Definition of Book–Keeping:

“Book–Keeping is the art of recording business dealings in a set of books” – J. R. Batliboi

“ Book–Keeping is the science and art of correctly recording in books of account in all
those business transactions that result in the transfer of money or money’s worth” – R.
N. Carter

So Book–Keeping is the act of recording a trader’s business dealings in books of account

in such a manner that any subsequent time their nature and effect may be clearly
understood.

Definition of Accounting: 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 results thereof.

According to American Accounting association "Accounting refers to the process of

identifying, measuring and communicating economic information to permit informed
judgment and decisions by users of the information".

According to Prof. Johnson "Accounting may be defined as the collection, compilation and
systematic recording of business transactions in terms of money, thee preparation of financial
reports, the analysis and interpretation of these reports and the use of these reports for the
information and guidance of management".

Finally we can say "Accounting is a service activity. Its function is to provide quantitative
information, primarily financial in nature, about economic entities that is intended to be
useful in making reasoned choices among alternative course of action".

Object of Accounting: The object of accounting can be described as follows:

01.To maintain a permanent and systematic record of business transaction.

02.To ascertain the amount of profit earned or loss sustained at periodical intervals.
03.To determine the amount which is owing to the trader (i.e. sundry debtors) and by whom.
04.To find out the amount which is owing to the traders (i.e. Sundry creditors) and to whom.
05. To ascertain the amount of capital or Deficiency of the trader in the business on any
particular date.
06.To supply the trader with necessary information to formulate policies for the future
courses of action.

Advantages of Accounting: The main advantages or benefit may be summarized as follows

01.It enables a trader to maintain a systematic record of all the transaction.

02.It enables the trader to ascertain clearly the result of his trading at any given period
i.e. whether he is trading at a gain or loss.
03.It affords necessary information with the least possible trouble and thus it enables the
trader to keep due control over his business affairs.
04. It helps the traders to ascertain the total amount owing to him and by whom.
05. It enables the trader to ascertain the total amount owing by him and to whom.
06.It helps the trader to ascertain the total assets and liabilities of his concern at any particular
date.
07.It enables the trader to co-ordinate the organization most economically and sound basis.
08.It enables the trader to detect frauds and errors and prevent the same in due c ourses.
Nature of accounting information : The nature/features/characteristics of accounting
information can be discuss as follows :

Relevance : The main features of accounting information is. it should be relevance with
the present and future activity of the trader.
Timeliness : The accounting information should be send to user with in right time, i.e.
timeliness is the another feature of the accounting information.
Reliability : Accounting information should must be reliable.
Consistency : Accounting information should be consistent between the accounting
period, otherwise it will not helpful for decision making.
Cost benefit : In case of discloser of accounting information, the trader should consider the
cost benefit of the organization.
Users of accounting information:

There are two types of users of accounting information, such as "Internal Users" and
"External Users".

Internal users of accounting information are managers who plan, organize and run a
business. These include Marketing Managers, Production supervisors, Finance Directors and
Company officers.

There are several types of "External users of accounting information. They are as follows:

(i) Investor (owners) use accounting information to make decision to buy, hold or sell stock.
(ii) Creditors, such as suppliers and bankers use accounting information to evaluate the
risks of granting credit or lending money.
(iii) Taxing Authorities, such as the internal revenue service, want to know whether the
company complies with the tax laws.
(iv) Regulatory agencies, such as Security Exchange Commission want to know whether the
company is operating within prescribed rules.
(v) Customers are interested in whether a company will continue to honor product
warranties and support it product times.
(vi) Labor unions want to know whether the owners can pay increased wages and benefits.
(vi) Economic planners use accounting information to forecast economic activity.

Communication media of accounting information :

Generally accounting information disclose through the following media :

01. Oral communication.
02. Through phone, Telex, Fax etc mass media.
03. Discloser of accounting information through statements.
04. Through Newspaper.
05. Through periodicals.
06. Through charts, Diagrams, Pictogram.
07. Through confidential notes.

Branches of accounting : Following are the branches of accounting :

01. General Accounting : The general accounting includes book keeping and also report
preparation including interpretation. General accounting can also be called financial
accounting.
02. Auditing : It involves the verification of records and the reports prepared by the accountants
of an enterprise, In order to check errors and frauds and to authenticate the financial statements.

03. Cost Accounting : Cost accounting emphasizes the determination of business costs,
especially units costs of production and distribution.

04. Management Accounting : It is based upon the concept of accounting as a method of

management or as a tool by which managerial effectiveness is enhanced.

05. Budgetary Accounting : It refers to a systematic forecasting of business operations in

financial terms. It presents in an account form the transactions planned for the coming
period and summarizes these transactions in accounting statements.
06. Tax Accounting : It refers to the determination of the correct liability for taxes,
especially income taxes and social security taxes and preparation of necessary returns.
07. Industrial Accounting : It refers to the integration of financial accounting and cost
accounting for managerial planning and control of an industry.

08. Government and Municipal Accounting : It specializes in the transactions of political units
such as states and municipalities. It seeks to provide useful accounting information with
regard to the business aspect of public administration.

09. Social Accounting : Social Accounting is to deal with measurement of social and
national income and national wealth.

The need for accounting concepts and principles:

The development of accounting principles has been closely associated with the growth of
business. The business today has become large in size and complex in nature. Unlike in the
past when various need business accounts were largely needed by the proprietor, today
accounting statements parties namely, proprietors, creditors, potential investor's and many
others.

Proprietor's wants to read the well being of the business the present creditors want to know
about the solvency of the business and the prospective investors are interested in the
earning potential of the business.

In view of the utility of accounting statements to various interested parties. It is necessary to

recognize the urgency of a scientific approach to the recording and reporting of business
transactions. In the absence of scientific approach, accountants will be free to use their own
language and what ever they will be writing will not necessarily be understand in the same
sense by other persons concerned.

Thus the uniformity in understanding the accounting records is possible only when some
standard language is used.

With a view to making the accounting language a standard language, certain accounting
principles, concepts and conventions have been developed over a course of period.

Accounting concepts and conventions : There is a difference of opinion as to the

meaning and significance of the terms "Concepts" and "Conventions". The term
"Concept" is used to connote accounting postulates, i.e. necessary assumptions or
conditions upon which accounting are based. Following is the list of accounting concepts
agreed to by most of author's:
01.Entity concept : It requires that the activities of the entity be kept separate and distinct
from the activities of its owner.

02.Dual aspect concept : Under this assumption every transactions should have double
sided affairs one is debit and another is credit.

03.Going concern Concept : Under this assumption the business will continue for unlimited
period, on the basis of this concept assets and liabilities are recorded at purcha se cost.

04.Accounting period concepts : Under this assumption the organizations determined profit or
loss at the end of each financial year.

05.Money measurement concepts : The organization record all those transactions that are
measurable in terms of monetary value.

06.Cost concept : Cost principles states that assets should be recorded at their cost. Cost is
the value something as acquired.
07. Accrual/Matching concept: All incomes and charges relating to the financial year to
which the accounts relate shall be taken into accounts, without regard to the date of receipt
or payment.

08.Objective evidence concept : This concept states that every transaction should have
documentary evidence.

The term "Convention" is used to signify customs or traditions as a guide to the preparation
of accounting statement. Following are the various accounting conventions:

01. Disclosure : Accountants are obliged to transmit all significant financial data preferabl -, -
in the body of the financial reports but also explanatory foot notes.

02. Materiality : This convention states that the trader should record the transaction which
is material/relevant with the business and which immaterial should be ignore.

