ACCOUNTING PROCEDURES – RULES OF DEBIT & CREDIT

• Account is a record of transaction under a particular head. It records not only the amount of transactions but also their effect and direction.
• An account is divided into two parts , i.e. ,debit and credit. It is usually in a “T” form
• DEBIT & CREDIT

Debit refers to the left side of an account and credit refers to the right side of an account.

Dr describes receiving or incoming aspect

 Cr describes giving or outgoing  aspect.

DR- asset side

Cr- Liability side

• Accounts can be classified in two ways:

Traditional Approach (English Approach)

 Modern Approach (Accounting Equation Approach or American Approach)

• CLASSIFICATION OF ACCOUNTS-
  • PERSONAL ACCOUNTS
    • NATURAL PERSONAL ACCOUNTS
    • ARTIFICIAL PERSONAL ACCOUNTS
    • REPRESENTATIVE PERSONAL ACCOUNTS
  • IMPERSONAL ACCOUNTS
    • REAL ACCOUNTS
    • NOMINAL ACCOUNTS

 

• PERSONAL  ACCOUNTS

Accounts which relate to persons i.e. , individuals , firms ,companies , debtors or creditors, etc. , are Personal Accounts.

RULE OF DEBIT & CREDIT

Debit the receiver

Credit the giver

• IMPERSONAL ACCOUNTS:

• Real Accounts :

Real Accounts are the accounts which relate to tangible or intangible assets of the firm (excluding debtors).

RULE OF DEBIT & CREDIT

Debit what comes in,

Credit what goes out.

• Nominal Accounts:

Accounts which relate to expenses , losses ,gains ,revenue , etc are termed as Nominal Accounts.

RULE OF DEBIT AND CREDIT

Debit all expenses and losses,

Credit all incomes and gains.

MODERN APPROACH

• ASSETS ACCOUNTS
• LIABILITY ACCOUNTS
• CAPITAL ACCOUNTS
• REVENUE ACCOUNTS
• EXPENSE ACCOUNTS

• ASSETS ACCOUNTS

Assets accounts are those accounts which relate to the economic resources of an enterprise such as Land & Building, Plant & Machinery, Furniture, Patents, Inventory, Bank and Cash, etc.

Rule of Debit and Credit –

Debit the increases

 credit the decreases

• LIABILITY ACCOUNTS

Liability accounts are accounts of lenders, creditors for goods, outstanding expenses, etc

Rule of Debit and Credit-

Debit the decreases

Credit the increases

• CAPITAL ACCOUNTS –

These are the accounts of proprietorship/ partners who have invested amount in the business. It includes both Capital and Drawings Account.

RULE OF DEBIT AND CREDIT-

Debit the increases

Credit the increases

• REVENUE ACCOUNTS –

These are accounts of income and gains. Example are :

Sales, Discount received, Interest received, commission received, bad debts recovered, etc

RULE OF DEBIT AND CREDIT

Debit the decreases

Credit the increases

• Expense Accounts

These are the accounts of expense or losses incurred in carrying the business. Example are : Purchases, wages, depreciation, discount allowed and rent, etc.

RULE OF DEBIT AND CREDIT

Debit the increases

Credit the decreases

 

 

JOURNAL

            ENTRY FOR STARTING A BUSINESS

1. Siya Ram started its business with cash Rs. 50,000

Particular	LF	Debit	Credit
Casha/cDr.		50,000
To Capital a/c ( Being cash introduced)			50,000

• ENTRY FOR PURCHASE OF GOODS

• CASH PURCHASE
• CREDIT PURCHASE

CASH PURCHASE

1. Purchased goods for cash Rs. 20,000

Particular	LF	Debit	Credit
Purchasesa/cDr.		20,000
To Cash a/c ( Being goods purchased for cash)			20,000

1. Purchased goods from Ravi for cash Rs. 5,000

Particular	LF	Debit	Credit
Purchasesa/cDr.		5,000
To Cash a/c ( Being goods purchased for cash)			5,000

