Work Book XI-Commerce

ACCOUNTING: XI
PAGE: 1
1. INTRODUCTION
1. Definition of Accounting & Book Keeping.
2. Accounting Terminologies
3. Business entity
4. Accounting equation
DEFINITION:
“Accounting is an art of recording classifying and summarizing in a significant manner and in terms of
money, transactions and events which are in part at least of a financial character and interpreting the
result thereof.”(AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANT)
ACCOUNTING
Accounting is an art of recording, classifying & summarizing the financial records in a significant
manner.
BUSINESS
Business means any legal activity which is performed for making profit.
Types of business
There are three types of business:
(i) Manufacturing
(ii) Trading or merchandising
(iii) Service
FINANCIAL ELEMENTS OF ACCOUNTING
There are five financial elements of accounting which are as following.
1. Assets
2. Liabilities
3. Owner Equity
4. Revenue
5. Expenses
1. ASSETS:
Assets are things of value (economic resources) which a business possesses for business purposes and
it has a future benefit.
Examples: cash in hand, cash at bank, Account receivable, Merchandise, Prepaid, Office supplies, land,
building, furniture, Equipment etc.
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2. LIABILITIES OR CREDITORS’ EQUITY:
Liabilities are the creditors’ claim (rights) on the business assets.
Examples: accounts payable, bank loan, bank overdraft etc.
3. CAPITAL OR OWNER’S EQUITY:

Capital is the owner’s or owners’ claim (right) on the business assets. It is the excess of total assets
over the total liabilities of a business.
Capital = Assets –Liabilities
4. REVENUE:
Revenue is the price of services rendered, or the price of merchandise sold for earning profit.
Examples: sales, commission income, fees income etc.
5. EXPENSE:
Expense is the cost of goods and services used up for earning revenue.
Examples: salaries, rent expense, utilities expense etc.
ACCOUNTING EQUATION:
The sum of total assets will normally be equal to the sum of total liabilities and total capital of a
business. The balance sheet equation is generally stated as:
ASSETS = LIABILITIES + OWNER’S EQUITY
EXERCISE # 1
Problem 1.1: What is a Basic Accounting Equation?
Problem 1.2: Define the following: 1) Assets 2) Liabilities 3) Owner’s equity
Problem 1.3: Define the following: 1) Revenue 2) Expense
ASSIGNMENT # 1
Q 1: Define Accounting?
Q 2: Define Financial elements of Accounting with examples?
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MULTIPLE CHOICE QUESTIONS

1. Any valuable thing which a business owns is:
* Asset * Expense * Liability * Owner’s equity
2. The owner’s claim against the assets of the business is:
* Assets * Expense * Liabilities * Owner’s equity
3. Creditor’s claim against the assets of the business is:
* Assets * Owner’s equity * Expenses * Liabilities
4. Economic resources of the business that are expected to benefit a business in future are
referred to as:
*Assets * Owner’s equity * Expenses *Revenues
5. The amount remaining after deducting total liabilities from total assets of a business is
called:
*Expense * Assets * Owner’s equity * revenue
6. A debit increases the balance of:
* Assets and liabilities * Assets and owner’s equity
* Liabilities and expense * Assets and expense
7. A credit decreases the balance of:
* Assets and liabilities * Liabilities and expense
* Expenses and assets * Assets and owner’s equity
8. Which of the following statement is incorrect?
* Assets – Capital = Liabilities
* Liabilities -- Capital = Assets
* Liabilities + Assets = Capital
* Assets = Liabilities + Capital
9. The excess of total assets over total liabilities of a business is called:
*Expense * Assets * Owner’s equity * revenue
10. Which of the following statement is correct?
* Assets = Liabilities + Capital
* Liabilities = Assets + Capital
* Liabilities + Assets = Capital
* Assets – Liabilities = Capital
11. The following statement is correct :
* Accounting is a part of book keeping
* Accounting is a part of auditing
* Book keeping is a part of accounting
* Accounting and book keeping are same
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2. THE GENERAL JOURNAL

BUSINESS TRANSACTIONS:
In simple, a business transaction represents exchange of values.
Transactions are of two types.
1. Cash transactions.
A cash transaction is one that involves cash payment at the time of exchange.
2. Credit transactions.
A credit transaction is one in which payment is postponed to a future date.
DERIVATION OF THE RULES OF DEBIT & CREDIT:

RULES OF DEBIT AND CREDIT:
The rules of Dr. and Cr. are used in accounting to record increases and decreases in asset, liability,
capital, revenue and expense accounts. These rules are derived from the balance sheet equation.
Debit and Credit as the rules of accounting are applied to record increase and decreases in all the
categories of accounts. There rules are applied as under:
Category of accounts Increases Decreases Normal Balance
Assets Dr. Cr. Dr.
Liabilities Cr. Dr. Cr.
Capital Cr. Dr. Cr.
Revenues Cr. Dr. Cr.
Expenses Dr. Cr. Dr.
Double entry system: under double entry system, for every debit amount an equal amount of credit is
recorded.
ACCOUNTING: XI
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Work Sheet
S.# Financial Element Nature Normal Increase Decrease
balance
1 Cash Asset Debit Dr. Cr.
2 Account receivable
3 Bank loan
4 Capital
5 Prepaid expenses
6 Fee income
7 Salaries expense
8 Sales
9 Office supplies
10 Cash at bank
11 Rent income
12 Insurance expense
13 Commission income
14 Advertising expense
15 Land
16 Account payable
17 Wages expense
18 Equipment
19 Purchases
20 Utilities expense
21 Machinery
22 Bank overdraft
23 Furniture
24 Loan to Ali
25 Interest expense
26 Unearned income
27 Rent Payable
28 Rent expense
29 Vehicles
30 Loan from Ali
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Practice Question
GENERAL JOURNAL
Q. Record the following transactions in General Journal.
Investment transactions
Jan 1: Ahmed started a business with cash investment of Rs.100000
Jan 2: Ahmad commenced business with cash investment Rs.60000 and equipment costing Rs.40000.
Transactions with bank

Jan 3: Opened a bank account with HBL with Rs.15000.
Jan 4: Deposited cash into bank Rs.10000.
Jan 5: Withdrew cash from bank Rs.5000 for office use.
Drawing transactions
Jan 6: Ahmed withdrew cash from business for personal use Rs.2000
Jan 7: Ahmad withdrew cash from bank for private use Rs.3000
Jan 8: Proprietor withdrew supplies for personal use Rs.5000
Jan 9: Owner withdrew Cash Rs.1000 and merchandise at cost Rs.2000 for personal use.
Jan 10: Owner paid electricity bill of his residence from business cash Rs.5000.
Prepaid expenses transactions

Jan 11: Paid rent in advance Rs.4000 cash.
Jan 12: Prepaid advertising Rs.8000 by cheque.
Purchase of asset transactions

Jan 13: Purchased furniture for cash Rs.10000.
Jan 14: Purchased machinery for Rs.50000 issuing a cheque for the amount.
Jan 15: Purchased Supplies for Rs.3000 on credit/on account from Fahad.
Jan 16: Purchased equipment for Rs.15000 paying cash Rs.10000 and the balance of amount to be paid
later.
Payment of A/c Payable transactions

Jan 17: Paid Rs.1000 cash to Fahad.
Jan 18: Paid Rs.3000 by cheque Ahsan.
Sale of asset transactions

Jan 19: Sold furniture for Rs.5000 for cash.
Jan 20: Sold machinery for Rs.100000, received cheque for it.
Jan 21: Sold equipment Rs.20000 receiving a cheque for the amount which was deposited in the bank.
Jan 22: Sold building Rs.100000 on credit/ on account to Bilal.
Jan 23: Sold land Rs.150000, receiving cash Rs.100000 and the balance amount to be received later
from Danish.
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Receipt from A/c receivable transactions
Jan 24: Received cash for Rs.30,000 from Bilal.
Jan 25: Received a cheque for Rs.20,000 from Danish.
Jan 26: Danish’s cheque was deposited into the bank account.
Receipt of Revenue transactions

Jan 27: Received Rs.5000 for services rendered.
Jan 28: Received a cheque for Rs.3000 in payment of fees.
Jan 29: Commission earned and received Rs.10,000.
Payment of Expenses transactions

Jan 30: Paid Rs.5000 for cash.
Jan 31: Paid salaries by cheque Rs.15000.
Purchase of merchandise/goods transactions

Feb 1: Purchased merchandise for cash Rs.10000.
Feb 2: Purchased goods for Rs.5000 issuing a cheque in payment.
Feb 3: Purchased merchandise on account/ on credit from Imran Rs.20000.
Feb 4: Purchased goods for Rs.100000, paying cash Rs.60000 and the balance to be paid later to Adil.
Purchases returns transactions

Feb 5: Returned defective merchandise to Imran.
Feb 6: Returned Inferior goods to Adil Rs.10000.
Sale of merchandise/goods transactions

Feb 7: Sold merchandise for cash Rs.10000.
Feb 8: Received a cheque for Rs.5, 000 for merchandise sold.
Feb 9: Sold merchandise on account/on credit to Daniyal Rs.20000.
Feb 10: Sold merchandise for Rs.100000, receiving cash Rs.60000 and the balance to be received later
From Zain.
Sales returns transactions

Feb 11: Zain returned defective merchandise at invoice price Rs.2000.
Feb 12: Daniyal returned inferior goods at invoice price Rs.3000.
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ASSIGNMENT QUESTION
GENERAL JOURNAL
Q. Record the following transactions in a General Journal.
Investment transactions
Jan 1: Ali started a business with a cash investment of Rs.200000
Jan 2: Ali commenced business with a cash investment Rs.40000 and furniture Rs.40000.
Bank transactions
Jan 3: Opened a bank account with ABL with Rs.25000.
Jan 4: Deposited cash into bank Rs.50000.
Jan 5: Withdrew cash from bank Rs.25000 for office use.
Drawing transactions
Jan 6: Ali withdrew cash from business for personal use Rs.3000
Jan 7: Ali withdrew cash from bank for private use Rs.5000
Jan 8: Proprietor withdrew supplies at cost Rs.5000
Jan 9: Owner withdrew Cash Rs.2000 and merchandise at invoice price Rs.1000 for personal use.
Jan 10: The Owner paid gas bill of his residence from business cash Rs.500.
Prepaid transactions
Jan 11: Paid rent in advance Rs.5000 cash.
Jan 12: Advertising expense was paid in advance by issuing a cheque for Rs.3000.
Purchase of an asset transactions

Jan 13: Purchased furniture for cash Rs.15000.
Jan 14: Purchased machinery for Rs.25000 issuing a cheque in payment.
Jan 15: Purchased Supplies Rs.2000 on credit/on account from Waqas
Jan 16: Purchased equipment for Rs.15000 paying cash Rs.10000 and the balance on account to Hamza
Payment to A/c Payable transaction

Jan 17: Paid Waqas Rs.500 cash.
Jan 18: Paid Hamza Rs.3000 by cheque.
Sale of asset transactions

Jan 19: Sold furniture Rs.10000 for cash.
Jan 20: Sold machinery Rs.10000, received cheque for it.
Jan 21: Sold equipment Rs.15000 received a cheque for it and the cheque was deposited in the bank.
Jan 22: Sold building Rs.500000 on credit/ on account to Nadir
Jan 23: Sold land For Rs.100000. Received cash Rs.10000 and the balance on account to Saqib.
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Receipt from A/c receivable transactions
Jan 24: Received cash from Nadir Rs.300000.
Jan 25: Received a cheque from Saqib Rs.50000.
Jan 26: The cheque Saqib was deposited in the bank.
Receipt of Revenue transactions

Jan 27: Received Rs.3000 for services rendered.
Jan 28: Received a cheque for consulting fee Rs.5000.
Jan 29: Collected Rs.1000 for commission.
Payment of Expenses transactions

Jan 30: Paid wages Rs.5000 cash.
Jan 31: Paid salaries by cheque Rs.10000.
Purchase of merchandise/goods transactions

Feb 1: Purchased merchandise for cash Rs.10000.
Feb 2: Purchased goods for Rs.5000 and issued a cheque for the amount.
Feb 3: Purchased merchandise on account/ on credit from Qaiser Rs.25000.
Feb 4: Purchased goods For Rs.100000, paying cash Rs.50000 and the balance to be paid later.
Return of merchandise to supplier transactions

Feb 5: Returned defective merchandise to Qaiser at invoice Rs 5000.
Feb 6: Returned Inferior goods to Arham at invoice Rs. 10000.
Sale of merchandise/goods transactions

Feb 7: Sold merchandise for cash Rs.15000.
Feb 8: Sold goods for Rs.15000 and received a cheque in payment for the amount.
Feb 9: Sold merchandise on account/on credit to Zaheer Rs.25000.
Feb 10: Sold merchandise for Rs.100000, receiving cash Rs.60000 and the balance to be paid later.
Return of merchandise from customer transactions

Feb 11: Zaheer returned defective merchandise at invoice Rs.2000.
Feb 12: Waseem returned inferior goods at invoice Rs.3000.
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EXERCISE # 1
Problem 2.1: The following transactions were completed by Khurram & Co. during February
2015.
Feb 1: Khurram started business with a cash investment of Rs.100000
Feb 4: Purchased furniture for use in business on credit Rs.25000
Feb 8: Paid rent Rs.10000 in advance.
Feb 10: Returned defective furniture at invoice Rs.1000 to supplier.
Feb 18: Paid salaries expense Rs.5000.
Feb 25: Received commission income in cash Rs.12000.
Feb 28: Paid for utilities bills of Rs.4000.
Required:
Record the above transactions in the General Journal.
Problem 2.2: The following transactions took place during the month of January, 2015 by Mr.
Saad.
Jan 1: Mr. Saad invested cash in business Rs.50000.
Jan 2: Purchased furniture for Cash Rs.10000.
Jan 5: Purchased equipment on account for Rs.15000 from Ali.
Jan 8: Purchased merchandise for cash Rs.12000.
Jan 12: Purchased goods on account from Ahsan Rs.8000.
Jan 15: Sold old furniture for Rs.2000.
Jan 18: Sold equipment on account Rs.3500 to Bilal.
Jan 20: sold goods for cash Rs.10000.
Jan 25: Sold merchandise to Zain for Rs.6000 on credit.
Jan 28: Saad withdrew cash Rs.2000 for private use.
Jan 30: Paid Taxes to Government Rs.4000.
Required:
Record the above transactions in the General Journal.
Problem 2.3: On August 1, 2015. Mr. Ahsan invested Rs.1000000 cash and Equipment worth
Rs.50000 in the business. He also completed the following transactions during the month.
Aug 6: He paid shop rent in advance for one year Rs.120000.
Aug 10: He purchased merchandise for cash Rs.50000 and on account for Rs.10000.
Aug 17: He sold merchandise for cash Rs.21000 and on account for Rs.9000.
Aug 29: He received cash Rs.6000 from customers.
Aug 31: He paid Rs.7000 to supplier.
Aug 31: Ahsan withdrew cash Rs.2000 and supplies priced at Rs.3000 for private use.
Required:
Record the above transactions in the General Journal in standard form.
Problem 2.4: The following transactions were completed by Ahmad Brothers during April, 2015.
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April 2: Proprietor commenced business with cash Rs.50000 and office furniture
Rs.40000
April 5: Deposited cash into bank Rs.30000.
April 7: Purchased merchandise Rs.8000 paid Rs.3000 cash and issued a note for the balance.
April 10: Sold merchandise Rs.12000 received cash Rs.7000 and received a note for the balance.
April 15: Proprietor withdrew cash Rs.6000 and merchandise worth Rs.4000.
April 25: Paid advertising expenses by cheque Rs.4500.
Required:
Record the above transactions in the General Journal in standard form.
Problem 2.5: Mr. Maaz started business on July 1 with cash investment of Rs.500000.
He completed the following transactions in the month of July, 2015.
July 5: He acquired a shop by paying Rs.36000 as advance rent for a year.
July8: Purchased furniture for shop Rs.64000.
July 9: Opened a bank account with HBL Rs.200000
July 10: Purchased merchandise for cash Rs.200000.
July 12: Sold merchandise for cash Rs.150000.
July 15: Purchased merchandise on account from Mr. Zaid Rs.120000.
July 19: Sold merchandise on account to Mr. Obaid Rs.80000
July 23: Paid Rs.100000 to Zaid by cheque.
July 26: Received Rs.50000 from Obaid.
July 28: Paid salaries Rs.10000
July 31: Withdrew cash Rs.15000 for personal use and also withdrew merchandise for
personal use at cost Rs.7000
Required: Record the above transactions in the General Journal in skeleton form.
Problem 2.6: The following transactions were completed by Usman & Co. during the month of
January, 2015.
Jan 1: Commenced business with an investment of cash Rs.50000 and merchandise worth Rs.40000
Jan 2: Purchased merchandise on account from Naeem for Rs.30000 and paid carriage on it
Rs.500.
Jan 4: Purchased shop furniture for cash Rs.4000
Jan 5: Withdrew cash Rs1000 and merchandise worth Rs.500 for personal use.
Jan 8: Cash sales for the day Rs.6000.
Jan 15: Sold merchandise on account to Moin Rs.8000.
Jan 20: Merchandise returned to Naeem worth Rs.2000.
Jan 24: Moin returned inferior goods worth Rs.1000
Jan 26: Received a cheque for Rs.6500 from Moin in full settlement of his account of Rs.7000 and the
cheque was deposited into bank on the same day.
Jan 27: Issued a cheque for Rs.25000 to Naeem in full settlement of his account of Rs.28000
Jan 28: Paid rent expense Rs.3000.
Jan 31: Paid salaries expense Rs.5000 by cheque.
Required:
Record the above transactions in the General Journal
Problem 2.7: Ali traders started business on March 1, 2015 by investing cash Rs.60000 and
Equipment worth Rs.40000. During the month the following transactions were completed.
Mar 5: Purchased merchandise on credit to Imran Rs.40000 and paid cartage on it Rs.2000 cash.
Mar 7: Sold merchandise on account to Irfan Rs.18000 and for cash Rs.12000.
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Mar 10: The customers returned merchandise at price Rs.2000, the merchandise was returned to
suppliers worth Rs.3000.
Mar 15: Issued a cheque for Rs.35500 to Imran in full settlement of his account for Rs.37000
Mar 20: Received cash from Irfan Rs.15000 in full settlement of Rs.16000.
Mar 25: Paid salaries to employees Rs.6000.
Mar 28: Paid for advertising Rs.2000.
Mar 31: Business cash used by proprietor for his personal use Rs.2500.
Required:
Record the above transactions in the General Journal in skeleton form.
ASSIGNMENT # 2
1: State the rules of debit and credit in terms of increase and decrease in the values of assets,
liabilities, proprietorship, revenue and expense.
2: For the following accounts, state whether it is an asset, liabilities, proprietorship, revenue or
expense also state whether they normally have debit or credit balance:
Account Title Nature of Account Normal balance
Debit/Credit
Office equipment Assets Debit
Capital
Cash
Office supplies
Merchandise inventory
Prepaid rent
Account payable
Account receivable
Unearned commission
Bank loan
Salary expense
Furniture
Commission income
Unexpired insurance
Drawing
Bank overdraft
Sales
Purchases
Rent expense
Loan to Ali
Loan from Ahmad
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1. Purchase an asset on account affects:
* Assets account only * Assets and liabilities accounts
* Assets and expenses accounts * Liability accounts only
2. Provisions for bad debts would be recorded in which of the following journals:
*General journal * special journal * sales journal * purchase journal
3. Which of the following is posted to the debit side of the bank account?
* Purchase of the furniture on credit * Payment to supplier by cheque
* Cash withdrew from bank for office use * Direct deposit by customer into bank
4. Income received in advance is recorded as:
* Prepaid account * Accrued account * Unearned income * None of them
5. The act/ process of recording a transaction in a journal:
* Journalizing * Posting * Analyzing *None of the above
6. The general journal is a book of:
* Original entry * second entry * prime entry * All of the above
7. Current liabilities are such obligations which are to be paid within:

