THEORY BASE OF ACCOUNTING.pptx

ACCOUNTING
 Accounting is the language business.
 Accounting is an information system that provides
accounting information to the users for correct
decision-making..
“Accounting is the 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 there of”

1. Source Documents
 they are the first documents that exist relating to a
transaction.
 serve as proof for, a transaction.
 Bookkeepers and accountants need to keep source
documents for each transaction.
 Ex- invoices, cash slips, receipts, check counterfoils,
bank deposit slips and more.

2. Journals
 Journal entries are that first basic entry of debit and
credit for each transaction, chronological (date-order)
records of transactions entered into by a business.
 Journals also refer to the books of first entry,


3. Ledger (T-Accounts)
 The ledger is a grouping of the accounts of a
business.
 we take all the journal entries (debits and credits)
relating to one account (in this example, bank) and
draw up an account with all the transactions
relating to it

4. The Trial Balance
 The trial balance is a sheet or report displaying all the
accounts of a business, drawn up as a trial (test) of
whether the total of all the debit balances equal the
total of all the credit balances.
 The trial balance is prepared as a final check before
drawing up the financial statements. When errors are
shown up in the trial balance, we make corrections
through adjusting entries.

5. Financial Statements
 The financial statements are the key reports of a
business.
 they are prepared from the information in the trial
balance above.
 The purpose of the financial statements is to show the
reader the financial position, financial
performance and cash flows of a business.
 Financial statements are usually prepared once a year
 consist of an income statement, statement of changes
in owners equity, balance sheet, cash flow statement

Objectives of Accounting
1. To maintain a systematic record of business
transactions
2. To ascertain profit and loss
3. To determine the financial position
4.To provide information to various users
5. To assist the management

1. To maintain a systematic record
of business transactions
 Accounting is used to maintain a systematic record of
all the financial transactions in a book of accounts.
 For this, all the transactions are recorded in
chronological order in Journal and then posted to
principle book i.e. Ledger.

2. To ascertain profit and loss
 Every businessman is keen to know the net results of
business operations periodically.
 To check whether the business has earned profits or
incurred losses, we prepare a “Profit & Loss Account”.

3. To determine the financial
position
 to check the value of assets and liabilities.
 we prepare a “Balance Sheet”.

4.To provide information to
various users
1. Investors and
potential Investors
safety and growth of their investments, future of the
business
2. Creditors assessing the financial capability, ability of the
business to pay its debts
3. Lenders Repaying capacity, credit worthiness
4. Tax Authorities assessment of due taxes, true and fair disclosure of
accounting information
5. Employees Profitability to claim higher wages and bonus,
whether their dues (PF, ESI etc.) deposited regularly.

5. To assist the management
 By analysing financial data and providing
interpretations in the form of reports, accounting
assists management in handling business operations
effectively.
 to evaluate the performance, to take various decisions

Characteristics of Accounting:
(1) Identifying financial transactions and events
(2) Recording of transactions
(3) Classifying the transactions
(4) Summarising the transactions
(5) Analysing and interpreting financial data
(6) Communicating the financial data or reports to the users

(1) Identifying financial
transactions and events
 Accounting records only those transactions and events
which are of financial nature.
 So, first of all, such transactions and events are
identified.

(2) Recording of transactions
 Accounting involves recording the financial
transactions inappropriate book of accounts such as
Journal or Subsidiary Books.

(3) Classifying the transactions
 Transactions recorded in the books of original entry –
Journal or Subsidiary books are classified and grouped
according to nature and posted in separate accounts
known as ‘Ledger Accounts’.

4) Summarising the transactions
 It involves presenting the classified data in a manner
and in the form of statements, which are
understandable by the users.
 It includes Trial balance, Trading Account, Profit and
Loss Account and Balance Sheet.

(5) Analysing and interpreting
financial data
 Results of the business are analyzed and interpreted so
that users of financial statements can make a
meaningful and sound judgment.

(6) Communicating the financial
data or reports to the users
 Communicating the financial data to the users on time
is the final step of Accounting so that they can make
appropriate decisions.

Different Branches of Accounting
(a) Financial accounting
(b) Cost accounting
(c) Management accounting

(a) Financial accounting:
 Financial Accounting is that branch of accounting
which involves identifying, measuring, recording,
classifying, summarising the business transactions, i.e.
 it involves the steps from Identifying, Recording of
transactions to Summarisation, and communicating
the financial data.

(b) Cost accounting:
 Cost Accounting is that branch of accounting which is
concerned with the process of ascertaining and
controlling the cost of products or services.

(c) Management accounting
 Management accounting refers to that branch of
accounting which is concerned with presenting the
accounting information
 in such a way that helps the management in planning
and controlling the operations of a business
 and in decision making.

ADVANTAGE
 1. Helpful in management of business
 2. Helpful in the payment of income tax and sales tax
 3. Helps in sale of business
 4. Aid to memory
 5. Proof in the court of laws
 6. Helpful in the realization of debts: -
 7. Helpful in making comparative study:
 8. Helpful in planning
 9. Makes decision making easy

Limitations of Accounting
 Accounting is not precise: Accounting is not completely free
from personal bias or judgment.
 Accounting is done on historic values of assets: Accounting
records assets at their historical cost less depreciation. It does
not reflect their current market value.
 Ignore the effect of price level changes: Accounting
statements are prepared at historical cost. So changes in the
value of money are ignored.
 Ignore the qualitative information: Accounting records only
monetary transactions. It ignores the qualitative aspects.
 Affected by window dressing: Window dressing means
manipulation in accounting to present a more favourable
position of the business than the actual position.

Define the term Bookkeeping,
Accounting and Accountancy.
Bookkeeping Book Keeping is a part of Accounting and it is the
process of identifying, measuring, recording and
classifying the financial transactions.
Accounting Accounting is a wider concept and actually, it
begins where Book Keeping ends. It includes
summarizing, interpreting and communicating
the financial data to the users of financial
statements.
Accountancy Accountancy refers to systematic knowledge of the
principles and the techniques which are applied in
Accounting.

BOOK KEEPING
 Book-keeping is the art of keeping or maintaining
accounts in the prescribed manner.
 According to A.H. Rozencomph : - Book-Keeping is
the art of recording business transactions in a
systematic manner.
 Accounting = Book-Keeping (recording, classifying,
summarizing) + Analysis and interpretation

BASIS BOOK KEEPING ACCOUNTING
1.Scope BOOK Keeping involves (a)
identifying the transactions,
(b) measuring the identified
transactions
(c) recording the measured
transactions
(d) classifying the recorded
transactions.
Accounting in addition to
Bookkeeping
involves summarizing the
classified Transactions, analysing
the summarized
results, interpreting the analysed
results and communicating the
interpreted information to
the interested parties
2 Stage Book-keeping is primary stage. Accounting is the secondary
stage. It starts
where bookkeeping ends.
3. Basic
Objective
The basic objective of book
keeping is to maintain
systematic records of financial
transactions.
The basic objective of accounting
is to
ascertain net results of operations
and
financial position and to
communicate
information to the interested

4. Who Performs Book-keeping work is
performed
by junior staff.
Accounting work is
performed by senior staff
5. Knowledge
Level
The book-keeper is not
required
to have higher level of
knowledge than that of an
accountant
The accountant is required
to have higher
level of knowledge than that
of bookkeeper.
6. Analytical
Skill
The book-keeper may or may
not possess analytical skill.
An accountant is required to
possess analytical skill.
7. Nature of Job The job of a book-keeper is
often routine and clerical in
nature.
The job of an accountant is
analytical is nature.
8. Designing of Accounting
System
It does not cover designing
of accounts system.
It covers designing of
accounting system.
9. Supervision & Checking The book-keeper does not
supervise and check the
work of an accountant.
An accountant supervises
and checks the work of a
book-keeper.

DOUBLE ENTRY SYSTEM
OF BOOK-KEEPING.
 This system of accounting was invented by Lucas Pacioli of
Italy in 1494
 The system is based upon the fact that there are two aspects
of every transaction.
 Each business transaction involves at least two persons,
parties or accounts.
 Double entry does not mean that a transaction is recorded
twice. It means that at least two accounts are affected by a
transaction.