03. Consistency : It required that once a company has decided on one of the methods, it will
treat all subsequent events of same character in the same fashion.

04. Conservatism or prudence: Revenue and profits should not be anticipated but
recognized only when they are realized in cash but liabilities and losses which have arisen
or likely to arise in respect of the financial year must be taken into account.

What is generally accepted accounting principles (GAAP) :

The accounting profession has developed standards that are generally accepted and
universally practiced. The common set of standards is called GAAP. These standards
indicate how to report economic events. Two organizations are primarily responsibility for
establishing GAAP.

The first is the Financial Accounting Standards Boards (FASB). This private organiz ation
establishes broad reporting standards of general applicability as well as specific accounting
rules.

The second standard setting group is the security exchange commission (SEC) the SEC is
government agency that required companies to file financial report following GAAP.
In general the FASB and SEC work hand in hand to assure that timely and useful
accounting principals are developed.

Capital Expenditure: Capital expenditure consists of all expenditures which result in the
acquisition of permanent assets, employed to run the business for the purpose of earning
revenue, not only in one accounting period, but in several periods.

Such as cost of land and building plant and machinery, Tools and Fixtures etc.

Revenue Expenditure: Revenue expenditure consists of those expenditures, which result in

the conduct and administration of the business. It also includes the cost of maintenance
of earning capacity including the upkeep of the fixed assets in productive condition,
e.g. office salaries, rent, taxes, insurance and commission etc.

Accounting cycle : The order or sequence in which accounting procedures are performed
is known as accounting cycle. As soon as transactions takes place they are recorded in
journalizing and concludes ~~ ith the post closing trial balance.

In brief the accounting cycle can be described as:

01.Recording : Recording the transactions in the journals or book of original entry.

02.Classifying : Transferring the entries from the journals to the ledger.

03.Summarizing : Preparing a trial balance from the debit and credit balances of ledger
accounts.

04.Preparing financial statements : Preparing the trading account, profit and loss account
and the balance sheet also taking into account all adjustments affecting the period concerned.

05. Interpreting and analyzing those statements :Giving requisite Information to the
interested groups by calculating accounting ratio and by interpreting the performance of the
organization.

Principles of double entry system of Book Keeping : The system of Book Keeping is
originated fundamentally from the fact that in every transaction there must be two
accounts to complete it one account gives the benefit and another account receives the same.

The account that receives the benefit is called "Debit" and the account gives the benefit
is called "Credit".

Therefore "The system of book keeping which is employed to record two fold aspects i.e.
both Dr. and Cr. of every transaction in money or money's worth in two different accounts
of the same set of Book is called double entry system of book keeping.

Does double entry means double work: Some traders think the double entry system book
keeping means double work. Such impression is absolutely wrong. As a matter of fact
this system does not arise from the quantity of work to the done but arises
fundamentally from the necessity of giving perfect reflection to each and every
transaction which is variable involves two parties or accounts.

In each transaction every debit must have a corresponding credit and vice versa. In order
to consider this double effect of transaction. There must be double entry in the
books of account. Therefore the impression (Double Entry means Double Works) is
wrong. It is called double entry as it gives a perfect reflection to the two-fold aspect
of the business transaction.

Business Transaction : Transaction is the business dealings of a trader in regard to

money or money's worth. A Businessman in the normal course of his business activities
has to perform various types of dealings. Such as, purchasing, selling, receiving the price
of the goods paying money for rent and advertisement etc. All these business dealings
are called business transactions.

Classification of Accounts : An account is a summarized form of a group of transactions or

a particular class of transactions. Such as Rahim A/C, Cash A/C, furniture Account.
There are three types of accounts such as :
01. Personal Account. 02. Real Account. 03. Nominal Account.

01. Personal Account: The account which refers to the name of firm or person is called
personal account e.g. Rahim account, Karim account, Sonali bank account, Rahman and
Brothers account.

02. Real Account: The account which refers to the assets or property is called real account
e.g. cash account, plant account, Machinery account, Accounts receivable account.

03. Nominal Account: The account which refers to the income and expenditure is called Nominal
account e.g. Rent Account, Salary account, Interest account, Commission account etc.

Accounting equation : The relationship of assets liabilities and owner's equity can be
expressed as an equation as follows :

A(Assets) = L (Liabilities) + P (Proprietorship or owners equity).

This relationship is referred as the basic accounting equation.

Under the equation of accounting there are four types of accounts. Such as 01. Income
account. 02. Expenditure account. 03. Assets account and 04. Liabilities accounts.

Rules for determination of Debit (Dr.) and Credit (Cr. )

Under traditional method the rules are as follows :

01. Personal account : Receiver of the benefit (Dr.)

Giver of the benefit (Cr. )

02. Nominal account : Expenditure/Loss (Dr.)

Income/Profit/Revenue (Cr.)

03. Assets account: What comes in the business (Dr.)

What goes out from the business (Cr.)

Under accounting equation method the rules are as follows :

01.Assets Account : Increase ............ Dr.

Decrease .......... Cr.
 02.Liabilities : Decrease ............ Dr.
Increase ............ Cr.

03. Income A/C. : Decrease .......... Dr.

Increase ............Cr.

04. Expenditure : Increase ........... Dr.

Decrease ......... Cr.

Preparation of Summary of Business Transaction using accounting equation:

Problem-1:
Merina Monolova opens her own law office on July 1, 2006. During the
first mon th of operations, the following transactions occurred:
1. Invested Tk. 10.000 in cash in the law practice.
2. Paid Tk. 800 for July rent on office space.
3. Purchased office equipment on account, Tk. 3,000
4. Rendered legal services to clients for cash. Tk. 1,500. (use Fees Earned)
5. Borrowed Tk. 700 cash fronm a bank on a note payable
6. Rendered legal services to client an account. Tk. 2,000
7. Paid monthly expenses: Salaries. Tk. 500; utilities, Tk. 300; and telephone,
Tk.100.
Instructions
(a) Prepare a tabular summary of the transactio ns.
(b) Prepare the income statement, owner's equity statement, and balance sheet
at July 31 for Marina Monolova, Attorney at Law.
Solution:
(a) Assets = Liabilities + Owner's Equity
Transactions Account = Notes Accounts Merina Monolova
Cash + Receivable + Equipment = Payable + Payable + Capital
Tk. Tk, Tk Tk. Tk. Tk,
1. + 10,000 + 10,000 (Investment)
2. - 800 -800 (Rent Exp.)
bal 9,200 = 9,200
3. 3,000 = 3.000
bal. 9,200 3,000 = 3,000 9,200
4 + 1,500 1,500 Fees Earned
10,700 +3,000 = 3.000 + 10,700
`
5 + 700 700
bal. 11.400 +3,000 = 700 + 3,000 + 10,700
6. + 2,000 2,000 (Fees Earned)
bal. 11,400 + 2,000 +3,000 = 700 + 3.000 + 12,700 '
7 -900 -500 Saiaries Exp.
-300 Utilities Exp.
-100 Tele. Exp
bal 10,500 2,000 3.000 = 700 3,000 11.800
 .MERITA MONOLOVA
Income Statement
For the Month Ended July 31, 2006
Tk. Tk.
Revenues
Fees earned -------------------------------------------------------------------------------------- 3,500
Expenses :
Rent expense --------------------------------------------- 800
Salaries expense --------------------------------------------------------- 500
Utilities expense ---------------------------------------------------------- 300
Telephone expense ---------------------------------------------- 100
Total expenses --------------------------------------------------- 1,700
Net income 1,800
MERINA MONOLOVA
Attorney at Law
Owner's Equity Statement
For the Month Ended July 31, 2006
Tk._____ Tk. _
Merina Monolova, Capital, July 1 0
Add: Investments 10,000
Net income 1.800 11,800
Merina Monolova, Capital, July 31 11,800