* One year * two years * 3 years * Four years
8. Sum of creditor’s equity and owner’s equity is equal to:
* Expense * Assets * liabilities * Revenues
9. Income earned but not received (receivable), is:
* Expense * Assets * liability * Revenues
10. Income received but not earned (unearned), is known as:
* Expense * Assets * liability * Revenues
11. Which of the following describes assets:
* Sale of furniture on credit * Sale of furniture for cash
* Depositing cash into bank * Payment of account payable by cheque
12. These best describes assets:
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* Cash, Account receivable, bank overdrafts *Cash, Note receivable, unearned commission
*Cash, Prepaid expenses, interest receivable * None of these
13. The excess of assets over liabilities is:
* Income * Expense * Capital * liabilities
14. The excess of assets over capital is:
* Income * Expense * Capital * liabilities
15. What effect a transaction of cash deposited into bank will have on accounting equation:
* Positive * No effect * Negative * None of these
16. Which of the following accounts will be affected by a transaction of credit sales?
* A/c receivable and sales * A/c payable and sales
*Cash and sales * Sales only
17. The term revenue can be described as:
* Amount received from merchandise sold
* receipts from merchandise sold
* Income from sale of merchandise and rendering services
* Receipts from customers
18. An entry which has more than one debits or more than one credit is called:
* Double entry * Single entry * Simple entry * Compound entry
19. A Purchases account is:
* Asset * Liability *Expense *Revenue
20. Sales is best described by:
* Sale of all items * sale of merchandise
* sale of machinery * Sale of old furniture
21. Cash withdrawn by a proprietor for personal use is called:
* Gift * Drawing * Investment * None of these
22. Which of the following is not an asset:
* Cash * Notes receivable * Unearned rent * Building
23. Which of the following is a liability:
* Machinery * Sales * Notes payable * Account receivable
24. This is the set of current assets:
* Cash+ Building * Cash+ Loan * Cash + Loan * Cash+ Bank
25. Purchases are best described as:
* Purchases of furniture for use in business * Purchases of supplies for use in office
* Purchases of merchandise for resale *Purchases of computer for owner’s use
26. It is not an asset:
* Cash * Unexpired rent * Unearned commission * A/c receivable
27. The act of recording a transaction in General journal is called:
* Posting * Narration * Closing * Journalizing
28. Which of the accounts should be debited for recording advance payment of rent?
* Rent expense account * Rent payable account
* Prepaid rent account * Unearned rent account
29. This account normally has a debit balance
*Account payable * Supplies * Unearned commission * Capital
30. If the seller reduces the prices of goods after shipment due to defective goods, this reduction
in price is called:
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* Sales return and allowance * Sales discount
* Purchase return and allowance * Quantity discount
31. Narration is written:
* in between the entries *above the entry
* below the entry * anywhere
32. Account payable and income tax payable are:
* Current liability * Equity * Fixed assets * Long term liability
33. Prepayment is initially recorded as
* Expense or liability * Asset or income
* Asset or expense *Asset or liability
34. Sales is best described as:
*Only cash sales of merchandise * Cash and credit sales of merchandise
* Sale of any asset on cash * Sale of any asset on credit
35. If the company’s policy is to record advance payment as an asset, Payment of insurance
premium will be recorded as
* Prepaid insurance * Insurance expense
* Insurance payable * Unearned insurance
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3. THE LEDGER AND TRIAL BALANCE

• Sequence of accounts in the ledger and Trial balance
• Posting to skeleton T accounts.
• Pencil footing & balancing
• Pre closing trial balance
LEDGER
A ledger is another basic record of accounting which contains all the individual accounts maintained by
a business.
A ledger is created by the process of posting of Dr. & Cr. amounts from the General Journal or the
special journal accounts in the ledger.
Forms of ‘T’ account:
1. Skeleton form of T/account:

Date Dr Date Cr.
1. Standard form of T/account:
Date Explanation P.R Dr. Date Explanation P.R Cr.
2. Self Balancing form
Date Explanation P.R Dr. Cr. Balance
Ledger posting
Posting means the process of transfer of Dr. & Cr. amounts from the General Journal to relevant
account in the ledger.
Footing & Balancing

Footing is totaling the Dr. & Cr. amounts entered in an account.
Balancing is determining the difference between total Dr. & total Cr. amounts of an account.
DEBIT BALANCE
If the total Dr. amount of an account is more than the total Cr. amount, the account is known to have
a Dr. balance
CREDIT BALANCE
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If the total Cr. amount of an account is more than the total Dr. amount, the account is known to have
a Cr. Balance.
NIL BALANCE:
If the total Dr. amount of an account is just equal to its total Cr. amount, the account is said to have a
Nil balance.
Trial Balance
It is a test of equality between Dr. & Cr. balances of the ledger accounts
Purpose
The purpose of a trial balance is to arrange the account balances in proper manner & to test the
equality of Dr. & Cr. balances of the ledger accounts.
Weaknesses
1. A trial balance does not prove the accuracy of the account balances.
2. A trial balance may tally despite errors of amount, omission, & account titles etc.
3. A Pre - Closing trail balance does not represent the up to date balances of the accounts.
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EXERCISE # 1
Problem 3.1: On March 1, 2015 Majid started business with a cash investment of Rs.80000. He
completed the following transactions during the month.
Mar 4: Purchased merchandise on account from Ahmad Rs.40000.
Mar 8: Sold merchandise for cash Rs.8000 and on credit to Bashir Rs.15000.
Mar 15: Paid cash to Ahmad Rs.10000.
Mar 20: Received cash from Bashir Rs.7000.
Mar 28: Paid office rent Rs.12000.
Required:
(a) Record the above transactions in a General journal.
(b) Post the entries from the Journal into the ledger using skeleton ‘T’ accounts.
(c) Balance the accounts and prepare pre-closing Trial Balance on March 31, 2015.
Problem 3.3: The following transactions were completed by Khurram & Co. during February, 2015.
Feb 2: Khurram started business with a cash investment of Rs.100000.
Feb 9: Purchased furniture for use in business on account Rs.25000.
Feb 12: Returned defective furniture worth Rs.2000 to supplier.
Feb 15: Paid salaries expense Rs.5000.
Feb 25: Received commission income Rs.12000
Feb 28: Paid utilities bills Rs.3000.
Required:
(a) Record the above transactions in a General journal in standard form.
(b) Enter the above transactions in the ledger accounts in skeleton ‘T’ form
(c) Foot and balance the accounts in Pencil.
(d) Prepare a trial balance on February 28.
Problem 3.4: The following are balances taken from the ledger of Ali brothers on March 31, 2015.
Cash ?, Account receivable 10000, Merchandise inventory 6500, sales 45000, Prepaid rent 4000,
Purchase discount 1500, Service income 4000, Office equipment 10000, Account payable 4000,
Purchases 20000, Supplies expense 1500, Salaries expense 14000, Miscellaneous expense 1500,
Sales return & all. 2000, Capital 30000.
Required:
Prepare a trial balance with proper heading, arranging the accounts in sequence
Problem 3.5: Following are the ‘T’ accounts with dated entries in the ledger
maintained by Javed traders:
Cash
Jan 1, 2015 50000 Jan 20, 2015 1000

Jan 25, 2015 3000
Capital-Jawed
Jan 1, 2015 50000

Purchases
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Jan 4, 2015 5000

Account Payable-Ahmad
Jan 4, 2015 5000
Jan 25, 2015 1000
Account Receivable-Mansoor
Jan 15, 2015 4000
Sales
Jan 15, 2015 4000
Prepaid rent
Jan 20, 2015 1000
Office supplies
Jan 25, 2015 4000
Required:
With the help of the above ledger information, prepare a general journal in standard form.
Problem 3.6: On December 31, 2014 the ledger of Naveed Hashmi Traders show the following
balances after closing process: Cash Rs.64000, Merchandise inventory Rs.136000, account payable
Rs.20000, Capital Rs.180000
During the month of January 2015, he made the following entries in his journal:
Naveed Hashmi Traders
General Journal page # 9
Date Particulars P.R Debit Credit
Jan 2 Account payable 14000
Cash 14000
Jan 5 Purchases 17500
Account payable 10000
Cash 7500
Jan 11 Cash 12000
Sales 12000
Jan 18 Account payable 2800
Purchases returns & allowances 2800
Jan 26 Rent expense 14000
Cash 14000
Required:
Maintain Cash account # 11 and Account payable # 21 in the general ledger.
Problem 3.7: The following balances appeared in the accounts of Raza Traders on April 1, 2015:
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Bank Rs.220000, Office supplies Rs.2000, Office equipment Rs.32000, Advertising Payable Rs.2000,
Raza Capital Rs.?
The transactions completed during the month were as follows:
April 1: Purchased office equipment on credit from A.B. & Co. Rs.10000.
5: Returned office equipment purchased on 1st April Rs.2000.
15: Issued cheque in payment of account payable Rs.5000.
20: Received consulting fee income and deposited in Bank Rs.1900
25: Issued cheque against advertising payable Rs.1500.
Required:
(a) Compute Raza capital on April 1.
(b) Prepare trial balance on April 30

1. A Ledger is :
*A process of accounting
* A book of original entry
* A secondary record of accounting / A book of second entry
* None of the above
2. The posting is :
* Placing debit and Credit amounts
* Transferring Debit and Credit amounts from a general journal to relevant accounts in a
ledger.
* A record of accounting
* None of the above
3. The process of posting creates which of the following record?
* A General Journal * A Ledger * A purchases Journal * All of the above
4. The process of journalizing creates which of the following record?
* A sales journal * A Ledger * A General Journal * All of the above
5. The process of pencil footing involves:
* Totaling amounts of individual accounts.
* Totaling debit and credit amounts of individual ledger accounts
* Only pencil working
* None of the above
6. The pencil balancing involves:
* Updating the Ledger accounts.
* Determining the difference between total debit amounts and total credit amounts of an
account.
* Finding present status of the Ledger accounts
* None of the above
7. If total debit amount in an account is more than its total credit amount, the account is said to
have:
* A debit balance * A credit balance * A nil balance * None of the above
8. If total credit amount in an account exceeds its total debit amount, the account is said to
have:
ACCOUNTING: XI
PAGE: 24
* A debit balance * A nil balance * A credit balance * None of the above
9. If total credit amount in an account is just equal to its total debit amount, the account is said
to have:
* A credit balance * A debit balance * A nil balance * None of the above
10. Which of the following accounts has normally a debit balance?
* Allowance for Bad Debts * Accounts Receivable
* Accounts Payable * Unearned Rent Income
11. Which of the following accounts has normally a credit balance?
* Allowance for Depreciation * Equipment
* Prepaid Insurance Expense * Sales Discount
12. Which of the following accounts has normally a debit balance?
* Purchases Discount * Sales Discount
* Purchases Returns and Allowances * Notes Payable
13. Trial balance can be described as:

* A part of financial statements * A record of financial performance of the business
* A list of a ledger account balances * A statement of financial position of the business
14. The purpose of a trial balance is to;
* Show financial position of business * Show profitability of business
* Test the equality of debit and credit balances of the ledger accounts
* All of the above
15. In a trial balance the balance of purchases account will be shown in which of the following
columns:
* Debit column * Credit column * Both * None of them
16. A trial balance proves that:
* Business bank balance is correct
* Business has earned a profit or incurred a loss
* Accounting record is free from errors
* The total debit balances are equal to the total credit balances of the ledger accounts
17. In a pre-closing trial balance, drawing account balance is shown in:
* Debit column * Credit column
* Not shown in pre-closing trial balance * None of the above
18. In a pre-closing trial balance, expense accounts are shown in;
* Debit column * Credit column
* Not shown in pre-closing trial balance * None of the above
19. Footing is made just:
* After recording * after balancing
* Before balancing * before recording
20. The term ‘Balancing means:
* to tally both sides of a trial balance
* Tally both sides of a trial balance
* Reconcile cash book and bank statement balance
* Calculate and write account balances
21. A ledger consists of:
ACCOUNTING: XI
PAGE: 25
* Financial statements * Journal entries
* Special journal * All ledger accounts maintained by a business.
22. List of balances of accounts having debit and credit balances is called:
* Special journal * General Journal * General ledger * Trial balance
23. The act of totaling of money column of an account is called:
* Posting * Ruling * Footing * Balancing
24. Posting means:

* making an entry in general journal
* Making an entry in special journal
* Transferring an entry from a journal to ledger account
* determining balance of an account
4. ACCOUNTING FOR CASH

(PETTY CASH BOOK)
PETTY CASH BOOK:
Petty means small. A petty cash book is used to record only petty (small) expenses.
A petty cash book is maintained by a business for recording routine small payments of expenses.
This book is maintained in addition to cash book or cash receipts & payments journals.
ABC Sundri
es
PETT
Y Transp
–
CASH ortatio
n
BOO
Conve
K –
yance
ACCOUNTING: XI
PAGE: 26
Entert
–
ainme
nt
Postag
e
Statio
n– ary
Cash
Cr.
Vouch
er No.
Partic
ulars
Date
Cash
Dr.
ACCOUNTING: XI
PAGE: 27
EXERCISE # 1
Problem 4.1: Bilal traders established Petty Cash Fund imprest system by issuing a cheque of Rs.1800
on January 1, 2015. The following payments were made during the month from the fund:
Jan 2: Paid for bus fare Rs.15
Jan 4: Paid for entertainment Rs.75
Jan 7: Paid for postage stamps Rs.45
Jan 9: paid for transportation Rs.100
Jan 12: Paid for taxi fare Rs.300
Jan 15: Paid for paper, ink etc. Rs.80
Jan 17: Paid for repairs to typewriter Rs.110
Jan 20: Paid for rubber stamp Rs.40
Jan 22: Paid for taxi fare Rs.90
Jan 23: Paid for freight Rs.105
Jan 25: Paid advance to chowkidar Rs.300
Jan 29: Paid for V.P.P. (via post parcel) received Rs.150
Required:
(a) Prepare an analytical Petty Cash Book under imprest system. Balance the Petty Cash Book on
January 31, 2015.
(b) Pass the journal entries:
(i) For establishment of Petty Cash Fund.
(ii) Expenses paid from Petty Cash Fund.
(iii) For Replenishment of Petty Cash Fund
Problem 4.2:
(a) From the following transactions prepare an analytical Petty Cash Book under Imprest System.
Balance the Petty Cash Book on august 31, 2015.
Aug 1: A cheque for Rs. 1,800 received from the accountant for petty payments.
Aug 2: Paid for rickshaw fare Rs.75
Aug 5: Paid for entertainment Rs.63
Aug 8: Paid for postage stamps Rs.32
Aug 10: Paid for transporting Rs.90
Aug 16: Paid for repairs to furniture Rs.80
Aug 18: Paid for TCS charges Rs.35
ACCOUNTING: XI
PAGE: 28
Aug 20: Paid for paper, ink etc. Rs.80
Aug 22: Paid for V.P.P. Rs.65
Aug 26: Paid for rubber stamp Rs.40
Aug 30: Paid for Taxi fare Rs.60
(b) Prepare journal entries to record
(i) Establishment of Petty Cash Fund.
(ii) Expenditure of Petty Cash Fund.
(iii) Replenishment of Petty Cash Fund
Problem 4.3: A firm completed the following petty cash transactions during February of the current
year.
Feb 1: Issued a cheque for Rs.1500 to petty cashier for establishing a petty cash fund.
Feb 3: Purchased computer paper for Rs.288.
Feb 6: Paid Rs.56 delivery expenses and Rs.30 wages on merchandise purchased.
Feb 9: Paid Rs.75 parcel post charges.
Feb 12: Paid Rs.200 to the son of the proprietor from petty cash for personal use.
Feb 18: Paid Rs.95 delivery expenses on merchandise purchased.
Feb 22: Paid a service station for servicing the personal car of the proprietor Rs.75.
Feb 25: Paid delivery expenses Rs.155
Feb 26: Paid Rs.445 for the repair of computer.
Feb 28: Paid for entertainment Rs.55
Required:
(a) Prepare Petty Cash Book having five categories of accounts: Office Supplies, delivery Expenses,
Postage, and Miscellaneous expenses.
(b) Prepare journal entries
ASSIGNMENT # 2
Problem 4.4: Salim Traders established Petty Cash Fund on imprest system by issuing a cheque of
Rs.2000 on Oct 1, 2015. The following payments were made during the month from the fund.
Oct. 1 Paid for entertainment Rs.70.
5 Purchased papers, file covers etc. Rs.180.
6 Paid for rikshaw fare Rs.35.
8 Paid for repair charges key board Rs.25.
10 Paid for tea & Cold drinks Rs.90.
13 Paid for floppy disk Rs.110.
17 Paid for repair of AC Rs.150.
20 Paid for taxi fare Rs.130.
22 Purchased ink, markers, Rs.120.
25 Advance to guard Rs.100.
28 Paid gas bill Rs.120.
30 Paid fax charges Rs.90.
31 Paid for postage stamps Rs.80.
ACCOUNTING: XI
PAGE: 29
Required:
(a) Prepare an analytical Petty Cash Book under imprest system. Balance the Petty Cash Book on
October 31, 2015.
(ii) For expenditure of Petty Cash Fund.
Problem 4.5: Khan Traders established Petty Cash Fund on imprest system by issuing a cheque of Rs.
2500 on May 1, 2015. The following payments were made during the month from the fund.
May 1 Paid for cold drinks and etc. Rs.90
7 Paid for cab fare Rs.35.
13 Purchased CDs Rs.110.
17 Paid for repair to AC Rs.150.
20 Paid for taxi fare Rs.130.
22 Purchased ink, markers, Rs.120.
30 Paid fax charges Rs.110.
31 Paid for postage stamps Rs.80.
Required:
(a) Prepare an analytical Petty Cash Book under imprest system. Balance the Petty Cash Book on May
31, 2015.
(ii) For expenditure of Petty Cash Fund.

