Outstanding Amount for Building Cash in Hand 13,000

(under construction): Cash at Bank 40,000
Building as on 31st March, 2020 4,00,000 Canteen Expenses Prepaid 15,000
Building as on 31st March, 2019 1,50,000 Subscriptions Due (WN 2)
Addition during 2019–20 2,50,000 For 2018–19 5,000
Less: Amount paid in 2019–20 For 2019–20 1,000 6,000
for construction of building 1,50,000 1,00,000 Fixed Deposits with Bank 1,00,000
Subscriptions Received in Advance 4,000 Building (under Construction) 4,00,000
Outstanding Salary of Staff 20,000 Furniture (WN 1) 1,12,500
Building Fund 2,00,000
Add: Donation for Building 1,00,000 3,00,000
Capital Fund:
Opening Balance (WN 3) 3,38,000
Less: Deficit 75,500 2,62,500
6,86,500 6,86,500

Working Notes:
1. Dr. FURNITURE ACCOUNT Cr.
` Particulars
Particulars `

To Balance b/d 1,40,000 By Bank A/c (Sale) 20,000

To Income and Expenditure A/c 5,000 By Depreciation A/c* 12,500
(Profit on Sale of Furniture) By Balance c/d 1,12,500
(` 20,000 – ` 15,000)
1,45,000 1,45,000

* Balance in Furniture Account before providing depreciation is = ` 1,40,000 – ` 15,000 = ` 1,25,000;

Depreciation on furniture = ` 1,25,000 × 10/100 = ` 12,500.

2. Dr. SUBSCRIPTIONS ACCOUNT Cr.

` Particulars
Particulars `

To Outstanding Subscriptions A/c 10,000 By Advance Subscriptions A/c (In the Beginning) 2,000
(In the beginning) By Bank A/c 64,000
To Income and Expenditure A/c 58,000 (Subscriptions Received during the year)
(Balancing Figure) By Outstanding Subscriptions A/c:
To Advance Subscriptions A/c 4,000 For 2018–19 (` 10,000 – ` 5,000) 5,000
(At the end) For 2019–20 (` 6,000 – ` 5,000) 1,000
72,000 72,000

*Subscriptions due on 31st March, 2020 given ` 6,000 are inclusive of ` 5,000 still due for 2018–19.
Non-Trading Organisation 23.19

3.  Calculation of Capital Fund as at 31st March, 2019:

BALANCE SHEET
as at 31st March, 2019 (Last Year)
`
Liabilities Assets `
Subscriptions Received in Advance 2,000 Cash 20,000
Outstanding Salary of Staff 10,000 Bank 1,20,000
Building Fund* 2,00,000 Subscriptions Due 10,000
Capital Fund (Balancing Figure) 3,38,000 Prepaid Canteen Expenses 10,000
Furniture 1,40,000
Building 1,50,000
Fixed Deposit with Bank 1,00,000
5,50,000 5,50,000

* It should be noted that after the completion of the purpose of a special fund, the balance lying in that
fund is transferred to Capital Fund.

Illustration 11.
On the basis of the following information, prepare Income and Expenditure Account for the
year ended 31st March, 2010:
RECEIPTS AND PAYMENTS ACCOUNT
Dr. for the year ended 31st March, 2010 Cr.
` Payments `
Receipts
To Cash in Hand (Opening) 1,300 By Salaries 2,58,000
To Cash at Bank (Opening) 3,850 By Rent 71,500
To Subscriptions 4,94,700 By Printing and Stationery 3,870
To Interest on 8% Government Bonds 4,000 By Conveyance 10,600
To Bank Interest 160 By Scooter Purchased 50,000
By 8% Government Bonds 1,00,000
By Cash in Hand (Closing) 840
By Cash at Bank (Closing) 9,200
5,04,010 5,04,010

(i) Salaries paid includes ` 6,000 paid in advance for April, 2010. Monthly salaries paid were
` 21,000.
(ii) Outstanding rent on 31st March, 2009 and 31st March, 2010 amounted to ` 5,500 and
` 6,000 respectively.
(iii) Stock of printing and stationery material on 31st March, 2009 was ` 340; it was ` 365 on
31st March, 2010.
(iv) Scooter was purchased on 1st October, 2009. Depreciation @ 20% per annum is to be
provided on it.
(v) Investments were made on 1st April, 2009.
(vi) Subscriptions due but not received on 31st March, 2009 and 31st March, 2010 totalled
` 14,000 and ` 12,800 respectively. On 31st March, 2010, subscriptions amounting to
` 700 had been received in advance for April, 2010. (IPCC—May, 2010)
23.20 Double Entry Book Keeping—ISC XI

Solution:
INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st March, 2010 Cr.
`
Expenditure Income `

To Salaries (WN 1) 2,52,000 By Subscription (WN 4) 4,92,800

To Rent (WN 2) 72,000 By Interest on 8% Government Bonds (WN 4) 8,000
To Printing and Stationery (WN 3) 3,845 By Bank Interest 160
To Conveyance 10,600
To Depreciation on Scooter 5,000
(` 50,000 × 20/100 × 6/12)
To Surplus, i.e., Excess of Income
over Expenditure 1,57,515
5,00,960 5,00,960

Working Notes: `
1. Salary Paid 2,58,000
Less: Salary paid in Advance 6,000
2,52,000

2. Rent Paid 71,500

Add: Outstanding Rent (31st March, 2010) 6,000
77,500
Less: Outstanding Rent (31st March, 2009) 5,500
Rent for 2009–10 72,000

3. Printing and Stationery 3,870

Add: Opening Stock 340
4,210
Less: Closing Stock 365
Printing and Stationery used during the Year 2009–10 3,845