CREDIT PURCHASE

1. Purchased goods from Subhash Rs. 12,000

If not specified, on cash Rs. 12,000, then assume it was on credit

Particular	LF	Debit	Credit
Purchasesa/cDr.		12,000
To Subhash a/c ( Being goods purchased on credit)			12,000

• PURCHASE RETURN

1. Purchased goods on credit and returned

1. Goods purchased from Mohan on Credit Rs. 1,20,000

Particular	LF	Debit	Credit
Purchasesa/cDr.		1,20,000
To Mohan a/c ( Being goods purchased on credit)			1,20,000

 

1. Goods returned to Mohan Rs. 5,000

Particular	LF	Debit	Credit
Mohana/cDr.		5,000
To Purchases returna/c ( Being goods purchased on credit returned)			5,000

• PURCHASE OF ASSET

1. Purchased furniture for cash Rs. 6,000

Particular	LF	Debit	Credit
Furniturea/cDr.		6,000
To Cash a/c ( Being furniture purchased in cash )			6,000

1. Purchased furniture on credit Rs. 6,000

Particular	LF	Debit	Credit
Furniturea/cDr.		6,000
To vendora/c. ( Being furniture purchased on credit)			6,000

1. Purchased fan and Almira for Rs. 6,000

Particulars	L.F	Debit	Credit
Furniture &fixturesa/cDr.		6,000
To Cash a/c ( Being fan & almira purchased )			6,000

1. Purchased an iron safe for business for Rs. 10,000

Particulars	L.F	Debit	Credit
Office equipmenta/cDr.		10,000
To cash a/c (Being iron safe purchased in cash )			10,000

1. Purchase of filing cabinet, type writer and electric fan costing Rs. 5,000, 2,000 and 4,000 respectively.

Particulars	L.F	Debit	Credit
Office equipmenta/cDr.		7,000
Fixture a/cDr.		4000
To cash a/c ( Being filing cabinet, type writer and electric fan in cash)			11,000

• SALE OF GOODS

• CASH SALES
• CREDIT SALES

                CASH SALES

1. Sold goods for cash Rs. 13,000

Particular	LF	Debit	Credit
Casha/cDr.		13,000
To sales a/c ( Being goods sold for cash)			13,000

CREDIT SALES

1. Sold goods to Mahesh Rs. 15,000

Particular	LF	Debit	Credit
Mahesha/cDr.		15,000
To Sales a/c ( Being goods sold on credit)			15,000

               

• SALES RETURN

1. Goods sold to Rajiv Rs. 4,000

Particular	LF	Debit	Credit
Rajiva/cDr.		40,000
To Sales a/c ( Being goods sold on credit)			40,000

 

1. Rajiv returned 10% of goods

 

 

 

 

 

Particular	LF	Debit	Credit
Sales returna/cDr.		4,000
To Rajiv a/c ( Being goods sold on credit returned back)			4,000

1. Received cash from Mahesh Rs. 10,000

Particular	LF	Debit	Credit
Casha/cDr.		10,000
To Mahesh a/c ( Being cash received from Mahesh)			10,000

• SALE OF ASSET

1. Sale of old furniture Rs. 800

Particulars	L.F	Debit	Credit
Casha/cDr.		800
To furniturea/c ( Being old furniture sold)			800

• ENTRIES FOR PAYMENT AND RECEIVING MONEY

• PAYMENT

1. Paid cash to Subhash Rs. 8,000

Particular	LF	Debit	Credit
Subhasha/cDr.		8,000
To Cash a/c ( Being cash paid to Subhash)			8,000

• RECEIVING MONEY

1. Received cash from Subhash Rs. 8,000

Particular	LF	Debit	Credit
Casha/cDr.		8,000
To Subhash a/c ( Being cash received from Subhah)			8,000

• BANK ENTRIES

1. Paid into bank for opening a current account Rs. 10,000

Particulars	L.F	Debit	Credit
Banka/cDr.		10,000
To Cash a/c (Being bank account opened)			10,000

1. Goods sold for Rs. 50,000 & the amount was deposited into the bank

Particulars	L.F	Debit	Credit
Bank a/cDr.		50,000
To Sales a/c ( Being goods sold and cash deposited into bank the same day)			50,000