MERINA MONOLOVA
Attorney at Law
Balance Sheet
July 31,
2006
Assets Tk.
Cash 10,500
Accounts receivable 2,000
Equipment 3,000
Total assets 15,500

Liabilities and Owner's Equity

Liabilities:
Notes Payable 700
Accounts payable 3000
Total liabilities 3,700
Owner's Equity:
Merina Monolova, Capital 11,800
Total liabilities and owner's equity 1 5,500

Problem-2

June Lake began the practice of dentistry and during a short period completed
these
transactions:
 a. Invested Tk. 5,000 in cash and dental equipment having a Tk. 500 fair value
in a dental practice.
b. Paid the rent on suitable office space for two months in advance, Tk. 1,000.
c. Purchased additional dental equipment for cash, Tk. 1.500.
d. Completed dental work for a patient and immediately collected Tk. 200 cash for
thework.
e. Purchased additional dental equipment on credit, Tk. 800.
f. Completed Tk. 600 of dental work for a patient on credit.
g. Paid the dental assistant's wages, Tk. 300.
h. Collected Tk. 300 of the amount owed by the patient of transaction (f).
i. Paid for the equipment purchased in transaction (e).

Required :
Arrange the following asset, liability, and owner's equity titles in an equation form. Cash;
Accounts Receivable; Prepaid Rent: Dental Equipment: Accounts Payable; and June
Lake, Capital. Then show by additions and subtractions the effects of the transactions on
the elements of the equation. Show new totals after each transaction.
Solution

Accounts Prepaid Dental Accounts June lake

Date Cash + Receivable + Rent + Equipment Payable + Capital

Tk. Tk. Tk. Tk. = Tk. Tk.

(a) 5,000 500 =
5,500
(b) - 1,000 1,000
4,000 1,000 500 = 5,500
(C) - 1,500 +1,500
2,500 1,000 2,000 = 5,500
(d) +200 +200
2,700 1,000 2,000 = 5,700
(e) +800 + 800
2,700 1,000 2,800 = 800 5,700
(f) + 600 + 600
2,700 600 1,000 2,800 = 800 6,300
' (g) - 300 - 300
2,400 600 1,000 2,800 = 800
6,000 (h) +300 - 300
2,700 300 1,000 2,800 = 800 6,000
(i) 800 - 800
1,900 300 1,000 2,800 = 0 6,000

Problem-3
Ned Able completed the following transactions:

a. Sold a personal investment in IBM stock for Tk. 9,350 and deposited Tk. 9,000 of the
proceeds in a bank account opened in the name of his new business, Able TV
Service.
b. Purchased for cash the repair supplies, Tk. 1,050, tools, Tk. 825, and the u sed
truck, Tk. 2,100, of a TV Repair Shop that was going out of business.
 c. Paid the rent on the Shop Space for three months in advance Tk.
600.
d. Purchased additional tools for cash, Tk: 150.
e. Purchased additional repair supplies on credit, Tk. 250.
f. Gave the old company truck and Tk. 3,000 in cash for a new company truck,
g. Completed repair work for Walter Keller and collected Tk. 50 cash therefor,
h. Paid for the repair supplies purchased in transaction (e)
i. Completed repair work for Gary Nash on credit, Tk. 75.
j. Paid for Gas and Oil used in the truck, Tk. 25.
k. Gary Nash paid in full for the work of transaction (i).
l. Ned- Able, wrote a cheque on the bank account of the shop to pay' a personal
expense, Tk. 60.
Required:
1.Arrange the following asset, liability, and owner's equity titles in Balance Sheet equation.
Cash; Accounts Receivable: Prepaid Rent; Supplies; Tools; Truck; Accounts Payable; and
Ned Able, Capital,
2. Show by additions and subtractions, the effects of the transactions on the elements of the
equation, Show new totals after each transaction.

Solution:

Accounts Prepaid Accounts, Ned Able

Cash + Receivable + Rent + Supplies + Tools + Truck = Payable + Capital
Tk. Tk. Tk. Tk. Tk. Tk. Tk. Tk.

a) +9,000 +9,000
b) -3,975 +1,050 +825 +2,100
5,025 1,050 825 2,100 = 9,000
c) -600 +600
4,425 600 1,050 825 2,100 = 9,000

d) -150 +150
4,275 600 1,050 975 2,100 = 9,000

e) +250 +250
4,275 600 1,300 975 2,100 = 250 9,000
f) -3,000 3,000
1,275 600 1,300 975 5100 = 250 9,000
g) +50 +50
1,325 600 1,300 975 5,100 = 250 9,050
h) -250 -250
1,075 600 1,300 975 5,100 = 0 9,050
i) +75 + 75
1,075 75 600 1,300 975 5,100 = 9,125
j) -25 -25
1,050 75 ___ 600 1,300 975 5,100 = 9,100
k) +75 - 7 5 ____
1,125 0 600 1,300 975 5,100 = 9,100
1) -60 -60
1,065 600 1,300 975 5,100 = 9,040
Problem-4:

On October 1 of the current year, Mary Berg began the practice of law by investing
Tk.
1,500 in cash and a law library having a Tk. 1,000 fair value; and during a short period, she
completed the following additional transactions:
Oct. 1 Rented the furnished office of a lawyer who was retiring and paid three months,
rent in advance, Tk. 900.
2 Purchased office supplies for cash, Tk. 65.
5 Purchased law books from West Publishing Company on credit. Tk. 150.
8 Completed legal work for a client and immediately collected Tk. 250 cash for the work
done.
14 Completed legal work for Pine Realty on credit. Tk. 350.
15 Paid the salary of the office secretary, Tk. 350.
15 Paid Tk. 50 of the amount owed on the law books purchased on October 5.
20 Completed legal work for Guaranty Bank on credit, Tk. 400.
24 Received Tk. 200 from pine Realty in partial payment for the legal work
completed on October 14.
3 1 Paid the monthly telephone bill Tk. 20.
3 1 Paid the office secretary's salary, Tk. 350.
31 Took an inventory of unused office supplies and determined that Tk. 15 of
Supplies had been used and had become an expense. (Reduce the asset an d owner's
equity).
31 Recognized that one month's rent had expired and had become an expense.
Required:
1. Arrange the following asset, liability, and owner's equity titles in Balance Sheet
equation. Cash: Accounts Receivable; Prepaid Rent; Office Supplies; Law Library;
Accounts Payable: and Mary Berg, Capital.
2. Show by additions and subtractions the effects of each transaction on the items of the
equation. Show new totals after each transaction.

(Try yourself)
 The Recording Process

What is Journal:

Journal is a daily register, where the trader record all his business transactions by analyzing
into debit (Dr.) and credit (Cr.), in order of date in such a manner that their transfer to the
ledger is facilitated.

Functions of Journal:

The functions of the Journal are three-(i) To analyze each transaction into Dr. and Cr., So that
its transfer to the ledger becomes easy. (ii) To record the transactions chronologically (iii) To
give narration for each entry in order to facilitating future reference.

Advantages of Journal:

The following advantages are claimed for Journal:

(i) In the Journal each transactions are analyzed to Dr. and Cr. As a result its transfer
to the ledger becomes easy.
(ii) The Journal maintains a concise and chronological record of transactions.
(iii) In the Journal it is possible to provide some sort of full explanations as to the
cause and nature of each entry.
(iv) In case of doubt or dispute with regard to a transaction in future necessary
reference may be made in the Journal.
(v) It helps to prevent or locate errors.