4. Interest on Government Bonds Received 4,000

Add: Interest due but not Received 4,000
Interest for the year 2009–10 8,000

5. Subscription Received 4,94,700

Add: Accrued Subscription as on 31st March, 2010 12,800
5,07,500

Less: Accrued Subscription as on 31st March, 2009 14,000
Advance for April, 2010 700 14,700
Subscription Income for 2009–10 4,92,800

Non-Trading Organisation 23.21

Illustration 12.
Following is the information given in respect of certain items of a sports club. You are required
to show them in Income and Expenditure Account and Balance Sheet of the club as at 31st
March, 2018.
`
Sports Fund as at 1st April, 2017............................................................................................................................................................. 1,00,000
Sports Fund Investments........................................................................................................................................................................... 1,00,000
Donation for Sports Fund.......................................................................................................................................................................... 40,000
Sports Prizes Awarded................................................................................................................................................................................. 30,000
Expenses on Sports Events........................................................................................................................................................................ 10,000
General Fund.................................................................................................................................................................................................. 2,00,000
General Fund Investments......................................................................................................................................................................... 2,00,000
Interest on General Fund Investments.................................................................................................................................................. 20,000
Interest on Sports Fund Investments..................................................................................................................................................... 10,000
Solution: INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st March, 2018 Cr.
`
Expenditure Income `
By Interest on General Fund Investments 20,000

BALANCE SHEET (Only Relevant Items) as at 31st March, 2018

`
Liabilities Assets `
Sports Fund 1,00,000 Sports Fund Investments 1,00,000
Add: Interest on Sports Fund General Fund Investments 2,00,000
Investments 10,000
Donation 40,000
1,50,000
Less: Sports Prize Awarded 30,000
1,20,000
Less: Expenses on Sports Events 10,000 1,10,000
General Fund 2,00,000

Illustration 13.
From the following particulars and the notes given relating to the Country Club, prepare the
Final Accounts of the Club for the year ended 31st March, 2020:
Dr. RECEIPTS AND PAYMENTS ACCOUNT Cr.
Receipts ` Payments `
To Balance b/d (Cash) 7,500 By General Expenses 3,600
To Subscriptions 23,550 By Purchase of New Equipment 6,000
To Locker Rent 1,260 By Expenses on Dances and Socials 9,600
To Receipts from Dances and Socials 13,140 By Repairs and Decoration of Club House 4,500
To Sale of Old Lawn mower 600 By Rent of Ground 12,000
To Sale of Equipment 1,500 By Secretarial Expenses 2,400
By Balance c/d (Cash) 9,450
47,550 47,550
23.22 Double Entry Book Keeping—ISC XI

On 1st April, 2019, the Club owned a Club House costing ` 90,000; equipment valued at
` 7,500; a Lawn mower valued at ` 900. The Club owed dance expenses ` 1,170 and secretarial
expenses ` 750. Subscriptions in arrear were ` 1,050 and received in advance ` 600.
At 31st March, 2020, in addition to the Club House, equipment was valued at ` 10,500. The
Club owed dance expenses ` 660 and secretarial expenses ` 1,350. Subscriptions outstanding
were ` 750 and received in advance were ` 1,500. (ISC 1999, Adapted)

Solution: Country Club

INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `
To General Expenses 3,600 By Subscriptions 23,550
To Repairs and Decoration of Club House 4,500 Add: Subscriptions Received
To Rent of Ground 12,000 in Advance (1.4.19) 600
To Secretarial Expenses 3,000 Subscriptions in
[` 2,400 + ` 1,350 (Outstanding on 31.3.20) Arrear (31.3.20) 750 1,350
– ` 750 (Outstanding on 1.4.19)] 24,900
To Loss on Sale of Old Lawn mower Less: Subscriptions Received
(` 900 – ` 600) 300 in Advance (31.3.20) 1,500
To Depreciation on Equipment (WN 1) 1,500 Subscriptions in
To Surplus, i.e., Excess of Income over Arrear (1.4.19) 1,050 2,550 22,350
Expenditure, transferred to Capital Fund 2,760 By Locker Rent 1,260
By Surplus from Dances and Socials:
Receipts 13,140
Less: Expenses 9,090* 4,050
27,660 27,660

*Expenses (2019–20) = ` 9,600 (paid) + ` 660 (outstanding 2019–20) – ` 1,170 (outstanding 2018–19) = ` 9,090.

BALANCE SHEET as at 31st March, 2020

Liabilities ` Assets `
Capital Fund: Club House 90,000
As on 1.4.2019 (WN 2) 1,04,430 Equipment 10,500
Add: Surplus for the year 2,760 1,07,190 Cash 9,450
Creditors for: Subscriptions in Arrears 750
Dance Expenses 660
Secretarial Expenses 1,350 2,010
Subscriptions Received in Advance 1,500
1,10,700 1,10,700

Working Notes:
1. Dr. EQUIPMENT ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 7,500 By Cash A/c (Sales) 1,500
To Cash A/c (Purchases) 6,000 By Depreciation A/c (Balancing Figure) 1,500
By Balance c/d 10,500
13,500 13,500
Non-Trading Organisation 23.23

2. BALANCE SHEET
as at 1st April, 2019
Liabilities ` Assets `

Creditors for Expenses: Club House 90,000

Dance Expenses 1,170 Equipment 7,500
Secretarial Expenses 750 Lawn Mower 900
Subscriptions Received in Advance 600 Cash 7,500
Capital Fund (Balancing Figure) 1,04,430 Subscriptions in Arrears 1,050
1,06,950 1,06,950

Illustration 14.
Following is the Receipts and Payments Account of Super Time Club for the year ended
31st March, 2020:

RECEIPTS AND PAYMENTS ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
Receipts ` Payments `