PRINCIPLES
 (i) Each business transaction affects at least two accounts.
 (ii) Each account is divided into two parts, i.e., Debit Side
and Credit Side.
 (iii) Division of amount column of journal into Debit and
Credit.
 (iv) Based upon accounting concepts and conventions.
 (v) Helps in preparing Trial Balance which is a test of
arithmetical accuracy in accounting. In a Trial Balance total
of all debit is always equal to the total of all credits.
 (vi) Preparation of final accounts with the help of Trial
Balance.

USER OF ACCOUNTING INFORMATION
INTERNAL USERS
Owners
Management
Employees
EXTERNAL USERS
Banks
Investors
Creditor
Government
Public

INTERNAL USERS
 1.Owners They need information related to profit or loss and
financial position of the organisation so that they can
evaluate the extent to which their investment is safe and
earning profits.
 2. Management Management of an organisation needs
accounting information for planning & controlling
 3. Employees- These employees get bonus on the basis of
financial performance

1. Banks Financial Institutions- Banks & financial institutions
provide loans to the organisation on the basis of their projected
working in financial terms.
2. Investors- Investors, both existing and prospective, need
information aboutfinancial performance of the organisation and its
financial position. need information to evaluate the desirability of
investment.
3. Creditor interested in knowing creditworthiness of the organisation
before allowing credit sales of significant amount.
4. Government tax authorities need financial information to evaluate
whether the taxes have been paid correctly by the organisations.
5. Public organisations contribute to public welfare in several forms like
providing employment, making goods available
EXTERNAL USERS

QUALITATIVE CHARACTERISTICS OF
ACCOUNTING
(i).Reliability
(ii).Relevance:
(iii).Understandability
(iv). Comparability

(i).Reliability: Accounting information is meaningful only when it is
reliable. Accounting information has reliability when it
(a) has true representation of relevant transactions, (b) is verifiable by
any one and (c) is complete in all respects.
(ii).Relevance: In order to became effective tool for decision making,
accounting information should be relevant to its users. Accounting
information has relevance when it(a) influences decision of the users
by helping them to evaluate past, present or future events and (b) is
received timely.
(iii).Understandability : Accounting information should have
understandability from the view point of users. Accounting
information has understandability when it is (a) presented in such a
form which can be easily understood by the users and (b) devoid of
very critical accounting terms and jargons.
(iv). Comparability: To be useful, accounting information should have
quality of comparability. Accounting information should have quality
of comparability. Accounting information has quality of comparability
when (a) information belongs to similar period of time and (b)
common unit of measurement and formats of presenting information
are used.

GAAP (generally accepted
accounting principles)
 GAAP (generally accepted accounting principles) is a
collection of commonly-followed accounting rules and
standards for financial reporting.
 GAAP specifications include definitions of concepts
and principles, as well as industry-specific rules.
 The purpose of GAAP is to ensure that financial
reporting is transparent and consistent from one
organization to another.
 a common set of accounting principles, standards, and
procedures issued by the Financial Accounting
Standards Board (FASB)

Meaning of Accounting Standards
 Accounting Standards are written policy documents
issued by expert accounting body or by the
government or other regulatory body covering the
aspects of recognition, measurement, treatment,
presentation, and disclosure of accounting
transactions in financial statements
 An accounting standard is a policy that defines
the treatment of an accounting transaction in
financial statements.

Indian Accounting Standard
 abbreviated as Ind-AS
 Ind AS or Indian Accounting Standards govern the accounting and
recording of financial transactions as well as the presentation of
statements such as balance sheet and profit and loss account of a
company in India.
 The Ind AS was prescribed as a result of calls for Indian accounting
standards to be on par with the globally accepted standards, the IFRS.
 The Ind AS was issued under the supervision and control of the
Accounting Standards Board (ASB).
 The Companies Act mandates the balance sheets and income
statements of all companies to comply with the accounting standards.
 The Ind AS was formulated as a compromise formula that tries to
harmonise Indian accounting rules with the IFRS.

The significance of Indian
Accounting Standards
 Ind AS is based on They facilitate the cross-border
flow of money, global listing and global comparability
of the financial statements.
 This, in turn, facilitates global investment and benefit
to capital market stakeholders.
 It enhances the investor’s ability to compare
the investments on a global basis. This, in turn,
reduces the risk of misjudgments.
 It also eliminates the costly requirements of
reinstatement of financial statements.

International Financial Reporting
Standards (IFRS)
 The IFRS was instituted by the International
Accounting Standards Board (IASB).
 The IASB is headquartered in London.
 The purpose of issuing the IFRS was to have a common
accounting language to increase transparency in the
presentation of financial information.

Modern approach: Accounting
Equation Method
Types of Account Meaning example
1. Assets Account
2. Liabilities
Account
3. Capital Account
4. Revenue account
5. Expenses
account
Related to Tangible
and Real Assets.
Financial
obligations towards
outsiders.
Related to
proprietor’s.
Amount charged
for goods sold .
Related to the
amount spent.
Land, Purchase,
Sales, Goodwill.
Loan, Creditors, out
standing expenses.
Drawings account.
Interest received,
dividend received,
discount, sales.
Wages, salary, dep.
Purchase.

Assets & Liability
Types of
Account
Meaning example Rules for
Debit
Rules for
Credit
1. Assets
Account
2. Liabilities
Account
Related to
Tangible and
Real Assets
Financial
obligations
towards
outsiders
Land,
Purchase,
Sales,
Goodwill
Loan,
Creditors, out
standing
expenses
Debit the
increase in
Assets
Debit the
decrease in
Liability
Credit the
decrease in
Assets
Credit the
increase

Capital A/c
Types of
Account
Debit
Rules for
Credit
1. Capital
Account
Related to
proprietor’s
Drawings
account
Debit the
Decrease in
in capital
Credit the
increase in
Capital

Revenue & Expense A/c
Types of
Account
Debit
Rules for
Credit
1. Revenue
account
2. Expenses
account
Amount
charged for
goods sold
Related to
the amount
spent
Interest
received,
dividend
received,
discount,
sales
Wages,
salary, dep.
Purchase
Debit the
decrease in
income and
profits
Debit the
increase in
expenses
and losses
Credit the
increase in
income and
profits
Credit the
decrease in
expenses
and losses

Accounting Equation
 The accounting equation is a basic principle of accounting
and a fundamental element of the balance sheet.
 The equation is as follows:
 Assets = Owner’s Equity + Liabilities
 This equation sets the foundation of double-entry
accounting and highlights the structure of the balance
sheet
 Every transaction will affect 2 items.
 The equation will still balance!

Assets = Owner’s Equity + Liabilities
Items of
value
owned by
the
business
The funds of a
business provided
by its owners and
the profits entitled
to him
Debts owed
by a business
to external
parties such
as suppliers

Assets = Owner’s Equity + Liabilities
Building
Motor vehicle
Office
Equipment
Fixtures
Stock (closing)
Cash in hand
Cash at bank
Capital
Profits
Creditors
Loan from bank
Other creditors

Questions
1. Assets = $50,000, Liabilities = $20,000, Owner’s
equity = ?
2. Assets = ?, Liabilities = $10,000, Owner’s equity =
$15,000
3. Assets = $60,000, Liabilities = ?, Owner’s equity =
$40,000

ANS -1
 Owner’s equity = Assets – Liabilities
= $50,000 – $20,000
= $30,000

ANS 2
 Assets = Liabilities + Owner’s equity
= $10,000 + $15,000
= $25,000

ANS 3
 Liabilities = Assets – Owner’s equity
= $60,000 – $40,000
= $20,000

Examples
 1. The business owner invests $10,000 in
Company XYZ

2. Company XYZ purchases $3,000
of equipment.

3. Company XYZ purchases $1,300
of supplies on credit.

4. XYZ receives $800 cash from
customers for services provided

5. XYZ pays $400 expense for
employee salaries.

If we add up both sides of the equation they
will equal to $27,00 and balance, as shown
below:

Revision
Capital + Liabilities = Assets
1,00,000 + 0 = 1,00,000 (Cash)

JOURNAL
 “A Journal is a chronological record of financial
transactions of a business.”
 It is book of prime entry or original entry in which all the
business transactions are recorded the first in the sequence
in which the transactions had actually occurred.
 “The process of recording the transactions into journal is
called Journalising.

Characteristics:
 It is a chronological record of financial transactions
 records all the details of transactions from various source
documents.
 It records both the aspects of a transaction i.e., debit and
credit using Double Entry System of Book Keeping.
 It gives complete details of a transaction in one entry.
 transferring the journalized transactions to the individual
accounts known as Ledger Accounts.
 all the transactions are recorded for the first time , so its
known as Book of Original Entry.