1. Petty cash book is a book:
* Of small size * used for small payments
* used for small receipts * used in small business
2. Under imprest system of Petty cash book, the petty cash fund is reimbursed on:
* Annual basis * Quarterly basis * Daily basis * Monthly basis
3. An accounting book used for small expenses recording is called:
* Cash book * Petty cash book * Journal * Ledger
4. Petty cash book summarizes small expenses into:
* One head * receipt and payment
* few heads * none of these
5. Petty cash fund is usually maintained by :
* Bank * proprietor * cashier * none of these
6. The closing balance of petty cash is considered as :
* liability * asset * expenses * income
ACCOUNTING: XI
PAGE: 30

(CASH BOOK)
CASH BOOK
Cash book is also a special journal and book of original entry. It is used for recording cash receipt &
payment transactions. It is known as a three column cash book because it has three money columns
on both sides: Receipts & Payments
The cash book is prepared using the double entry system of accounting.
Contra Entry is particular with cash book. Contra means opposite. Therefore, the entry which is
simultaneously recorded on the both sides (opposite sides) of the cash book is known as a contra
entry.
Cases in which contra entry is made are as follows:
1. Business cash deposited into bank account or Open an account with a bank
2. Business cash withdrawn from bank account for business use.
3. Cheque received in past date whenever is deposited into bank.
4. Cheque issued to supplier wrongly entered in cash column.
Bank
ABC (Cr.)
Cash
CASH (Cr.)
Purchas
BOOK e
Discoun
t
P/R
Paymen
ts
Date
Bank
(Dr.)
Cash
(Dr.)
Sales
Discount
P/R
ACCOUNTING: XI
PAGE: 31
Receipts
Date
EXERCISE # 1
Problem 5.1: Mr. Talha a sole trader uses a three column cash book for his business. On February 1,
2015 he has cash on hand Rs.25000 and cash in bank Rs.35000. During the month he completed the
following transactions:
Feb 4: Received a cheque for Rs.9900 from Saqib in full settlement of his account of Rs.9990
Feb 7: Deposited Saqib’s cheque into the bank.
Feb 15: Issued a cheque for Rs.5500 to Bilal in full settlement of his account Rs.5550.
Feb 21: Deposited cash into bank Rs.1000.
Feb 23: Withdrew cash Rs.3000 from bank for personal use.
Feb 24: withdrew Rs.5000 from bank for office use.
Feb 28: Paid salaries Rs.6000 in cash.
ACCOUNTING: XI
PAGE: 32
Required:
(a) Enter the opening balances and record the above transactions in a three column cash book.
(b) Balance the cash book on Feb 28, 2015 bringing down the cash and bank balances on March 1,
2015.
(c) Set up T-accounts for sales discount and purchase discount and make postings to these accounts.
Problem 5.2: Mr. Arif uses a three column cash book. On November 1, 2015 he had cash in hand
Rs.200000 and cash at bank Rs.220000. He completed the following transactions:
Nov 3: Issued a cheque to Mr.Bilal for Rs.48000 in full settlement of Rs.49000
Nov 10: Received a cheque from Mr.Hamza Rs.18000 in full settlement of Rs.20000 and deposited the
cheque into bank on the same day.
Nov 18: Sold merchandise on account for Rs.20000 to Mr. Sadiq.
Nov 23: Withdrew cash from bank for office use Rs.20000.
Nov 30: Paid salaries by cheque Rs.5000.
Required:
(i) Record the above transactions in three column cash book.
(ii) Balance the cash book on November 30, 2015.
Problem 5.3: The following are cash transactions relating to the business of Kamran Enterprises for
April, 2015.
April 5: Mr. Kamran invested cash Rs.50000 in business.
April 11: Received a cheque for Rs. 19500 from a customer and allowed him discount of Rs.500
April 16: Deposited customer’s cheque into the bank.
April 20: Issued a cheque for Rs.9800 to a supplier in full settlement of the account payable of
Rs.10000
April 25: Withdrew cash from bank for office use Rs.5000
April 30: Paid salaries for the month Rs.6000 in cash.
Required:
(i) Record the above transactions in three column cash book.
(ii) Balance the cash book on April 30, 2015 and bringing down the balances on May 1.
Problem 5.4: M/S Jawaid & Co. uses a three column cash book in their business. On March 1, 2015
they had cash in hand Rs.50000 and cash at bank Rs.90000. Following transactions were completed by
them during March.
March 5: Sold merchandise for cash Rs. 36000.
March 10: Received a cheque from Younus forRs.24500 in full settlement of Rs.25000. The cheque was
deposited into the bank on same day.
March 15: paid cash to Muneer Rs.22700 in full settlement of his account of Rs.23000.
March 17: the cheque of Younus was dishonored by bank.
March 26: Withdrew from Bank Rs.2000 to pay residential flat’s rent and Rs.6000 for office rent.
ACCOUNTING: XI
PAGE: 33
Required: Prepare a three column cash book. Balance it on March 31 and bring down the balances as
on April 1, 2015.
Problem 5.6: On April 1, 2015 Mr.Inam has the balances of cash and at bank Rs.25000 and Rs.50000
respectively. He completed the following transactions during the month.
April 2: Purchased furniture for cash Rs.7000
April 3: Cash sales Rs.5000 of which Rs.2000 were deposited into bank.
April 8: Purchased merchandise worth Rs.9000. Giving Rs.4000 cash and the balance by cheque.
April 9: Bought office supplies cash Rs.1000
April 11: Sold merchandise worth Rs.4000.
April 13: Paid to supplier by cheque Rs.6000 in full settlement of his account of Rs.6200
April 16: Deposited cash into Bank Rs.9000
April 19: Advice received from Bank that a customer has directly deposited Rs.4000 into bank.
April 21: Withdrew from bank Rs.1500 for personal use.
April 22: Received cash Rs.6585from Mr.Fahad in full settlement of Rs.6700
April 23: Paid salaries Rs.8000 cash
April 26: Paid rent for the month by cheque Rs.4000.
Required:
(a) Record the above transactions in a three column cash book.
(b) Balance the cash book on 30-4-2015 and show the opening balances on May 1, 2015.
(c) Set up T-accounts for sales discount no. 4003 and purchase discount no. 5003 and post the totals
therein.
Problem 5.7: On March, 2015 Mr.Aslam started a business with a cash investment of Rs.15000 and
completed the following transactions during the month:
March 2: Purchased merchandise for cash Rs.5000
March 3: Opened a bank account with Rs.5000
March 4: Cash sales Rs.2000
March 7: Purchased office supplies for cash Rs.1500
March 10: Sold merchandise on account Rs.3000.
March 11: Paid to supplier by cheque Rs.770 in full settlement of his account of Rs.800
March 13: Deposited cash into Bank Rs.3000
March 15: Advice received from bank that a customer has deposited Rs.3000 direct into bank.
March 18: Withdrew from bank for office use Rs.1000.
March 20: The proprietor purchased office equipment for cash Rs.3000 for business use from his own
pocket.
March 23: Received cash Rs.3850 from Mr.Babar in full settlement of Rs.4000 and deposited into bank.
March 25: Paid salaries by cheque Rs.6000.
March 30: Paid rent for the month by cheque Rs.3000
March 31: Cash is short by Rs.100.
Required:
(a) Record the above transactions in a three column cash book.
(b) Balance the cash book on 31-3-2015 and show the opening balances on April 1, 2015.
ACCOUNTING: XI
PAGE: 34
(c) Set up T-accounts for sales discount no. 4003 and purchase discount no. 5003 and post the totals
therein.
Problem 5.8: Mr. Shehzad uses a three column cash book. On April 1, 2015 he had cash in hand
Rs.40000 and the balance at bank Rs.50000 (Bank overdraft). During the month he completed the
following transactions.
April 1: Cash sales Rs.60000.
April 3: Received a cheque for Rs. 15000 from a customer Rashid, deposit into bank in full settlement
of his account of Rs.16000.
April 5: Mr. Ahsan settled his account of Rs.18000 after a discount of Rs.1000 through cheque.
April 9: Deposited Mr.Ahsan‘s cheque into Bank.
April 18: Paid salaries by cheque Rs.11000.
April 25: Drew cash for personal use Rs.1000.
April 30: Drew from bank for office use Rs.4000.
Required:
Set up a three column cash book and record the above transactions.

1. In cash book Purchase discount is shown on:
* Receipt side of cash book * Payment side of cash book
* Petty cash book * Trial balance
2. Contra entries are recorded on which side of a cash book:
* Receipts side * Payments side
* Both sides of a cash book * None of the above
3. Every transaction recorded in the cash receipts side of cash book results in a/an
* Decrease in cash * Increase in accounts receivable
* increase in cash * Increase in sales
4. Sales discount is a;
* Revenue account * Expense account
* Contra assets account * Contra revenue account
5. Purchases discount is a:
* Contra revenue account * Contra purchase account
* Contra asset account * None of these
6. If cash was found over by 50 would be recorded on the side of:
* Receipts side of the cash book * Both side of the cash book
* Payments side of the cash book * None of the above
7. If cash was found short by 20, would be recorded on the:
* Receipts side of the cash book * Payments side of the cash book
* Both side of the cash book * None of the above
8. Opening balances of cash on hand and cash at bank would be entered in:
* Right side of the cash book * Left side of the cash book
* Both sides of the cash book * None of the above
ACCOUNTING: XI
PAGE: 35
9. Beginning balance of overdraft would be recorded in the bank column on:
* Left side of cash book * Right side of cash book
* Both side of cash book * None of these
10. Bank overdraft means
* Cash deposited into bank *Withdrawal of cash from bank in excess of bank balance
* Withdrawal from bank * Excess amount withdrew from personal bank account
11. Cash book is generally known as:
* Three column cash book * A six columns cash book
* A multi column cash book * None of the above
12. A Credit transaction is recorded in a cash book on:
* Right side * Left side
* Both side * Not recorded in cash book
13. Which of the transactions require a contra entry?
* Cash sales * Deposited cash into bank
* Withdrew for personal use * Paid office rent by cheque
14. Cash book is usually maintained for:
* A Month * A Year * A Week * A Day
15. Withdrew for office use from bank will be recorded on:
* Right side of cash book * Left side of cash book
* Both side of cash book * None of the above
16. A cash book may be called a three column cash book due to the three columns namely:
* Date, particulars, P.R * Discount, cash, bank
* Date, cash, bank * Sales discount, purchase discount, Cash
17. Cash book is used to record only:
* Credit transactions * Cash transactions
* Cash and credit transactions * None of these
18. Cash book serves the purpose of:
* Journal * Ledger * Trial balance * Financial statement
ACCOUNTING: XI
PAGE: 36

(BANK RECONCILIATION STATEMENT)
INTRODUCTION
Bank Reconciliation Statement is a statement which contains a complete and satisfactory explanation
of the differences between the balance as per the Cash Book and Bank Statement. It is just a
procedure to reconcile the Cash Book balance with that of bank statement balance.
It should also be noted that
It may also be prepared at the end of every week or every quarter.
CAUSES OF DIFFERENCE B/W THE BALANCE AS PER CASH BOOK

AND BANK STATEMENT:
The differences between the two balances arise from the following normal causes:
1. TIMING: There may be a time gap between recording transactions in the business cash record
and bank’s book. The checks issued and the deposited are recorded immediately by the
business where as the bank will record only when the same are paid or cleared
2. ERRORS: Some differences may arise due to errors committed either by the bank or by the
business accountant.
3. Transaction difference: The bank may fail to intimate the performance of certain transactions
on behalf of the accountholder.
FOR PREPARING BANK RECONCILIATION STATEMENT
Following differences be added to the Bank Statement balance.
1. Cheques deposited by the business but not cleared, or un-cleared cheques, or un credited cheques
or cash deposits in transit not shown in bank statement
2. Deposit of cash or cheques amount understated by the bank: only the difference of amount be
added
3. The amount of cheques issued if over-stated by the bank: only the difference of amount be added
Following differences will be deducted from the balance of bank

statement.
1. The amount of cheques issued but not shown in Bank Statement or outstanding cheques or un
debited or un presented cheques or unpaid cheques.
2. Deposit of cash or cheques amount over stated by the bank: only the difference of amount be
deducted
3. The amount of cheques issued is under stated by the bank: only the difference of amount will be
deducted .
ACCOUNTING: XI
PAGE: 37
Following differences will be added to the balance of cash book.
1. Cheques deposited into bank but not shown in cash book.
2. Deposit of cash or cheques amount under stated by the Co.: only the difference of amount be added
3. The amount of cheques issued is over stated by the Co.: only the difference of amount be added
4. Direct deposit by customers will be added.
5. Amount borrowed not recorded in Cash book
6. Promissory Notes or Bills of exchange, dividend collected, or interest / mark up credited by bank but
not record in Cash book.
Following differences will be deducted from the balance of cash book.