To Balance b/d (Cash in Hand) 10,000 By Bank Overdraft (1st April, 2019) 14,000
To Subscriptions: By Investments 13,600
2018–19 1,200 By Furniture 5,960
2019–20 64,800 By Salaries 20,400
2020–21 600 66,600 By Stationery 3,560
To Entrance Fees 2,680 By Postage and Courier 4,400
To Proceeds from Drama 8,160 By Cost of Drama 7,000
To Interest from Securities 2,000 By Sundry Expenses 5,600
To Sale Proceeds from Old Furniture 400 By Balance c/d:
(Book Value ` 320) Cash in Hand 3,320
Cash at Bank 12,000
89,840 89,840

You are required to compile the Income and Expenditure Account for the year ended
31st March, 2020 and Balance Sheet as at that date after taking into account the following
information:
(i) On 1st April, 2019, the club premises stood at ` 1,00,000; investments at ` 24,000; and
furniture at ` 12,000.
(ii) The club had 720 members each paying an annual subscription of ` 100.
(iii) Salaries for the month of March, 2020 amounted to ` 1,600 are outstanding.
(iv) Stock of stationery on 31st March, 2019 was ` 360 and on 31st March, 2020 was ` 400.
(ISC 1993, Modified)
23.24 Double Entry Book Keeping—ISC XI

Solution: Super Time Club

INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `
To Salaries 20,400 By Subscriptions 64,800
Add: Outstanding 1,600 22,000 Add:  Outstanding (WN 2) 7,200 72,000
To Printing and Stationery 3,560 By Proceeds from Drama 8,160
Add:  Stock of Stationery Less:  Cost of Drama 7,000 1,160
on 31st March, 2019 360 By Interest from Securities 2,000
3,920 By Profit on Sale of Furniture 80
Less:  Stock of Stationery (` 400 – ` 320)
on 31st March, 2020 400 3,520
To Postage and Courier 4,400
To Sundry Expenses 5,600
To Surplus, Excess of Income over Expenditure, 39,720
transferred to Capital Fund

75,240 75,240

BALANCE SHEET as at 31st March, 2020

Liabilities ` Assets `
Capital Fund: Premises 1,00,000
As on 1st April, 2019 (WN 1) 1,33,560 Furniture 12,000
Add: Entrance Fees 2,680 Less: Book Value of Furniture Sold 320
Surplus for the year 39,720 1,75,960 11,680
Subscriptions Received in Advance 600 Add: Purchases 5,960 17,640
Outstanding Salaries 1,600 Investments 24,000
Add: Purchases 13,600 37,600
Stock of Stationery 400
Cash at Bank 12,000
Cash in Hand 3,320
Subscriptions in Arrears 7,200
1,78,160 1,78,160

Working Notes:
1. BALANCE SHEET as at 1st April, 2019
Liabilities ` Assets `
Bank Overdraft 14,000 Premises 1,00,000
Capital Fund (Balancing Figure) 1,33,560 Furniture 12,000
Investments 24,000
Stock of Stationery 360
Cash in Hand 10,000
Subscriptions in Arrears 1,200
1,47,560 1,47,560
Non-Trading Organisation 23.25

2. Calculation of Subscriptions in Arrears for the year ended 31st March, 2020: `
Subscriptions for the year (720 × ` 100) 72,000
Less:  Subscriptions received for the year 64,800
Subscriptions in Arrear for the year ended 31st March, 2020 7,200

Illustration 15.
Prepare Income and Expenditure Account from the following details of a tennis club for the
year ended 31st March, 2020 and the Balance Sheet as at that date:

RECEIPTS AND PAYMENTS ACCOUNT (AN EXTRACT)

Dr. for the year ended 31st March, 2020 Cr.
Receipts ` Payments `
Subscriptions—Arrears 700 Caterers—Old Dues 3,500
Subscriptions—Current 11,000 Caterers—Current 9,200
Locker Rent 2,500 Band Fees 1,600
Dance Receipts 14,500 New Equipment 900
Sale of Old Balls 1,200 Repairs to Nets 600
Donations 1,000 New Balls 5,000
Match Expenses 800
Rates on Club House 2,400
Notes:
1. The club has 60 members and the subscription rate is ` 200 per year.
2. On 31st March, 2020, ` 500 was owing for tennis balls and the rate paid includes ` 600 relating to the following year.
3. Equipment is depreciated at 10% p.a. on cost including new equipment purchased.
4. On 1st April, 2019, the club had the following assets: `
Freehold Club House 25,000
Cash at Bank 9,000
Equipment 13,500
Cash in Hand 260
(ISC 1992, Modified)
Solution: INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `
To Catering Charges 9,200 By Subscriptions 12,000
To Band Fees 1,600 By Locker Rent 2,500
To Repairs to Nets 600 By Dance Receipts 14,500
To Purchase of New Balls: By Sale of Old Balls 1,200
Payment 5,000 By Donations* 1,000
Add: Owing 500 5,500
To Match Expenses 800
To Rates 2,400
Less: Prepaid 600 1,800
To Depreciation on Equipment 1,440
To Surplus—Excess of Income over Expenditure 10,260
(Transferred to Capital Fund)
31,200 31,200

*Donations have been treated as General Donations.