The objectives of journal are as
follows:
• To record the financial transactions in a systematic way.
• To show necessary information in a systematic way.
• To provide legal evidences of business.
• To provide data wise (chronological) record of
transactions.
• To help in preparing ledgers.

Limitation:
 It follows the prescribed accounting rules and concepts
and therefore journalising is not an easy process.
 It is suitable for lesser number of transactions as
recording of large number of transactions will be
inconvenient.
 It does not reveal balances of accounts for which
individual ledgers are required to be prepared.
Therefore, it cannot be used as substitute to ledger.

2018
April 1
April 2
April 3
April 4
April 13
April 20
April 24
April 28
April 28
April 30
April 30
April 30
Ramesh started business with cash
Paid into bank
Bought goods for cash
Drew cash from bank for office use
Sold goods to Krishna on credit
Bought goods from Shyam on credit
Received from Krishna
Allowed him discount
Paid cash to Shyam
Discount received
Krishna returned goods
Cash sales for the month
Paid rent
Paid salary
₹1,00,000
20,000
50,000
10,000
15,000
22,500
12,500
500
21,500
1,000
2,000
80,000
5,000
10,000

Ans
Date Particulars L.F Debit Credit(₹)
Apr 01 Cash A/c Dr. 1,00,000
To Capital A/c 1,00,000
(Started business with cash)
Apr 02 Bank A/c Dr. 20,000
To Cash A/c 20,000
(Paid into bank)
Apr 03 Purchases A/c Dr. 50,000
To Cash A/c 50,000
(Goods purchased)
Apr 04 Cash A/c Dr. 10,000
To Bank A/c 10,000
(Drew from bank for office
use)
Apr 13 Krishna A/c Dr. 15,000
To Sales A/c 15,000
(Goods sold)

Apr 20 Purchases A/c Dr. 22,500
To Shyam A/c 22,500
(Goods purchased on credit)
Discount Allowed A/c Dr. 500
To Krishna A/c 13,000
(Received from Krishna)
Apr 28 Shyam A/c Dr. 22,500
To Cash A/c 21,500
To Discount Received A/c 1,000
(Paid to Shyam)
Apr 28 Sales Return A/c Dr. 2,000
To Krishna A/c 2,000
(Goods returned by Krishna)
To Sales 80,000
(Cash sales for the month of April)

Apr 30 Rent A/c Dr. 5,000
To Cash A/c 5,000
(Paid rent)
Apr 30 Salary A/c Dr. 10,000
To Cash A/c 10,000
(Paid salary)

2018 ₹
Jan. 1 Rahul started business with cash 1,00,000
Jan. 2 Paid into bank 60,000
Jan. 3 Bought goods from M/s. Singh & Co. on credit 20,000
Jan. 3 Paid cartage 300
Jan. 4 Purchased furniture 2,000
Jan. 4 Place an order for HP Printers for ₹15,000, amount advanced 5,000
Jan. 4 Purchased calculator 1,000
Jan. 4 Purchased computer through cheque 13,000
Jan. 6 Paid for postage 150
Jan. 8 Sold goods for cash 4,000
Jan. 9 Sold goods on credit to M/s. Sharda & Co. 10,000
Jan. 9 Paid cartage 200
Jan. 15 Paid to M/s Singh & Co. on account 17,500
Jan. 25 Sold goods to M/s. Ray & Co. 5,600
Jan. 27 Received cheque from M/s. Sharda & Co. in full settlement of amount
due from them
9,750
Jan. 31 Paid for electricity charges 1,000
Jan. 31 Paid salary 1,500
Jan. 31
Paid rent of building by cheque , half of the building is used by the
proprietor for residential use
5,000
Jan. 31 Drew for private use 3,500

Date Particulars
L.F. Debit
(Rs)
Credit
(Rs)
2018
Jan.01 Cash A/c Dr. 1,00,000
To Capital A/c 1,00,000
(Business started with cash)
Jan.02 Bank A/c Dr. 60,000
To Cash A/c 60,000
(Cash deposited into cash)
Jan.03 Purchases A/c Dr. 20,000
To M/s Singh & Co. 20,000
(Goods purchased)
Jan.03 Cartage A/c Dr. 300
To Cash A/c 300
(Cartage paid)

Jan.04 Furniture A/c Dr. 2,000
To Bank A/c 2,000
(Furniture purchased by cheque)
Jan.04 HP Printers A/c Dr. 5,000
To Bank A/c 5,000
(Advance paid for placing an order for printer)
Jan.04 Office Equipments A/c Dr. 1,000
To Bank A/c 1,000
(Calculator purchased by cheque)
Jan.04 Computer A/c 13,000
To Bank A/c 13,000
(Computer purchased by cheque)
Jan.06 Postage A/c Dr. 150
To Cash A/c 150
(Postage paid)

Jan.08 Cash A/c Dr. 4,000
To Sales A/c 4,000
(Goods Sold)
Jan.09 M/s Sharda & Co. A/c Dr. 10,000
To Sales A/c 10,000
(Goods Sold)
Jan.09 Cartage A/c Dr. 200
To Cash A/c 200
(Cartage paid)
Jan.15 M/s Singh & Co. A/c Dr. 17,500
To Cash A/c 17,500
(Payment made)

Jan.25 M/s Ray & Co. A/c Dr. 5,600
To Sales A/c 5,600
(Goods Sold)
Jan.27 Bank A/c Dr. 9,750
Discount Allowed A/c Dr. 250
To M/s Sharda & Co. A/c 10,000
(Payment Received)
Jan.31 Electricity Charges A/c Dr. 1,000
To Cash A/c 1,000
(Electricity Charges paid)
Jan.31 Salary A/c Dr. 1,500
To Cash A/c 1,500
(Salary paid)
Jan.31 Rent A/c Dr. 2,500
Drawings A/c Dr. 2,500
To Cash A/c 5,000
(Rent paid)
Jan.31 Drawings A/c Dr. 3,500
To Cash A/c 3,500
(Cash withdrawn for personal use)

Practice It
Date particulars Amount
Jan 1
2
3
4
7
Mahenda singh started business with cash 50,000,
bank balance 40,000, machinery 3,00,000 and goods
70,000
Paid for wages
Paid for postage
Paid for advertisement
Purchased goods from ram niwas
Purchased goods from singh traders
Paid cash to singh traders and discount allowed of 200
4000
200
6000
10000
8000
7800

Other Journal Entries
 started business with cash
 Cash Account Dr
To Mohan's Capital Account
 (Being business started with cash)
 Purchased goods from Ram on credit
 Purchases Account Dr.
To Ram's Account
(Being purchase on credit)

Rent paid
 Rent Account Debit
ToCash Account
Interest Received
 Cash Account Debit
Interest Account
Purchased furniture for cash
 Furniture Account Debit
Cash Account

 Machinery sold in cash
 Cash Account Debit
Machinery Account
Outstanding Salary
 Salary Account Debit
Outstanding Salary Account
Paid to X
 X's Account Debit
Cash Account

SUBSIDIARY BOOKS
 Subsidiary Books are the books that record the
transactions which are similar in nature in an orderly
manner.
 They are also known as special journals or Daybooks.
 In big organizations, for the easy and accurate
recording of all the transactions, the journal is
subdivided into many subsidiary books.
 For every type of transaction, there is a separate book.

Different Types of Subsidiary
Books
1. Cash book
2. Purchases book
3. Sales book
4. Purchases return or return outwards book
5. Sales return or return inwards book
6. Bills receivable book
7. Bills payable book
8. Journal proper

Purchases book
 A firm records all its credit purchases of goods
in Purchase Book or Purchase Day Book. While it
records all the cash purchases of goods in the Cash
Book.
Date
Name of the Supplier and
details of purchases
Invoice
ref.
L.F. Amount (₹) Remarks

Q
 Following information is obtained from the books of Mr.
Joseph.
 2011
 July 1 Purchased goods from Robert on credit 4000
 July 2 Purchased office furniture from Delite Furniture on
credit 5000
 July 3 Purchased on credit goods from Robinson 3000
 July 4 Purchased stationery on credit from Bittoo 500
 July 5 Purchased goods for cash 7,500
 You are required to make out a purchases day book of Mr.
Joseph.