1. Cheques issued but not recorded in cash book.
2. Deposit of cash or cheques amount over stated by the Co.: only the difference of amount be
deducted
3. The amount of cheques issued is under stated by the Co.: only the difference of amount be
deducted
4. Bank charges, collection charges, Zakat deduction, interest/ mark up on loan, debited by bank but
not record in cash book
5. Promissory Note / Bills of exchange directly paid by bank but not record in cash book
6. N.S.F cheques or dishonored cheques.
Adjusting entries in respect of Bank Reconciliation Statement are made only of those transactions
which are recorded by the bank but are not recorded in the firm’s books. Because, the cash book is
closed prior to preparing the reconciliation statement, no further entries can be recorded in the cash
book.
BALANCES:
Cash book (Dr.) Balance = Positive (+)
Cash book (Cr.) Balance = Negative (-)
Pass book/ Bank statement (Cr.) Balance = Positive (+)
Pass book/ Bank statement (Dr.) Balance = Negative (-)
Overdraft Balance of Cash book/ Pass book/ Bank statement = Negative (-) i.e overdraft
Reconciliation is a process of removing differences that normally exist between the balance as per
cash book and the balance as per bank statement on a specific dat. The statement so prepared by
removing and reasoning out differences from the two balances is known as Bank Reconciliation
Statement.
After removing all the differences from the opening balances of the two records the balances obtained
are known as corrected or adjusted balance. The corrected balances are normally in agreement.
ACCOUNTING: XI
PAGE: 38
ACCOUNTING: XI
PAGE: 39
EXERCISE # 1
Problem 6.1: Comparison of cash book and bank statement of Khalid traders revealed the following
information:
(i) Balance as per cash book 12000
(ii) Balance as per Bank statement 37000
(iii) Cheques deposited but not shown in Bank statement 15000
(iv) Cheques issued but not presented at bank 32000
(v) Direct deposit by a customer in bank 8000
(vi) Dishonoured cheque 1500
(vii) Bank service charges 500
(viii) Profit given by bank 2000
Required:
Prepare the Bank Reconciliation statement on December 31, 2015.
Problem 6.2: Prepare bank reconciliation statement from the following information as on Dec 31,
2015 of Anas Brothers.
(i) Balance as per cash book 35000
(ii) Balance as per Bank statement 26000
(iii) Dishonored cheque of Shahid & Co. 21250
(iv) Uncleared cheque 11950
(v) Cash deposited on Dec 31, 2015 not shown at bank statement 10000
(vi) Collection of notes Receivable not recorded in cash book 6000
(vii) Direct deposit by a customer not recorded in cash book 6000
(viii) Unpresented cheques 21950
(ix) Collection charges debited by bank but not recorded in cash book 30
(x) Mark up credited by bank but not recorded in cash book 280
Problem 6.3: On comparison of the cash book (Bank column) with its bank statement of Aslam traders
for the month of July, 2015 revealed the following:
(i) Balance as per bank statement on July 31, 2015 was 57000
(ii) Balance as per Cash book on July 31, 2015 was 43000
(iii) Cheques issued during July 2015 but not presented 15000
(iv) Bank charges not entered in cash book 500
(v) Locker rent debited by bank not recorded in cash book 3500
(vi) Tax debited by bank not recorded in cash book 150
(vii) Cheques deposited on July 30, 2015 not shown in bank statement 5000
(viii) Direct deposit by a customer 6650
(ix) Profit was given by the bank 1500
Required:
Prepare the Bank Reconciliation statement on July 31, 2015.
ACCOUNTING: XI
PAGE: 40
Problem 6.4: A comparison of the cash book of Rizwan Corporation with its bank statement for
January, 2015 revealed the following:
(i) Balance as per cash book Rs.24000
(ii) Balance as per bank statement Rs.9000
(iii) Late deposit not shown in bank statement Rs.8000
(iv) Outstanding cheque Rs.2200
(v) Direct deposit by a customer not recorded in cash book Rs.3000
(vi) Dishonored cheque Rs.14000
(vii) Profit credited by the bank, not recorded in cash book Rs.2000
(viii) Withholding tax debited by bank not credited to cash book Rs.200
Required:
Prepare the Bank Reconciliation statement on January 31, 2015.
Problem 6.5: The cash transactions and cash balances of Mehran Company for April, 2015 are
summarized below:
(i) On April 30, Cash book showed balance of Rs.7059.12 and balance as per Bank statement was
Rs.6678.67
(ii) Cash receipt of Rs.2187.03 on April 30 was not recorded by bank.
(iii) The following memoranda accompanied the Bank statement
(a) Debit memo for service charges Rs.7.56
(b) Debit memo for a cheque of Haroon marked NSF Rs.149.88.
(c) Credit memo for Rs.1452 representing the process for non-interest bearing a note
collected by bank for ABC Company. The note was for Rs.1464. The bank deducted
collection charges of Rs.12.
(iv) The following cheques had been issued but were still not presented for payment.
No.348 for Rs.302.40, No.351 for Rs.124.32, No.356 for Rs.85.30
Required:
(a) Prepare the Bank Reconciliation statement on April 30, 2015.
(b) Prepare necessary adjusting entries in General Journal of Mehran Company
Problem 6.6: On December 31, 2015 the cash book of Karim showed a debit balance (Bank column) of
Rs.12500. On this date Balance as per bank statement was Rs.13426. The following items of
disagreement were discovered:-
(i) The bank debited the account by bank charges amounting to Rs.15. Likewise the bank paid
Rs.100 for insurance premium on behalf of Karim but the item was not recorded in the cash
book
(ii) Cheques were deposited totaling Rs.4000 but cheques totaling Rs.3000 only were cleared.
(iii) Cheques totaling Rs.5000 were issued but cheques totaling Rs.3000 only were presented to the
bank.
(iv) The bank credited the account of Rs.50 for interest. This was not recorded in the cash book.
ACCOUNTING: XI
PAGE: 41
(v) A cheque of Rs.266 issued to Saleem was presented and paid but it was recorded in the cash
book as Rs.257.
Required:
(a) Prepare the Bank Reconciliation statement on December 31, 2015.
(b) Prepare necessary adjusting entries in General Journal
Problem 6.7: On April 30, 2015 the following information is collected for the preparation of bank
reconciliation statement of Yousuf brothers.
(i) The balances of April 30, 2015 as per bank statement is Rs.75000 the cash book shows a
balance of Rs.99000
(ii) Uncleared cheque of Rs.30000
(iii) Cheque for Rs.20000 issued but not presented for payment in the bank
(iv) Cheque No.3456 for Rs.58000 issued for advertisement expense was recorded in the cash book
as Rs.85000
(v) A customer’s cheque for Rs.30000 was returned with the bank statement marked N.S.F.
(vi) A payment made to Usman & Co. for Rs.10900 after deduction of discount of Rs.100 online but
not recorded in the cash book
(vii) Withholding tax on cash withdrawals Rs.100 shown in the bank statement
Required:
(b) Prepare necessary adjusting entries in General Journal
Problem 6.8: A comparison of cash book and bank statement of Ather & Co revealed the following
information:
(i) Cheques deposit of Rs.16000 but not shown in bank statement.
(ii) Cheque issued of Rs.20000 but not presented at the bank
(iii) Direct deposit by customer Rs.14000 in bank
(iv) Dishonored cheque Rs.8500
(v) Bank service charges Rs.1000
(vi) Markup credited by bank Rs.500
(vii) A cheque for Rs.4050 issued to supplier was wrongly recorded in cash book as Rs.40500
(viii) A cheque for Rs.25700 was deposited to bank entered in the company’s record as 27500
Required:
A schedule of added to and deducted from cash book balance..
Problem 6.9: On Jan 31, 2015 the cash book of Zaheer showed a bank balance of Rs.5750 and Bank
statement showed a debit balance (overdrafts) of Rs.3500. On comparing the following differences
were revealed:
(i) A Cheque for Rs.16500 was deposited into the bank but not shown in the bank statement.
(ii) A Cheque drawn for RS.6000 was entered in cash book but not presented at the bank for
payment.
(iii) Accompanying the bank statement a cheque for Rs.150 returned unpaid.
(iv) Rs.1500 being the proceeds of a cheque collected, appeared in the bank statement.
ACCOUNTING: XI
PAGE: 42
(v) Bank charges of Rs.15 and interest on overdrafts Rs.85 appeared in the bank statement.
Required:
(a) Prepare the Bank Reconciliation statement on Jan 31, 2015.
(b) Prepare necessary adjusting entries in General Journal.
Problem 6.10: Comparison of cash book and Bank statement of Mr. Tariq , a sole trader, reveals the
following for the month of April 2015.
(i) Balance as per cash book (Debit balance) Rs.17000 and as per bank statement (Debit balance)
Rs.23000.
(ii) Direct deposit by a customer Rs.5000.
(iii) A cheque of Rs.18000 issued in settlement of account was recorded in the cash book as
Rs.13000.
(iv) Uncleared cheque Rs.37000
(v) Unpaid cheque Rs.7000.
(vi) Bank made direct payment for an outstanding bill of business Rs.10000.
Required:
(b) Prepare necessary adjusting entries in General Journal.
Problem 6.11: A study of cash transactions related with the business bank account for April revealed
the following.
(i) Overdraft balance as per bank statement Rs.25000.
(ii) Balance as per cash book Rs.15000.
(iii) Uncleared cheques Rs.35000
(iv) Unpresented cheques Rs.5000.
(v) Direct payment by bank for bill payable Rs.8000.
(vi) Direct deposit by customer Rs.3000.
(vii) Cheque issued by the manager for Rs.16000 recorded in the counterfoil Rs.11000
Required:
(a) Prepare the Bank Reconciliation statement on April 30, 2015 of Majid stores.
(b) Record necessary adjusting entries in General Journal.
Problem 6.12: Following is the information provided by Muqeem Co. at April 30, 2015 for preparation
of bank reconciliation statement:
(i) On April 30, bank statement showed overdraft of Rs.8500 and cash book had balance of
Rs.13650.
(ii) Deposit in transit Rs.80000.
(iii) A debit memo for Rs.1500 accompanied the bank statement for locker rent. The bank had
erroneously charged this to Muqeem Co. instead of Muqeem Bros.
ACCOUNTING: XI
PAGE: 43
(iv) The bank charged Rs.100 for services.
(v) Outstanding cheques Rs.48000.
(vi) A direct remittance in bank account Rs.8000 by a customer.
(vii) Dividend collected by bank on behalf of the company Rs.3000 but not recorded in the cash
book.
(viii) A cheque of Rs.720 of Azeem deposited in the bank was erroneously recorded in the cash book
Rs.270.
Required:
Prepare the Bank Reconciliation statement on April 30, 2015.
Problem 6.13: The cash book and bank statement of the business of Ali Khan revealed the following
information:
(i) Cash at bank as per bank statement Rs.9820 overdraft as on December 10, 2015
(ii) Cash at bank as per cash book Rs.29650 as December 10, 2015.
(iii) Cheques were issued for the various payments of Rs.112400 but the cheques for Rs.96400
were presented for payments.
(iv) Cheques for Rs.88000 were received and deposited but the cheques for Rs.40250 were not
cleared.
(v) Interest charged by bank Rs.312 and bank service charges Rs.168 were not recorded in the cash
book.
(vi) A customer’s cheque for Rs.14740 was returned unpaid.
Required:
Prepare the Bank Reconciliation statement on December 10, 2015.
Problem 6.14: A study of cash records for Noman Khan Traders for the month of December 2015
revealed the following information:
(i) Cash book balance (Dr.) on December 31, 2015 was 5650.
(ii) Bank statement balance (Dr.) overdraft on December 31, 2015 was Rs.8780
(iii) Mark up charged by bank Rs.500 was not recorded in the cash book.
(iv) Service charges levied by the bank not recorded in the cash book Rs.150
(v) A cheque for Rs.9500 deposited into bank was wrongly entered into bank statement as Rs.5900
(vi) Cheques outstanding Rs.5820
(vii) The Deposit of Rs.16000 on December 31, 2015 not shown on the bank statement.
(viii) Bank statement showed a direct deposit of Rs.1500 by a customer not recorded in the cash
book.
(ix) Accompanying the bank statement was a customer’s cheque for Rs.1200 which was returned
unpaid by bank.
(x) A cheque for Rs.800 issued in settlement of an account payable was erroneously entered into
cash book as Rs.500.
Required:
(a) Prepare the Bank Reconciliation statement on December 31, 2015.
ACCOUNTING: XI
PAGE: 44
(b) Record necessary adjusting entries in General Journal.
ACCOUNTING: XI
PAGE: 45

1. Cheque deposited into the bank but was returned unpaid by the bank is called;
* Collection charges * Dishonored cheque * Service charges * Penalty cheque
2. The amount of Outstanding cheques is subtracted from;
* Bank statement *Cash book balance
* General journal * Petty cash book balances
3. Debit by the bank represents;
* Bank has increased your account balance * Bank has decreased your account balances
* Bank has given you the overdraft facility * None of the above
4. The Outstanding cheques are also known as;
* Unpresented cheques * Post dated cheques
* Out dated cheques * Crossed cheques
5. Credit given to your account by the bank represents;
* Bank has increased your account *Bank has decreased your account
* Bank has given you the overdraft facility * None of the above
6. Cheque in transit will be
* Added to bank statement balance * Added to cash book balance
* Subtracted from bank statement * Subtracted from cash book
7. Direct deposited will be added to:
* Cash book balance * Bank statement balance * General journal * none of the above
8. Reconciling a bank statement balance with a Co’s records is a process of;
*Tallying the bank statement balance with the cash book balance.
* Agreement of the balances of bank statement with petty cash book
* Eliminating the differences
* None of these
9. Adjusting entries are made for only;
* Transactions recorded in the cash book * Transaction recorded in the bank statement
* Transactions not recorded by the bank * None of the above
10. Unpaid cheques are:
* Dishonored cheque * Crossed cheque * Marked cheque * Endorsed cheque
11. Uncleared cheques represents:
* Cheques deposited but not cleared by the bank *Cancelled cheque
* Outstanding cheque * Dishonored cheque
12. NSF stands for;
* Non sufficient fund * No surplus found
* Both of these * None of the above
13. Which of the following does not require a journal entry for reconciliation?
* Collection by the bank of a note receivable * Bank service charges
* NSF cheque returned by the bank * Outstanding cheques
14. Debit balance in the bank statement represents;
* Overdraft * Positive balance * Nil balance * None of the above
15. Bank Reconciliation statement is prepared normally at the end of;
* A Month * A Year * A Day * A Week
ACCOUNTING: XI
PAGE: 46
16. The basic purpose of preparing a bank reconciliation statement is to:
* determine cash in hand * Determine cash in bank
* correct and update cash book balance * Know the financial position of business
17. A cheque with a future date is called:

* Cancelled cheque * Post dated cheque
* Dishonour cheque * Outstanding cheque
18. A debit balance of bank in firm’s cash book shall correspond bank statement is:
* a debit balance * a nil balance * a credit balance * none of these
19. A cheque deposited but yet not credited by bank, is called:
* Uncleared cheque * Dishonor cheque * Outstanding cheque* none of these
20. Bank reconciliation statement is prepared:
* At the end of 6 months * normally at the end of every month
* at the end of financial year * at any time when management needs
21. The bank does not pay a cheque if it is:
* Over 6 months old * over 5 months old * over 3 months old * over 2 months old
22. Direct deposit by a customer is recorded by bank as:
* Credit to customers account * debit in the customer account
* Debit and credit in the customers’ account * none of these
ACCOUNTING: XI
PAGE: 47
7. SPECIAL JOURNALS
● Sales Journal
● Sales Returns & Allowance
● Purchases Journal
● Purchases Returns & Allowances
● General Ledger for Controlling Account
● Subsidiary ledger of Accounts Receivable & Accounts Payable in self balancing form
Sales Journal
Sales Journal is a special journal. It is special because it is meant for recording only the Sales of
merchandise on credit. It is a single-column journal because it has only one money column.
ABC
Sales Journal Page # 29
Date Invoice # Name of customer P.R Amount
✔
Dec 31 A/c receivable 1002 15000

Sales 4101
Sales Returns & Allowance Journal

Sales returns & allowances journal is also a special journal because it meant for recording return of
merchandise for any reason against credit sales & also for recording allowance (price reduction) for
any reason granted to buyer of merchandise.
ABC
Sales return & allowance Journal Page # 5
Date Cr. Memo # Name of customer P.R Amount
✔
✔
ACCOUNTING: XI
PAGE: 48
✔
Dec 31 Sales return& allowance 4102 2500

A/c Receivable 1002
Purchases Journal
Purchases Journal is a special journal. It is special because It is meant for recording only the purchases
of merchandise/goods on credit.
ABC
Purchase Journal Page # 9
Date Invoice # Name of supplier P.R Amount
✔
Dec 31 Purchases 5001 25000

A/c Payable 2101
Purchases Returns & Allowance Journal

Purchases returns & allowances is also a special journal because it is meant for recording return of
merchandise for any reason against credit purchases & also for recording allowance (price reduction)
for any reason granted by seller.
ABC
Purchase return & allowance Journal Page # 15
Date Dr. Memo # Name of supplier P.R Amount
✔
Dec 31 A/c Payable 2101 2500

Purchases return& allowance 5002
Posting to Subsidiary Ledger

ACCOUNTING: XI
PAGE: 49
Subsidiary ledger: This ledger is maintained for each & every control account. Here we have two
control accounts that is Accounts Receivable & Accounts Payable which have their subsidiary ledger. In
the account receivable subsidiary ledger, each customer’s account is maintained separately &
individually, & in the accounts payable subsidiary ledger, each supplier’s account is maintained
separately & individually.
Self Balancing form
Date Particulars P.R Dr. Cr. Balance

ACCOUNTING: XI
PAGE: 50
EXERCISE # 1
Sales Journal
Problem 7.1: M/s Baig deals in electronic items. The following transactions were completed during
April, 2015.
April 1: Sold merchandise on account to Zaheer & Sons for Rs.20000.
April 5: Sold merchandise on credit to Arif & Brothers for Rs.27000.
April 15: Sold merchandise for cash Rs.15000
April 18: Sold merchandise to Ahmed & Co. on credit for Rs.21000
April 26: Sold merchandise to Hakeem & Co. Rs.13000
Required:
(i) Enter the above transactions in Sales journal page 5.
(ii) Set up Account receivable No.1102 and sales account No.4001 in the General ledger.
(iii) Prepare an Account receivable in General Ledger and an account for each customer in self
balancing form in subsidiary ledger.
(iv) Prepare schedule of account receivable on April 30, 2015.
Problem 7.2: Given below are transactions performed by Tariq traders Dec.2015.
Dec 7: Sold merchandise on account to Shahid store Rs.40000.
Dec 8: Sold an old computer to Mr.Ahmed on account for Rs.5000.
Dec 21: Sold merchandise to Ghulam Ali & Co. on account Rs.30000.
Dec 25: Sold merchandise on account to Rashid store Rs.35000.
Dec 31: Cash sales Rs.40000
Required:
(i) Record the above transactions in a Sales Journal page 3.
(ii) Set up Account receivable No.1102 and sales account No.4001 in the General ledger in standard
form.
Problem 7.3: The following is the copy of page 16 of the single column Sales journal of Global traders
prepared incorrectly by a newly appointed and inexperienced employee.
Globe traders
Sales journal page 8
1.4.13 Sales of merchandise to Tanvir sons on credit: n/30 5000
5.4.13 Sales of merchandise for Cash 3500
10.4.13 Sales of old furniture on credit 2000
15.4.13 Sale of merchandise to Rehman on credit term 8000
2/10, n/30
20.4.13 Sale of merchandise to Taha on account term 7500
1/10,n/30
25.4.13 Sale of NIT units for Cash 6800
Required:
ACCOUNTING: XI
PAGE: 51
(a) Prepare in good form a revised and correct Sales journal from the above data. Rule off the journal
on April 30, 2015 giving the journal entry and post the total and posting references. Account
Receivable control bears No.5 and Sales Account No.41.
(b) Set up ‘T’ account for Controlling accounts in the General Ledger and three column account for
each customer in the Accounts receivable subsidiary ledger and make posting to the accounts affected
giving date and references.
Problem 7.4: Following information for the month of April 2015 is extracted from the books of Mariam
Co. dealing in various types of New Equipment such as typewriters, computers, calculating machine
etc.
April 5: Sold a computer system on account to apex stores for Rs.24000.
April 9: Sold an old furniture (used in own office) to Bashir on credit for Rs.14000.
April 14: Sold a typewriter to Shehzad Associates for Rs.13000 on account.
April 21: Sold a printer to Ramzan & Co. for cash Rs.7000.
April 23: Sold ten calculators @ Rs.1200 each to Husnain Industries on account.
Required:
(a) Prepare a Sales Journal from above information (Page No.51). Total it and pass the entry on April
30, 2015.
(b) Set up Account receivable account bearing No.1005 and sales account No.5001 in standard form.
Problem 7.5: The following is an extract from the subsidiary ledger of account receivable of Ahmad Co.
for the month of April, 2015.
Ali stores
April 1 SJ9 6500 6500
10 SJ9 8500 15000
Faisal Company
April 20 SJ9 10000 10000
Hassan & Sons
April 12 SJ9 4800 4800
25 SJ9 8200 13000
Required:
Take the data contained in the subsidiary ledger of Accounts receivable of Ahmad Co. as given above.
(a) Prepare a sales journal for Ahmad Co. with necessary columns headings giving dated entries in
sequence. Total the sales journal and give the journal entry on April 30, 2015 to post it and write the
post reference (b) Set up the account receivable controlling account and the sales account in the
General ledger and make posting to these accounts giving date and reference. (account receivable
controlling account bears No.1002 and Sales account No. 4001).
ACCOUNTING: XI
PAGE: 52
Sales return & Allowances

Problem 7.6: The following are purchase journal and purchase return journal of Bilal and company for
the month of June of the current year.
Bilal & Co.
Sales Journal page 5
June 1 435 Ahsan Brothers 12000
✔
June 4 641 Nadir traders 16500
✔
✔
June 24 672 Nadir Traders 11600
✔
June 27 215 Waqas & Sons 7300
✔
June 30 A/c receivable 1002 56800
Sales 4001
Bilal & Co.
Sales return & allowance Journal page 15
Date Memo # Name of customer P.R Amount
✔
June 6 213 Nadir traders 950
✔
✔
June 26 248 Nadir Traders 600
✔
June 29 345 Waqas & Sons 800
✔
June 30 Sales return & allowance 4002 3300
A/c receivable 1002
Required:
Prepare a General ledger for control accounts and subsidiary ledger of Accounts receivable and its
schedule on June 30.
Problem 7.7: The following transactions were completed by Saqib during March, 2015.
March 2: Sold merchandise on account for Rs.1350 to Rizwan.
March 9: Sold merchandise on account for Rs.1750 to Shahid.
ACCOUNTING: XI
PAGE: 53
March 15: Defective merchandise returned by Rizwan Rs.150.
March 18: Sold merchandise on account for Rs.2000 to Shakeel
March 28: Inferior merchandise returned by Shahid Rs.200.
Required:
(i) enter the above transactions in the Sales journal (page 3) and sales return & allowance journal
(page 5).
(ii) Post them to each customer’s account separately in the accounts receivable subsidiary ledger in
self balancing form.
(iii) Prepare a schedule of accounts receivable.
Problem 7.8: Below are selected transactions of Khalid & Co.

