Accounting Process

Chapter 2
Journal Entries, Ledger, Subsidiary Books, Trial Balance and Cash book
Prepared By NJ Thapa
 Basic terminologies
• Capital = the amount of invested at the beginning or any time by the investors
• Liabilities =obligation of an organization to the outsider that must be discharged in a certain period of time
• Types of liabilities
• a. Short term liabilities (account payable, outstanding expenses, short term loan. Advance income, notes payable)
• b. long term liabilities (long term loan, bond, debenture, mortgage loan/ debenture)
• Assets = assets are economic resources which are owned and controlled by a firm so that they provide future benefits
to the organization.
• Types of assets
1.Fixed assets
a. Tangible assets ( equipment, vehicle, plant and machinery building)
b. Intangible assets ( goodwill, patent, copy right, trademark, brand loyalty, software)
2. Current assets ( account receivable, inventory, cash, bank, prepaid expenses, accrued income)
 Revenue
 Expenses
 Purchase
 Profit/loss
This chapter contains
• Types of account
• Meaning of journal
• Objectives of journal
• Meaning of ledger
• Account format
• Posting into ledger
 Types of account
•.
Accounts

Personal account
Impersonal account
Account related to
Except person and
persons,
organization
organization

Nominal account
Real account
Account related
Account related
expenses and income
goods and property
Gain /loss
 Debit and Credit Rules

.
Debit Accounts Credit

Receiver Personal Giver

What
Real What goes out
comes in

Losses & Income & gains

Nominal
Expenses
Rules 2 Accounting Equation
 Meaning of Journal
• Journal is the first step of accounting.
• It is the primary recording of financial transactions.
• All the financial transactions recorded in the books in chronological order
are called journal or journal book or journal entries.
• The word ‘journal’ was originated from the French word (jour).it means
‘day’. so an orderly daily records of transactions in a business is called
‘journal’
• Objectives of journal
• Complete records of financial transaction
• Records in chronological order
• Provided information for future reference
• Help to prepare ledger account
• Basic preparation of final account
Format of Journal
Date Particulars LF Debit (Rs) Credit (Rs)
Format of journal
1. Business starts with cash Rs 500,000

Date Particulars LF Debit (Rs) Credit (Rs)

2019-03-12 Cash a/c …………………………………………..Dr. 012 500,000

To Capital a/c 500,000
(for business starts with cash)
•.
Events 1
Following transaction are provided to you:
Jan 1 business started with cash Rs 20,000
Jan 2 Goods purchase for cash Rs 10,000.
Jan 7 Furniture purchased on cash Rs 5,000.
Jan 9 cash paid to suppliers Rs 3,000
Required: journal entries
Events 2

Required : Journal entries

 Prepare of accounting equation

• Events 3
1.starts business Rs 200,000
2. purchase goods on cash Rs 12000
3. sale goods Rs 5000 on cash
4. salary paid Rs 20,000
5. outstanding salaries Rs 4000
6. prepaid expenses Rs 9000
7. purchase furniture Rs 120,000
Required: Journal entries
Events 4
Journalese the following transaction
a. Purchased goods worth € 10,000 on cash.
b. Bought a Computer for € 50,000 from Prime Computer on credit.
c. € 4000 deposited cash in Bank.
d. Sold goods on credit for € 5,000.
e. Bought goods for € 4,000 from Shyam at trade discount 10%, 5%
cash discount and paid 50% immediately.
f. Received 40 cents in a euro out of a total debt of € 2,000 from
Suyash because he has been declared as insolvent.
g. Cash taken by owner from business € 6,000.
Events 5
• Give journal entries for the following transaction.
1. Purchase land Rs 5,00,000.
2. Goods purchased for cash Rs 5,000 and on credit Rs 3,000.
3. Sold goods on credit Rs 3,000 with gain of Rs 200.
4. Rent receivable Rs 800.
5. Goods used by owner Rs 1000.
6. Goods worth Rs 1,000 destroyed by fire but insurance company
admitted only 50% of the amount claim.
Solation
Journal Entries
in the book of ………
Date Particulars LFN Dr. amount Cr. amount
 Events 4
The following transactions are provided:
a. Started business with cash Rs 40,000 and equipment Rs 75,000.
b. Purchased goods Rs 25,000 on account and made partial payment Rs 10,000.
c. Sold goods on account for the year Rs 30,000 and received as partially Rs 20,000.
d. Paid insurance for the year Rs. 6,000.
e. Purchased goods Rs 90,000 on credit and paid custom charged Rs 7,500
f. Sold goods on credit for Rs 1,30,000 and made partial received Rs 95,000.
g. Appoint Ram as an office an office assistant on the basis of per month salary Rs 5,000.
h. Goods return from the customer Rs 1300.
i. Cash paid to Account payable Rs 90,000 in full settlement of Rs 92,000.
j. Sold goods on cash Rs 55,000.
k. Paid rent Rs 4800 and travelling expenses Rs 2,800.
l. Purchased goods on credit Rs 21,000.
Journalize the above transaction and post them into following ledgers
m. Purchase A/C ( Rs 136,000 Dr.) b. sales A/C (215,000 cr.) c. Account Receivable A/c (43,700
Events 5
• Bijaya has the following balances transactions for the month of January
2018. Jan 1 The balance brought down
Cash ………………..Rs 50,000 Account receivable Rs 20,000
Furniture Rs 50,00 Bank loan Rs 30,000
Account payable Rs 12,000