Sales Book
 A firm records all credit sales of goods in the Sales
Book or Sales Day Book.
 It records cash sales of goods in the Cash Book. We do
not record the sale of assets in the Sales Book.
Date Particulars Invoice ref. L.F. Amount (₹) Remarks

Purchase Return or Return
Outward Book
 We record the return of goods purchased in
the Purchase Return Book.
 A Debit Note is prepared for every return of goods in
duplicate.
Date Particulars
Debit
Note
No.
L.F. Details Totals Remarks

Sales Return or Return Inwards
Book
 We record the return of goods sold in the Sales Return
Book.
 A Credit Note is prepared for every return of goods in
duplicate.
Date Particulars Outward invoice L.F.Details Totals Remarks

Bills Receivable Book
 We record all the acceptance of the bills in our favor in
the Bills receivable book.
 We need to post the total of bills receivable book to
the Bills receivable A/c. Also, we need to post the
individual accounts of the customers.
No.
of
bills
Daye
of
recei
pt
From
who
m
Nam
e of
the
recei
ver
Nam
e of
the
draw
er
Nam
e of
acce
ptor
Date
of
bill
Due
date
L.F.
Amo
unt
of
bill
How
disp
osed
off

Bills Payable Book
 We record all the acceptance of the bills that we issue
in favor of others in the Bills payable book.
 We need to post the total of bills payable book to the
Bills payable A/c. Also, we need to post the individual
accounts of the suppliers.
No.
of
bills
Daye of
acceptanc
e
To
who
m
Name
of
drawe
r
Nam
e of
the
paye
e
Where
payabl
e
Dat
e of
bill
Ter
m
Due
dat
e
L.F.
Amoun
t of bill
how
dispose
d of

Journal Proper
 It includes transactions relating to credit purchase and
sale of assets, depreciation, outstanding and pre-paid
expenses, accrued and unearned income, opening and
closing entries, adjustment entries and rectification
entries.

Advantages
 Saving Labour Hours
 Division of Work
 Specialization of Work
 Easy for Reference
 Easier for Checking

REVISION - Types of Subsidiary
Books
 Cash Book- It is a book which records the receipts and payment
of cash transaction.
 Purchase Book- It is a book which records all the credit purchases of
goods of the company.
 Purchase Return Book- It is a book which records all the return of
credit purchases of goods of the company.
 Sales Book- It is a book which records all the credit sales of goods of
the company.
 Sales Return Book- It is a book which records all the return of credit
sales of goods of the company.
 Bills Receivable Book- It is a book which records all the bills
receivable.
 Bills Payable Book- It is a book which records all the bills payable.
 Journal Proper- All the transactions which are not recorded in the
above books are recorded here

Cash Book
 A cash book is a special subsidiary book which
primarily records all cash receipts and cash payments
 The cash book is a book of original entry as
transactions are first recorded in it
 Cash book is a real account.
 It shows always debit balance.

Definitions
 According to Andrew Munro: cash book is used for
recording the receipts and payments of money,
whether in coins, notes, cheques, postal orders, bank
drafts etc.
 According to Carter: cash books is a book of original
entry, the object of which is to record all receipts and
payments of money.

Features
 Acts as both a journal and a ledger.
 Can be used as an alternative to a cash account for
recording transactions.
 It follows the dual entry system of accounting (i,e.
Debit and credit side in cash book).
 The debit side should be identical to the credit side.
 Cash book should always have a debit balance.
 Only cash transactions are recorded in chronological
order.

Cont.…
 All receipts are recorded in the debit side and all cash
payments are recorded in credit side
 It records only one aspect of transactions i.e. cash
 Cash column of the cash book always shows debit
balance or equal balance but cannot show credit
balance.
 In practice, cash book is a substitute of cash account

Similarity between cash book and
journal
 Transactions are recorded from source documents in
both books
 Transactions are recorded in chronological order in
both books
 Both books contain a ledger folio column
 Just like a journal, transactions from cash books are
also posted to the relevant accounts in ledger.

CASH BOOK Vs Cash A/c
Parameter Cash Book Cash Account
Purpose
It serves dual purpose of journal
and ledger. No need for cash
transactions to be recorded in
journal.
It only serves the single purpose of a
ledger.
Types
There are three types of cash
books: single, double and triple
column cash books.
There is only one type of cash
account
Narration
Cash books have narration which
come after the entries
Cash accounts are not followed by
narration
Dependency
Cash books are not dependent on
any other book because it is the
book of original entry
Cash accounts are dependent on
journal day
Order of
recording
The recording of transactions is
done directly in a cash book
The cash transactions are first
recorded in a journal book and later
recorded in the cash account

Kinds of cash book
 Simple cash book
 Two column cash book
 Three column cash book
 Petty cash book

Kinds of cash book
 Single Column Cash Book: A single column or simple
cash book is that type of cash book which is used to note
down only the cash transactions.
 Double Column Cash Book: A double column cash book
records two types of transactions under two separate
columns. Here, one is compulsorily cash column, and the
other can be either a discount column or a bank column.
 Triple Column Cash Book: This type of cash book records
transactions related to three different types of accounts,
i.e., cash, bank and discount. Thus, it substitutes the
creation of cash account, bank account, discount received
and discount allowed in the ledger.

Single Column Cash Book:
 It has one amount column on each side of account.
Only cash receipts and cash payments are recorded in
this book.
 As an account of ledger, left side of this book is debit
and right side is credit.
 All cash receipts are recorded in debit side and all cash
payments on credit side.
 Excess of debit over credit is treated as cash balance in
hand.

Format of single column cash book

Date Particulars Amount
2005
June 1
Opening balance cash in hand 100
1 Cash sales 1500
2 Cash purchases 750
4 Received from Shyam 1250
8 Deposited into bank 500
10 Purchased goods 250
12 Sold goods 700
15 Bought stationery 50
20 Withdrawn from bank for office 8000
22 Purchased goods 1000
24 Paid wages 2000
25 Paid rent 400
26 Paid to Mukesh 250
30 Paid to Gagan 300

Date Receipts
R.N
o.
L.F. (Rs) Date Payments
V.N
o.
L.
F.
(Rs)
2005 2005
01-Jun To Balance B/d 100 02-JunBy Purchase A/c 750
01-Jun To Sales A/c 1500
08-
Jun
By Bank A/c 500
04-Jun To shyam's A/c 1250 10-Jun By Purchase A/c 250
12-Jun To Sales A/c 700 15-Jun
By Stationary
A/c
50
20-Jun To Bank A/c 8000 22-Jun By Purchase A/c 1000
24-JunBy wages A/c 2000
25-Jun By rent A/c 400
26-Jun
By mukesh's
A/c
250
30-Jun
By Gungan's
A/c
300
30-JunBy Balance c/d 6050
11550 11550
01-Jul To Balance b/d 6050

Double column cash book
 A double column cash book records two types of
transactions under two separate columns.
 Here, one is compulsorily cash column, and the other
can be either a discount column or a bank column.
 The cash column is used to record all cash transactions
and works as a cash account whereas bank column is
used to record all receipts and payments made by
checks and works as a bank account.
 Both the columns are totaled and balanced like a
traditional T-account at the end of an appropriate
period which is usually one month.

Cont..
 Since a double column cash book provides cash as well
as bank balance at the end of a period, some
organizations prefer to maintain a double column cash
book rather than maintaining two separate ledger
accounts for recording cash and bank transactions.

Important points to remember while making
entries in a double column cash book
 Recording cash transactions:
 All cash receipts are recorded in cash column on the
debit side and all cash payments are recorded in cash
column on credit side of the double column cash book.
 If cash is received from a debtor or customer and is
deposited into the bank account on the same date, the
entry will be made in the bank column on the debit
side, not in the cash column.

Recording bank transactions:
 When a check is received and the same is deposited
into the bank account on the same date, the amount of
the check is entered in the bank column on the debit
side.
 When a check is received and the same is not
deposited into the bank on the same date, the amount
of the check is entered in the cash column, not in the
bank column.
 When a check is issued, the amount of the check is
entered in the bank column on the credit side.

Contra entry
 Contra entry is a transaction which involves both cash
and bank. Both debit aspect and credit aspect of a
transaction get reflected in the cash book.
 For example:
 Cash received from debtors and deposited into bank
 Cash withdrawn from bank for office use
 .

Contra entry
 March 04: Received from John & Co. a check amounting
to 4000.
 March 05: Deposited into bank the check received from
John & Co. on March 04.
 (1). When cash is deposited into the bank account:
 The entry for depositing cash into the bank account is:
 Bank [Dr]
Cash [Cr]
 the deposited amount is written in the bank column on
debit side and cash column on credit side.

