Book-keeping and Accounting

Definitions:

Book keeping is an art of recording business transactions

in set of books in accordance with the principles of book
keeping

Book keeping is also a science of recording business

dealings in a regular and systematic manner so as to
reveal the exact financial position on any given date

Accounting is an art of recording, classifying &

summarising business transaction and interpreting the
results there of

Book-keeping is an art/science of recording business

transactions

Accounting uses the data emerging from Book-keeping

activities

Objects of Bookkeeping
To have a permanent record of business transactions

To show the exact financial position on any given

date

To ascertain the profit or loss made by the

business

To find out the amount due by others to the

business concern

To know the amount due by the concern to others

Double Entry Bookkeeping

Best system to achieve the above objects

Fundamental principle :
For every debit
corresponding
and equal credit

there

must

be

Advantages of Double Entry Book keeping

Complete information of all the transactions

Preparing trial balance to test the accuracy

Ascertaining exact financial position

Finding out the profit or loss of the business

Find out the amount due by others to the

business unit and the amount due by the
business unit to others

Journal

Book of original entry

Both aspects of all business transactions

being recorded

Steps in Journalizing

Find out the two accounts affected

Decide the types of these two accounts

Apply the rules of Debit and Credit

Pass the journal entry and

Write Narration

Types of Accounts
1) Personal Accounts and
2) Impersonal Accounts.
Impersonal accounts :
i) Real Accounts and ii) Normal Accounts
1) Personal Accounts :
Accounts of the persons, firms or companies
Eg:- Mohans A/C, M/S Suneel Trading Co. A/C etc.
2) Real Accounts:
Accounts of assets owned by the business concern
Eg:- Cash A/C, Goods A/C, Machinery A/C etc.
3) Nominal Accounts:
Accounts of expenses incurred and income earned
Eg:- Salary A/C, Rent A/C, Interest A/C etc.

Rules of Journalising
1) Personal Accounts:
Debit the receiver of the benefit
Credit the giver of the benefit
2) Real Accounts:
Debit what comes in
Credit what goes out
3) Nominal Accounts:
Debit all expenses or losses
Credit all income or gains

Problem :
Pass Journal entries for the following transactions:
2007
Jan 1 Commenced business with the following:
Cash

60,000

Furniture

50,000

Buildings

80,000

Debtors

10,000

Creditors

50,000

Transactions for the month:

1

Deposited into bank

50,000

Purchased goody from Ramesh

80,000

Sold goods to Prasad

30,000

Sold goods to Hari for cash

60,000

Sold goods

50,000

Withdrew from bank for office use

30,000

10

Paid cash to Ramesh

68,000

12

and discount allowed by him

2,000

15

Purchased furniture

5,000

15

Withdrew from bank for private use

19

Received from Prasad

2000
19000

and allowed him discount

1000

20

Sold furniture for cash

8000

22

Received from Murty as loan

30000

23

Purchased goods

25000

25

Received Rs. 2,000 towards commission

27

Received goods returned by Prasad

28

Returned goods to Ramesh

5000

31

Paid fire insurance premium

4000

31

Paid Salary to Gopal, the Typist

6000

10,000

Problem :
State the debit and credit accounts, giving the reason, for the
following transactions.
1) Commenced business with Rs. 10,00,000
2) Withdrew cash for personal use Rs. 5,000
3)
Paid Rent of Building Rs. 15,000
4) Bought an equipment worth Rs. 70,000 for office use.
5) Received a cheque from Shankar Stores Rs. 30,000
6) Received a loan from Bhaskar Rs. 40,000
7) Sold goods to Patil on credit Rs. 50,000
8) Sold goods to Vijay Rs. 55,000
9) Sold Furniture to X Trading Co. Rs. 5,00,000
10) Discount Allowed to Mohan Rs. 20,000
11) Transport charges paid on Machinery bought Rs. 20,000
12) Discount earned from Vijay Rs. 3,000
13) Introduced Further Capital Rs. 50,000
14) Purchased Machinery from X Rs. 50,000
15) Paid Rent to landlord Rs. 25,000

16) Received interest on Investment Rs. 30,000

17) Dividend Received Rs. 40,000
18) Bought stamps Rs. 2,000
19) Charged Mahesh a commission for service rendered to
him Rs. 15,000
20) Office Equipment stolen Rs. 30,000
21) Paid for Income Tax Rs. 20,000
22) Paid for life insurance premium Rs. 45,000
23) Till taking for the month Rs. 2,00,000
24) Repaid loan to Raju Rs. 3,00,000 with interest of Rs.
2,500
25) Deposited into Bank Rs. 60,000
26) Commission due to Naresh Rs. 5,500
27) Withdrew from Bank for office use Rs. 1,00,000
28) Bought Investments Rs. 30,000
29) Gave loan to Somesh Rs. 2,00,000
30) Paid electricity charges Rs. 10,000

Sl.
No.
1

Name of Accounts involved

in Transaction

Type of
Account

Reason

a)
b)

Cash A/c
Capital A/c

Real A/c
Personal A/c

Comes in
Giver

a)
b)

Drawings A/c
Cash Account

Personal A/c
Real A/c

Receiver
Goes out

Debit
Rs.