23.26 Double Entry Book Keeping—ISC XI

BALANCE SHEET
as at 31st March, 2020
Liabilities ` Assets `

Capital Fund Freehold Club House 25,000

as on 1.4.2019 (WN 1) 44,960 Equipment 13,500
Add: Surplus for the year 10,260 55,220 Add: Purchases 900
Creditors for Tennis Balls 500 14,400
Less: Depreciation 1,440 12,960
Cash in Hand and at Bank (WN 3) 16,160
Subscriptions in Arrears (WN 2) 1,000
Prepaid Rates 600
55,720 55,720

Working Notes:
1. BALANCE SHEET
as at 1st April, 2019
Liabilities ` Assets `

Owing to Caterers 3,500 Freehold Club House 25,000

Capital Fund (Balancing Figure) 44,960 Equipment 13,500
Cash at Bank 9,000
Cash in Hand 260
Subscriptions in Arrears 700
48,460 48,460

2. Subscriptions in Arrears for year ended 31st March, 2020: `

Subscriptions due for the year (60 × ` 200) 12,000
Less:  Total Received during the year 11,000
Subscriptions in Arrears for year ended 31st March, 2020 1,000

3. Cash in Hand and at Bank on 31st March, 2020: `

Balance on 1st April, 2019 (` 260 + ` 9,000) 9,260
Add:  Total Receipts during the year 30,900
40,160
Less:  Total Payments during the year 24,000
Balance on 31st March, 2020 16,160

Illustration 16.
From the following Receipts and Payments Account, prepare Income and Expenditure Account
for the year ended 31st March, 2020:
Non-Trading Organisation 23.27

RECEIPTS AND PAYMENTS ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
` Payments `
Receipts

To Balance b/d 20,000 By Rent 6,000

To Entrance Fees: (including ` 1,500 for 2018–19)
2018–19 1,000 By Insurance Premium 6,000
2019–20 5,000 6,000 (including ` 1,500 for 2020–21)
To Subscriptions: By Sports Materials 5,000
2018–19 1,000 By Furniture 6,000
2019–20 (90%) 9,000 (Purchased on 31st March, 2020)
2020–21 500 10,500 By 8% Fixed Deposit 12,000
To Life Membership Fees 2,000 (made on 1st October, 2019)
To Donations 12,000 By Tournament Expenses 1,000
To Donations for Tournament 5,000 By Purchase of Books 2,000
To Subscriptions for Governor’s Party 1,500 By Newspapers 100
To Interest on 8% Fixed Deposit 240 By Printing and Stationery 1,900
To Sale of Old Newspapers 30 By Balance c/d 18,000
To Sale of Old Equipment (Book Value ` 120) 50
To Locker Rent (including ` 60 for 2018–19) 680
58,000 58,000

Additional Information: Sports Material is shown as consumed.

Solution: INCOME AND EXPENDITURE ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `

To Rent 6,000 By Subscriptions 9,000

Less:  For 2018–19 1,500 4,500 Add:  Subscription Due 1,000 10,000
To Insurance Premium 6,000 By Interest on Fixed Deposit 240
Less:  Premium for (2020–21) 1,500 4,500 Add:  Accrued Interest 240 480
To Sports Material 5,000 By Donations 12,000
To Newspapers 100 By Locker Rent (` 680 – ` 60) 620
To Printing and Stationery 1,900 By Sale of Old Newspapers 30
To Loss on Sale of Old Equipment 70
(` 120 – ` 50)
To Surplus, i.e., Excess of Income over
Expenditure 7,060
23,130   23,130

Note: `
Subscription Due for the year (` 9,000 × 100/90) 10,000
Less: Subscription Received for 2019–20 9,000
Subscription Due but not received during the year 1,000
23.28 Double Entry Book Keeping—ISC XI

Illustration 17.
Following is the Receipts and Payments Account of Sydney Club for the year ended
31st March, 2020:
Dr. Cr.
` Payments `
Receipts
To Balance b/d: By Salaries 1,20,000
Cash 3,850 By Creditors 15,20,000
Bank 10,000 By Printing and Stationery 70,000
To Subscriptions 2,02,750 By Postage 40,000
To Entrance Fee 1,00,000 By Telephone and Internet Charges 52,000
To Interest Received 58,000 By Repairs and Maintenance 48,000
To Sale of Assets 8,000 By Glass and Table Linen 12,000
To Miscellaneous Income 9,000 By Crockery and Cutlery 14,000
To Receipts from: By Garden Upkeep 8,000
Coffee Room 10,70,000 By Membership Fees 4,000
Wines and Soda 5,10,000 By Insurance 5,000
Swimming Pool 80,000 By Electricity 28,000
Tennis Court 1,02,000 By Balance c/d:
Cash 8 ,000
Bank 2,24,600
21,53,600 21,53,600

The Assets and Liabilities as on 1st April, 2019 were as follows: `

Fixed Assets (Net) 5,00,000
Stock 3,80,000
Investments in 12% Government Securities 5,00,000
Outstanding Subscriptions 12,000
Prepaid Insurance 1,000
Sundry Creditors 1,12,000
Subscription Received in Advance 15,000
Entrance Fee Received Pending Membership 1,00,000
Gratuity Fund 1,50,000
Following adjustments are to be made while drawing up accounts:
(i) Subscription received-in-advance as on 31st March, 2020 was ` 18,000.
(ii) Outstanding subscriptions as on 31st March, 2020 was ` 7,000.
(iii) Outstanding expenses are: `
Salaries 8,000
Electricity 15,000
(iv) There is no pending membership as on 31st March, 2020.
(v) The cost of asset sold net as on 1st April, 2019 was ` 10,000.
(vi) Depreciation is to be provided at the rate of 10% on assets.
(vii) A sum of ` 20,000 received in October, 2019 as Entrance Fee from an applicant was to
be refunded, as he had not fulfilled the requisite membership qualification. The refund
was made on 3rd June, 2020.
(viii) Purchase made during the year amounted to ` 15,00,000.
(ix) The value of closing stock was ` 2,10,000.
(x) The club as a matter of policy charges off to Income and Expenditure Account all
purchases made on account of crockery, cutlery, glass and linen in the year of purchase.
You are required to prepare an Income and Expenditure Account for the year ended
31st March, 2020 and the Balance Sheet as on that date.
Non-Trading Organisation 23.29