(2). When cash is withdrawn from
bank account for business use:
 The entry for withdrawal of cash from bank account
for business purpose is:
 Cash [Dr]
Bank [Cr]
 The withdrawn amount is written in the cash column
on debit side and bank column on credit side.

Cash Book with Discount, Cash
and Bank Column
As the name indicates, there are 3 columns, discount, cash and Bank.
The usual method of entering discount and cash is adopted and
bank column is also added.
A. Here, one transaction, which is very important is = 'Receipt of a
cheque" and "Its deposit in Bank Account". In such a case
a. If cheque is received but not deposited in the same day :
When the cheque is received, it is first entered in the cash-column,
and on the next day, when the cheque is deposited in the bank, it is
entered in the bank column.
b. If the cheque is received and banked on the same day :
Then, it is directly shown as a receipt in the Bank Column.

B. Contra Entry :
a. An entry which involves, cash a/c and Bank a/c
only, then it is called a contra entry. There are three
types of contra entry.
b. cash deposited into Bank
c. Cash withdrawn from Bank
d. Cheque deposited in Bank as in case (A) above.
"C" – Symbol used for contra entry.

Prepare a cash book with Discount
and cash columns 2005.
2005 Amount (Rs.)
Mar-01 Balance of Cash-in-hand 12000
Mar-02
Received from Mahesh Rs 600 and allowed him a
discount 40
Mar-03 Purchased a printer for Rs. 450
Mar-10 Purchased goods by cash 1000
Mar-12
paid Gagandeep Rs. 900 who allowed a discount of
Rs. 80
Mar-16 Received from cash Sales 6000
Mar-18 paid for postage 120
Mar-19
Shyam who owed Rs 900 settled his account by
paying Rs 875
Mar-25
Received from Jayesh Rs160 and allowed him
discount Rs 8
Mar-31 paid wages Rs 800

Dr. Cr.
Date Receipts
R.
No.
L.F.
Discou
nt (Rs)
Amoun
t (Rs)
Date Payments
V
N
L.F.
Discou
nt (Rs)
Amoun
t
(Rs)
2005 2005
01-Jun
To Balance
B/d
12000 03-Jun By Printer A/c 450
02-Jun
To Mahesh's
A/c
40 600 10-Jun
By Purchase
A/c
1000
16-Jun To Sales A/c 6000 12-Jun
By Gagandeep's
A/c
80 900
19-Jun
To Shyam's
A/c
25 875 18-Jun By Postage A/c 120
25-Jun
To Jayesh's
A/c
8 160 Jun-31 By Wages A/c 800
Jun-31 By Balance C/d 16365
19635 19635
1st
july
To balance
b/d
16365 19635
Cash Book with column of Discount and Cash

triple column cash book
 This type of cash book records transactions related to
three different types of accounts, i.e., cash, bank and
discount.
 Thus, it substitutes the creation of cash account, bank
account, discount received and discount allowed in the
ledger.

Cont..
 The cash and bank columns of triple column cash
book are used as accounts and are periodically totalled
and balanced just like in case of a double column cash
book. The discount column is only totalled. It is not
balanced because it does not work as an account.

Cont..
 In general ledger, two separate accounts are maintained for
discount allowed and discount received. The total of
discount column on debit side of cash book represents the
total cash discount allowed to customers during the period
and is posted to the discount allowed account maintained
in the ledger. The total of discount column on credit side
represents the total cash discount received from suppliers
during the period and is posted to the discount received
account maintained in the ledger.
 Discount allowed is an expense and discount received is an
income of the business.

2008 Ju
ne
Amount (Rs.)
1 Cash – in – hand 500
1 Cash – at- bank 20000
4
Received from suresh 29100
Discount allowed to him 100
6 Purchase of goods by bank 7500
8 Deposited into bank 1400
11 Credit sales to vikas 210
12 Received cheque from Vikas and deposited in bank at same day 210
14 Cash sales 3000
15 paid to Gagan by cheque for full settlement of his account of 3000
16 Cash purchases 1500
17 Withdrawn from bank for office expanses 4000
18
Paid cash to Jayesh 555
discount allowed from him 45
20 Received a cheque from sukumar 10000
21 Deposited the cheque received from sukumar into bank
22 Received a cheque from subhash and sent to bank 2000
30 paid rent by cheque 200
30 paid salaries 600

Dr. Cr.
Date Receipts
R
L
F
Disc
ount
(Rs)
Cash Bank
Da
te
Payment
s
V
L.F.
Disc
ount
(Rs)
Cash Bank
.No. Rs Rs .No. Rs Rs
2008
20
08
Jun-
01
To
Balance
b/d
500
2000
0
6
By
purchase
a/c
7500
4
To
suresh's
a/c
100 2900 8
By Bank
a/c
C 1400
8
To cash
a/c
C 1400 15
By Gaga
n's a/c
60 2940
12
To
Vikas'
a/c
210 16
By
purchase
a/c
1500
14
To sales
a/c
3000 17
By cash
a/c
C 4000

17
To Bank
a/c
C 4000 18
BY
Jayesh's
a/c
45 555
20
To
sukumar's
a/c
1000
0
21 By Bank a/c C
1000
0
21 To cash a/c C
1000
0
30 By Rent a/c 200
22
To
Subhash's
a/c
2000 30
BY salary
a/c
600
30
By Balance
c/d
445 24870
100
1450
0
3951
0
105
1405
5
14640
Jul-
01
By balance
b/d
445
2487
0

 Jun 01: Cash in hand 800 (debit balance), Cash at bank 3,365 (debit balance).
 Jun 03: Paid James & Co. by check 1,175, discount received from him 25.
 Jun 05: Received from David & Co. a check amounting to 990, discount allowed to
him 10.
 Jun 07: Deposited into bank the check received from David & Co.
 Jun 10: Purchased stationary for cash, 170.
 Jun 15: Purchased merchandise for cash, 1,280.
 Jun 15: Cash sales for the first half of the month, 2,450.
 Jun 16: Deposited into bank 1,250.
 Jun 18: Withdrawn from bank for personal expenses 100.
 Jun 19: Issued a check amounting to 1,630 to James & Co. and discount received from
him 20.
 Jun 21: Drew from bank for office use, 420.
 Jun 24: Received a check amounting to 1,435 from Henry & Co. and allowed him a
discount of 15. The Henry’s check was deposited into bank immediately.

 July 1 started business with cash of 9000
 July 2 deposited into bank 7000
 July 4 acquired a building by cheque 5000
 July 10 paid bill of furniture by cheque 1000
 July 15 purchased merchandise of 800 by cheque
 July 18 withdraw 100 from bank
 July 20 sold merchandise of 1200
 July 22 deposited 2000 into bank
 July 25 bought 1000 merchandise
 July 26 sold 1500 merchandise by cheque
 July 27 Paid freight 50

On April 1, 2017, Hassan Sajjad Store Cash Book showed debit balances of Cash
Rs. 1,550 and Bank Rs. 13,575. During the month of April following business
was transacted. You are required to prepare Cash Book?
 April 2017
 02 Purchased Office Type-Writer for Cash Rs. 750; Cash Sales Rs. 1,315.
 07 Deposited Cash Rs. 500 to bank.
 10 Received from A. Hussain a check for Rs. 2,550 in part payment of his
account (not deposited).
 16 Paid by check for merchandise purchased worth Rs. 1,005.
 20 Deposited into Bank the check received from A. Hussain.
 22 Received from customer a check for Rs. 775 in full settlement of his
accounts (not deposited).
 24 Sold merchandise to sweet Bros. for Rs 1,500 who paid by check which was
deposited into bank.
 26 Paid creditor a Salman Rs. 915 by check.
 28 Deposited into Bank the check of customer of worth Rs. 775 was dated
22nd April.
 29 Paid wages by cash Rs. 500 and salary Rs. 1,000 by bank.
 30 Drew from Bank for Office use Rs. 250 and Personal use Rs. 150.

Petty Cash Book
 Petty cash book is maintained by the business to
recorded petty cash expenses of the business such as
postage, stationery, cleaning expenses.
 These are many payments like the above which are of
small amount.
 In case all these transaction are recorded in cash book
their recording will not only be inconvenient but also
consume a lot of valuable time of the cashier and
posting clerk.