April 2: Sold merchandise on account to Ahmed Rs.4000.
April 4: Sold merchandise on account to Basit Rs.5000.
April 8: Merchandise returned from Ahmed Rs.1000.
April 10: Sold old typewriter for cash Rs.500.
April 12: Sold merchandise on account to M/s Mubeen and Khan Rs.2000.
April 16: Merchandise returned from Basit Rs.800.
April 19: sold merchandise for cash Rs.3000.
April 23: Sold merchandise to Ahmed on account for Rs.6000.
April 30: Returned merchandise from Mubeen and Khan Rs.700.
Required:
(a) Record the above transactions in the relevant following journals:
(i) Sales journal (ii) Sales return and allowances journal.
Ignore the irrelevant transactions.
(b) Give a Journal entry at the close of each journal and post the totals giving posting references..
Account receivable control account No.1002. Sales account No. 4011 and sales return & Allowance
No.4012
(c) Set up Account receivable control account. Sales account and sales return & allowance account in
the general ledger and an account for each customer in the Account receivable subsidiary ledger in
self-balancing form. Make postings to the ledger accounts affected giving post references.
Problem 7.9: Following information for the month of January 2015 is extracted from the books of
Gulistan Co.
Jan 1: Sold merchandise on credit to Rehman sons Rs. 5000
Jan 2: Sold goods on credit to Mehran Stores Rs.6000.
Jan 3: Rehman sons returned merchandise worth Rs.450.
Jan 10: Sold merchandise to Hadi & Co. worth Rs.2000.
ACCOUNTING: XI
PAGE: 54
Jan 17: 10% allowance given to Mehran stores on defective goods of Rs.2000 sold to him on Jan 2,
2015.
Jan 27: Sold merchandise on account to Rehman sons Rs.3000.
Jan 29: sold merchandise to Hadi & Co. Rs.2500 for cash.
Required:
(a) Record the above transactions in the relevant journals.
(b) Prepare Account receivable subsidiary ledger for each customer in self balancing form.
ACCOUNTING: XI
PAGE: 55
Problem 7.10: Account receivable- Subsidiary ledger.
Azeem
May SJ-17 7000 7000
4
1 SRJ-3 500 6500
0
29 SJ-17 9800 16300
Azam
May SJ-17 5300 5300
8
1 SRJ-3 400 4900
4
Basit
May SJ-17 2500 2500
17
22 SRJ-3 300 2200
Required:
(i) Prepare Sales journal Page 17 and Sales return and allowance journal Page 3 in Chronological order.
(ii) Pass journal entries at the end of the month in Sales Account No.4001 and Sales return & allowance
account No.4002 and account receivable Control account No.1102.
(iii) Set up Sales Accounts, Sales return & allowance account and account receivable control Account in
skeleton form.
Purchases Journal
Problem 7.11: The following are the selected transactions completed by Asad Traders during March
2015.
March 7: Purchased goods for resale, on account from Asim sons for Rs.9000
11: Purchased merchandise on account from Ismail brothers for Rs.13000
17: Purchased merchandise on credit from Sattar & Co. for Rs.4000
26: Purchased merchandise on account from Asim sons for Rs.6000
27: Purchased merchandise for cash from Sattar sons Rs.3400.
29: Purchased furniture for office use from Shamim Sons, Rs34800 paying cash.
Required:
(a) Record the above transactions in the appropriate journals.
b) Make postings to the account payable subsidiary ledger. Use three column ledger accounts.
Problem 7.12: Following information for the month of February 2015is extracted from the books of
Shahzaman Co.
Feb 2: Purchased goods from Momin Rs.12000 on credit.
Feb 5: Purchased merchandise from Muslim for Rs.30000, paying a cheque of Rs.12000 and agreeing
to pay the balance after 10 days.
Feb 10: Purchased office supplies on account from Jazib Rs.2000.
ACCOUNTING: XI
PAGE: 56
Feb 15: Purchased merchandise from Qazi for Rs.17000 with terms 2/10, n/30.
Feb 20: Purchased merchandise from Imran for Rs.40000, receiving quantity discount of Rs.2000.
Required: Prepare a purchase journal from the above given information. Total it and write entry on
Feb 28 to indicate Debit & Credit.
Problem 7.13: Given below is page 8 of the single column Purchase Journal of Ali traders, containing
some irrelevant transactions recorded incorrectly by a newly appointed and inexperienced accountant
of the firm.
Ali traders
Purchases journal page 8
3.5.13 Purchased merchandise from Akbar & Co., term 6500
2/10, n/30
8.5.13 Purchased merchandise for Cash 1800
10.5.13 Purchased furniture for office use on account from 5000
Saqib Furniture.
15.5.13 Purchased merchandise from Nazeer & Co. 8000
20.5.13 Purchased office supplies on account from Fahad & 900
Co.
25.5.13 Purchased merchandise from Akbar & Co. 8100
30.5.13 Purchased merchandise on account from Kamil Co. 7600
Required:
(a) Prepare in proper form a revised and correct Purchase journal from the above data. Rule off the
journal on May 31, 2015 giving the journal entry and the post the total and posting references.
Accounts payable control bears No.2101 and Purchases Account No.5001.
(b) Set up ‘T’ account for controlling accounts in the General ledger and three column account for each
supplier in the account payable subsidiary ledger and make postings to account affected, giving date
and reference.
Problem 7.14: The following is an extract from the subsidiary ledger of account payable of Highsons
Co. for the month of April, 2015.
Huma stores
April 1 PJ5 6500 6500
10 PJ5 8500 15000
Fast Company
April 20 PJ5 10000 10000
Hatim & Sons
April 12 PJ5 4800 4800
25 PJ5 8200 13000
Required:
Take the data contained in the subsidiary ledger of Accounts payable of Highsons Co. as given above.
ACCOUNTING: XI
PAGE: 57
(a) Prepare the purchase journal of Highsons Co. with necessary columns headings giving dated entries
in sequence. Total the purchases journal and give the journal entry on April 30, 2015 to post it and
write the post reference.
(b) Set up the account payable controlling account and the Purchase account in the General ledger and
make posting to these accounts giving date and reference. (Account Payable controlling account bears
No.21 and Purchases account No. 50).
Purchases & Sales Journal

Problem 7.15: Pak distributors deals in some groceries and beverages, made the following
transactions during August, 2015:
August 3: Purchased 20 bags of flour at Rs.380 each on credit from Mehran mills vide invoice # 2136.
August 9: Sold 8 cartons of cooking oil on credit to Khan traders Rs.6400 vide invoice # 1419.
August 16: Received invoice # 540 from the Punjab traders for purchase of bags of rice Rs.7000 the
amount was paid instantly.
August 19: Issued invoice # 1431 to Baloch merchant for the sale of 24 jumbo cold drink bottles 2208.
August 23: Purchased calculators, cash book and other material for record keeping on credit from
Karachi book shop Rs.2400.
August 25: Sold flour bags on credit to the Delhi merchant Rs.3280 vide invoice # 1443.
August 29: Purchased 10 cartons of packed milk from the Punjab traders Rs.8640 vide invoice # 571.
Required:
Record the above transactions in the following relevant journals and ignore the irrelevant transactions
if any:
(i) One column Purchase journal page 12 (ii) One column Sales journal page 23
Problem 7.16: Kamran deals in electronic items. The following transactions were completed during the
month of March, 2015.
March 1: Purchased merchandise on credit from Obaid & company Rs.30000.
March 5: Sold merchandise to Usman Brothers on credit for Rs.50000.
March 15: Purchased equipment on account from Arshad & Co. Rs.52000.
March 18: Purchased merchandise on account from Khalil & Sons Rs.40000.
March 26: Sold merchandise to Shabbir on credit for Rs.45000.
March 27: Sold furniture to Jawaid Rs.5000.
March 29: Sold merchandise for cash Rs.15000.
Required:
Record the above transactions in the following journals:
(i) One column purchase journal of page No.220.
(ii) One column sales journal of page No.110.
(iii) Two column general journal of page No.330.
Purchases return & allowance Journal

ACCOUNTING: XI
PAGE: 58
Problem 7.17: The following are purchases journal and purchases returns journal for Muzammil &
company for the month of June of the current year.
Muzammil & Co.
Purchases Journal page 8
June 1 435 Qazi Brothers 12000
✔
June 4 641 Mehran traders 16500
✔
✔
June 24 672 Mehran Traders 11600
✔
June 27 215 Dilawar & Sons 7300
✔
June 30 Purchases 502 56800
A/c payable 201
Muzammil & Co.
Purchases return & allowances Journal page 18
Date Memo # Name of supplier P.R Amount
✔
June 7 213 Mehran traders 950
✔
✔
June 26 248 Mehran Traders 600
✔
June 29 345 Dilawar & Sons 800
✔
June 30 A/c payable 201 3300
Purchases return & allowance 503
Required:
Prepare General ledger and subsidiary ledger of Account payable and and a scheule of Accounts ayable
on June 30.
Problem 7.18: The Following transactions were completed Wajid & Co.
Jan 2: Purchased merchandise on account from Shakeel for Rs.5000.
Jan 9: Purchased merchandise on account from Akbar for Rs.7000.
Jan 10: Merchandise returned to Shakeel worth Rs.1000
Jan 15: Merchandise returned to Akbar worth Rs.2000.
Jan 16: Purchased merchandise on cash from. Amjad Rs.4000.
Jan 20: Purchased merchandise from Mr. Shakeel Rs.9000.
Jan 25: Purchased merchandise from Mr. Akbar on account Rs.5000.
Jan 30: Purchased merchandise from Mr.Arshad on account for Rs.6000.
Required:
(i) Enter the above transactions in Purchase journal and purchase return & allowance journal.
ACCOUNTING: XI
PAGE: 59
(ii) Set up account payable No.1202 and purchase Account No.5101 and purchases return & allowance
Account No. 5102 in the General ledger.
(iii) Prepare Account payable for each supplier in self balancing form in subsidiary ledger.
Problem 7.19: Account payable- Subsidiary ledger.

Ahmad
March 4 PJ-17 7000 7000
10 PRJ-3 500 6500
29 PJ-17 9800 16300
Bilal
March 8 PJ-17 5300 5300
14 PRJ-3 400 4900
Danish
March 17 PJ-17 2500 2500
22 PRJ-3 300 2200
Required:
(i) Prepare Purchase journal Page 17 and Purchase return and allowance journal Page 3 in
Chronological order.
(ii) Pass journal entries at the end of the month in Purchases Journal Account No.5001 and Purchases
return & allowances journal account No.5002 and accounts payable Control account No.2101.
(iii) Set up Purchase Accounts, Purchases returns & allowance account and account payable control
Account in skeleton form.

1. A document describing the goods sold, its quantity at this rate is called
* Cash sales * Credit card sale * Sales invoice * Sales receipt
2. A sales journal contains:
*list of Cash sales * list of Credit sales of merchandise
* Credit sales of furniture * None of the above
3. A Subsidiary ledger containing customer’s accounts, is called;
* Accounts payable subsidiary ledger * Accounts receivable subsidiary ledger
* Contra ledger * General ledger
4. A statement listing a customer’s, account balances and total amount due from customers is
a/an:
* Accounts payable ledger * Accounts receivable ledger
* Schedule of accounts payable * Schedule of accounts receivable
5. 2/10 means:
* 2% discount is available if payment of invoice is made within or on 10th day from invoice date
* 10% discount is available if the payment of invoice is made within 2 days
* No discount
* 2% more is to be paid
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PAGE: 60
6. Special journal is mean to record:
* Only cash goods transaction * Only credit goods transaction
* Only cash transactions * Only credit transactions

7. From a Special journal to subsidiary ledger, posting is made:
* to each individual relevant customer’s or supplier’s account
* at the end of fiscal year
* at the end of each month
* at the end of calendar year
8. An Invoice contains:
*list of credit sale * list of cash sale
*details of cr. Sales for goods * list of cash and credit sale
9. Special journals are used to avoid numerous entries in:
* Subsidiary ledger * general ledger * both of these * None of these
10. Sold office furniture on account will be recorded in:
* Sales journal * Sales return & allowance journal
* General journal * None of these
11. The total amount of a schedule of customers should be the same as:
* Sales * Total Accounts receivable
* Purchases * A/c payable
12. A note issued by a customer, when substandard goods are returned is called:
* debit note * credit note * Invoice * Promissory note
13. A note issued to supplier, when substandard goods are returned is called:
* debit note * credit note * Invoice * Promissory note
14. When special journals are maintained, Purchase of merchandise on account are recorded in:
* Cash book * Purchase Journal * Sales Journal * None of these
15. Credit note issued is entered in:
* Sales journal * Sales return journal * Purchase Journal * None of these
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8. FINANCIAL STATEMENT
● Adjusting entries
● Adjusted Trial balance
● Income Statement
● Cost of Goods sold account
● Closing entries
● Income summary account
● Post-closing trial balance
● Balance Sheet
● Opening entries
● Reversing entries
List the Steps of the Accounting Cycle in Proper Order

The accounting cycle refers to the overall process of taking recordings of transactions and using those
recordings to create various financial statements and a formalized record of the business's
transactions over a particular recording period.
1. Record Journal Entries From Transactions
2. Post Journal Entries to the General Ledger
3. Prepare Unadjusted Trial Balance
4. Adjust the Accounts by adjusting entries
5. Prepare an Adjusted Trial Balance
6. Prepare the Financial Statements
7. Close the Temporary Accounts by closing entries
8. Prepare a Post-Closing Trial Balance
PERIODIC ADJUSTMENTS
Periodic Adjustments:
Adjustments are normally made at the end of an accounting period. The accounting period may be of
a month, a quarter, a half year, and a year.
Under adjustments, the periodic expenses are matched with periodic revenues. In simple, expenses &
revenues are determined keeping in mind the span of accounting period.
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Normally, Adjustments are made for:
1. Merchandise inventory ending
2. Depreciation expense
3. Bad debts Computed on the basis of Sales
4. Accrued Expense or Unrecorded expenses
5. Accrued revenue or Unrecorded revenues
6. Prepayments initially recorded as an asset or expense
7. Unearned revenue initially recorded as liability or income
Merchandise Inventory:
In a merchandising business, merchandise remained unsold is determined by physical counting &
allocating cost to unsold (under the periodic inventory system) units using an appropriate valuation
method.
Dec 31 Merchandise inventory ending xxxx
Income summary xxxx
(To record merchandise ending)
Depreciation Expense:
Depreciation means systematic allocation of cost of depreciable assets to accounting periods in which
the assets are used.
Dec 31 Depreciation expense xxxx
Allowance for depreciation xxxx
(To record depreciation expense)
Bad debts expense:

Bad debts means doubtful accounts receivables. Normally at the end of an accounting period, the
amount of likely uncollectible accounts receivable is estimated and recorded through an adjusting
entry Bad debts may be computed on the basis of Sales (income statement approach)
Net sales
Sales xxx
Less: Sales Returns & Allowance xx
Sales Discount xx - xxx
Net Sales xxx
Bad debts Expense = Rate (%) x Net Sales
Dec 31 Bad debts Expenses xxxx
Allowance for bad debts xxxx
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(To record bad debt expense)
Accrued expenses:
Accrued expenses are the expenses that are incurred within an accounting period but are not paid by
the end of the period. These expenses are recorded on accrual basis of accounting through
adjustment.
\Dec 31 .......Expense xxxx
………Expense payable Xxxx
To record accrued expenses.
Accrued incomes:
Accrued incomes are the incomes that are earned within an accounting period but are not received by
the end of the period. These incomes are recorded on accrual basis of accounting through adjustment.