Specimen of Journal:

Each page of the journal is divided into 5 unequal columns, viz-(i) Date (ii) Particulars (iii)
Reference/ Ledger Folio (iv) Debit amount (v) Credit amount.
As:
Date Particulars Ref. Debit (Tk) Credit (Tk.)
2007 Cash A/C……………………..Dr. 1,00,000
Jan.-1 Mr. X’s Capital A/C……Cr. 1,00,000
(Being Mr. X invested Tk.
1,00,000 in the business)
Various types of Journal Entry:

(i) Simple Entry: If a journal entry having single Dr. and Cr. is called simple Journal entry.
e.g. Cash A/C ……….Dr.
Service Revenue ……Cr.

(ii) Compound/Complex/ combined Journal entry: If a Journal entry having two or more
Dr. and Cr. is called compound Journal entry. For example:

Equipment A/C…………Dr.
Cash A/C …………….Cr.
Note payable………….Cr.
(iii) Opening Entry: The entry through which the assets and liabilities of the last accounting
period of a going concern are brought forward to the books of the new period is called
opening Journal entry
For example:

Sundry asset A/C………..Dr.

Sundry liabilities A/C………Cr.
Capital A/C…………………Cr.
(iv) Closing entry : The entries through which the nominal accounts in the ledger are closed
at the time of preparing final account at the close of an accounting period are called closing
entry.

For example:

Income statement ……….. Dr.

Opening Inventory ………Cr.
Purchase Account…………Cr.
Wages Account……………Cr.
(v) Adjusting entry: If at the time of preparing final accounts, adjustments is necessary
certain items of incomes and expenditures etc than the entries through which it is done are
called Adjusting entry.

For example:
Depreciation A/C ……………..Dr.
Assets A/C …………………Cr.

(vi) Rectifying entry: If an error is detected in the accounts already written,, the entry through
which it is rectified is called rectifying journal entry:

For example: Marchandise sold to karim wrongly debited to Rahim Tk 400, Correcting entry
will be
Karim A/C ……………Dr.
Rahim A/C …………….Cr.
(vii) Transfer entry: The entry through which an amount is transferred from one ledger to
another is called Transfer entry.
(vii) Reversing entry: A reversing entry is made at the beginning of the next accounting
period and is the exact opposite of the adjusting entry made in the previous period.
For example Salary payable ……………Dr.
Salary expenses A/C …………Cr.
What is Ledger:

Ledger is the Principal book of a trader. It contains a condensed and classified record of all
the transaction of the business generally brought, transferred or posted from the books of the
original entry.

Why ledger is called the principal book/ the king of all books?

In the ledger both personal and impersonal accounts are maintained in order to record the two
fold aspect of the transactions permanently. Thus this is a principal book; the ledger contains
the final record of the business transactions of a trader.

From the permanent and final record so maintained in the ledger the trader can acquire
readily all necessary information for appraising past result and in formulating future policy.

For all these reasons ledger is called the king of all books.

What is the distinction between Journal and Ledger?

1) Journal is called the book of original entry.

Where as Ledger is called the king of all books.

2) Journal is called the subsidiary book.

On the other hand Ledger is called the principal book.

3) Transactions are recorded in Journal with full descriptions.

But in Ledger transactions are recorded without descriptions.

4) In Journal transactions are not classified in their nature.

But in Ledger transactions are recorded by classifying in their nature.

5) From Journal it is not possible to prepare Trail Balance

But from Ledger a trader can easily prepare Trail Balance.

What is Trail Balance?

A Trail Balance is a classified list of balances both Dr. and Cr. at any specified date extracted
from each account in the Ledger.

Objectives of Trail balance

1) To check the arithmetical accuracy of all the accounts of the ledger

2) To combine all the ledger account balance in one list.
3) To prove the double entry system of book-keeping.
4) To save time and money
5) To help in preparation of financial statement.

Rules for preparation of Trail Balance

Trail balance Debit (Dr.) items: (i) All assets (ii) All expenses and losses (iii)
Advance/Prepaid expenses (iv) Outstanding/Income receivable

Trail Balance Credit (Cr.) items: (i) All liabilities (ii) All income and profit (iii)
outstanding expenses (iv) Unearned/advance income

Preparation of Journal, Ledger and Trail Balance:

Problem-1
Bob Sample opened the Campus Laundromat on September 1, 2006. During the first
month of operations the following transactions occurred.
Sept.-1 Invested $20,000 cash in the business.
2 Paid $1,000 cash for store rent for the month of September.
3 Purchased washers and dryers for $25,000, paying $10,000 in cash and
signing a $15,000, 6-month, 12% note payable.
4 Paid $1,200 for one-year accident insurance policy.
10 Received bill from the Daily News for advertising the opening of the
Laundromat $200.
20 Withdrew $700 cash for personal use.
30 Determined that cash receipts for laundry services for the month were
$6,200.

Instructions
(a) Journalize the September transactions.
(b) Open ledger accounts and post the September transactions.
(c) Prepare a trial balance at September 30, 2006.

SOLUTION
a) GENERAL JOURNAL

Date Account Titles and Explanation Ref. Debit Credit

2002
Sept. 1 Cash 20,000
Bob Sample, Capital 20,000
(Owner's investment of cash in business)
2 Rent Expense 1,000
Cash 1,000
(Paid September rent)
3 Laundry Equipment 25,000
Cash 10,000
Notes Payable 15,000
(Purchased laundry equipment for cash .
and 6-month, 12% note payable)
4 Prepaid Insurance 1,200
 Cash 1,200
(Paid one-year insurance policy)
10 Advertising Expense 200
Accounts Payable 200
(Received bill from Daily News for
advertising)
20 Bob Sample, Drawing 700
Cash 700
(Withdrew cash for personal use)
30 Cash 6,200
Service Revenue 6,200
(Received cash for services provided)

(b) GENERAL LEDGER

Cash Accounts Payable

Date Explanation Ref Debit Credit Balance Date Explanation Ref. Debit Credit
Balance
2006 2006
Sept. 1 20,000 20,000 Sept. 10 200
200 2 1,000 19,000
3 10,000 9.000 Bob Sample, Capital
4 1,200 7,800
20 700 7,100 Date Explanation Ref. Debit Credit
Balance
30 6,200 13,300 2006
. Sept. 1 20,000
20,000

Prepaid Insurance Bob Sample, Drawing

Date Explanation Ref. Debit Credit Balance Date Explanation Ref Debit Credit
Balance
2006 2006
Sept. 4 1,200 1,200 Sept. 20 700
700

Laundry Equipment Service Revenue

Date Explanation Ref. Debit Credit Balance Date Explanation Ref. Debit Credit
Balance
2006 2006
Sept. 3 25,000 25,000 Sept.30 6,200
6,200
Notes Payable Advertising Expense
Date Explanation Ref. Debit Credit Balance . Date Explanation Ref. Debit Credit
Balance
2006 2006
Sept. 3 15,000 15,000 Sept. 10 200 200

Rent Expense
Date Explanation Ref. Debit Credit
Balance

2006
Sept. 2 1,000
1,000
c) CAMPUSLAUNDROMAT
Trial Balance September 30, 200
 Debit Credit
Cash $13,300
Prepaid Insurance 1,200
Laundry Equipment 25,000
Notes Payable $15,000
Accounts Payable 200
Bob Sample, Capital 20,000
Bob Sample, Drawing 700
Service Revenue 6,200
Advertising Expense 200
Rent Expense 1,000
$41,400 $41,400

Problem-2

Surepar Miniature Golf and Driving Range was opened on March 1 by Jane McMil lan.
The following selected events and transactions occurred during March:
Mar. 1 Invested $50,000 cash in the business.
3 Purchased Lee's Golf Land for $38,000 cash. The price consists of land $23,000,
building $9,000, and equipment $6,000. (Make one compound entry.)
5 Advertised the opening of the driving range and miniature golf course, paving
advertising expenses of $1,600.
6 Paid cash $1,480 for a one-year insurance policy.
10 Purchased golf clubs and other equipment for $2,600 from Palmer Company
payable in 30 days.
18 Received $800 in cash for golf fees earned.
19 Sold 100 coupon books for $15 each. Each book contains 10 coupons that enable
the holder to one round of miniature golf or to hit one bucket of golf balls.
25 Withdrew $500 cash for personal use.
30 Paid salaries of $600:
30 Paid Palmer Company in full.
31 Received $500 cash for fees earned.
Instructions
Journalize the March transactions.