1. Amount withdrawn from bank

Particulars	L.F	Debit	Credit
Casha/cDr.
To Bank a/c ( Being amount withdrawn from bank)

1. Goods purchased & payment made by cheque Rs. 25,000

Particulars	L.F	Debit	Credit
Purchasesa/cDr.		25,000
To Bank a/c ( Being goods purchased & payment made by cheque)			25,000

1. If amount of Rs. 20,000 is received for cash sales & deposited in the bank on the same day.

	Particulars	L.F	Debit	Credit
March 1	Cash a/cDr.		20,000
	To sales a/c			20,000
March 1	Bank a/cDr.		20,000
	To casha/c			20,000
OR	Bank a/cDr.		20,000
	Sales a/c ( Being goods sold and received through cheque)			20,000

1. Cheque received on previous day & deposited today Rs. 1,500

Particulars	L.F	Debit	Credit
Banka/cDr.		1,500
To cheque in hand a/c ( Being cheque received previous day & deposited today)			1,500

• Dishonor  of a cheque

1. Mohan gave a cheque of Rs. 10,000

Particulars	L.F	Debit	Credit
Banka/cDr.		10,000
To Mohan a/c ( Being cheque received from Mohan)			10,000

1. Mohan’s cheque dishonored Rs. 10,000

Particulars	L.F	Debit	Credit
Mohan a/cDr.		10,000
To Bank a/c ( Being Mohan’s Cheque dishonoured)			10,000

1. Bank charges deducted by bank Rs. 120

Particulars	L.F	Debit	Credit
Bank charges a/cDr.		120
To Banka/c ( Being bank charges deducted by bank)			120

1. Bank allowed interest or interest received Rs. 1500

Particulars	L.F	Debit	Credit
Bank a/cDr.		1,500
To Interesta/c ( Being interest received)			1,500

• DRAWINGS

Amount/Goods/Assets, etc. withdrawn for personal use

• IN CASH/BANK
• IN KIND

1. Withdraw cash from office for personal  use Rs. 2,500

Particular	LF	Debit	Credit
Drawingsa/cDr.		2,500
To Cash a/c (Being drawings made in cash)			2,500

1. Paid for propertier  LIC Rs. 1,200 through cheque

Particulars	L.F	Debit	Credit
Drawingsa/cDr.		1,200
To Bank a/c ( Being lic paid for the proprietor)			1,200

1. Paid income tax through chequeRs. 5000

Particulars	L.F	Debit	Credit
Drawingsa/cDr.		5,000
To Bank a/c ( Being income tax paid through cheque)			5,000

1. Proprietor took goods  from office for personal  use Rs. 2,500

Particular	LF	Debit	Credit
Drawingsa/cDr.		2,500
To Purchases a/c ( Being goods taken by proprietor for personal use)			2,500

• ENTRIES FOR EXPENSES

1. Paid rent Rs. 400

Particular	LF	Debit	Credit
Renta/cDr.		400
To Cash a/c ( Being rent paid in cash)			400

1. Paid wages Rs. 5,000

Particular	LF	Debit	Credit
Wages a/cDr.		5,000
To Cash a/c (Being wages paid in cash)			5,000

1. Paid salary to Gopal Rs. 1,200

Particular	LF	Debit	Credit
Salarya/cDr.		12,00
To Cash a/c ( Being salary paid to Gopal)			12,00

1. Trade expenses paid Rs. 500

Particulars	L.F	Debit	Credit
Trade expenses a/cDr.		500
To casha/c ( Being trade expenses paid)			500

1. Paid stationery expenses Rs. 780

Particulars	L.F	Debit	Credit
Stationery expensea/cDr.		780
To cash a/c ( Being stationary expense paid)			780

1. Paid for office cleaning Rs. 200

Particulars	L.F	Debit	Credit
Office expensea/cDr.		200
To cash a/c ( Being office expenses paid)			200

• ENTRIES FOR INCOMES

1. Received commission Rs. 200

Particular	LF	Debit	Credit
Casha/cDr.		200
To Commission a/c (Being commission received)			200