Jan 2 Paid for account payable Rs 11,000 in full settlement.

Jan 3 Received from customers Rs 19,500 in full settlement.
Jan 5 Purchased goods from credit for Rs 15,000.
Jan 7 Purchased stationery and supplies for Rs 3,000.
Jan 10 Withdrawn goods worth Rs 1,000 for domestic purpose
Jan 14 Repaid a part of bank loan Rs 10,000 with interest Rs 1,500
Jan 20 Sold goods for Rs 12,000 costing Rs 10,000.
Jan 28 Paid office rent Rs 5,000.
Jan 31 Paid salaries to the staff Rs 12,000 for the month.
Required: journal entries, necessary ledger
2. Case study
Sarla Enterprises distributes computer items. They started the business
with cash Rs 400,000. They opened current account on Everest Bank Ltd.
with Rs 250,000. They purchased office furniture worth Rs 40,000 and
paid through cheque. They brought computer from Golcha organization for
Rs 250,000 and paid partly by cheque Rs 150,000, sold computer goods to
Star info Rs 560,000 and received cheque for Rs 200,000 and deposit in to
bank. Their office was located on a rented building @ Rs 10,000 per
month. They paid rent for 9 months. They appointed two staff on the
monthly salary of Rs 5,000 each for which they paid Rs 130,000 by
cheque during the year.
They received cash from star info Rs 95,000 after allowing 5% discount
during the year and deposit in to bank Rs 20,000. They paid Golcha
organization Rs 65,000 in full settlement of Rs 70,000 though cheque.
Likewise, they paid utilities expenses for Rs 5,000 on cash and wage for
labour Rs 10,000 cheque.
• Required: journal ledger and Trial balance
Journal
• entries book of Journal
Date Particulars LF Dr. amount Cr amount
a. Cash a/c ………………Dr. 400,000
To capital a/c 400,000
( business started)

b. Bank a/c ………………Dr 250,000

To Cash a/c 250,000
( deposited into bank)

c. Furniture a/c …………………Dr. 40,000

To bank a/c 40,000

d. Purchase a/c…………………Dr. 250,000

To bank a/c 150,000
To Golcha a/c 100,000

e. Bank a/c…………..Dr. 200,000

Star a/c ……………..Dr 360,000
To sales a/c 560,000

f. Rent a/c ………………………..Dr 9,0000

To cash a/c 9,0000
Journal
• entries book of Journal
Date Particulars LF Dr. amount Cr amount
f. Salary a/c ………………Dr. 130,000
To Bank a/c 130,000
g. Bank a/c ………………Dr 20,000
Cash a/c………………..Dr. 75,000
Discount a/c ………..Dr. 5,000
To Star a/c 100,000
h. Golcha a/c …………………Dr. 70,000
To Discount a/c 5,000
To bank a/c 65,000
d. utilities a/c…………………Dr. 5,000
To Cash a/c 5,000

e. wages a/c…………..Dr. 10,000

To Bank a/c 10,000
Posting inti ledger Cash………
account
Dr. Account Cr
Date Particulars JF Amount Date Particulars JF Amount

a. To Capital a/c 400,000 b. By Bank a/c 250,000

j. To star a/c 75,000 f. By Rent a/c 90000
h. By utilities a/c 5,000
i. By Balance c/d 130,000