Points To Be Considered While
Maintaining A Petty Cash Book
 In order to exercises control and for proper analysis of petty cash
payments, following point should be considered. Amount paid for
petty expanses in the form of petty cash should be sufficient only for a
short period- eg. one week or a fortnight
 1. The reimbursement to the petty cashier should be made
 a. Only when the petty cashier prepares a statement showing all petty
payment, supported by the “voucher”(i.e. documentary and evidence)
 b. Petty cashier should be given the money only for the actual petty
payment made by him.
 2. All the vouchers should be filed in order
 3. No disbursement should be made to the petty cashier without proper
authorization.
 4. Petty-cashier can receive money for petty-expenses only from the
main cashier. Petty cashier is not allowed to receive cash from any other
source.

ABC machines a multi column petty cash book on the
interest systems. The interest amount is Rs. 1000 ended
on 26th June 2005.
June Particulars Amt Rs.
21. Balance in hand Rs. 80
21. Received cash to make up the interest
22. Stationery Rs. 75
23. Postage RS. 120
23. Entertainment Rs. 35
24. Travelling expenses Rs. 40
24. Miscellaneous expenses Rs. 25
24. Repairs Rs. 30
25. Postage stamps Rs. 20
25. Stationary Rs. 50
26. Postage stamps Rs. 10

Amou
nt
Recd.
Date
V.N
o
Particulars
Total Pa
yments(
Rs)
Post
age
(Rs.)
Printin
g and
Travelli
ng Entert
ainme
nt
(Rs.)
Repai
rs
(Rs.)
Miscella
neous (R
S.)
(Rs.)
Station
ery
(Rs.)
and
Convey
ance(R
s.)
80
Jun-
21
To Balance b/d
920 21 To cash a/c
22 By stationery a/c 75 75
23 By postage a/c 120 120
23 By entertainment a/c 35 35
24
By travelling expenses
a/c
40 40
24
By Miscellaneous
expenses a/c
25 25
24 By Repairs a/c 30 30
25 By postage a/c 20 20
25 By stationery a/c 50 50
26 By postage a/c 10
434 140 125 40 64 30 25
By Balance c/d 566
1000 1000
566 26 To Balance b/d

Example: enter the following
transaction in petty cash book of
the January Month
 Jan 1 cash received from chief cashier 200
 Jan 3 typing paper 8
 Jan 3 postage charges 4
 Jan 6 office cleaning charges 4
 Jan 8 postage 2
 Jan 8 office cleaning charges 2
 Jan 10 cartage 2
 Jan 15 postage 6
 Jan 18 ink 3 and typing paper 10
 Jan 20 typing ribbon 10
 Jan 22 telephone charges 7
 Jan 24 office cleaning 2
 Jan 27 telegram 25
 Jan 29 typing paper 30

Format
Date Parti
cular
s
Cash
Book
Folio
.
Amo
unt
date Parti
cular
s
Vouc
her
No.
Stati
onar
y
Post
al
char
ges
Cart
age
clean
ing

Questions
 June 1 cash in hand 3151 and cash at bank 91401
 June 2 received cheque for 990 from A and discount
allowed of 10 and cheque deposited into bank
 June 5 bought goods from Rama & Co. for Rs. 2000 paid
cheque for them discount is 1%
 Paid trade expenses 120
 Paid taxes 400
 Paid insurance charges 100
 Sold goods to Rama for Rs. 12500 Received cheque discount
allowed 1%
 Purchased 100 national plan certificates for 100 each

Questions
 Feb 1 head cashier has given 75 and wages paid to
chowkidar 15
 Feb 2 wages paid to servant 6
 Feb 5 office expenses 2.30
 Feb 7 freight 1.5
 Feb 10 postage 5
 Feb 12 ink 1.25
 Feb 15 postage 1
 Feb 20 coolie .50
 Feb 22 paper and postage 3.5
 Feb 25 sundry expenses 11.50
 Feb 27 price list 9

Subdivision of Journal: Subsidiary
Books
 In a big organisation there are innumerable
transactions. It is difficult for one book-keeper to
record all the transactions on time. If all the
transactions are recorded in one book only, the journal
would become bulky. Further, if the same records all
transactions there is a chance of misappropriation and
fraud also. This necessitates the sub divisions of
journal.

Need for sub division of journal
 Journal does not provide the information promptly.
 Journal becomes voluminous and bulky.
 It does not facilitate the system of internal check.
 It is difficult to handle the entire work of
journalization by one person as work will be heavy and
large.
 It fails to provide details regarding sales tax, VAT and
other taxation.
 If all types of transactions are recorded in one journal
then it will hamper the normal accounting work.

Advantages of subsidiary books
 Availability of information
 Minimum errors and frauds
 Division of work.
 Saving of time
 Specialisation and efficiency
 Serves as a ready reference
 Fixation of responsibility
 Flexible system
 Proper control on business activities.

Difference in Journal and Ledger
BASIS FOR
COMPARISON
JOURNAL LEDGER
Meaning The book in which all the
transactions are recorded, as and
when they arise is known as
Journal.
The book which enables to
transfer all the transactions into
separate accounts is known as
Ledger.
What is it? It is a subsidiary book. It is a principal book.
Also known as Book of original entry. Book of second entry.
Record Chronological record Analytical record
Process The process of recording
transactions into Journal is
known as Journalizing.
The process of transferring
entries from the journal to ledger
is known as Posting.
How transactions are recorded? Sequentially Account-wise
Debit and Credit Columns Sides
Narration Must Not necessary.
Balancing Need not to be balanced. Must be balanced.

Rules of subdivision of Journal
 All the business transactions are classified as cash and non
cash transactions.
 All the transactions of a particular type are recorded at one
place
 It is not necessary to maintain all subsidiary books in a
business
 Number of subsidiary books depends upon the size, nature
and quantum of transactions in business.
 In case of necessity other types of subsidiary books,
consignment outward book, advertisement book, credit
collection book, daily cash-sales book are maintained in
the business.

Preparation sales book, purchases
book, purchase returns book and
sales return book
Feb 1 Goods sold to sachin 5000
Feb 4
Feb 6
Feb 7
Feb 8
Feb10
Feb 14
Feb 15
Feb 17
Feb 20
Feb 22
Feb 24
Feb 25
Purchase from kushal traders 2480
Sold goods to manish traders 2100
Sachin returned goods 600
Returned to kushal traders 280
Sold to mukesh 3300
Purchased from kunal traders 5200
Furniture purchased from tarun 3200
Bought from naresh 4060
Return to kunal traders 200
Return inward from mukesh 250
Good purchased from kirti and 10% trade discount 5700
Sold to shri chand and 5% trade discount 6600

MCQ 1
 Accounting furnishes data on
 A) Income and cost for the managers
 B) Financial conditions of the institutions
 C) Company’s tax liability for a particular year
 D) All the above

ANS
 Accounting furnishes data on
 A) Income and cost for the managers
 B) Financial conditions of the institutions
 C) Company’s tax liability for a particular year
 D) All the above

MCQ -2
 The financial statement that reports the revenues and
expenses for a period of time such as a year or a month
is the
A. Balance Sheet
B. Income Statement
C. Statement Of Cash Flows

Ans -2
 The financial statement that reports the revenues and
expenses for a period of time such as a year or a month
is the
 Balance Sheet
 Income Statement
 Statement Of Cash Flows

MCQ 3
 The financial statement that reports the assets,
liabilities, and stockholders' (owner's) equity at a
specific date is the
A. Balance Sheet
B. Income Statement

Ans 3
 The financial statement that reports the assets,
liabilities, and stockholders' (owner's) equity at a
specific date is the
A. Balance Sheet
B. Income Statement

MCQ -4
 Long term assets having no physical existence but,
possessing a value are called
 A) Intangible assets
 B) Fixed assets
 C) Current assets
 D) Investments

ANS MCQ -4
 Long term assets having no physical existence but,
possessing a value are called
 A) Intangible assets
 B) Fixed assets
 C) Current assets
 D) Investments

MCQ 5
 The assets that can be easily converted into cash
within a short period, i.e., 1 year or less are known as
 A) Current assets
 B) Fixed assets
 C) Intangible assets
 D) Investments

ANS -MCQ 5
 The assets that can be easily converted into cash
within a short period, i.e., 1 year or less are known as
 A) Current assets
 B) Fixed assets
 C) Intangible assets
 D) Investments

MCQ 6
 The art of recording all business transactions in a
systematic manner in a set of books is called-
(a) Accounting
(b) Book – keeping
(c) Ledger
(d) None of these.