Solution: INCOME AND EXPENDITURE ACCOUNT OF SYDNEY CLUB

Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `

To Stock Consumed (WN 5) 16,70,000 By Subscriptions (WN 2) 1,94,750

To Salaries 1,20,000 By Interest 58,000
Add: Outstanding 8,000 1,28,000 Add: Accrued 2,000 60,000
To Printing and Stationery 70,000 By Miscellaneous Income 9,000
To Postage 40,000 By Receipts from Coffee Room 10,70,000
To Telephone and Internet Charges 52,000 By Receipts from Wines and Soda 5,10,000
To Repairs and Maintenance 48,000 By Receipts from Swimming Pool 80,000
To Glass and Table Linen 12,000 By Receipts from Tennis Court 1,02,000
To Crockery and Cutlery 14,000 By Deficit (Balancing Figure) 1,20,250
To Garden Upkeep 8,000
To Membership Fees 4,000
To Insurance 5,000
Add: Prepaid 1,000 6,000
To Electricity 28,000
Add: Outstanding 15,000 43,000
To Loss on Sale of Fixed Assets (WN 4) 2,000
To Depreciation (WN 4) 49,000
21,46,000 21,46,000

BALANCE SHEET
as at 31st March, 2020
`
Liabilities Assets `
Capital Fund: Fixed Assets (WN 4) 4,41,000
Opening Balance (WN 1) 10,29,850 Stock 2,10,000
Add: Entrance Fee 1,80,000 Investments 5,00,000
12,09,850 (12% Government Securities)
Less: Deficit 1,20,250 10,89,600 Subscriptions Outstanding 7,000
Sundry Creditors (WN 6) 92,000 Interest Accrued 2,000
Gratuity Fund 1,50,000 Cash 8,000
Subscriptions Received in Advance 18,000 Bank 2,24,600
Entrance Fee Refundable 20,000
Outstanding Salaries 8,000
Outstanding Electricity Charges 15,000
13,92,600 13,92,600

Working Notes:
1. BALANCE SHEET
as at 1st April, 2019
`
Liabilities Assets `

Sundry Creditors 1,12,000 Fixed Assets 5,00,000

Subscriptions Received in Advance 15,000 Stock 3,80,000
Entrance Donation Received in Advance 1,00,000 Investments (12% Government Securities) 5,00,000
Gratuity Fund 1,50,000 Subscriptions Outstanding 12,000
Capital Fund (Balancing Figure) 10,29,850 Prepaid Insurance 1,000
Cash 3,850
Bank 10,000
14,06,850 14,06,850
23.30 Double Entry Book Keeping—ISC XI

2. Dr. SUBSCRIPTIONS ACCOUNT Cr.

` Particulars
Particulars `

To Outstanding Subscriptions A/c 12,000 By Subscriptions Received in Advance 15,000

(Beginning) (Beginning)
To Income and Expenditure A/c 1,94,750 By Bank A/c 2,02,750
(Balancing Figure) By Outstanding Subscriptions A/c 7,000
To Subscriptions Received in Advance A/c 18,000 (Closing)
2,24,750 2,24,750

3. Dr. ENTRANCE FEE ACCOUNT Cr.

` Particulars
Particulars `

To Entrance Fee Refundable A/c 20,000 By Balance b/d 1,00,000

To Capital Fund 1,80,000 By Bank A/c 1,00,000
2,00,000 2,00,000

4. Dr. FIXED ASSETS ACCOUNT Cr.

` Particulars
Particulars `

To Balance b/d 5,00,000 By Bank A/c 8,000

By Loss on Sale of Fixed Assets A/c 2,000
By Depreciation A/c 49,000
(10% of ` 4,90,000)
By Balance c/d 4,41,000
5,00,000 5,00,000

5. Calculation of Stock Consumed: `

Opening Stock 3,80,000
Add: Purchases 15,00,000
18,80,000
Less: Closing Stock 2,10,000
Stock Consumed during the year 16,70,000

6. Dr. SUNDRY CREDITORS ACCOUNT Cr.

` Particulars
Particulars `

To Bank A/c 15,20,000 By Balancing b/d 1,12,000

To Balanced c/d (Balancing Figure) 92,000 By Purchases A/c 15,00,000
16,12,000 16,12,000
Non-Trading Organisation 23.31

Illustration 18.
From the following Receipts and Payments Account of Mayur Vihar Football Club and
additional information, prepare an Income and Expenditure Account for the year ended
31st March, 2020:
RECEIPTS AND PAYMENTS ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
` Payments `
Receipts

To Cash in Hand on 1st April, 2019 10,200 By Purchases of Ball 65,000

To Cash at Bank as per Pass Book 30,000 By Tournament Fees 10,000
To Subscriptions 2,45,000 By Affiliation Fees for 5 Years 2,000
To Interest on Investment 1,800 By Rent of Playground 6,000
To Sales of Tickets for Variety Programme 20,000 By Expenses on Variety Programme 15,000
To Sale of Furniture on 30th September, 2019 9,000 By Refreshment Expenses 4,000
To Donations for Club Building 50,000 By Travelling Expenses 20,000
To Legacy 11,000 By Furniture bought on 1st October, 2019 5,000
By Repairs to Building 5,000
By Advance paid to Contractor for
Pavilion Building 50,000
By Salary 15,000
By Telephone Bill 1,500
By Miscellaneous Expenses
(including honorarium of ` 3,000) 8,000
By 12% Investments (Face value ` 1,70,000)
bought on 31st December, 2019 1,50,000
By Cash in Hand on 31st March, 2020 8,500
By Balance in the Bank as per Pass Book
on 31st March, 2020 12,000
3,77,000 3,77,000