Problem-3

Patricia Perez is a licensed architact. During the first month of the operation of her business.
the following events and transactions occurred.
April 1 Invested $20,000 in cash.
1 Hired a secretary-receptionist at a salary of $300 per week payable monthly.
2 Paid office rent for the month $800.
3 Purchased architectural supplies on account from Halo Company $1500.
10 Completed blueprints on a carport and billed client $900 for services.
11 Received $500 cash advance from R. William for the design of a new home.
20 Received $l,500 cash for services completed and delivered to P. Donahue.
30 Paid secretary-receptionist for the month $1,500.
30 Paid to Halo Company on account.

Instructions
 (a) Journalize the transactions.
(b) Post to the ledger accounts.
(c) Prepare a trial balance on April 30, 2006

Problem-4

Babla Brokerage Services was formed on May l, 2006. The following transactions took place
during the first month. '
Transactions on May 1:
1. Jacob Babla invested $120,000 cash in the company as its sole owner.
2. Hired two employees to work in the warehouse. They will each he paid a salary
of $2,000 per month.
3. Signed a 2-year rental agreement on a warehouse; paid $48,000 cash in advance for the
first year. (Hint: The portion of the cost related to May 2006 is an expense for this
month.)
4. Purchased furniture and equipment costing $70,000. A cash payment of $20,000 was
made immediately; the remainder will be paid in 6 months.
5. Paid $3,000 cash for a one-year insurance policy on the furniture and equipment.
(Hint: The portion of the cost related to May 2006 is an expense for this
month.)
Transactions during the remainder of the month:
6. Purchased basic office supplies for $1,000 cash.
7. purchased more office supplies for $2,000 on account.
8. Total revenues earned were $30,000-$10,000 cash and $20,000 on account.
9. Paid $800 to suppliers on account.
10. Collected $5,000 from customers on account.
11. Received utility bills in the amount of $400, to be paid next month.
12. Paid the monthly salaries of the two employees, totaling $4,000.

Instructions
(a) Prepare journal entries to record each of the events listed.
(b) Post the journal entries to Ledger.
(c) Prepare a trial Balance as of May 31, 2006.
 Adjusting the Accounts and Preparation of Financial Statement

THE BASICS OF ADJUSTING ENTRIES

In order for revenues to be recorded in the period in which they are earned, and for
expenses to be recognized in the period in which they are incurred, adjusting entries are
made at the end of the accounting period. In short, adjusting entries are needed .to
ensure that the revenue recognition and matching principles are followed.

Adjusting entries make it possible to report on the balance sheet the appro priate
assets, liabilities, and owner's equity at the statement date and to report on the income
statement the proper net income (or loss) for the period. However, the trial balance-
the first pulling together of the transaction data-may not contain up-to-date and
complete data. This is true for the following reasons.

1. Some events are not journalized daily because it is inexpedient to do so. Examples are
the consumption of supplies and the earning of wages by employees.
2. Some costs are not journalized during the accounting period because they ex pire
with the passage of time rather than through recurring daily transactions. Examples are
equipment deterioration, and rent and insurance.
3. Some items may be unrecorded. An example is a utility service bill that will not be
received until the next accounting period.

Adjusting entries are required every time financial statements are prepared. The starting
point is an analysis of each account in the trial balance to determine whether it is
complete and up-to-date. The analysis requires a thorough understanding of the
company's operations and the interrelationship of accounts.

ACCRUAL- VS. CASH-BASIS ACCOUNTING

Under the accrual basis, transactions that change a company's financial statements are
recorded in the periods in which the events occur. For example, using the accrual basis to
determine net income means recognizing revenues when earned rather than when the
cash is received. It also means recognizing expenses when incurred, rather than when
paid. Information presented on an accrual basis reveals relationships likely to be
important in predicting future results. Under accrual accounting, rev enues are
recognized when services are performed, so trends in revenues are thus more meaningful
for decision-making.
An alternative to the accrual basis is the cash basis. Under cash-basis accounting,
revenue is recorded when cash is received, and an expense is recorded when cash is
paid. The cash basis often leads to misleading financial statements. It fails to record
revenue that has been earned but for which the cash has not been received. Also,
expenses are not matched with earned revenues. Cash-basis accounting is not in
accordance with generally accepted accounting principles (GAAP).

TYPES OF ADJUSTING ENTRIES

Adjusting entries can be classified as either prepayments or accruals. Each of these
classes has two subcategories as shown below.

Prepayments
1. Prepaid Expenses. Expenses paid in cash and recorded as assets before they are
used or consumed.
2. Unearned Revenues. Cash received and recorded as liabilities before revenue is
earned.

Accruals
1. Accrued Revenues. Revenues earned but not yet received in cash or recorded.
2. Accrued Expenses. Expenses incurred but not yet paid in cash or recorded.

Some examples regarding adjusting entries:

1. Ending stock valued at Tk. 20,000

Ending stock A/c........Dr. 20,000
Purchase A/c.............Cr. 20,000

2. Advance expenses, Tk. 2,000

Advance exp. A/c.........Dr. 20,000
Respective exp. A/c........Cr. 2,000

3. Unpaid Expenses Tk. 5,000

Respective exp. A/c.......Dr. 5,000
Liabilities for outstanding exp. A/c......Cr. 5,000

4. Accrued Income Tk. 4,000

Accrued Income A/c..........Dr. 4,000
Respective Income A/c.......Cr 4,000

5. Income received in advance Tk. 3,000

Respective income A/c..........Dr. 3.000
Advance income A/c.......Cr. 3,000

6. Depreciation on Furniture Tk 2000

Depreciation A/C............Dr. 2000
 Accumulated Depreciation ..Cr. 2000

7. Bad debt Write off Tk. 1000

Reserve for bad debt ......Dr. 1000
Accounts receivable ..........Cr. 1000

Preparation of Financial Statement/Final Account:

For Sole Trader Ship Business

* * 1) Income Statement (Single Step Method and Multiple Step Method)
* * 2) Classified Balance Sheet

For Company Business:

** 1) Income Statement (Single Step Method and Multiple Step Method)
** 2) Retained earning Statement
** 3) Classified Balance Sheet

Form of Single Step Income Statement:

ABC Co. ltd

Income Statement
For the year ended 31st Dec. 200
Particulars TK TK.
A) Revenues:
Net Sales (Sales Less returns and discounts) xxx
Gain on disposal of Assets xxx
Interest Income xxx
Dividend income xxx
Sundry income xxx
Total Revenues xxxx