Dec 31 …………..Income Receivable xxxx
…………….Income xxxx
To record accrued incomes.
Prepaid expenses:
Prepaid expenses are the expenses paid in advance. Prepaid expenses are assets. Prepaid expenses
may initially be recorded as asset or as expense.
Unearned incomes:
The Unearned incomes are those incomes which are received in advance. The Unearned incomes are
liabilities.
REVERSING ENTRIES
The reversing entries are made of the following adjusting entries at the start of an accounting period;
1. Accrued expenses
2. Accrued Incomes
3. Prepaid expenses if initially recorded as expense
4. Unearned incomes if initially recorded as income
The reason for making reversing entries is that a business follows alternative practice. For
example: if a business does not reverse its accrued expenses and accrued incomes at the start
of an accounting period, the related liability or asset will pass on to the next accounting period.
At the end, while making adjustments of accrued expenses and accrued incomes, their
balances need to be considered.
ADJUSTED TRIAL BALANCE
An adjusted trial balance is taken out after making periodic adjustments, with adjusted balances of the
ledger accounts.
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PAGE: 64
The adjusted trial balance is an internal document and meant for internal use. The purpose of the
adjusted trial balance is to ensure that the ledger accounts are in agreement even after incorporating
the changes brought about by the periodic adjustments.
INCOME STATEMENT
Income Statement:
Is a statement of periodic revenues & periodic expenses which is normally prepared at the end of an
accounting period for determination of periodic net income or net loss.
The following principles of accounting are observed for the preparation of income statement.
1. Time period Principle
2. Revenue - recognition or realization principle
3. Expense – recognition principle
4. Matching principle
5. Business entity concept
6. Monetary principle
7. Going concern concept
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PAGE: 65
Preparation of Income Statement (Service concern business)

ABC Co.
INCOME STATEMENT
For The Year Ended Dec.31, 2015
REVENUE:
REVENUE FROM SERVICE xxx
Less: OPERATING EXPENSES

DEPRECEATION EXPENSE xx
SALARY EXPENSE xx
UTILITIY EXPENSE xx
RENT EXPENSE xx
INSURANCE EXPENSE xx
TOTAL OPERATING EXPENSES (xxx)
NET OPERATING PROFIT OR LOSS xxx/ (xxx)
Preparation of Income Statement (MERCHANDISING BUSINESS)

ABC Co.
INCOME STATEMENT
FOR THE YEAR ENDED DEC 31, 2015
Sales xxx
Less: Sales Return xxx
Sales Discount xxx (xxx)
Net Sales xxx
Less: COST OF GOODS SOLD
Merchandise inventory opening xxx
Purchases xxx
Less: Purchases return xxx
Purchases Discount xxx (xxx)
Net Purchases xxx
Add: Transportation-in xxx
Cost of Purchases xxx
Cost of goods available for sale xxx
Less: Merchandise inventory ending (xxx)
Cost of Goods Sold (xxx)
Gross Profit xxx
Less: OPERATING EXPENSES
ACCOUNTING: XI
PAGE: 66
Salaries Expense xxx
Depreciation Expense xxx
Bad debts Expense xxx
Rent expense xxx
Insurance expense xxx
Total Operating Expenses (xxx)
Net Profit from Business Operations xxx
Add: OTHER INCOME
Commission Income xxx
Interest Income xxx
Total Other Income xxx
Net Profit from business and non business xxx
operations
Closing Entries
The closing general journal entries are made at the end of an accounting period. The entries are used
to close out the periodic revenue and expense accounts to expense and revenue summary account
after preparation of income statement.
Dec 31 Sales…………………………………………….…….Dr
Commission income……………………..…... Dr
Merchandise Inventory Ending…………...Dr
Purchase Discount……………………………...Dr
Purchases Returns & Allowance….…….…Dr
Income Summary…………………………………..Cr
To adjust merchandise inventory ending and close out income statement accounts having credit
balances
Dec 31 Income Summary………………….……Dr.
Sales Discount………………………….……… Cr.
Sales returns & allowance……………….. Cr.
Merchandise Inventory Opening.…….…Cr.
Purchases…………………………… ….......... Cr.
Transportation-in ………………………..… …Cr.
Bad Debt Expense……………………..….….. Cr.
Depreciation expense………………...……. Cr.
Salary Expense…………………………..……… Cr
Rent Expense………………………………..…. Cr
ACCOUNTING: XI
PAGE: 67
Insurance Expense…………………..………. Cr
Advertising Expense………………………… …Cr.
To close out income statement accounts having debit balances
(i) If Net Profit
Dec 31 Income Summary…………………….…..Dr.
Capital……………………………………..………Cr.
Net profit transferred to capital account by closing income summary account.
(ii) If Net Loss
Dec 31 Capital……………………………………….Dr.
Income Summary…………………………… Cr.
Net loss transferred to capital account by closing income summary account.
Drawing
Dec 31 Capital……………………………..…….Dr
Drawing……………………………………………Cr
To close drawing to capital account
STATEMENT OF COST OF GOODS SOLD

Merchandise inventory opening xxx
Purchases xxx
Less: Purchases return xxx
Purchases Discount xxx (xxx)
Net Purchases xxx
Add: Transportation-in xxx
Cost of Purchases xxx
Cost of goods available for sale xxx
Less: Merchandise inventory ending (xxx)
Cost of Goods Sold xxx
ACCOUNTING: XI
PAGE: 68
Balance Sheet
It is a statement of assets, liabilities & capital which is normally prepared at the end date of an
accounting period. It shows the financial position of a business entity. Normally, balance sheets are
prepared in classified form.
REPORT FORM:
ABC Co.
BALANCE SHEET
AS ON DEC.31, 2012
ASSETS
CURRENT ASSETS:
Cash xxx
Account receivable xxx
Less: Allowance for bad debts (xxx) xxx
Merchandise inventory ending xxx
Supplies xxx
NON CURRENT ASSETS:

Land xxx
Furniture xxx
Less: Allowance for depreciation (xxx) xxx
TOTAL ASSETS xxx

ACCOUNTING: XI
PAGE: 69
LIABILITIES & EQUITY
CURRENT LIABILITIES
Account payable
Note payable xxx
Salary payable xxx
xxx
NON CURRENT LIABILITIES:
Long term loan
xxx
Owner’s Equity
Owner Capital at start
Add: Net profit xxx
xxx
Less: Drawing xxx
Capital at end (xxx) xxx
Total liabilities & Equities xxx
EXERCISE # 1
Example Question: Find the underlined missing values.
(i) The liabilities of a business entity having assets of Rs.400000 and owner’s equity of Rs.180000.
(ii) The assets of a business entity having liabilities of Rs.100000 and owner’s equity of Rs.200000.
(iii) The Owner’s equity of a business entity having assets of Rs.200000 and liabilities Rs.70000.
(iv) The revenue of a business entity having expenses of Rs.120000 and net income of Rs.30000.
(v) The expenses of a business entity having revenue of Rs.180000 and net loss of Rs.16000.
(vi) Sales revenue of a business entity having cost of goods sold Rs.210000 and gross loss of
Rs.10000.
Problem 8.1: Following are the account balances of Ahsan & Sons on June 30, 2015.
Cash in hand Rs.35000, Furniture Rs.140000, Cash at Bank Rs.45000, Capital Rs.428000, Accumulated
depreciation (Furniture) Rs.23000, Machinery Rs.220000, Accumulated depreciation (Machinery)
Rs.35000, Purchases Rs.135000, Sales Rs.280000, Account receivable Rs.30000, Account payable
Rs.35000, Purchases return & allowance Rs.4000, Allowance for Bad debts Rs.6000, Merchandise
inventory (beginning) Rs.25000, Merchandise inventory (ending) Rs.87000, Salaries expense Rs.45000,
Rent Expense Rs.33000, Advertising Expense Rs.22000, Transportation in Rs.32000, Office Supplies
Expense Rs.12000, Utility Expenses Rs.26000, Bad debt Expense Rs.2000, Depreciation expense
Rs.10000, Sales return & allowance Rs.6000, Commission income Rs.7000
Required:
(i) Record closing entries in general Journal on June 30, 2015
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PAGE: 70
(ii) On July 1, 2015 record opening entries in General Journal and also prepare a post-closing trial
balance as on June 30, 2015. OR
Prepare i) Income statement in report formq
ii) Balance sheet as on June 30, 2015.
Problem 8.2: The Balances taken from the pre closing trial balance on Usra & Co. as on December 31,
2015 are as follows:
Debit Balances: Cash Rs.40000, Account receivable Rs.35000, Merchandise inventory (opening)
Rs.30000, Unexpired insurance rs.20000, Purchases Rs.100000, Transportation Rs.5000, Sales discount
Rs.5000, Sales Equipment Rs.40000, Drawing Rs.12000, Rent expense Rs.5000, Salaries expense 12000,
Advertising expense Rs.8000.
Credit Balances: Account Payable Rs.25000, Sales Revenue Rs.125000, Commission income Rs.7000,
Purchases return Rs.5000, Long term loan Rs.30000, Capital Rs.120000.
Data for adjustment on December 31, 2015:
a) Merchandise inventory at December 31, 2015 Rs.60000.
b) Unpaid rent Rs.2000.
c) Insurance expired Rs.12000.
d) Depreciation on sales equipment was estimated Rs.4000.
e) Accrued commission income Rs.3000
Required:
(i) Prepare an income statement for the year ended December 31, 2015.
(ii) Prepare a Classified Balance sheet as on December 31, 2015.
(iii) Prepare closing entries in a General Journal.
OR Pass Adjusting entries and prepare adjusted trial balance.
Problem 8.3: The following balances have been taken from the pre closing trial balance for Khursheed
Zaidi, a trader on December 31, 2015.
Debit Balances: Cash Rs.20000, Account receivable Rs.15000, Office equipment Rs.40000,
Merchandise inventory (1-1-2015) Rs.30000, Purchases Rs.120000, Machine Rs.100000, Salaries
Expense Rs.9000, Wages expense Rs.4000, packing charges Rs.10000, Prepaid Rent Rs.10000,
Khursheed Zaidi’s drawing Rs.2000, Transportation-in Rs.2000, Sales returns Rs.20000.
Credit Balances: Sales Revenue Rs.200000, Purchases returns Rs.2000, Accumulated depreciation on
machine Rs.10000, Accounts payable Rs.5000, Bank loan Rs.20000, Khursheed Zaidi’s Capital
Rs.145000.
Supplementary Data for adjustments:
a) Outstanding salaries Rs. 6500
b) Rent expense for the year Rs.8000
c) Provide bad debts @ 2% of net sales.
d) Depreciation on fixed assets at 10% on cost per annum.
e) Merchandise inventory on 31.12.2015 Rs.20000.
Required:
(i) Prepare an income statement for the year ended 31.12.2015.
(ii) Prepare a classified Balance Sheet as on 31.12.2015.
ACCOUNTING: XI
PAGE: 71
Problem 8.4: The following balances were taken from the pre-closing Trial Balance of Fatima & Co.
prepared on December 31, 2015.
Debit balances: Cash Rs.6400, Account Receivable Rs.40000, Merchandise inventory (Jan 1) Rs.32000,
Sales equipment Rs.30000, Prepaid insurance Rs.800, Sales supplies Rs.1200, Purchases Rs.100000,
Sales salaries expense Rs.9600, Office salaries expense Rs.4000, Advertising expense Rs.4000
Credit Balances: Sales Rs.156000, Account payable Rs.24000, Fatima capital Rs.48000
Data for Adjustments on December 31, 2015:
a) Merchandise inventory was valued at Rs.30000
b) Sales supplies unused Rs.200.
c) Insurance expired Rs.400.
d) Unpaid sales salaries were Rs.500
e) Depreciation on fixed assets was estimated Rs.5000.
Required:
(i) Prepare an Income statement for the year ended Dec 31, 2015
(ii) Prepare a classified Balance Sheet as of December 31, 2015.
(iii) Prepare closing entries.
The following balances of Qasim & Co on December 31, 2015 was as under:
ACCOUNT TITLE DEBIT CREDIT
Cash 40,000
Accounts Receivable 20,000
Merchandise Inventory 18,000
Prepaid Insurance 20,000
Furniture 40000
Notes Payable 20,000
Unearned Commission 10,000
Capital-Qasim 150,000
Sales 120,000
Cost of Goods Sold ?????
Salaries expenses 11,000
Office supplies 8,000
Rent expenses 3,000
Supplementary data for adjustments for Dec. 31, 2015:
i) Accrued salaries Rs.4,000
ii) Bad Debts estimated 2% on sales
iii) Insurance expired during the year Rs.6,000
iv) Depreciation expense for the year Rs.4000
Required:
(a) Income statement for the year December 31, 2015
b) Balance sheet as of December 31,2015
Problem 8.6: Following is the trial balance of Ahmed & Co. as of Dec.31, 2015:
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PAGE: 72
Debit Balances: Cash Rs.12400, Merchandise inventory Rs.87000, Account receivable Rs.56000, Office
supplies Rs.1600, Unexpired insurance Rs.4200, Land Rs.68000, Building Rs.164000, Office equipment
Rs.42600, Ahmed’s drawing Rs.20000, Sales discount Rs.7000, Cost of goods sold Rs.316600, Sales
salaries expense Rs.55200, Advertising expense Rs.12200, Office salaries expense Rs.44600, Travelling
expense Rs.15600.
Credit Balances: Account payable Rs.38000, Ahmed’s Capital Rs.322400, Sales Rs.504000, Allowance
for depreciation-Equipment Rs.10600, Allowance for depreciation-Building Rs.32000.
Data for Adjustment at December 31, 2015:
a) Office supplies on hand Rs.500
b) Unexpired insurance Rs.3000
c) Depreciation for the year on building Rs.4000, Office equipment Rs.1800
d) Unpaid salaries: Sales salaries Rs.3000, Office salaries Rs.2000.
Required:
(i) Prepare an income statement for the year ended Dec 31, 2015
(ii) Prepare a balance sheet as on December 31, 2015
(iii) Prepare adjusting entries in a General Journal
ACCOUNTING: XI
PAGE: 73
Problem 8.7: Balances taken from the ledger for Maaz, a sole trader on December 31, 2015 before
Adjustments are as under:
Debits Rs. Credit Rs.
Cash 40000 Account Payable 18000
A/c receivable 20000 Notes Payable 12000
Merchandise inventory 60000 Unearned rent 12000
Prepaid insurance 6000 Sales 200000
Office equipment 30000 Accumulated depreciation 2000
Purchases 170000 Maaz capital 97000
Salaries expense 10000
Sales return 5000
341000 341000
Data for adjustments:
a) Merchandise inventory on December 31, 2015 was valued at Rs.80000
b) Insurance was expired Rs.4000
c) Bad debts expense estimated Rs.600
d) Outstanding salaries amounting to Rs.4000
e) Depreciation expense on equipment for the year Rs.3000
f) Rent earned Rs.8000
Required:
(i) Prepare a multi steps income statement for the year ended December 31, 2015.
(ii) Prepare a Classified Balance sheet as on December 31, 2015, and prepare
(iii) An adjusted trial balance.
OR Prepare closing entries in General Journal.
Problem 8.8: Balances taken from the ledger for Raza & Co., a sole trader on December 31, 2015
Debits Rs. Credit Rs.
Cash 60000 Account Payable 38000
A/c receivable 40000 Notes Payable 32000
Merchandise inventory 80000 Unearned rent 32000
Prepaid insurance 26000 Sales 220000
Office equipment 50000 Accumulated depreciation 22000
Purchases 190000 Maaz capital 157000
Sales return 25000
501000 501000
Data for adjustments:
a) Merchandise inventory on December 31, 2015 was valued at Rs.80000
b) Insurance was expired Rs.4000
c) Bad debts expense estimated Rs.600
d) Outstanding salaries amounting to Rs.4000
e) Depreciation expense on equipment for the year Rs.3000
f) Rent earned Rs.8000
Required:
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PAGE: 74
(ii) Prepare a Classified Balance sheet as on December 31, 2015, and prepare
(iii) An adjusted trial balance.OR Prepare closing entries in General Journal.
Problem 8.9: The following balances were extracted from the Ledger for Shakir, a sole trader, on
December 31, 2015, before closing the books:-
Cash Rs.8500, office supplies Rs.1000, account receivable Rs.9000, Allowance for Depreciation
Rs.1500, Merchandise inventory (Jan 1) Rs.7000, Prepaid insurance Rs.600, Furniture Rs.15000, Notes
Payable Rs.4500, Shakir’s capital Rs.16600, Shakir’s drawing Rs.2000, Sales Rs.60000, Sales discount
Rs.500, Purchases Rs.30000, Salaries Expense Rs.8000, Rent expense Rs.6000, Commission earned
Rs.5000.
Data for Adjustments on December 31, 2015:
a) Unpaid salaries Rs.3000
b) Prepaid rent Rs.1000
c) Unused Office supplies Rs.400.
d) Insurance was prepaid to the extent of Rs.200.
e) Commission earned Rs.4000
f) Merchandise inventory was valued at Rs.6,000 on December 31, 2015.
g) Allowance for Depreciation Rs.4000
Required:
(iii) Prepare closing entries and an Income summary account.
Problem 8.10: Ledger balances and adjustment data for Rajput Company at the end of annual
accounting period, December 31, 2015 are as follows:
Debit Balances: Cash Rs.4000, A/c Receivable Rs.8000, Merchandise inventory- January 1, 2015
Rs.5000, Unexpired insurance Rs.3000, Furniture Rs.10000, Drawing Rs.6000, Purchases Rs.40000,
Salaries expense Rs.15000, Rent expense Rs.2000.
Credit Balances: Account payable Rs.7000, Unearned commission Rs.3000, Allowance for Depreciation
Rs.3000, Capital Rs.30000, Sales Rs.50000.
Data for Adjustment:
a) Merchandise inventory at December 31, 2015, Rs.6000
b) Insurance expired Rs.2000.
c) Bad debts estimated @ 2% of sales.
d) Depreciation estimated @ 10% of cost of furniture.
e) Accrued salaries Rs.1000.
f) Unearned commission Rs.1000
Required:
(ii) Prepare Classified Balance sheet as on December 31, 2015.
(iii) Prepare closing entries in General Journal. OR Adjusted trial balance
ACCOUNTING: XI
PAGE: 75
Problem 8.11: The following balances have been taken from the pre closing trial balance prepared
from the Ledger for Mustafa traders on March 31, 2015.
Debit Balances: Cash Rs.100000, Account Receivable Rs.200000, Merchandise inventory (1.4.14)
Rs.80000, Office Equipment Rs.300000, Prepaid insurance Rs.12000, Mustafa Drawings Rs.50000, Sales
return & Allowances Rs.3000, Purchases Rs.520000, Furniture Rs.173000, Transportation-in Rs.4000,
Salaries expense Rs.55000, Office supplies Rs.5000, Sales return & Allowances Rs.5000, Rent expense
Rs.50000.
Credit Balances: Account Payable Rs.170000, Sales Rs.750000, Purchases Return & allowances
Rs.5000, Allowance for Depreciation on Office Equipment Rs.25000, Mustafa Capital Rs.600000,
Commission income Rs.4000.
Data for adjustment on March 31, 2015:
i) Merchandise inventory on March 31, 2015 Rs.100000.
ii) Salaries payable Rs.5000.
iii) Commission accrued Rs.1000.
iv) Office supplies unused Rs.2000.
v) Insurance expired Rs.8000.
vi) Depreciation on office equipment for the year was estimated at Rs.5000.
Required:
(i) Prepare an Income statement for the year ended March 31, 2015
(ii) Prepare a classified Balance Sheet as of March 31, 2015.
(iii) Prepare adjusting and closing entries in a General Journal.
Problem 8.12: The following unadjusted balances are obtained from the ledger for a trader, “EZ”, for 3
months ended on March 31, 2015.
Cash Rs.5000, Accounts Receivable Rs.27000, Merchandise Inventory Rs.30000, Unexpired insurance
Rs.3000, Sales Rs.105000, Purchases 60000, Sales Return and Allowances Rs.4000, Purchase Discount
Rs. 2000, Accounts Payable Rs.12000, “EZ” Drawing Rs 15000, Unearned Revenue Rs.12000, General
expenses Rs.2000, Salaries expenses Rs.15000, “EZ” , Capital?
Data for Adjustments:
a) Merchandise Inventory valued at Rs.25000.
b) 1/3rd of the unexpired insurance was expired.
c) 2/3rd of the unearned was earned.
d) Accrued salaries Rs.3000.
Required:
Prepare an income statement and a balance sheet for the first quarter ended March 31, 2015.
ACCOUNTING: XI
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Problem 8.13: The following balances were taken from the ledger of Abbas & Co. on December 31,
2015.
Debit balances:
Cash Rs.50000
Account Receivable 155000
Merchandise inventory (1/1/15) 80000
Office supplies 8000
Furniture 65000
Purchases 250000
Prepaid insurance 5000
Rent expense 5000
Total 623000
Credit balances:
Account payable Rs.30000
Sales 400000
Purchases return 15000
Abbas Capital 178000
Total 623000
Data for Adjustment:
a) Prepaid insurance expired by Rs.2500
b) Depreciation expense on furniture Rs.6500
c) Salaries expense for the year Rs.7000
d) Rent expense for the year Rs.4000
e) Office supplies on hand amounted to Rs.3000
f) Merchandise inventory on December 31, 2015 valued at Rs.85000
Required:
(iii) Prepare adjusting entries.
Problem 8.14: The following is the pre-closing trial balance of Syed Sons for the year ended December
31, 2015.
Debit balances: Cash Rs.15000, account receivable Rs.10000, merchandise inventory (beginning)
Rs.6500, Prepaid rent Rs.4000, Equipment Rs.10000, Purchases Rs.20000, Office supplies Rs. 2000,
Salaries expense Rs.14000, Utilities expense Rs.1500, Sales return and allowance Rs.2000.
Credit balances: Sales Rs.45000, Purchase discount Rs.1500, Commission income Rs.4000, Account
payable Rs.4000, Allowance for bad debts Rs.500, Syed’s capital Rs.30000.
Data for Adjustments on December 31, 2015.
i) Prepaid rent was Rs.1000
ii) Office supplies unused Rs.500.
iii) Allowance for bad debts was increased by Rs.300.
iv) Outstanding salaries Rs.3000.
v) Depreciation on Equipment was estimated at Rs.1500.
vi) Commission income unearned Rs.1000.
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PAGE: 77
vii) Merchandise inventory was valued on December 31, 2015 Rs.3000.
Required:(a) Prepare Income statement for the year December 31, 2015.
(b) Prepare Balance Sheet as on December 31, 2015 in classified form. (c) Prepare closing entries in
General Journal. OR Prepare Post closing trial balance as on December 31, 2015.
Problem 8.15: The following balances have been taken from the pre closing trial balance prepared
from the Ledger for Anwar & Sons on December 31, 2015.
Debit Balances: Cash Rs.21000, Account Receivable Rs.33000, Merchandise inventory (1.1.15)
Rs.12000, Sales Equipment Rs.27000, Prepaid Office rent Rs.9000, Anwar Drawings Rs.3000, Sales
return & Allowances Rs.3000, Purchases Rs.66000, Transportation-in Rs.6000, Office Salaries expense
Rs.18000, Sales salaries expense Rs.24000.
Credit Balances: Account Payable Rs.24000, Sales Rs.110000, Purchases Return & allowances Rs.4500,
Purchases discount Rs.5400, allowance for Bad Debts Rs.6000, Allowance for Depreciation on sales
Equipment Rs.9000, Anwar & Sons Capital Rs.53100, Commission income Rs.10000.
Data for adjustment:
i) Office salaries outstanding Rs.5000.
ii) Sales salaries prepaid Rs.1400.
iii) Merchandise inventory on December 31, 2015 Rs.25000.
iv) Provide depreciation on equipment Rs.2500
v) Prepaid Office Rent expired Rs.4000
vi) Increase Allowance for bad debts by Rs.2000.
vii) Accrued commission income Rs.5000
Required:
(iii) Prepare adjusting and closing entries in a General Journal.
ACCOUNTING: XI
PAGE: 78
Problem 8.16: Following is the pre closing Trial Balance for Ishaq & Company for the year ended
December 31, 2015.
Account Titles P.R Debit Credit
Cash 40000
Account Receivable 50500
Prepaid insurance 6000
Merchandise inventory 1.1.2015 42000
Office equipment 50000
Account Payable 40000
Notes payable 20000
Unearned commission 3500
Capital 150000
Drawing 12000
Sales 262000
Sales discount 3000
Purchases 120000
Carriage-in 8000
Utility expenses 25000
Advertising expense 34000
Salaries Expense 40000
Rent Expense 45000
Total 475500 475500
Data for adjustment on December 31, 2015:
a) Merchandise inventory (31-12-2015) Rs.60000.
b) Bad debts Expenses @ 5% of Net sales.
c) Insurance is prepaid to the extent of Rs.1500.
d) Unearned Commission Rs.1000.
e) Goods costing Rs.1000 withdrawn by Mr. Ishaq for private use were overlooked.
Required:
(i) Prepare adjusting entries in a general journal and prepare cost of goods sold account
(ii) Record Closing entries in General Journal on December 31, 2015.
OR
(i) Prepare an Income Statement for the year ended December 31, 2015.
(ii) Prepare a Classified Balance sheet as on December 31, 2015.
ACCOUNTING: XI
PAGE: 79
Assignment Question Financial statement