Additional Information:
(i) Subscriptions received include ` 9,000 outstanding subscriptions of the year 2018–19.
Subscriptions for the year 2019–20 amounting to ` 16,000 is still outstanding. Some
members have paid subscriptions for the year 2020–21 amount to ` 8,000 which is
included in the subscriptions received.
(ii) Face value of 12% Investments on 31st March, 2019 was ` 15,000 (cost price ` 12,000).
(iii) Book value of furniture sold on 1st April, 2019 was ` 12,000 depreciation being 20% p.a.
Provide depreciation on new furniture at the same rate.
(iv) Telephone bill for one quarter is outstanding, the amount outstanding being ` 300. The
charge for each quarter is same both for 2018–19 and 2019–20.
(v) Unpresented cheques for repairs to building being ` 4,000 for 2018–19 and ` 12,000 for
2019–20.
(vi) Stock of Balls with the club on 31st March, 2020 amounted to ` 6,000.
23.32 Double Entry Book Keeping—ISC XI

Solution: INCOME AND EXPENDITURE ACCOUNT

Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `
To Stock of Balls Consumed: By Subscriptions A/c (WN) 2,44,000
Purchase of Ball 65,000 By Interest on Investments 6,900
Less:  Closing Stock 6,000 59,000 [` 1,800 + (` 1,70,000 × 12/100 × 3/12)]
To Tournament Fees 10,000 By Sale of Tickets for Variety Programme 20,000
To Affiliation Fees (` 2,000 × 1/5) 400
To Rent of Playground 6,000
To Expenses on Variety Programme 15,000
To Refreshment Expenses 4,000
To Travelling Expenses 20,000
To Repairs to Building 13,000
(` 5,000 + ` 12,000 – ` 4,000)
To Salaries 15,000
To Telephone Charges 1,200
(` 1,500 + ` 300 – ` 600)
To Miscellaneous Expenses 5,000
To Honorarium 3,000
To Loss on Sale of Furniture 1,800
To Depreciation on Furniture 1,700
To Surplus, i.e., Excess of Income Over Exp. 1,15,800
2,70,900 2,70,900

Working Note:
Dr. SUBSCRIPTIONS ACCOUNT Cr.
` Particulars
Particulars `
To Outstanding Subscriptions A/c 9,000 By Bank A/c 2,45,000
(Beginning) By Outstanding Subscriptions A/c 16,000
To Income and Expenditure A/c 2,44,000 (at the end)
(Balancing figure)
To Advance Subscriptions A/c 8,000
(at the end)
2,61,000 2,61,000

Illustration 19 (Unpresented Cheques, Balance as per Cash Book and Cash Supplied by the Secretary
for use of the Organisation).
The Accountant of Diana Club furnishes you the following Receipts and Payments Account for
the year ended 31st March, 2020:
Dr. RECEIPTS AND PAYMENTS ACCOUNT Cr.
` Payments `
Receipts
To Balance b/d: By Honorariun to Secretary 9,600
Cash and Bank 16,760 By Miscellaneous Expenses 3,060
To Subscriptions 21,420 By Rates and Taxes 2,520
To Sale of Old Newspapers 4,800 By Ground Man’s Wages 1,680
To Entertainment Fees 8,540 By Printing and Stationery 940
To Bar Receipts 14,900 By Telephone Expenses 4,780
To Bank Interest 460 By Payment for Bar Purchases 11,540
To Short-term Credit by Secretary 40 By Repairs 640
By New Car (Less Sale Proceeds of
Old Car ` 6,000) 25,200
By Balance c/d:
Cash and Bank 6,960
66,920 66,920
Non-Trading Organisation 23.33

1st April, 2019 31st March, 2020

` `
(i) Subscriptions due 2,400 1,960
(ii) Cheques issued, but not presented for payment
of printing and stationery 180 60
(iii) Club premises at cost 58,000 ...
(iv) Depreciation on club premises provided so far 37,600 ...
(v) Car at cost 24,380 ...
(vi) Depreciation on car provided so far 20,580 ...
(vii) Value of bar stock 1,420 1,740
(viii) Amount unpaid for bar purchases 1,180 860
(ix) Depreciation is to be provided @ 5% p.a. on the
written down value of the club premises and
@ 15% p.a. on the car for the whole year.
You are required to prepare an Income and Expenditure Account of Diana Club for the year ending
31st March, 2020 and Balance Sheet as on that date. (P.E. (Examination)—I, Nov. 2001, Modified)

Solution: In the Books of Diana Club

INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
`
Expenditure Income `
To Honorariun to Secretary 9,600 By Subscriptions (WN 6) 20,980
To Miscellaneous Expenses 3,060 By Bar Receipts (Sales) 14,900
To Rates and Taxes 2,520 By Sale of Old Newspapers 4,800
To Ground Man’s Wages 1,680 By Entertainment Fees 8,540
To Printing and Stationery* 940 By Bank Interest 460
To Telephone Expenses 4,780 By Profit on Sale of Car (WN 5) 2,200
To Bar Stock Used (WN 1 and WN 2) 10,900
To Repairs 640
To Depreciation:
On Club Premises (WN 3) 1,020
On Car (WN 4) 4,680
To Surplus (Excess of Income over Expenditure) 12,060
51,880 51,880

BALANCE SHEET as at 31st March, 2020

`
Liabilities Assets `
Capital Fund: Club Premises (WN 3) 58,000
Opening Balance (WN 7) 43,600 Less: Accumulated Depreciation 38,620 19,380
Add: Surplus 12,060 55,660 Car (WN 4) 31,200
Creditors for Bar Purchases 860 Less: Accumulated Depreciation 4,680 26,520
Short-term Credit by Secretary 40 Bar Stock 1,740
Subscription Due 1,960
Cash and Bank 6,960
56,560 56,560