B) Cost of goods sold xxx

Selling expenses xxx
General and Administrative expenses xxx
Financial Expenses (Interest Expenses) xxx
Income Taxes xxx
Total expenses xxxx
Net Income (A-B) xxxx
 ABC Co. Ltd.
Income Statement (Multiple Step Method)
For the year ended 31 ' Dec 200
Particulars TK. TK. TK_ TK.
1) Sales Revenues :
Gross Sales xxxx
Loss Sales return and allowance xx
Sales Discount xx
xxx
Net Sales xxxx
2) Cost of goods Sold:
Opening Inventory xxx
Add purchase xxx
(+) Carriage inward xxx
(+) Freight xxx
(+) Wages xxx
xxx
xxx
(-) Purchase return xxx
Purchase discount xxx
xxx
xxx
Merchandise available for sale xxx
Less closing inventory xxx
xxx
3) Gross profit (1-2) xxx
4) Operating Expenses :
i) Selling Expenses:
Bad debt xxx
Provision for bad debt (new) xxx
Sales Salaries xxx
(+)dues xx
xxx
Store supplies Expenss xxx
Advertising expenses xxx
Misc - Expenses xxx
xxxx
ii) Administrative expenses :
Offices Salaries xxx
(+) dues xxx
xxx
Insurance xxx
Rent Expenses xxx
Dep: on office furniture xxx
Misc General Expenses xxx
xxx
 Total Operating Expenses xxx
5) Operating Income (3-4) xxx
Add Non Operating Income
Interest income Xxx
Gain on sale of Assets xxx
xxx
xxx
Less Non Operating expenses
Interest expenses xxx
Loss on sale of asset xxx
xxx
Net Income before Tax xxx
(-) Tax (In case of Co. Business) xxx
Net Income after Tax xxx
Form of Retained Earning Statement:
ABC Co. Ltd.
Retained Earning Statement (Company Only)
For the year ended 31 st Dec 200
Particulars TK. TK.
Opening Retained earning xxx
Add Net income after Tax xxx.
Income Tax refund xxx
xxx
xxx
Less Dividend paid (Equity and preference) xxx
Transfer to any fund xxx
xxx
Closing Retained earning xxx

Form of Classified Balance Sheet:

ABC Co. Ltd.
Classified Balance Sheet
As at 31st Dec 200
Assets Tk Tk TK.
A) Current Assets:
Cash in hand and at bank xxx
Accounts receivable xxx
(-) Allowance for bad debits xxx
xxx
Notes receivable xxx
Inventories xxx
Supplies xxx
Prepaid insurance xxx
Interest Receivable xxx
Total Current Assets xxxx
B ) Fixed Assets :
Land and Building xxx
(-) Accumulated Dep: xxx
xxx
Equipment xxx
Furniture xxx
Long Term investments xxx
Total Fixed Assets xxxx
Total Assets (A+B) xxxx
Liabilities and Owners Equity:
Current Liabilities:
Accounts Payable xxx
Notes Pavable xxx
Dividend payable xxx
Income Tax Payable xxx
 Salaries and Wages Pavable xxx
Total Current liabilities
xxxx
Long term liabilities:
Mortgage Payable x xx
Bond Payable xxx
TTL Long term liabilities xxxx

Share Holders / Owners Equity:

Capital Stock xxxx
(+) Net income/ Retained earning closing xxx
(-) drawing xxx
xxxx
Total Liabilities and Owners Equity xxxx
Preparation of Financial statement:
Problem-1
The following Trial Balance was taken from the ledger of Antar's repair shop at the
end of its annual accounting period:
Antar's Repair shop
Trial Balance, December 31, 2006
Tk. Tk.
Cash .............................................................................................................. 775
Prepaid insurance .................................................................................. 440
Repair supplies ............................................. : .................................... 1,425
Repair equipment ............................................................................... 7,215
Accumulated depreciation, repair equipment .................................................... 1,050
Accounts payable ................................................... ............................................... 260
Capital ................................................................................................................ 5,535
Withdrawals ...................................................................................... 12,200
Revenue from repairs ............................................. ........................... 27,135
Wages expense ....................................................................................9,860
Rent expense ....................................................................................... 1,800
Advertising expense ..............................................................................265
. Totals ............................................................................... 33,980 33,980
Adjustments:
a. Expired insurance, Tk. 385.
b. An inventory of repair supplies showed Tk. 310 of unused supplies on hand.
c. Estimated depreciation of repair equipment, Tk. 725.

d. Wages earned by the one employee but unpaid on the trial balance date, Tk.
80.
Prepare an income statement and a classified balance sheet.

Solution
ANTAR'S REPAIR SHOF
Income Statement for Year Ended december 31, 2006
Tk. Tk.
Revenue:
Revenue from repairs....................................................................................... 27,135

Operating expenses :
Wages expense (9,860+80).................................................................. 9,940
 Rent expense ........................................................................................ 1,800
Advertising expense ........ :.................................................................... ..265
Insurance expense ................................................................................. 385
Repair supplies expense ...................................................................... 1,115
Depreciation expense, repair equipment ............................................... 725
Total operating expenses 14,230
Net income ........................................................................................................... 12,900

ANTAR'S REPAIR SHOP

Balance Sheet December 31, 2006
Assets Tk. Tk.
Current assets :
Cash ........................................................................................................ 775
Prepaid insurance (440-385) 55
Repair supplies (1,425-1115) ................................................................. 310
Total current assets 1,140
Plant and equipment :
Repair equipment ...............................................................................7,215
Less : Accumulated depreciation (1,050+725)............................ 1,775
Total plant and equipment 5,440
Total assets 6,580
.
Liabilities Tk. Tk. Tk.
Current Liabilities :
Accounts payable ............................. : ....................................................260
Wages payable .......................................................................... ..... 80
Total liabilities ........................................................................... ............................ 340
.Owner's Equity
Antar's. Capital January 1, 2006 ............................................................... 5,535
Net income for year ....... : ................................................. I2,905
Less : withdrawals ............................................................. 12,200
Excess of income over withdrawals 705
Antar's, capital, December 31, 2002 ........................................................................6,240
Total liabilities and owner's equity 6,580
Problem-2
The Global Graphics Company was organized on January 1, 2006, by Nancy Glover. At
the end of the first 6 months of operations, the trial balance contained the following
accounts :
Debits Credits
Tk. Tk.
Cash .................................................... 9,500 Notes Payable .................................. 17,000
Accounts Receivable ..........................14,000 Accounts Payable ..... : ........................ 9,000
Equipment ......................................... 45,000 Capital..: ................ : ........................ 25,000
Insurance Expense .............................. 1,800 Graphic Fees Earned ........................ 52,100
Salaries Expense ............................... 30,000 Consulting Fees Earned ..................... 5,000
Supplies Expense ................................ 2,700
Advertising Expense ............................ 1,900
Rent Expense ...................................... 1,500
Utilities Expense ................................. 1,700
1,08,100 1,08,100

Analysis reveals the following additional data :

1. The Tk. 2,700 balance in Supplies Expense represents supplies purchased in

January. At June 30, there was Tk. 1,500 of supplies on hand.
2. The note payable was issued on February 1. It is a 12%, 6-month note.
3. The balance in Insurance Expense is the premium on a one-year policy, dated march 1, 2006.
4. Consulting fees are credited to revenue when received. At June 30, consulting fees of
Tk. 1,000 are unearned.
5. Graphic fees earned but unbilled at June 30 total Tk. 2.000.
6. Depreciation is Tk. 2,000 per year.