ANS MCQ 6
 The art of recording all business transactions in a
systematic manner in a set of books is called-
(a) Accounting
(b) Book – keeping
(c) Ledger
(d) None of these.

MCQ 7
 The process of recording, classifying and summarizing
all business transactions in order to know the financial
result is called –
(a) Book – keeping
(b)Accounting
(c) Journalizing
(d) None of these.

ANS -MCQ 7
 The process of recording, classifying and summarizing
all business transactions in order to know the financial
result is called –
(a) Book – keeping
(b)Accounting
(c) Journalizing
(d) None of these.

MCQ 8
 Cash, goods or assets invested by the proprietor in the
business for earning profit is called-
(a) Profit
(b) Capital
(c) Fixed assets
(d) None of these.

ANS -MCQ 8
 Cash, goods or assets invested by the proprietor in the
business for earning profit is called-
(a) Profit
(b) Capital
(c) Fixed assets
(d) None of these.

MCQ 9
 The person, firm or institution who does not pay the
price in cash for the goods purchased or the services
received is called-
(a) Creditor
(b) Proprietor
(c) Debtor
(d)None of these.

ANS MCQ 9
 The person, firm or institution who does not pay the
price in cash for the goods purchased or the services
received is called-
(a) Creditor
(b) Proprietor
(c) Debtor
(d)None of these.

MCQ -10
 Book – keeping is-
(a) An art
(b) A science
(c) An art and science both
(d) None of these.

ANS -MCQ -10
 Book – keeping is-
(a) An art
(b) A science
(c) An art and science both
(d) None of these.

MCQ -12
 Assets = 1,00,000, Liabilities = 40,000, Owner’s equity
= ?
A. 60000
B. 140000
C. 40000
D. None of the above

ANS -MCQ -12
 Assets = 1,00,000, Liabilities = 40,000, Owner’s equity
= ?
A. 60000 (100000-40000)
B. 140000
C. 40000

MCQ -13
 Assets = ? If , Liabilities = 2,40,000, Owner’s equity =
420000
A. 600000
B. 1,60,000
C. 6,60,000

ANS -MCQ -13
 Assets = ? If , Liabilities = 2,40,000, Owner’s equity =
420000
A. 600000
B. 1,60,000
C. 6,60,000 (420000+240000)

Assets , Voucher, Capital , Goods,
Closing stock,
 1. The document certifying the purchase or sale of
goods or any monetary transaction is called …………….
 2. The thing which is purchased and sold in the
business is called …………….
 3. The things or properties which helps in smooth
functioning of the business and which are owned by
the business are called ……………. of the business.
 4. The unsold goods left at the end of the year is called
…………….
 5. …………… represents the excess of assets over
liabilities.

 Voucher
 Goods
 Assets
 Closing stock
 Capital

MATCH
1. Building (a) Debit
2. Salary (b) Credit
3. Left side (c) Asset
4. Right side (d) Expense
5. Vouchers (e) Written document.

ANS
Column A Column B
1. Building (c) Asset
2. Salary (d) Expense
3. Left side (a) Debit
4. Right side (b) Credit
5. Vouchers (e) Written document.

Match
1. Financial
Accounting
2. Cost
Accounting
3. Management
Accounting
A. ascertaining and controlling
the cost of products or
services
B. identifying, measuring,
recording, classifying,
summarising the business
transactions
C. helps the management in
planning and controlling
and in decision making

Match- Ans
1. Financial
Accounting
2. Cost
Accounting
3. Management
Accounting
A. identifying, measuring,
recording, classifying,
summarising the business
transactions
B. ascertaining and controlling
the cost of products or
services
C. helps the management in
planning and controlling
and in decision making

State the appropriate subsidiary book
to record the following transactions
 Purchase of goods from Ram
 Purchase of furniture in cash
 Depreciation on plant and machinery
 Sale of goods for cash
 Bad debts from Dolly

 Purchases Book
 Cash Book
 Journal proper
 Cash book
 Journal proper

Q
 Q: We completely eliminate journalizing when we
record transactions in a subsidiary book. True or False?

Ans:
 This statement is false.
 We record only transactions of similar types in a
subsidiary book. Sales, Purchase, Cash transactions,
etc will find a place in subsidiary books. But say you
purchase an asset. We will record this transaction in
the journal.

Match
1. Assets
2. Liability
3. Equity
4. Revenue
5. Expense
A. Fund Invested By Owner
B. Items of value owned by the
business
C. Debts owed by a business to
external parties
D. Amount spends from business
Activites
E. Profit from business activities

ANS -Match
1. Assets
2. Liability
3. Equity
4. Revenue
5. Expense
1. Items of value owned by
the business
2. Debts owed by a business
to external parties
3. Fund Invested By Owner
4. Profit from business
activities
5. Amount spends from
business Activites

Match the Following
1. Assets
2. Liability
3. Equity
4. Income
5. Expense
A. Sales,Interest Received
B. Land,stock,debtors
C. Drawings,Capital
D. Rent,Purchase,Wages
E. Loan, Creditors,Bills
Payables

ANS -Match
1. Assets
2. Liability
3. Equity
4. Income
5. Expense
1. Land,stock,debtors
2. Loan, Creditors,Bills
Payables
3. Drawings,Capital
4. Sales,Interest Received
5. Rent,Purchase,Wages

MCQ
 Amount invested by the proprietor in the
business should be credit to:
 (a) A/c payable
 (b) Capital
 (c) Cash
 (d) Drawing

ANS MCQ -
 Amount invested by the proprietor in the
business should be credit to:
 (a) A/c payable
 (b) Capital
 (c) Cash
 (d) Drawing

MCQ
 Transactions are first recorded in which
book/account?
 (a) Book of Original Entry
 (b) T Accounts
 (c) Accounting Equation
 (d) Book of Final Entry

ANS MCQ
 Transactions are first recorded in which
book/account?
 (a) Book of Original Entry
 (b) T Accounts
 (c) Accounting Equation
 (d) Book of Final Entry

MCQ
 Customer goods returned will be credited to
which account?
 (a) Purchases A/C
 (b) Return outward
 (c) Customer’s A/C
 (d) Return inward

ANS MCQ
 Customer goods returned will be credited to
which account?
 (a) Purchases A/C
 (b) Return outward
 (c) Customer’s A/C
 (d) Return inward or PURCHASE RETURN

MCQ
 Journal lists transactions in which order?
 (a) Decreasing
 (b) Chronological
 (c) Alphabetical
 (d) Increasing

ANS -MCQ
 Journal lists transactions in which order?
 (a) Decreasing
 (b) Chronological
 (c) Alphabetical
 (d) Increasing

MCQ
 Cash withdrawal from business by the proprietor
for Business should be credited to
 (a) Cash account
 (b) Purchase account
 (c) Capital account
 (d) Drawings account

ANS -MCQ
 Cash withdrawal from business by the proprietor
for Business should be credited to
 (a) Cash account
 (b) Purchase account
 (c) Capital account
 (d) Drawings account

MCQ
The process of recording transactions in different
journals is called
 A.Posting
 B.Entry making
 C.Adjusting
 D.Journalising

ANS MCQ
The process of recording transactions in different
journals is called
 A.Posting
 B.Entry making
 C.Adjusting
 D.Journalising
The process of recording transactions in different journals is
called Journalising. Journalizing is the process of recording a
business transaction in the accounting records. This activity
only applies to the double-entry bookkeeping system.