* In the question, opening and closing cash and bank balances are as per Cash Book and therefore, there
is no need for adjustment of cheques issued and not presented for payment for printing and stationery.
Adjustment is neither required in the bank balance nor in the Printing and Stationery Account.
23.34 Double Entry Book Keeping—ISC XI

Working Notes:
1. Calculation of the Amount of Bar Purchases during the Year `
Payment for Bar Purchases 11,540
Add: Outstanding on 31st March, 2020 860
12,400
Less: Outstanding on 1st April, 2019 1,180
Purchases during the year 11,220
2. Calculation of Bar Stock used during the Year
Opening Bar Stock 1,420
Add: Purchases (1) 11,220
12,640
Less: Closing Bar Stock 1,740
10,900
3. Depreciation on Club Premises
Written down value on 1st April, 2019 (` 58,000 – ` 37,600) 20,400
Less: Depreciation for the Year @ 5% p.a. 1,020
Written down value on 31st March, 2020 19,380
4. Depreciation of Car
Purchase price of new car (` 25,200 + ` 6,000) 31,200
Less: Depreciation for the Year @ 5% p.a. 4,680
Written down value on 31st March, 2020 26,520
5. Calculation of Profit/Loss on Sale of Old Car
Sale proceeds from old car 6,000
Less: WDV on date of sale (` 24,380 – ` 20,580) 3,800
Profit on sale of old car 2,200
6. Subscriptions for the Year
Subscriptions received during the year 21,420
Add: Outstanding at the end 1,960
23,380
Less: Outstanding in the beginning 2,400
Subscription for the year 2019–20 20,980
7. Calculation of Opening Capital Fund

BALANCE SHEET
as at 1st April, 2019
`
Liabilities Assets `

Capital Fund (Balancing Figure) 43,600 Club Premises 58,000

Creditors for Bar Purchases 1,180 Less: Accumulated Depreciation 37,600 20,400
Car 24,380
Less: Accumulated Depreciation 20,580 3,800
Bar Stock 1,420
Subscriptions Due 2,400
Cash and Bank 16,760
44,780 44,780
Non-Trading Organisation 23.35

Unsolved Questions
1. Given below is the Receipts and Payments Account of a Associated Sports Club for the year ended
31st March, 2020:
Dr. RECEIPTS AND PAYMENTS ACCOUNT for the year ended 31st March, 2020 Cr.
` Payments `
Receipts
To Balance b/d 2,100 By Purchase of Sports Materials 7,000
To Subscriptions (including ` 1,000 for 2018–19 By Stationery 5,700
and ` 1,500 for 2020–21) 18,000 By Salaries 7,000
To Life Membership Fees 9,000 By Honorarium 3,000
To Legacies 2,000 By Upkeep of Ground 2,600
To Entrance Fees 4,000 By Audit Fees 2,000
To Donations for Building Fund 10,000 By Refreshments 1,400
To Touranment Fund 8,000 By Tournament Expenses 6,000
To Hire of Club Hall 5,000 By Match Expenses 1,000
To Sale of Old Bats and Balls, etc. 500 By 10% Investments (on 1.10.2019) 12,000
To Sale of Old Furniture 700 By Furniture (part payment) 5,000
By Balance c/d 6,600
59,300   59,300

Additional Information:
As at 1st April, 2019 (`) As at 31st March, 2020 (`)
Subscriptions Due 1,400 2,400
Subscriptions Received in Advance ... 1,500
Audit Fees Outstanding ... 1,000
Creditors for Stationery 600 500
Stock of Stationery ... 800
Stock of Sports Materials 1,100 1,500
Building 40,000 40,000
Furniture was sold on 1st April, 2019 at its book value. On the same date, Furniture of ` 8,000 was purchased.
Depreciation is to be charged @ 10% p.a.
Prepare the Income and Expenditure Account for the year ended 31st March, 2020 and the Balance Sheet
as at that date.
2. Following statement is submitted to you by the Secretary of The Agricultural Society:
Dr. RECEIPTS AND PAYMENTS ACCOUNT for the year ended 31st March, 2020 Cr.
Receipts ` Payments `
To Balance b/d: By Secretary’s Salary 11,500
Cash 10,000 By Printing and Stationery 24,100
Bank 24,000 34,000 By Sundries 11,200
To Subscriptions: By Audit Fee 600
2018–19 3,000 By Show Expenses 51,500
2019–20 78,500 By Show Prizes 42,800
2020–21 2,500 84,000 By Deposits at Bank 20,000
To Entrance Fee at Show 57,100 By Balance c/d:
To Advertisements in Catalogues 4,200 Cash 4,600
To Interest on Investments 3,500 Bank 20,000 24,600
To Sale of Catalogues 3,500
1,86,300 1,86,300
23.36 Double Entry Book Keeping—ISC XI

Additional Information:
(i) The society holds ` 35,000; 10% Investments (Cost ` 32,000).
(ii) Subscriptions for 2019–20 amounted to ` 12,000 have since been received in 2020–21.
(iii) ` 2,500 are owing to the printers.
(iv) ` 2,500 for balance of salary are due to the Secretary on 31st March, 2020.
Prepare the Income and Expenditure Account for the year ended 31st March, 2020 and the Balance Sheet
as at that date.
3. The following is the Receipts and Payments Account of Park View Club in respect of the year ended
31st March, 2011:
Dr. RECEIPTS AND PAYMENTS ACCOUNT Cr.
` Payments `
Receipts
To Balance b/d 1,02,500 By Salaries 2,08,000
To Subscriptions: By Stationery 40,000
2009–10 4,500 By Rent 60,000
2010–11 2,11,000 By Telephone Expenses 10,000
2011–12 7,500 2,23,000 By Investment 1,25,000
To Profit on Sports Meet 1,55,000 By Sundry Expenses 92,500
To Income from Investments 1,00,000 By Balance c/d 45,000
5,80,500 5,80,500