Instructions :
Prepare an income statement and owner's equity statement for the 6 months ended
June 30 and a balance sheet at June 30.

Solution:
GLOBAL GRAPHICS COMPANY
Income Statement
For the Six Months Ended June 30, 2006
Tk. Tk,
Revenues:
Graphic fees earned (52,100+2,000) .................................................................... 54,100
Consulting fees earned (5,000-1,000) .....................................................................4,000
Total revenues .......................... : ................................................................... ..58,100
Expenses:
Salaries Expense ............................................................................. .30,000
Advertising expense ................................................................................ 1,900
Utilities Expense .................................................... ............................ 1,700
Rent expense ....................................................................................... 1,500
Supplies Expense (2,700-1500)........................................................... 1,200
Depreciation expense (2,000/2) .......................................................... 1,000
Interest expense ..................................................................................... 850
 Insurance expense (1,800-1,200) ........................................................... 600
Total expenses ...: .......................................................................................... 38,750
Net income ................................................................................................................. 18,350
GLOBAL GRAPHICS COMPANY
Owner's Equity Statement
For the Six Months Ended June 30, 2006
Tk.
Capital. January 1 ......................................................................................................... 0
Investment by owner ....................................................................................... 25,000
Add : Net Income............................ ' ......... :......................................................19,350
Capital, June 30................................. :........................................................... 44,350
GLOBAL GRAPHICS COMPANY
Balance Sheet
June 30, 2006
Assets Tk. Tk,
Cash ....... .............................................................................................................. 9,500
Accounts receivable (14,000+2,000) .....................................................................16,000
Supplies .....: ........................................................................................................ 1,500
Prepaid insurance.............................. ......................................................................1,200
Equipment ......................................... ..................................................45,000
Less : Accumulated depreciation ......................................................... 1,000
44,000
Total assets .................................................................................................... 72,200
Liabilities and Owner Equity
Liabilities
Notes payable........................................................................... ............. 17,000
Accounts payable................................................................. . .. 9,000
Interest payable .................................................................................. ............... 850
Unearned consulting fees...................................................................... 1,000
Total liabilities........................................................................... 27,850
Owner's equity:
Capital ... ...............................................................................................................44,350
Total liabilities and owners equity.......................................................................... 72,200

Problem-3
Darth Vader began operations as a private investigator on January 1, 2006. The trial balance
columns of the work sheet for Darth Vader at March 31 are as follows.
DARTH VADER's
Work Sheet
For the Quarter Ended March 31, 2006
Trial Balance
Account Titles __ Dr. Cr.
Cash 11,400
Accounts Receivable 5,620
Supplies 1,050
Prepaid Insurance 2,400
Equipment 30,000
Notes Payable 10,000
Accounts Payable 12,350
D. Vader, Capital 20,000
 D. Vader, Drawing 600
Service Revenue 13,620
Salaries Expense 2,200
Travel Expense 1,300
Rent Expense 1,200
Miscellaneous Expense 200
55,970 55,970
Other data:
1. Supplies on hand total $750.
2. Depreciation is $500 per quarter.
3. Interest accrued on 6-month note payable, issued January 1, $300.
4. Insurancee expires at the rate of $150 per month. S. Services provided but unbilled at
March 31 total $750.
Instruction:
Prepare an income statement and owner's equity statement for the quarter and a
classified Balance Sheet. (TRY YOURSELF)

Problem-4
The trial balance columns of the work sheet for Phantom Roofing at March 31, 2006. are as
follows. PHANTOM ROOFING
Work Sheet
For the Month Ended March 31, 2006
Trial Balance
Account Titles Dr. Cr.
Cash 2,500
Accounts Receivable 1,600
Roofing Supplies 1,100
Equipment 6,000
Accumulated Depreciation-Equipment 1,200
Accounts Payable 1,100
Unearned Revenue 300
Z. Phantom, Capital 7,000
Z. Phantom, Drawing 600
Service Revenue 3,000
Salaries Expense 700
Miscellaneous Expense 100
12,600 12,600
Other data:
1. A physical count reveals only $220 of roofing supplies on hand.
2. Depreciation for March is $200.
3. Unearned revenue amounted to $200 after adjustment on March 31.
4. Accrued salaries are $400.
Instructions
Prepare an income statement and owner's equity statement for the month of March and a
classified balance sheet at March 31. Z. Phantom did not make any additional investments
in the business in March. (TRY YOURSELF)

Problem-5
The following is the Trial Balance of Abdullah Ltd on 31. 12. 2006
Dr. ________________________________________________________________ Cr.
Tk. Tk.
Calls in arrear in respect of Capital : 5,000 shares of Tk. 10
200 shares 400 each Tk. 9 called up. 40,000
Purchases 38,000 Sales 75,310
Inventory (1-1-2006) 2,720 General Reserve 6,000
Sundry Expenses 2.820 Taxation Reserve 15,000
Wages and Salaries 4,320 Investment Income 620
Investment 49,500 Investment Fluctuation Fund 300
Plant 7,500 Accounts Payable 2,070
Rent Paid 4,120 Profit and Loss Account 6,050
Accounts Receivable 14,200
Cash in hand 700
Cash at Bank 20,070
Preliminary Expenses 1,000
1,45,350 1,45,350

Adjustments:
(a) Ending Inventory Tk. 16.000 (Market price Tk.18,000);
(b) Investment Income accrued Tk. 150;
(c) Create a provision of 10% on Accounts Receivable for Bad and Doubtful Debts;
(d) Taxation Reserve is to be increased to Tk. 17,000:
(e) Wages outstanding Tk. 500.
(f) Write off Preliminary Expenses 50%:
(g) There is a contingent liability of Tk. 5.000 for bills accepted on behalf of another
company:
(h) Proposed dividend 10%.
Required
1. Income statement (Multiple-step method)
2. Retained Earnings Statement
3. Balance Sheet.

Solution:
Abdullah Ltd.'s
Income Statement
for the yeor ended 31st Dec. 2006
Tk. TK. Tk.
Sales Revenue :
Sales (net) 75,310
Less Cost of goods Sold:
Opening stock .................................................................................2,720
Purchases.......................................................................................38,000
Wages.......................................................................4,320
Add : Due.....................................................................500
 4,820
Goods available for sale 45,540
Less : Ending inventory 16,000
Cost of goods sold 29,540
Gross Profit 45,770
Operating Expenses:
Selling expenses : Allowance for bad debt.............. 1,420
General arid Administrative expenses:
Rent paid ....................................................................................4,120
Sundry expenses 2,820
8,360
Operating Income ........................................ 37,410
Add : Non operating income:
Income from Investment 620
Add : Accrued 150
770
38,180
Less Non operating Exp/loss:
Income tax Provision ........................ 2,000
Preliminary Exp. Write off 500
2,500
Income for the Period .................................................... 35,680

Abdullah Ltd.'s
Retained Earnings Statement
for the yew ended 31 st Dec 2006

Retained earnings balance 1-1-2006 6,050

add net income 35,680
41,730
Less proposed dividend 3,960
Retained Earning Closing 37,770
Abdullah Ltd.'s
Balance Sheet
As at 31st Dec 2006
Assets Tk. Tk. Tk
Current Assets
Cash in hand .................................................. 700
Cash at Bank ............................................. 20,070
Accounts Receivable ............................... 14,200
Less : Allowances for bad Debts .......... 1,420
12,780
Ending stock ............................................................ 16,000
Income Receivable on Investment .......................... 150
Total Current assets 49,700
Long term Investment 49,500
Less : Fluctuation fund .......................................................................300
49,200
Plant and Equipment:
 Plant
7,500 Intangible Asset
Preliminary Expenses ........................ 1,000
Less : Written off ......................................................................................... 500.
500
1,06,900
Liabilities :
Current liabilities :
Accounts Payable 2,070
Proposed dividend .................................................................................. 3,960
Wages Payable .......................................................................................... 500
Taxation provislon ............................................ : .......................... 17,000
23,530
Long term Loan nil