 

1. Received interest  Rs. 2000

Particular	LF	Debit	Credit
Casha/cDr.		2000
To Interest a/c (Being interest received in cash)			2000

1. Old newspapers sold Rs. 50

Particulars	L.F	Debit	Credit
Cash a/cDr.		50
To miscellaneous incomea/c ( Being old newspapers sold)			50

DISCOUNT

 

Discount

 

 

Trade discountCash discount

 

1. Trade discount:

Trade sells goods of a list price Rs. 1,00,000 at 20% T.D. (trade discount) for cash

1,00,00020%=20,000

1,00,000-20,000

 

 

Particular	LF	Debit	Credit
Casha/cDr.		80,000
To Sales a/c ( Being cash sales made)			80,000

 

S.no.	Particulars	Amount
	List price	1,00,000
a)	(-) Trade discount (10)% 1,00,000	10,000 90,000
b)	(-) cash discount 2 % 90,000	1,800
	Total	88,200

 

 

Cash discount

 

 

 

ExpensesIncome

(discount allowed)(discount received)

1. Received cash from Vasudev Rs. 8,800, and discount allowed Rs. 200

Particular	LF	Debit	Credit
Casha/cDr.		8800
Discount a/cDr.		200
To Vasudev a/c ( Being cash received from Vasudev and discount allowed to him)			9,000

 

1. Paid cash to Chanderkant Rs 13,780, discount allowed by him Rs. 220

Particular	LF	Debit	Credit
Chanderkanta/cDr.		14,000
To Cash a/c			13,780
To Discounta/c ( Being cash paid to Chanderkantand discount availed on such payment)			220

 

Purchases (-) purchases return	XXX XXX
Net amount due (-) amount paid Discount received	XXX (XX)

Sales (-) Sales return	XXX XXX
Net amount due (-) amount received Discount allowed	XXX (XX)

1. Bought goods for cash of L.P. Rs. 50,000 at 20% T.D. and 5% cash discount

Particular	LF	Debit	Credit
Purchasesa/cDr.		40,000
To Cash a/c			38,000
To Discounta/c ( Being purchases made in cash and cash discount received)			2,000

List price	50,000
(-) Trade discount 20%	10,000 40,000
(-) Cash discount 5%	2,000 38,000

Trade discount=50,000=10,000

Cash discount=40,000=2,000

1. Paid Gopal through cheque Rs. 10,000

Particulars	L.F	Debit	Credit
Gopal a/cDr.		10,000
To Bank a/c ( Being payment made to Gopal through cheque)			10,000

1. Paid Gopal through Cash Rs. 15,000

Particulars	L.F	Debit	Credit
Gopal a/cDr.		15,000
To Cash a/c ( Being payment made to Gopal in cash)			15,000

1. Bought goods for Rs. 2,00,000 from Trisha at 5% discount and 10% T.D. half of the amount paid through cheque

Particulars	L.F	Debit	Credit
Purchasesa/cDr.		1,80,000
To Bank a/c			85,500
To discount a/c			4,500
To Trisha a/c ( Being purchases madeand part payment made through cheque)			90,000

Cash discount is awaited only on cash amount paid.

Amount	2,00,000
(-) T.D 10%	20,000 1,80,000
(-) Credit	90,000 90,000
(-) Cash discount 5%	4,500 85,500

• OPENING ENTRY

1. Assets & liabilities of previous year carried forward to the current year

Particulars	LF	Debit	Credit
Assets a/cDr.
To liabilities a/c
To capital a/c (B.F) ( Being assets and liabilities brought forward)

Particulars	LF	Debit	Credit
Casha/cDr.		10,000
Furniture a/cDr.		50,000
Building a/cDr.		60,000
To creditors a/c			10,000
To capital a/c ( Being assets and liabilities brought forward)			1,10,000

1. Paid income tax Rs. 10,000

Particulars	L.F	Debit	Credit
Drawings a/cDr.		10,000
To casha/c ( Being income tax paid)			10,000

• BAD DEBT

Failure to pay the whole debt.