Following is the trial balance of Ahmad Co. for the year ended December 31, 2015
Debit Balances: Cash in hand 40000, Cash at Bank 30000, Account Receivable 35000, Note receivable
12000, Merchandise inventory (Opening), 25000, prepaid insurance 20000, Unexpired rent 10000,
Office supplies 2000, sales supplies 1000, Land 100000, Equipment 50000, Furniture 30000, Purchases
120000, Transportation-in 3000, Salaries expense 10000, Utilities expense 7000, Advertising expense
5000, Wages expense 2000, Sales discount 5000, Sales returns 10000, Drawing 8000 (Total =
Rs.525000)
Credit Balances: Account payable 30000, note payable 7000, Bank loan 15000, Unearned commission
5000, Unearned fees 6000, Bank Overdraft 2000, Long term loan 30000, Allowance for depreciation
(Furniture) 5000, Sales 215000, Service income Rs.2000, Purchases returns 5000, Purchases discount
3000, Capital 200000 (Total = Rs.525000)
Data for adjustment as on Dec 31, 2015
(i) Merchandise inventory on Dec 31 is Rs.60000
(ii) Bad debts are estimated to be 2 % of Net sales.
(iii) Insurance expired Rs.12000
(iv) Unexpired rent Rs.7000
(v) Office supplies used Rs.1200
(vi) Sale supplies unused Rs.700
(vii) Fixed assets are to be depreciated @ 10 % on cost.
(viii) Accrued salaries Rs.2000
(ix) Outstanding utilities expense Rs.3000
(x) Unpaid Advertising Rs.1500
(xi) Commission earned Rs.3000
(xii) Unearned fees Rs.2000
(xiii) Accrued service income Rs.3500
Required:
(a) Prepare an income statement for the year ended December 31, 2015
(b) Prepare a cost of goods sold account.
(c) Prepare closing entries
(d) Prepare Income summary account
(e) Prepare Balance Sheet as on December 31, 2015
(f) Prepare opening entries
(g) Prepare Adjusting entries
(h) Prepare reversing entries
(i) Prepare an Adjusted trial balance
ACCOUNTING: XI
PAGE: 80

1. The statements that are prepared by a business for analyzing its financial position and
assessing its financial performance are called:
* Bank statement * Bank reconciliation statement
* Financial statement * None of the above
2. Which of the following statement shows performance of a business
* Bank statement * Income statement
* Bank Reconciliation statement * All of the above
3. Which of the following shows financial position of a business:
* Income Statement * Cash Book * Balance Sheet * Bank Statement
4. A balance sheet discloses the financial position of a business
* For a specified accounting period * On a certain fixed date
* For the whole year * None of the above
5. Gross profit earned or gross loss suffered by a business is shown in
* Income Statement * Balance Sheet * Sales Journal * Ledgers
6. Cost of goods sold equals to:
* Sales – purchases * Purchases - closing inventory
*Sales + Closing inventory *Opening + purchases – Ending inventory
7. Net sales equals to :
* Sales – closing inventory * Sales – operating expenses
* Sales – sales returns – sales discounts * None of the above
8. The excess of gross profit over total operating expenses is called:
* Net Loss * Net profit * Sales * Revenue
9. Total amount of operating expenses is equal to:
* Gross profit – Selling expenses * Selling expenses – General expenses
* Selling expenses + General expenses * Net profit – Selling expenses
10. Which of the following is incorrect:
* Balance Sheet shows financial position of business
* Income statement shows financial performance of business
* Loss= Excess of expenses over revenues
* Profit= Excess of expenses over revenues
11. Following accounts are closed at accounting year end:
* Income, liabilities and expenses
*Assets, capital and expenses
* Revenues, expenses operating and non operating, drawings, non operating gains and losses
* Sales, capital and drawing
12. At the accounting year end, Net Profit or Net loss is transferred to:
* Liabilities * Capital * Income * Sales Journal
13. Total operating expenses are equal to:
* General expense + direct expense * General expense + salaries expense
* General expense + selling expense * Cost of goods sold + general expense
14. Owner’s equity is increased by;
* Net income * Net loss
ACCOUNTING: XI
PAGE: 81
* Withdrawal of cash * Withdrawal of merchandise
15. Opening inventory + purchases – ending inventory equals to:
* Cost of goods sold * Cost of goods available for sale
*Gross profit *Net profit
16. Which of the following is a contra asset account:
* Bad debt expense * Depreciation expense
* Allowance for bad debt * Salaries expense
17. Cost of goods sold account is:
* An asset account * An expense account
* An income account * A liability account
18. A balance sheet is a:
* Statement of debtors and creditors
* Statement of income and expenses
* Statement of income earned by the business
* Financial statement of a business on a particular date / statement of assets, liabilities and capital
19. Which of the following is correct:
* Allowance for bad debt is an asset account * Prepaid rent is an expense account
* Accrued income is an asset account * Accrued income is a liability account
20. Net profit or loss is normally transferred to:
* Cash account * Drawing account * Creditor account * Capital account
21. All those expenses which are related to selling functions are called:
* General expense * Selling expense
* Administrative expense * None of the above
22. Advertising expense fall under the category of:
* Selling expense * General expense
* Administrative expense * None of the above
23. What is the impact of net loss on capital:
* Increase * Decrease * No impact * None of the above
24. Bad debt expense is a:
* Direct expense * General expense
* Selling expense * None of the above
25. A prepayment initially recorded either as an:
* Asset or liability * Asset or expense * Asset or income * Expense or liability
26. Which of the following accounts do not need to be adjusted at the end of Fiscal year:
* Expenses * Prepaid * Revenues * Cash
27. Which of the following is an expense?
* Mdse. Inventory (Beg.) * Mdse. Inventory (Ending)
* Unearned incomes * None of these
28. The account not shown in a post closing trial balance is/are:
* Contra assets * Current Assets * Drawing * Merchandise opening
29. This account balance is shown in both income statement and balance sheet:
* Allowance for Bad debts * Depreciation expense
* Merchandise ending * Merchandise opening
30. Net Profit is transferred to:
* Owner’s eqiuity/ Capital account * Drawing account
ACCOUNTING: XI
PAGE: 82
* Purchases accounts * Cash accounts
31. This account is closed at the end of accounting period:
* prepaid rent * Accrued rent * Unearned rent * Rent expense
32. If the gross profit is Rs.5000 and the net profit is 25% of the gross profit, then the amount of
operating expenses will be:
* Rs.1250 * Rs.3750 * Rs.4150 * Rs. 6250
33. A fixed asset is reported on balance sheet at its:
* Replacement value * scrap value * Book value * Market value
34. Owner’s equity is increased by:
* Net income * Net Loss
* Drawings * Withdrawal of cash for office use
35. Owner’s equity is decreased by:
* Net income * Net Loss
* withdrawal of cash for office use * None of these
36. This is created by an adjusting entry:
* Purchase of supplies on account * depreciation expense
* Payment of wages to employees * billing of services rendered
37. The financial statement is based on the accounting equation:
* Balance sheet * Income statement
* Cash book * bank reconciliation statement
38. Reversing entries are passed:
* at the start of an accounting period * at the end of an accounting period
* after six months of an accounting period * during the accounting period
39. Sales are equal to:
* Cost of goods sold – Gross profit * Cost of goods sold – Net profit
* Cost of goods sold + Gross profit * Cost of goods sold + Net profit
40. In Balance Sheet allowance for Bad debts is:
* added to fixed assets * Added to A/C receivable
* deducted from Fixed assets * deducted from A/c receivable
41. In a pre closing trial balance salaries expense was reported at Rs. 75000. On 31st December
adjustment data showed accrued salaries Rs.15000, the adjusted amount of salaries expense
will be:
* Rs.60000 * Rs.90000 * Rs.15000 * Rs.75000
42. This is correct
* Allowance for bad debts is an asset account * Prepaid rent is an expense account
* Accrued income is an asset account * Accrued income is a liability account
43. The account is not closed
* Cash * Rent expense * Salary Expense * Sales
44. Income earned but not received is:
* Expense * asset * liability * capital
45. Income received but not earned is:
* Expense * asset * liability * capital
46. Allowance for bad debts account is a contra account to:
* A/Receivable * Capital * Expenses * Revenues
47. Allowance for depreciation account is a contra account to:
ACCOUNTING: XI
PAGE: 83
* Depreciable assets * Capital * Expenses * Revenues
48. Merchandise shown in a post closing trial balance is:
* Merchandise opening * Merchandise ending
* Merchandise returned by customers * Merchandise returned to supplier
49. Goods purchased for Rs.20000 was wrongly entered in Purchase Journal at Rs.28000, this will:
* Increase cost of goods sold * Increase sales
* Decrease cost of goods sold * Decrease sales
50. Unearned income is a/an:
* Assets * Capital * Expenses * Liability
51. This is not a balance sheet item:
* Allowance for Bad debts * Unearned fee
* Depreciation Expense * Bill receivable
52. This account is shown in income statement:
* Unearned rent * Prepaid rent * Rent payable * Rent income
53. The item is shown in both income statement and balance sheets:
* Merchandise inventory (beginning) * Allowance for bad debts
* Depreciation expense * Merchandise inventory (ending)
54. While calculating gross profit, following account is irrelevant:
* Transportation in * Sales
* Delivery expense * Merchandise inventory
55. These accounts are not debited in a closing entry except:
* Sales return & allowance * Purchases
* Sales * Transportation in
56. Adjusting and closing entries are recorded in:
* General Journal * Special Journal * General Ledger * Trial Balance
57. Each adjusting entry has an effect on:
* Balance sheet * Income statement
* Both Income statement & Balance sheet * None of these
58. The owner’s equity in the business increases from these two sources:
* Net income & Cash * Net profit & Drawing
* Net Profit & additional investment * All of these
59. Gross profit is:
* Excess of sales revenue over cost of goods sold
* Sales less ending stock
* Cost of goods sold plus opening stock
* Net profit less expenses
60. Accounts are updated at the end of Accounting period by making:
* Adjusting entries * General Journal entries
* Opening entries * Closing entries
61. Depreciation Expenses include:
* Non cash expenses * cash expenses * Prepaid expenses * all of these
62. If cash sales are 12000 and credit sales are 3000 then total revenues of the business is:
* 12000 * 3000 *15000 * none
63. 63. Supplies on hand on Jan 1, 2015 amounted to Rs.140. Supplies purchased for Rs.530
during the period, supplies consumed Rs.480, the amount of supplies at the end was:
ACCOUNTING: XI
PAGE: 84
* Rs.910 * Rs.760 * Rs.670 * Rs.190
64. Accounting cycle is a sequence of accounting procedural steps followed during:
* Accounting period * Two Years * Accounting equation * One Hour
65. When Gross profit is zero, it implies the:
* G.P < COGS * COGS > G.P * Net sales = COGS + G.P * None of these
66. This is not shown in income statement:
* Cash * sales * Salaries expense * Rent income
67. The following statement is correct:
* Profit increases owner’s equity * Profit decreases owner’s equity
* Profit increases liability * Profit decreases assets
68. Accrued income is:
* Income receivable * Income payable * Unearned income * Expense
69. If commission received during the year amounts to Rs.20000 and commission accrued at the
end of year is Rs.5000. What is the amount of commission for the year:
* Rs.20000 * Rs.5000 * Rs.15000 * Rs.25000
70. Which of the following is shown in income statement?