475,000 475,000

a To balance b/d 130,000

Meaning of ledger
• Ledger is the most important book of accounts.
• It is the principle book.
• All the transactions recorded in journal and other subsidiary books
finally take place in the ledger in classified and summarized from.
• Feature of ledger
• It is book of final entry because the transactions that are first entered
in the memorandum book or journal are finally recorded in the ledger.
• It is permanent records of all transactions.
• It is principle books of accounts because it gives information required
for the finalization of account
Objectives of ledger account
1. It keeps a permanent records of all the transactions
2. It provides financial information to the proprietor.
3. It helps to prepare balance sheet to show the financial position of the
firm.
4. It helps to prepare the trial balance in order to check the arithmetic
accuracy.
5. It helps to prepare profit and loss account.
6. It helps to know about the debtors and creditors.
7. It helps to know the total sales and total purchase
8. It helps to know about expenses and income.
Account Formats (T format and Balancing format)
Dr. ………Account Cr
Date Particulars JF Amount Date Particulars JF Amount

Balancing Format
Date particulars JF Dr. Amount Cr. Amount Balance

Dr. to Cr Amount
Posting inti ledger Cash………
account
Dr. Account Cr
Date Particulars JF Amount Date Particulars JF Amount

12/03/19 To capital a/c 500,000

Posting into ledger account
Dr. Capital Account Cr
Date Particulars JF Amount Date Particulars JF Amount

By cash a/c 500,000

• Ganesh left his job as carpenter and started Woodcraft Company. The transactions of the business are as follows:
• Began business by depositing Rs 10,000 in a bank in the name of the company in exchange for 1,000 of Rs each in the
company.
• Paid two months’ rent in advance for a shop, Rs 2,000
• Purchased equipment for cash Rs 1,200.
• Purchased supplies on credit Rs 700.
• Received Rs 8,600 for remodeling a kitchen.
• Paid cash for an advertisement that appeared in the local newspaper, Rs 1,400.
• Received Rs 11,200 for furnishing an office room.
• Billed customers for work done other than on cash terms Rs 13,100.
• Paid wages to assistant Rs 1,500.
• Paid electricity charges, Rs 240.
• Received partial payment from customers billed on September 23, Rs 4,800.
• Declared and paid a dividend Rs 2,500.
• Required:
• Journal entries
• Ledger
• Trial balance
• Trial Balance
S.N Particulars LF Dr. amount Cr. Amount

1. Cash 130,000
2. Capital 400,000
3. Bank 75,000
4. Utilities 5,000
5. Sales 560,000
6. Purchase 250,000
7. Salaries 130,000
8. Rent 90,000
9. Discount 5,000
10. Discount Receives 5,000
11. Furniture 40,000
12. Golcha 30,000
13. Star 260,000
14. Wages 10,000

Total 995,000 995,000

National Trader concern provides the following information during 2011:
• a. Business started with cash Rs 5,50,000, Rs 4,00,000 as capital and balance as 10% bank loan.
• b. Deposited Rs 400,000 into the bank
• c. Machine costing Rs 180,000 purchased by issuing a cheque and installation charge Rs 20,000 paid in cash.
• d. Goods purchased on cash and credit were Rs 100,000 and Rs 200,000 respectively.
• e. Paid salary Rs 60,000 by cheque and expenses Rs 20,000 in cash.
• f. Paid rent Rs 112,000 by cheque, as rent payable at Rs 8,000 per month.
• g. Goods sold for cash and credit were Rs 100,000 and Rs 400,000 respectively.
• h. Paid interest on bank loan Rs 10,000
• i. Received cheque of Rs 285,000 from customers for the settlement of Rs 300,000 debt.
• j. Paid to creditors Rs 142,500 for the settlement of Rs 150,000 due amount by cheque.
• Additional information:
• o Outstanding interest on bank loan Rs 5,000
• o Unsold goods at the end of the year Rs 50,000
• o Depreciation charged on machine at 10%per annum
• Required:
• i. Journal entries for the financial transactions
• ii. Triple column cash book with cash, bank and discount column
• iii. Purchase, Sale, Customers and Creditors account
• iv. Financial statements by using work sheet
End of Chapter 02