1. Dinesh was declared involvement & a payment of Rs. 60 paisa, in a rupee loan given to Dinesh 10,000.

Particulars	LF	Debit	Credit
Casha/cDr.		6,000
Bad debts a/cDr.		4,000
To Dinesh a/c ( Being 60% amount received from Dinesh due to insolvency)			10,000

Bad debt =[10,000

• BAD DEBT RECOVERED

1. Bad debts recovered

Particulars	L.F	Debit	Credit
Casha/cDr.
To bad debts recovereda/c ( Being bad debts recovered)

• SALE OF GOODS AT A PROFIT

1. Purchase goods from Gopal & paid by cheque, goods sold half of these goods to Y at a profit on cost @30%.

Particulars	L.F	Debit	Credit
Purchases a/cDr.		8,000
To banka/c (Being purchase made through cheque)			8,000

Particulars	L.F	Debit	Credit
Ya/cDr.		5,200
To salesa/c ( Being goods sold on credit)			5,200

8,000

1. Supplied goods costing Rs. 6,000 to Shakuntla, issued invoice at 10% above cost, 5 % trade discount.

Particulars	L.F	Debit	Credit
Shakuntlaa/cDr.		6,270
To sales a/c ( Being sales made to Shakuntala and trade discount allowed on the goods)			6,270

Profit -6,000

Cost +profit=sales price

Selling price = 6,000+600= 6,600

Trade discount =6,600

Final Selling Price =6,600-330

• SALE OF ASSET AT A GAIN OR LOSS

1. Purchase furniture from Gopal Rs. 8,000 & paid by cheque.

Particulars	L.F	Debit	Credit
Furniture a/cDr.		8,000
To banka/c ( Being furniture sold and payment received trough cheque)			8,000

Furniture sold to Y for cash for 6,000

Particulars	L.F	Debit	Credit
Ya/cDr.		6,000
loss on sale a/cDr.		2,000
To furniturea/c ( Being Furniture sold for cash)			8,000

1. Purchase Land for Rs. 8,00,000 & paid by cheque.

Particulars	L.F	Debit	Credit
Land a/cDr.		8,00,000
To banka/c ( Being land purchased and payment made through cheque)			8,00,000

Land sold to Y for cash for Rs. 10,00,000

Particulars	L.F	Debit	Credit
Casha/cDr.		10,00,000
To Landa/c			8,00,000
To profit on sale a/c ( Being Land sold to Y for cash)			2,00,000

• EXPENSES NOT BELONGING TO THE CURRENT FINANCIAL YEAR

1. Outstanding expenses

Particulars	L.F	Debit	Credit
Salarya/cDr.
To salary outstandinga/c ( Being salary outstanding)

1. Prepaid expenses

• Insurance premium paid on 1^st July, 2014Rs. 12000 for 12 months

Particulars	L.F	Debit	Credit
Insurance premium a/cDr.		9,000
Insurance prepaida/cDr.		3,000
To casha/c ( Being insurance premium paid )			12,000

 

1,200

31^st, March 2015

                                              3 months

1^st, July 2015

 

• Insurance paid in advance Rs. 3000

Particulars	L.F	Debit	Credit
Prepaid Insurance a/cDr.		3,000
To insurancea/c ( Being insurance paid in advance)			3,000

• Depreciation

1. Decrease in the value of asset due to obsolescence, wear and tear or use.

Particulars	L.F	Debit	Credit
Depreciation a/cDr.
To asseta/c ( Being asset depreciated)

Depreciate machinery , furniture and office equipment for Rs. 7,000 , 2,000 and 1,000 respectively.