Stockholder's Equity :
common stock
5,000 Shares of Tk. 10 each, Tk. 8 per Share Called up 40,000
Less : Calls in - arrear 400
39,600
Retained Earnings 37,770
General Reserve 6,000
83,370
1,06,900
Problem-6
The following trial balance Relates to Green View trading House as at December 31,
2006.
Accounts balances Tk. Tk.
Sales ........................................................................................................................ 1,80,000
Sales returns ............................................................................................ 5,000
Purchases 95,000
Carriage in ................................................................................................ 4,000
Stock-1 January 10,000
Wages 20,000
Administration expenses 25,000
Insurance ................................................................................................ 3,000
Selling and distribution expenses .......................................................... 10,000
Purchases returns ....................................................................................................... 2,500
Drawings .............................................................................................. 10,000
Capital .................................................................................................................... 1.50, 000
Premises ........................................................................................... 1,20,000
Equipment.............................................................................................. 20,000
Accounts receivable ................................................................................. 15,000
Accounts payable ....................................................................................................... 10,000
Cash .............................................................................. : ......................... 7,000
Allowances for bed debt ............................................................................................... 1,500
Total .............................................. : .................................................... 3,44, 000 3, 44,000
At the year end (31 December) the following information is available:.
1. Tk. 1,000 of the wages relate to the next accounting period.
2. Tk. 2,000 is owed for administration expenses relating to 2,000.
3. Equipment s to be depreciated by Tk. 4,000.
4. Closing stock is estimated to have Tk. 8,000.
5. Raise the allowance for bad debt to 2% of net credit sales.
6. The owner withdrew goods costing Tk. 5,000 for personal use but included in
sales.
Required :
(i) Prepare the Multi-step income statement and the classified Balance sheet.
Solution GREEN VIEW TRADING HOUSE
Multi-Step income statement
for the year ended December 31, 2006

Details Tk. Tk. Tk.

Sales Revenue :
Sales 1,80,000
Less : Sales returns .......: .................................. :.... 5,000
Personal use .....................................................................5,000
10,000
Net Sales 1, 70,000
Less : Cost of goods Sold :
Opening inventory ............................................................................. 10,000
Purchases ....................................................................... 95,000
Less . Purchases returns .................................................. 2,500
92,500
Less : Personal use ...........................................................5,000
87,500
Add : Carriage inward ........................................................ 4,000
Wage (20,000-1,000) 19,000
1,10,500
Goods available for sales ............................................. 1,20,500
Less : Closing inventory ....................................................................8,000
Cost of goods sold .................................. 1,12,500
Gross Profit 57,500
Less : Operating expenses :
Administrative expenses ................................................ 25,000
Add : Due - 2,000
27,000
Insurance ...........................................................................................3,000
Selling and distribution expense ...................................................... 10,000
Allowance for bad Debts ..................................................3,400
Less : Old allowance for bad debts ..................................1,500
1,900
Depreciation on equipment ................................................................ 4,000
45,900
Net operating income 11,600
GREEN VIEW TRADING HOUSE
Balance Sheet
as at December 31, 2006
Details Tk. Tk. Tk.
Assets
Current Assets :
 Cash in hand .................................................................................... 7,000
Account Receivable .................................. : ...................................... 15,000
Ending invenlory ............................................................................... 8,000
Advance wages ................................................................................. 1,000
Total current Assets 31,000
Plant and Equipments :
Premises .................................................... : ................................. 1,20,000
Equipment ..................................................................... 20,000
Less : Depreciation .................... : ................................... 4,000
16,000
Total plant and Equipment :............................................ 1,36,000
1,67,000
Current liabilities :
Accounts Payable .................................... : ...................................... 10,000
Administrative Exp. Due .................................................................. 2,000
Provision for Bad Debt; .................................................................... 3,400
Total Current liabilities ...................................... 15,400
Owner's equity
Capital ........................................................................................... 1,50,000
Add : Net Profit ................................................................................ 11,600
1,61,600
Less : Drawings 10,000
1,51,600
1,67,000
Problem-7
The Trial Balance of Brennan Fashion Center contained the following accounts at
November 30, the end of the company's fiscal year

BRENNAN FASHION CENTER

Trial Balance
November 30, 2006
Debit Credit
Cash $ 28,700
Accounts Receivable 33,700
Merchandise Inventory 45,000
Store Supplies 5,500
Store Equipment 85,000
Accumulated Depreciation-Store Equipment $ 18,000
Delivery Equipment 48,000
Accumulated Depreciation-Delivery Equipment 6,000
Notes Payable 51,000
Accounts Payable 48,500
C. Brennan, Capital 1, 10,000
C. Brennan, Drawing 12,000
Sales 7, 59,200
Sales Returns and Allowances 4,200
Cost of Goods Sold 4, 97,400
Salaries Expenses 1, 40,000
Advertising Expense 26,400
Utilities Expense 14,000
 Repair Expense 12,100
Delivery Expense 16,700
Rent Expense 24,000
Totals $992,700 $992,700

Adjustment data:

1. Store supplies on hand totaled $3,500.

2. Depreciation is $9,000 on the store equipment and $7,000 on the delivery
equipment.
3. Interest of $11,000 is accrued on notes payable at November 30.
4. Merchandise inventory actually on hand is $44,400.
Other data:
1. Salaries expense is 70% selling and 30% administrative.
2. Rent expense and utilities expense are 80% selling and 20%
administrative.
3. $30,000 of notes payable are due for payment next year.
4. Repair expense is 100% administrative.
Instructions
Prepare a multiple-step income statement and owner's equity statement for the year
and a classified balance sheet as of November 30, 2006.

Problem-8

The trial balance of Graham Wholesale Company contained the following accounts at
December 31, the end of the company's fiscal year.

GRAHAM WHOLESALE COMPANV

Trial Balance
December 31, 2006
Debit credit
Cash $ 25,400
Accounts Receivable 37,600
Merchandise Inventory. 90,000
Land 92,000
Buildings 197,000
Accumulated Depreciation-Buildings . $ 54,000
Equipment 83,500
Accumulated Depreciation-Equipment 42,400
Notes Payable 50,000
Accounts Payable 37,500
M. Graham, Capital 267,800
M. Graham, Drawing 10,000
Sales 904,100
Sales Discounts 4,600
Cost of Goods Sold 709,900
Salaries Expense 69,800
Utilities Expenses 19,400
Repair Expense 5,900
Gas and Oil Expense 7,200
Insurance Expense 3,500
Totals $1,355,800 $1,355,800

Adjustment data: .
1. Depreciation is $10,000 on buildings and $9,000 on equipment. (Both are
administrative expenses.)
2. Interest of $7,000 is due and unpaid on notes payable at December 31.
3. Merchandise inventory actually on hand is $89,200.

Other data:
1. Salaries are 80% selling and 20% administrative.
2. Utilities expense, repair expense, and insurance expense are 100%
administrative.
3. $15,000 of the notes payable are payable next year.
. 4. Gas and oil expense is a selling expense.
Instructions
Prepare a multiple-step income statement and owner's equity statement for the year,
and a classified balance sheet at December 31, 2006.