MCQ
 Discount allowed is a kind of deduction from
 A.Account Payable
 B.Account Receivable
 C.Cash account
 D.Discount account

ANS -MCQ
 Discount allowed is a kind of deduction from
 A.Account Payable
 B.Account Receivable / DEBTORS
 C.Cash account
 D.Discount account

MCQ
 The other name of Journal is
A.Ledger
 B.T account
 C.Day Book
 D.Cash Book

ANS -MCQ
 The other name of Journal is
A.Ledger
 B.T account
 C.Day Book
 D.Cash Book

 he accounting cycle begins by recording
_____________ in the form of journal entries.
A. BUSINESS TRANSACTIONS
B. FINANCIAL INFORMATION
C. CORPORATE MINUTES
D. BUSINESS CONTRACTS

 6. Of the following account types, which would
be increased by a debit?
 (a) Liabilities and expenses
 (b) Assets and equity
 (c) Assets and expenses
 (d) Equity and revenues

 _____________is an example of fixed asset
 a. Receivable
 b. Stock
 c. Land & buildings

 The term _________denotes the cost of services and
things used for earning revenue
 a. Income
 b. Expense
 c. Loss

 ___________denote goods brought for sale.
 a. Sales
 b. Purchase
 c. Expenses

 Credit in the liability means
 a. Increase
 b. Decrease
 c. No charge

Match –Subsidiary Books
1. Cash Book
2. Purchase Book
3. Purchase Return
Book
4. Sales Book
A. credit sales of goods
B. all credit purchases of
goods
C. return of credit
purchases of goods
D. receipts and payment
of cash transaction

ANS
1. Cash Book
2. Purchase Book
3. Purchase Return
Book
4. Sales Book
A. receipts and payment
of cash transaction
B. all credit purchases of
goods
C. return of credit
purchases of goods
D. credit sales of goods

MATCH – Subsidiary Books
1. Sales Return Book
2. Bills Receivable Book
3. Bills Payable Book
4. Journal Proper
A. Records all the bills
receivable
B. return of credit sales
C. the transactions which
are not recorded in
other books
D. records all the bills
payable

ANS
 Sales Return Book
 Bills Receivable Book
 Bills Payable Book
 Journal Proper
 return of credit sales
 Records all the bills
receivable
 records all the bills
payable
 the transactions which
are not recorded in other
books

1.
 The most common imprest system is the ________
system?
A. Petty cash
B. Cash book
C. Cash receipt
D. Discount

ans
 The most common imprest system is the ________
system?
A. Petty cash
B. Cash book
C. Cash receipt
D. Discount

2.
 A cash book with cash, bank and discount column is
commonly referred as________?
A. Cash book
B. Two columns cash book
C. Three columns cash book
D. Petty cash book

2.ANS
 A cash book with cash, bank and discount column is
commonly referred as________?
A. Cash book
B. Two columns cash book
C. Three columns cash book
D. Petty cash book

3.
 Introduction capital by owner of business is recorded
on which side of a cash book?
A. Receipts
B. Payments
C. Incomes
D. Expenditure

3. ANS
 Introduction capital by owner of business is recorded
on which side of a cash book?
A. Receipts
B. Payments
C. Incomes
D. Expenditure

4
 Cash discount is allowed on _______ repayment of
debt.
A. Lump sum
B. Prompt
C. Actual
D. None of them

4 ANS
 Cash discount is allowed on _______ repayment of
debt.
A. Lump sum
B. Prompt
C. Actual
D. None of them

5.
 Payment of rent expenses is recorded on which side of
cash book?
A. Receipts
B. Payments
C. Income
D. Expense

5.ANS
 Payment of rent expenses is recorded on which side of
cash book?
A. Receipts
B. Payments
C. Income
D. Expense

6.
 Drawings by owner of business are generally recorded
on which of the following side of a cash book?
A. Receipts
B. Payments
C. Incomes
D. Expenditures

6 . ANS
 Drawings by owner of business are generally recorded
on which of the following side of a cash book?
A. Receipts
B. Payments
C. Incomes
D. Expenditures

7.
 A cash book that is used to record the small payments
of cash is generally referred as_________?
A. Simple cash book
B. Two column cash book
C. Three column cash book
D. Petty cash book

7. ANS
 A cash book that is used to record the small payments
of cash is generally referred as_________?
A. Simple cash book
B. Two column cash book
C. Three column cash book
D. Petty cash book

8.
 Purchase of office equipment for cash will be recorded
on which of the following sides of a cash book
A. Receipts
B. Payments
C. Incomes
D. Expenditures

8. ANS
 Purchase of office equipment for cash will be recorded
on which of the following sides of a cash book
A. Receipts
B. Payments
C. Incomes
D. Expenditures

9.
 A simple or one column cash book usually has which
of the following main columns?
A. Bank
B. Payments
C. Discount
D. Cash

9. ANS
 A simple or one column cash book usually has which
of the following main columns?
A. Bank
B. Payments
C. Discount
D. Cash

MCQ-1
1) The closing balance of petty cash book is considered
as
 A) Liability
 B) Asset
 C) Expenses
 D) Income

ANS MCQ-1
1) The closing balance of petty cash book is considered
as
 A) Liability
 B) Asset
 C) Expenses
 D) Income

MCQ 2
 2) Payment of rent expenses is recorded on which side
of cash book?
 A) Receipts
 B) Payments
 C) Income
 D) Expense

ANS -MCQ 2
 2) Payment of rent expenses is recorded on which side
of cash book?
 A) Receipts
 B) Payments
 C) Income
 D) Expense

MCQ -3
 3) An entry which is made on both sides of a cash book
is called
 A) Cash entry
 B) Contra entry
 C) Payment entry
 D) Compound entry

ANS MCQ -3
 3) An entry which is made on both sides of a cash book
is called
 A) Cash entry
 B) Contra entry
 C) Payment entry
 D) Compound entry

MCQ 4
 4) A cash book with cash, bank and discount column is
commonly referred as
 A) Cash book
 B) Two columns cash book
 C) Three columns cash book
 D) Petty cash book

ANS - MCQ 4
 4) A cash book with cash, bank and discount column is
commonly referred as
 A) Cash book
 B) Two columns cash book
 C) Three columns cash book

MCQ -5
 5) Cash book records
 A) Cash payments
 B) Cash receipts
 C) Cash payments and cash receipts
 D) Neither cash payments nor cash receipts

ANS -MCQ -5
 5) Cash book records
 A) Cash payments
 B) Cash receipts
 C) Cash payments and cash receipts
 D) Neither cash payments nor cash receipts

MCQ 7
 7) Cash book is prepared by
 A) Bank
 B) Accountant of business
 C) Manager of a company
 D) Bank's cashier

ANS MCQ 7
 7) Cash book is prepared by
 A) Bank
 B) Accountant of business
 C) Manager of a company
 D) Bank's cashier

MCQ 8
 8) The most common imprest system is the ________
system
 A) petty cash
 B) Cash book
 C) Cash receipt
 D) Discount

ANS -MCQ 8
 8) The most common imprest system is the ________
system
 A) petty cash
 B) Cash book
 C) Cash receipt
 D) Discount

MCQ - 9
 9) Discount received is recorded on which of the
following side of a cash book? .
 A) Receipts
 B) Payments
 C) Incomes
 D) Expenditures

MCQ 10
 10) Drawings by owner of business are generally
recorded on which of the following side of a cash
book?
 A) Receipts
 B) Payments
 C) Incomes
 D) Expenditures

ANS MCQ 10
 10) Drawings by owner of business are generally
recorded on which of the following side of a cash
book?
 A) Receipts
 B) Payments
 C) Incomes
 D) Expenditures

MCQ 11
 11) Introduction capital by owner of business is
recorded on which side of a cash book?
 A) Receipts
 B) Payments
 C) Incomes
 D) Expenditures

MCQ 12
 12) Cash book with cash and discount column is
mostly referred as
 A) Simple cash book
 B) Two column cash book
 C) Three column cash book

ANS MCQ 12
 12) Cash book with cash and discount column is
mostly referred as

MCQ 13
 13) A cash book that is used to record the small
payments of cash is generally referred as

ANS -MCQ 13
 13) A cash book that is used to record the small
payments of cash is generally referred as

MCQ 14
 14) A simple or one column cash book usually has
which of the following main columns?
 A) Bank
 B) Payments
 C) Discount
 D) Cash

ANS -MCQ 14
 14) A simple or one column cash book usually has
which of the following main columns?
 A) Bank
 B) Payments
 C) Discount
 D) Cash

MCQ 15
 15) Purchase of office equipment for cash will be
recorded on which of the following sides of a cash
book?
 A) Receipts
 B) Payments
 C) Incomes
 D) Expenditures

ANS MCQ 15
 15) Purchase of office equipment for cash will be
recorded on which of the following sides of a cash
book?
 A) Receipts
 B) Payments
 C) Incomes
 D) Expenditures

MCQ 16
 Which of the following is generally not the party to a
check?
 A) Payee
 B) Payer
 C) Bank
 D) Seller

ANS -MCQ 16
 Which of the following is generally not the party to a
check?
 A) Payee
 B) Payer
 C) Bank
 D) Seller

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