Particulars	L.F	Debit	Credit
Depreciationa/cDr.		10,000
To machinerya/c			7,000
To furniture a/c			2,000
To office equipment a/c ( Being asset depreciated)			1,000

Charges depreciate on machinery costing Rs. 3,00,000 bought in February/ @10%p.a

Particulars	L.F	Debit	Credit
Depreciationa/cDr.		5,000
To machinerya/c ( BeingMachinery depreciated)			5,000

3,00,000

• MISCELLENEOUS ENTRIES

1. Interest on capital

Provide 12% interest on capital amounting to 10,00,000

10,00,000

Particulars	L.F	Debit	Credit
Interest on capital a/cDr.		1,20,000
To capitala/c ( Being interest on capital due)			1,20,000

1. Interest on Drawings

Charge interest on drawings Rs. 8,000

Particulars	L.F	Debit	Credit
Drawingsa/cDr.		8,000
To interest on drawings a/c ( Being interest on drawings due)			8,000

1. Bought goods from X for cash Rs. 50,000, also paid 1,000 for carriage.

Particulars	L.F	Debit	Credit
Purchasesa/cDr.		50,000
Carriage a/cDr.		1,000
To cash a/c (Beinggoods purchased from X for cash)			51,000

1. Purchased machinery for cash Rs. 3,00,000 and paid Rs. 2,50,000 in cash as wages on its installation

Particulars	L.F	Debit	Credit
Machinery a/cDr.		3,25,000
To cash a/c ( Being machinery bought in cash & installation charges paid on the same)			3,25,000

1. Bricks, timber costing Rs. 10,00,000 and Rs. 5,00,000 respectively purchased for construction of building and paid there cheque.

Particulars	L.F	Debit	Credit
Buildinga/cDr.		15,00,000
To bank a/c. ( Being Building constructed and material bought for construction)			15,00,000

1. Purchased on old machinery Rs. 1,00,000 and spent Rs. 5,000 on its carriage, Rs. 20,000 on its immediate repairs.

Particulars	L.F	Debit	Credit
Machinerya/cDr.		1,25,000
To casha/c (Being old machinery purchasedand repair charges paid on the same)			1,25,000

1. Purchased a horse for business for Rs. 15,000

Particulars	L.F	Debit	Credit
Live stock a/cDr.		15,000
To cash a/c ( Being horse purchased)			15,000

1. The horse bought died its carcass was sold for Rs. 1,000

Particulars	L.F	Debit	Credit
Cash a/cDr.		1,000
Profit & loss a/cDr.		14,000
To live stocka/c ( Being carcass of horse sold)			15,000

• SPECIAL TERM AND ACTIONS REGARDING GOODS:

1. Drawings in goods

Particulars	L.F	Debit	Credit
Drawingsa/cDr.
To purchases a/c ( Being goods withdrawn for personal use)

1. Goods given as charity

Particulars	L.F	Debit	Credit
Charitya/cDr.
To purchases a/c

1. Goods distributed as free sample.

Particulars	L.F	Debit	Credit
Advertisement exp.a/cDr.
To purchases a/c ( Being goods distributed as free sample.)

1. Loss of goods by theft or loss by fire

Particulars	L.F	Debit	Credit
Loss by thefta/cDr.
Loss by fire a/cDr.
To purchases a/c ( Being goods lost due to fire & theft)

• INSURANCE

1. In case goods were insured, in full amount of loss is received

Particulars	L.F	Debit	Credit
Banka/cDr.
To insurance company. a/c ( Being insurance money received on loss of goods that were insured)

1. If partial amount of loss is received loss by theft Rs. 100, received amount from insurance company Rs. 80

Particulars	L.F	Debit	Credit
Banka/cDr.		80
Loss by theft a/cDr.		20
To insurance com. a/c ( Being compensation received from insurance company)			100

Ledger is a book which contains all accounts affected by various transactions in a business. All transactions which are first recorded in the Journal must invariably be posted into the concerned accounts in the ledger. This is necessary because Journal isjust a chronological record of transactions, identifying the accounts to be debited and credited. It does not help us to know the net effect of various transactions affecting a particular account

Ledger thus is a book where all accounts are maintained and into which all journal entries are posted. As all transactions must ultimately be recorded in the respective accounts, the ledger is called the 'Book of Final Entry'. It is also called the 'Principal Book of Accounts'

To sum up,

(i) the Ledger contains all the personal, real and nominal accounts,

 (ii) the ledger is a permanent, ultimate and up-to-date record of all transactions, and

 (iii) the ledger provides a means of easy and ready reference.