Credit
Rs.

10,00,000
---

--10,00,00
0

5,000
-

--5,000

a)
b)

Rent A/c
Cash A/c

Nominal A/c
Real A/c

Expenses
Goes out

15,000
---

--15,000

a)
b)

a)
b)

a)
b)

a)
b)

8
9

Office Equipment A/c

Cash Account

Real A/c
Real A/c

Comes in
Goes out

70,000
---

--70,000

Real A/c
Personal A/c

Comes in
Giver

30,000
---

--30,000

Real A/c
Personal A/c

Comes in
Giver

40,000
---

--4,0000

Patils A/c
Sales A/c

Personal A/c
Real A/c

Receiver
Goes out

50,000
---

--50,000

a)
b)

Vijays A/c
Sales Account

Personal A/c
Real A/c

Receiver
Goes out

55,000
---

--55,000

a)
b)

X Trading Co. A/c

Furniture A/c

Personal A/c
Real A/c

Receiver
Goes out

5,00,000
---

Cash A/c
Shankar Stores A/c
Cash A/c
Bhaskars Loan A/c

--5,00,000

11

a)
b)

Machinery A/c
Cash A/c

Real A/c
Real A/c

Comes in
Goes out

20,000
---

--20,000

12

a)
b)

Vijays Account
Discount Received A/c

Personal A/c
Nominal A/c

Receiver
Income

3,000
---

--3,000

13

a)
b)

Cash A/c
Capital A/c

Real A/c
Personal A/c

Comes in
Giver

50,000
---

--50,000

14

a)
b)

Machinery A/c
Xs Account

Real A/c
Personal A/c

Comes in
Giver

50,000
---

--50,000

15

a)
b)

Rent A/c
Cash A/c

Nominal A/c
Real A/c

Expenses
Goes out

25,000
---

--25,000

16

a)
b)
A/c

Real A/c
Nominal A/c

Comes in
Income

30,000
---

-30,000

17

a)
b)

Real A/c
Nominal A/c

Comes in
Income

40,000
---

--40,000

18

a)
b)

Postage A/c
Cash A/c

Nominal A/c
Real A/c

Expenses
Goes out

2,000
---

--2,000

19

a)
b)

Maheshs A/c
Commission A/c

Personal A/c
Nominal A/c

Receiver
Income

15,000
---

--15,000

20

a)
b)

Nominal A/c
Real A/c

Loss
Goes out

30,000
---

--30,000

Cash A/c
Interest on Investment
Cash A/c
Dividend A/c

Loss by Stolen A/c

Office Equipment A/c

21

a)
b)

22

a)
b)

23

a)
b)

24

a)
b)
c)

25

a)
b)

26

Drawings A/c
Cash A/c

Personal A/c
Real A/c

Receiver
Goes out

20,000
---

--20,000

Personal A/c
Real A/c

Receiver
Goes out

45,000
---

--45,000

Real A/c
Real A/c

Comes in
Goes out

20,000
---

--20,000

Personal A/c
Nominal A/c
Real A/c

Receiver
Expenses
Goes out

300000
2500
---

----3,02,500

Bank A/c
Cash A/c

Personal A/c
Real A/c

Receiver
Goes out

60,000
---

--60,000

a)
b)

Commission A/c
Nareshs A/c

Nominal A/c
Personal A/c

Expenses
Giver

5,500
---

--5,500

27

a)
b)

Cash A/c
Bank A/c

Real A/c
Personal A/c

Comes in
Giver

1,00,000
---

--1,00,000

28

a)
b)

Investments A/c
Cash A/c

Real A/c
Real A/c

Comes in
Goes out

30,000
---

--30,000

29

a)
b)

Someshs Loan A/c

Cash A/c

Personal A/c
Real A/c

Receiver
Goes Out

2,00,000
---

--2,00,000

30

a)
b)

Electricity Charges A/c

Cash A/c

Nominal a/c
Real A/c

Expenses
Goes out

10,000
---

--10,000

Drawings A/c
Cash A/c
Cash A/c
Sales A/c
Rajus Loan A/c
Interest on Loan A/c
Cash A/c