* Prepaid expense * Accrued salaries * Salaries expense * Salaries paid
71. If salaries paid during the year amounts to Rs.9000 and the amount of salaries accrued at
year end is Rs.3000. The amount of salaries expense for the year will be:
* Rs.9000 * Rs.3000 * Rs.6000 * Rs.12000
72. Gross profit is equal to:
* Purchases – Sales * Excess of sales over cost of goods sold
* Sales – Operating expenses * Purchases – Merchandising inventory ending
73. Beginning inventory + Purchases – Ending inventory = ?
* Cost of goods old * Gross profit * Net profit * Net sales
74. Allowance for bad debts account is:
* An asset account * A contra asset account
* A liability account * An expense account
75. Closing entries are recorded:
* at start of an accounting period * at end of an accounting period
* When new accountant joins the firm * None of the above
This is part of account receivable that is estimated to be uncollectible:
*Bad debts * Depreciation * credit sales * unsold inventory
76. Assets are equal to:
* Cash + Capital * Capital – Liabilities * Liabilities + Capital * Cash – Capital
77. If total liabilities of a business are Rs.50000, which are 2/3 of the total Assets. Then the total
assets will be:
* 95000 * 85000 * 75000 * 65000
78. Interest earned but not yet received is called:
* Accrued income * Unearned income * Other income * none of these
79. In the balance sheet, ending inventory is shown as:
* Liabilities * Assets * Income * Capital
80. Net Profit is always:
* Equal to gross profit * More than gross profit
ACCOUNTING: XI
PAGE: 85
* Less than gross profit * All of these
81. Opening entries are prepared for:
* Income, Expenses, Drawing * Income, Expenses, Assets
* Drawing, Liabilities, Expenses * Assets, Capital, Liabilities
82. Cost of goods sold is:
* Assets * Income * Expenses * Liability
83. Accrued income is shown in:
* Balance sheet * Income statement * Cash Book * none of these
84. This is a long term liability:
* Bank loan * Salaries payable * Account payable * Rent payable
85. The error in cash account will effect
* Income statement * Balance sheet * Purchase journal * Sales journal
86. The statement which shows revenues and expenses of an entity is called:
* Income statement * Balance sheet * Purchase journal * Cash book
87. Financial transactions are recorded in:
* Journal * Petty cash book * Sales journal * Balance sheet
88. It is not a book of prime entry:
* Journal * Ledger * Sales journal * Purchase journal
9. CORRECTION OF ERRORS
● Types of errors
● Correction of errors before closing expense and revenue summary accounts.
● Correction of errors after closing expense and revenue summary accounts.
Rectification of Errors
Errors are normally committed in recording business transactions under the double entry system of
accounting. They are as classified under:
1. Errors of amount 2.Errors of account tiles
3. Errors of omission 4. Errors of Principle
In accounting errors are not corrected by striking off or over writing rather errors are corrected by
giving appropriate accounting treatment based on double entry system
Correction of errors may be made before closing or after closing the revenue and expense accounts.
The accounting treatment for correction of errors differs in both the situations.
ACCOUNTING: XI
PAGE: 86
Correction of Errors before closing the revenue and expense accounts.
If errors are detected before closing the accounts, the correcting entries are made through the
accounts affected by the errors.
Correction of errors of amount

1. Understatement of amount
2. Overstatement of amount
For correcting the understated amount, a correcting entry will be made by the short recorded amount
using the same account titles.
For correcting the overstated amount, a correcting entry will be made by the over stated amount just
reversing the incorrect entry.
Errors of account titles

For correcting errors of account title the account titles wrongly debited in the entry will have to be
credited in the correcting entry, and the wrongly credited account will have to be debited in the
correcting entry by the same amount of incorrect Entry.
Errors of omission
Some transactions are mistakenly omitted. The so omitted transactions are brought on record by
making a normal journal entry.
Errors of principle
These errors occur because of wrong application of debit & credit rules, that is, the account to be
debited is wrongly credited and the account to be credited is wrongly debited. For correcting this
error, the wrongly debited account needs be credited & wrongly credited account be debited by
double the amount of the incorrect entry.
Correction of Errors after closing the books of accounts

If errors are detected after closing the periodic revenue & expense accounts, the correcting entries are
then made through the Capital Account or Retained Earnings Account. After the revenue & expense
accounts are closed out, no revenue or expense titles are used for making correcting entries. But the
balance sheet accounts affected by correcting entries are used.
ACCOUNTING: XI
PAGE: 87
EXERCISES # 1
Problem 9.1: Following errors were found before closing the books of Mr. Asif.
(i) Purchase of Office Furniture for Rs.12000 cash was charged to in Office Equipment account.
(ii) Wages amounting to Rs.1500 was debited to repair expense account.
(iii) Purchase of merchandise for Rs.40000 on account were recorded and posted as Rs.4000.
(iv) Sale of an old furniture for Rs.3500 cash was charged to Sales account.
(v) Merchandise worth Rs.5000 taken by the proprietor for his personal use, was debited to
Drawing account and credited to Sales account.
Required:
Prepare entries in a General Journal to correct the above errors.
Problem 9.2: The following errors were discovered before closing the books of Mr. Farhan.
(i) Office supplies amounting to Rs.1500 was debited to purchases account.
(ii) Construction cost of an additional room in office building of Rs.50000 was wrongly debited to
repairs account.
(iii) Withdrawal of cash by the proprietor Rs.8000 was debited to salaries expense account.
(iv) Purchase of Office furniture on account for Rs.6500 was recorded and posted as Rs.5600.
(v) Sale of office equipment for Rs.2000 was credited to sales account.
Required:
Prepare Correcting entries in a General journal.
Problem 9.3: Following errors were found before closing the books of Ahsan.
(i) Purchased an office table for Rs.1600 was recorded as Office equipment.
(ii) Sales return of Rs.550 from a customer was debited to sales discount.
(iii) Drawing made by the owner Rs.500 was charged to General expense account.
(iv) Receipt of Rs.600 from Atif & Co. a customer, was charged to the account of Asif & Co.
(v) Payment of machinery repairs Rs.200 was charged to machinery account.
(vi) Construction as addition to office building for Rs.50000 was wrongly debited to repairs
account.
Required:
Prepare Correcting entries in General journal.
Problem 9.4: Following errors were found before closing the books of Mr. Bilal.
(i) Accrued commission income was overlooked Rs.5000.
(ii) Purchased office supplies Rs.235 cash was recorded as Rs.253.
(iii) Return of defective part of machinery worth Rs.2500 was recorded in purchase return account.
(iv) An amount of Rs.12000 paid to Raheem & Co. was incorrectly recorded to the account of
Raheem Sons.
(v) Purchased merchandise for Rs.25000 was wrongly recorded as Rs.20000.
Required:
ACCOUNTING: XI
PAGE: 88
Problem 9.5: Give entries in a General journal to correct each of the following errors deducted before
closing the books of Erma Stores.
(i) Purchases return of Rs.185 was credited to purchases account.
(ii) Sales of office furniture Rs.160 was credited to sales account.
(iii) Depreciation on furniture Rs.55 was overcharged.
(iv) Drawing of Rs.1200 for personal use of the proprietor was debited to capital account.
(v) Cash Rs.40 received from Hamna was recorded as received from Yanna.
Problem 9.6: Following errors were found before closing the books of Shayan.
(i) Paid salaries Rs.2000 was wrongly debited to Rent expense account.
(ii) Purchased office supplies for Rs.1000 was wrongly debited to equipment account.
(iii) Defective goods worth Rs.500 returned by a customer was wrongly recorded in purchases
account.
(iv) Repairs cost to machinery at invoice price Rs.1500 was wrongly debited to Machinery account.
(v) Drawing of Rs.700 for personal use of owner was wrongly debited to salaries expense account.
(vi) Purchases return at invoice price Rs.1000 was wrongly credited to Sales account.
Required:
Problem 9.7: Following errors were found before closing the books of accounting of Salman.
(i) A cheque for Rs.5000 was received from Irfan Sons and deposited in the bank account but was
record in the cash book as Rs.500.
(ii) The invoice Rs.8000 was paid to Akram after discount period but payment was recorded
deducting 2% for discount.
(iii) Bad debts expense was overstated by Rs.2000.
(iv) Accrued interest on overdraft of Rs.4000 was overlooked.
(v) Accrued commission income was understated by Rs.2500.
Required:
Problem 9.8: The following errors were discovered before closing the books of accounts of Ehsan
Company.
(i) Purchase of Furniture for Cash Rs.9000 was debited to Purchases account.
(ii) Return of defective goods worth Rs.2000 to the supplier was credited to purchases account.
(iii) Ordinary repair costing Rs.1000 to the office equipment was debited to office equipment
account.
(iv) Depreciation was overcharged by Rs.3000 through the allowance for depreciation account.
(v) Purchase of office supplies on credit for Rs.9000 was recorded as Rs.6000.
(vi) Payment of Rent expense Rs.5000 was recorded as receipt of rent income.
Required:
ACCOUNTING: XI
PAGE: 89
Problem 9.9: The following General Journal contains some incorrect entries. However, the correct
narrations below each entry show the actual transactions.
General Journal Page No: 7
February 2 Sales 25000
Accounts receivable 25000
(returned inferior goods to customer)
March 5 Purchases return & allowance 2000
Account payable 2000
(returned defective goods to suppliers)
May 29 Account Payable 5000
Cash 5000
(Payment to supplier within discount period, terms
: 2/10, n/30)
June 11 Cash 6000
Sales 6000
(Sale of an old furniture)
August 8 Rent expenses 7000
Bank 7000
(Payment by cheque the rent of residential
building of owner)
Required:
Prepare a revised General Journal correcting the above errors.
Problem 9.10: The following errors were found before closing the accounts of Saqib Brothers.
(i) Purchase of an Office table for Rs.1600 was entered as office equipment.
(ii) Sales return of Rs.550 from a customer was debited to sales discount account.
(iii) Withdrawal by the proprietor of Rs.600 was debited to General expense account.
(iv) Payment to technicians for installation of computer Rs.1500 was debited to Repair Expense
account.
(v) Receipt of Rs.1000 from Rehman Co., a customer, was recorded in the account of Raheem Co.
(vi) An old office furniture was sold for Rs.750 was recorded as for Rs.720 in furniture account
wrongly.
(vii) Machinery repairs payment Rs.200 was debited to machinery account.
(viii) Purchase of stationery for Rs.1200 was wrongly recorded as Rs.2100.
(ix) Purchase of merchandise for Rs.5000 on account was overlooked.
Required:
Pass Journal entries with full narration to ractify the above errors.
ACCOUNTING: XI
PAGE: 90
IMPORTANT ACCOUNTING TERMS

Accounting:
“Accounting is an art of recording classifying and summarizing in a significant manner and in terms of
money, transactions and events which are in part at least of a financial character and interpreting the
result thereof.”(AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANT).
Accounting Cycle:
The process used by business entities to analyze and record transactions, adjust the records at the end
of the period, prepare financial statements, and prepare the records for the next cycle.
Accounting Equation (Balance Sheet Equation):

The sum of total assets will necessarily be equal to the sum of total liabilities and total capital of a
business. The balance sheet is generally stated as:
ASSETS = LIABILITIES + OWNER’S EQUITY
Accounts Receivable (Trade Receivable):

Amounts due from customers for goods or services sold “on account” (on credit).
Account Payable (Trade Payable):

Amount owed to creditors for goods or services obtained on credit basis.
Assets: Probable future economic benefits owned by the entity as a result of past transactions. They
are classified as:
1. Current Assets and
2. Non-current Or Fixed Assets
Business Entity:
It is a function of accounting to record and report the financial activities of the particular enterprise. In
recording transactions in accounts, the relevant consideration for the accountant is: How do they
affect the business? : Rather than: how do they affect the owner or owners and others associated with
the business?
Contingent Liability:
Potential liability that has arisen as the result of a past event; not an effective liability until some
future event occurs.
Capital/Proprietorship/ Owner Equity: Owner’s or owners’ claims or interests are called capital/
Proprietorship/ Owner equity.
Assets – Liabilities = Capital
Cash transaction: A cash transaction is one that involves a cash payment at the time of exchange.
Chart of accounts: A chart of accounts is the list of account titles.
Contra-Account: An account that is an offset to, or reduction of, the primary account.
Credit: The right side of an account
ACCOUNTING: XI
PAGE: 91
Debit: The left side of an account
Double entry: Under this system, for every debit amount an equal amount of credit is recorded.
Equities: It is defined as the claims or interests of various parties in the assets of the business
enterprise, expressed in monetary terms.
Expenses: Expense is the cost of goods and services used up for earning revenue. Expense is negatively
related to capital that is increase in expense leads to decrease in capital.
Going-Concern: Assumption States that business are assumed to continue to operate into the
foreseeable future
Gross Profit: Net sales less cost of goods sold.
(S.P > C.P)
Gross Loss: Net sales less cost of goods sold.
(C.P > S.P)
Liabilities:
Creditors’ claims or interests are called liabilities. Liabilities are classified as:
1. Current Or short term Liabilities and
2. Long-term Or non-current Liabilities
Ledger: A group of accounts is called a Ledger.
Merchandise Inventory: Goods held for resale in the ordinary course of business.
Revenues: Revenue is the price of services rendered, or the price of merchandise (goods) sold for
earning profit. Revenue is positively related to capital, that is, increase in revenue leads to increase in
capital.
Transaction: Economic activities of an enterprise measured in money values are termed as
“transactions”
There are two types of Transaction.
1. Cash Transaction.
2. Credit Transaction.
Trial Balance:
A list of all accounts with their balances to provide a check on the equality of the debits and credits.
Accounting Formulas:
Case 1: Assets = Liabilities + Capital Assets = Liabilities + (Capital + Profit)
Since, Profit = Revenue - Expenses
Therefore, Assets = Liabilities + (Capital + Revenue - Expenses)
So, extended accounting equation is Assets = Liabilities + Capital + Revenue - Expenses
Case 2: Assets = Liabilities + Capital

Since, Assets = Non-current assets + current assets
Therefore, Non-current assets + current assets = Liabilities + Capital
Since, Liabilities = Non-current liabilities + current liabilities
Therefore, Non-current assets + current assets = Non-current liabilities + current liabilities + Capital
Non-current assets + current assets = Non-current liabilities + current liabilities + (Capital + Profit)
ACCOUNTING: XI
PAGE: 92
Since, Profit = Revenue - Expenses Therefore, Non-current assets + current assets = Non-current
liabilities + current liabilities + (Capital + Revenue - Expenses)
So, extended accounting equation is Non-current assets + current assets = Non-current liabilities +
current liabilities + Capital + Revenue – Expenses

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ACCOUNTING: XI

3. CAPITAL OR OWNER’S EQUITY:

MULTIPLE CHOICE QUESTIONS

2. THE GENERAL JOURNAL

DERIVATION OF THE RULES OF DEBIT & CREDIT:

Transactions with bank

Prepaid expenses transactions

Purchase of asset transactions

Payment of A/c Payable transactions

Sale of asset transactions

Receipt of Revenue transactions

Payment of Expenses transactions

Purchase of merchandise/goods transactions

Purchases returns transactions

Sale of merchandise/goods transactions

Sales returns transactions

Purchase of an asset transactions

Payment to A/c Payable transaction

Sale of asset transactions

Receipt of Revenue transactions

Payment of Expenses transactions

Purchase of merchandise/goods transactions

Return of merchandise to supplier transactions

Sale of merchandise/goods transactions

Return of merchandise from customer transactions

MULTIPLE CHOICE QUESTIONS

7. Current liabilities are such obligations which are to be paid within:

3. THE LEDGER AND TRIAL BALANCE

1. Skeleton form of T/account:

1. Standard form of T/account:

Date Explanation P.R Dr. Date Explanation P.R Cr.

2. Self Balancing form

Date Explanation P.R Dr. Cr. Balance

Footing & Balancing

Jan 1, 2015 50000 Jan 20, 2015 1000

Jan 1, 2015 50000

Jan 4, 2015 5000

Jan 15, 2015 4000

Jan 15, 2015 4000

Jan 20, 2015 1000

Jan 25, 2015 4000

MULTIPLE CHOICE QUESTIONS

13. Trial balance can be described as:

24. Posting means:

4. ACCOUNTING FOR CASH

MULTIPLE CHOICE QUESTIONS

5. ACCOUNTING FOR CASH

MULTIPLE CHOICE QUESTIONS

6. ACCOUNTING FOR CASH

CAUSES OF DIFFERENCE B/W THE BALANCE AS PER CASH BOOK

Following differences will be deducted from the balance of bank

Following differences will be deducted from the balance of cash book.

MULTIPLE CHOICE QUESTIONS

17. A cheque with a future date is called:

● Sales Returns & Allowance

● Purchases Returns & Allowances

● General Ledger for Controlling Account

Dec 31 A/c receivable 1002 15000

Sales Returns & Allowance Journal

Dec 31 Sales return& allowance 4102 2500