FORMAT OF LEDGER

Dr.                                                                                                                                                                             Cr.

Date	Particular	LF	Amount	Date	Particular	LF	Amount

The above format is 'T' form of an account. A page is folded vertically in the middle to make it into two halves. Actually, folding is not necessary as usually pre-printed books are available. Sometimes, two pages are taken together as a unit. In that case the entire page on the left hand side is considered as the debit side and the other page on the right hand side is treated as the credit side.

Posting of journal Entries-

The Ledger account of each account involved in the journal entry is created.

The account that is debited in the journal entry is transferred to  its ledger where it is shown on the debit side of ledger as well

The account that is credited in a journal entry is transferred to its ledger where it is shown on the credit side of the ledger.

Balancing a Ledger-

• Total of debit side
• Total of credit side

The balance is written on the side where the balance is less

i.e if Debit side falls short then

• To balance c/d

If credit side falls short then

• By balance c/d

The balance of an account is known by the side which is GREATER.

Note- Only the real and personal accounts are balanced while in case of nominal accounts only the total is written on the debit side or the credit side.

Trial Balance-

At this stage it is necessary to ensure that posting into ledger has been correctly done and to check whether the equality between debits and credits has been maintained throughout. For this purpose, a statement showing the balances of various accounts is prepared. This statement is known as 'Trial Balance'. The Trial Balance is usually prepared just before the preparation of final accounts in order to check the arithmetical accuracy of posting into ledger. However, to, demonstrate the mechanics of its preparation and to impress upon you the ability of the Trial Balance in providing test of the arithmetical accuracy, an attempt is made here to prepare the Trial Balance.

FORMAT

TRIAL BALANCE AS AT -

S NO.	Name of Account	LF	Dr. Amount ( Total/Balance)	Cr Amount ( Total/Balance)

Since, under the double entry system, every debit has equal and corresponding credit, the total of debits given to different accounts must equal the total of credits given to different accounts. Continuing the same logic, since the balance on an account represents the net effect of various debits and credits posted to that account, the total of debit balances on different accounts must be equal to the total of credit balances on different accounts. Thus the two totals i.e., the total of debit balances and the total of credit balances should tally, thus upholding the debit-credit equality. If however, the two totals do not tally, it would simply mean that there are certain errors in posting.

Mcqs-

1. Entries for prepaid expenses, outstanding expenses and depreciation are called as _____

a. Adjustment Entries

b. Transfer Entries

c. Closing Entries

d. Rectification Entries

Answer- a.Adjustment Entries

Prepaid expenses, outstanding exps and depreciation are *adjustments* done at the end of accounting year/at the time of preparation of financial statements.

Therefore, the entries passed for such adjustments is known as adjustment entries.

2.Errors are rectified by using Suspense A/c

a. Before the preparation of Trial Balance

b. After the preparation of Trial Balance

c. Before and after the preparation of Trial Balance

d. None of these

Answer-  b. After the preparation of Trial Balance

Once the trial balance is prepared & it does not tally then the difference is posted in suspense account. Furthermore, the process of rectification of errors is done.

3. Trial Balance shows arithmetical accuracy of ledger accounts, but it is not a _____ proof of accuracy.

a. Conclusive

b. Exclusive

c. Submissive

d. Inclusive

Answer- a.Conclusive

Trial Balance is a technique for checking the accuracy of the debit and credit amounts recorded in the various ledger accounts. It is basically a statement that exhibits the total of the debit and credit balances recorded in various accounts of ledger.

4.The Fixed Assets of a company is double of the current assets and half of capital. If the current assets are Rs.3,00,000 and investments Rs.4,oo,ooo, calculate the current liabilities assuming that there are no other items in the balance sheet.

a. Rs. 2,00,000

b. Rs. 1,00,000

c. Rs. 3,00,000

d. Rs. 4,00,000

b. Rs. 1,00,000

Liabilities	Amount	Assets	Amount
Capital	12,00,000	Fixed assets	6,00,000
Current liabilities	1,00,000	investments	4,oo,ooo
		current assets	3,00,000
	13,00,000		13,00,000