Additional Information:
(i) There are 450 members each paying an annual subscription of ` 500. On 1st April, 2010 outstanding
subscription was ` 5,000.
(ii) There was an outstanding telephone bill for ` 3,500 on 31st March, 2011.
(iii) Outstanding sundry expenses as on 31st March, 2010 totalled ` 7,000.
(iv) Stock of Stationery:
On 31st March, 2010—` 5,000.
On 31st March, 2011—` 9,000.
(v) On 31st March, 2010, building stood in the books at ` 10,00,000 and it was subject to depreciation
@ 5% per annum.
(vi) Investment on 31st March, 2010 stood at ` 20,00,000.
(vii) On 31st March, 2011, income accrued on the investments purchased during the year amounted to ` 3,750.
Prepare Income and Expenditure Account for the year ended 31st March, 2011 and Balance Sheet as on
that date. (IPCC, May, 2011)
4. Following is the Receipts and Payment Account of Mayur Club for the year ended 31st March, 2008:
Dr. RECEIPTS AND PAYMENTS ACCOUNT Cr.
` Payments `
Receipts
To Opening Balance as on 1st April, 2007: By Sports Material 3,04,500
Cash in Hand 39,100 By Salaries 3,15,000
Cash at Bank 50,000 By Equipment Purchased on 1st Oct., 2007 60,000
To Subscriptions: By Bank Fixed Deposits on 31st March, 2008 1,50,000
For the Year 2006–07 18,000 By Rent 1,48,500
For the Year 2007–08 9,63,000 By Ground Maintenance 22,120
For the Year 2008–09 4,500 By Insurance 38,400
To Interest on Bank Fixed Deposits @ 10% 45,000 By Stationery 3,450
By Sundry Expenses 5,880
By Closing Balance as on 31st March, 2008:
Cash on Hand 31,750
Cash at Bank 40,000
11,19,600 11,19,600
Non-Trading Organisation 23.37

Following additional information is provided to you:

(i) The club has 220 members. The annual subscription is ` 4,500 per member.
(ii) Depreciation to be provided on furniture at 10% p.a. and on sports equipment at 15% p.a.
(iii) On 31st March, 2008, stock of sports material in hand (after members use during the year) is valued
at ` 78,000 and stock of stationery at ` 3,150. Rent for 1 month is outstanding. Unexpired insurance
amounts to ` 9,600.
(iv) On 31st March, 2007 the club had the following assets:
`
Particulars

Furniture 2,70,000
Sports Equipment 1,80,000
Bank Fixed Deposit 4,50,000
Stock of Stationery 1,500
Stock of Sports Material 73,500
Unexpired Insurance 8,400
Subscription in Arrear 22,500
Note: There was no liability on 31st March, 2007.
You are required to prepare:
(i) Income and Exepnditure Account; and.
(ii) Balance Sheet as at 31st March, 2008. (IPCC, May, 2008)
5. (Calculation of Stationery Used)
(a) On the basis of the following information, calculate the amount that will appear against the item,
Stationery Account, in the Income and Expenditure Account for the year ended 31st March, 2020:
`
Stock of Stationery on 1st April 2019 600
Creditors for Stationery on 1st April, 2019 400
Amount paid for Stationery during the year 2,160
Stock of Stationery on 31st March, 2020 100
Creditors for Stationery on 31st March, 2020 260
(b) Calculate the amount of stationery consumed during the year ended 31st March, 2020:
`
Stock of Stationery on 1st April, 2019 6,000
Creditors for Stationery on 1st April, 2019 4,000
Advance paid for Stationery carried forward from previous year 400
Amount paid for Stationery during the year 21,600
Stock of Stationery on 31st March, 2020 1,000
Creditors for Stationery for 31st March, 2020 8,600
Advance paid for Stationery on 31st March, 2020 2,600
6. (Calculation of Subscription Income).
`
(a) Subscriptions received during the year 2019–20 50,000
Subscriptions outstanding at the closing of 2019–20 8,000
Subscriptions outstanding in the beginning of 2019–20 6,000
Calculate the amount of subscriptions to be credited to Income and Expenditure Account for the year
2019–20.
23.38 Double Entry Book Keeping—ISC XI

`
(b) Subscriptions received during the year 2019–20 50,000
Subscriptions outstanding on 31st March, 2020 8,000
Subscriptions outstanding on 31st March, 2019 6,000
Subscriptions received in advance on 31st March, 2020 5,000
Subscriptions received in advance on 31st March, 2019 4,000
Calculate the amount of subscriptions to be credited to Income and Expenditure Account for the year
2019–20.

GUIDE TO ANSWERS
1. Deficit—` 6,600; Capital Fund as at 1.4.2019—` 44,700; Balance Sheet Total as at 31st March, 2020—
` 71,100.
2. Capital Fund (Opening)—` 69,000; Surplus—` 12,100; Balance Sheet Total—` 88,600.
3. Surplus—` 30,750; Balance Sheet Total—` 31,47,250; Capital Fund (1st April, 2010)—` 31,05,500.
4. Surplus, i.e., excess of Income over Expenditure—` 1,32,500, Balance Sheet Total—` 12,45,500. Capital Fund
(Opening)—` 10,95,000.
5. (a) Stationery Consumed during the year: ` 2,520;
Credit Purchase of Stationery (2019–20): ` 2,020.
(b) Stationery Consumed (2019–20): ` 29,000
Credit Purchase of Stationery (2019–20): ` 24,000.
6. (a) Subscription to be credited to Income and Expenditure Account: ` 52,000.
(b) Subscription to be credited to Income and Expenditure Account: ` 51,000.