10. Dividend received Cash Account Dividend A/c Real Real Debit incomings Credit Income 11. Machinery sold Cash Account Machinery A/c Real Real incomings Credit Outgoings 12. Outstanding for salaries Salaries A/c Outstanding Salaries A/c Nominal Personal Debit Expenses Debit Creditors All business transactions are recorded as having a dual aspect. At any point of time, a firm will possess things which may either be sold or converted into cash or which may be later used for a fairly long time. All these things are called assets. Building, land, machinery, furniture, stock, debtors, bills receivable, cash at bank, cash in hand etc. are a few examples of assets. The proprietor of the business brings capital into the business out of which the business (a separate entity) purchases assets for its use. Thus, the amount of the assets of a business is equal to the amount of capital contributed by the proprietor of the business. Thus, Capital = Assets. In case the capital contributed by the proprietor is insufficient, the business borrowing from other parties or outsiders. These parties may give loan or allow credit facilities at the time of purchase of goods. The amounts which are owed to outsiders and which have to be paid, sooner or latter are called liabilities. For example: Loans, Bank Overdraft, Creditors, Bills Payable, and Outstanding Expenses etc. On the one hand, the loan given by the outside parties increases the assets of the business, on the other hand, claims of creditors and lender of money on the assets of the business increase.
28 FP-FA&A Date Particulars L.F. Debit ` Credit ` 2012 Total b/f Scooter Account Dr. To Cash Account (For purchase of a scooter for cash) Aggarwal Dr. Nayak Dr. To Account (For credit sales made to Aggarwal and Nayak) Cartage Account Dr. To Cash Account (Cartage paid) Repairs Account Dr. To Repairs Outstanding A/c (For repairs charges) Petrol Expense Account Dr. To Cash Account (For petrol expenses paid in cash) Purchases Account Dr. To Cash Account (For cash purchases) Office Equipment Account Dr. To Cash Account (For purchase of office equipment) Repairs Outstanding A/c Dr. To Cash Account (Repairs outstanding paid) Sales Returns Account Dr. To Aggarwal returns from Aggarwal) Depreciation Account Dr. To Furniture Account (For depreciation on furniture) Depreciation Account Dr. To Scooter (For depreciation on scooter) *Salary Account Dr. To Salary Outstanding A/c (For salary outstanding) *Rent Account Dr. To Rent Outstanding A/c (For rent outstanding) Total c/f 6,54,610 6,54,610 Mar. 18 30,000 30,000 ” 20 8,640 3,780 12,420 ” 24 150 150 ” 24 170 170 ” 26 550 550 ” 26 12,000 12,000 ” 26 12,100 12,100 ” 27 170 170 ” 28 400 400 ” 31 100 100 ” 31 200 200 ” 31 1,800 1,800 ” 31 1,000 1,000 7,25,670 7,25,670 * A combined entry may be passed.
31 Date Particulars L.F. Credit(`) 2013 Jan. 1 Jan., 3 ” 5 ” 6 ” 9 ” 13 ” 20 ” 25 ” 31 ” 31 Cash A/c Dr. To Capital A/c (Being capital introduced by the proprietor in cash) 2,00,000 60,000 60,000 20,000 40,000 40,000 20,000 4,000 20,000 10,000 4,74,000 2,00,000 60,000 60,000 20,000 40,000 40,000 20,000 4,000 20,000 10,000 4,74,000 Purchases A/c Dr. To Cash A/c (Being goods purchased for cash) Shyam Dr. To A/c (Being goods sold on credit to Shyam) Cash A/c Dr. To Sales A/c (Being goods sold for cash) Cash A/c Dr. To (Being the cash received from Shyam) Purchases A/c Dr. To Ram (Being goods purchased on credit from Ram) Ram Dr. To Cash A/c (Being cash paid to Ram) Rent A/c Dr. To Cash A/c (Being office rent paid in cash) Salaries A/c Dr. To Cash A/c salaries paid to staff) Sales Returns A/c Dr. To Shyam (Being goods returned by Shyam) Total
Particulars ` ` Particulars ` ` To Insurance Premium Less: Unexpired Insurance To Discount To Provision for Bad ` Add: Bad Debts Less: Old provision To Commission payable to Manager To Net Profit transferred to Capital Account 4,000 1,000 3,000 2,000 12,000 16,000 9,000 19,000 37,520 3,75,200 5,48,220 5,48,220 Balance Sheet as on 31st March, 2013 Liabilities ` ` Assets ` ` Capital Fixed Assets: Opening Balance 800,000 Goodwill 2,00,000 Add: Net profit 3,75,200 Furniture 100,000 Less: Drawings 60,000 11,15,200 Less: Depreciation 10,000 90,000 Creditors 2,00,000 Current Assets: Outstanding Salary 5,000 Unexpired Insurance 1,000 Commission Payable to Unexpired advertising Managers 37,520 expenses 37,500 Commission earned but not received 1,220 Stock 5,30,000 Sundry Debtors 4,00,000 Less: Provision for bad debts 12,000 3,88,000 Cash at bank 58,000 Cash in hand 52,000 13,57,220 1,35,7220
Closing Entries: Particulars ` ` Trading Account Dr. 30,96,000 To Stock Account (1.4.2012) 4,50,000 To Purchases Account 26,00,000 To Freight & Octroi Account 46,000 (Transfer of various nominal accounts showing debit balances to trading account) Sales Account Dr. To Trading Account (Transfer of sales account to trading account) Note: Entry for closing stock has already been passed by way of adjustment 31,00,000 31,00,000 Trading Account Dr. To Profit and Loss Account (Transfer of profit from trading account to profit and loss Account) 5,34,000 5,34,000 Profit and Loss Account Dr. To Expenses Account To Salaries Account To Rent Account To Advertising Expenses Account To Insurance Premium Account To Discount Account To Depreciation Account (Transfer of various nominal accounts showing balances to profit and loss account) 1,16,500 5,000 60,000 24,000 12,500 3,000 2,000 10,000 Commission Account Dr. To Profit and Loss Account (Transfer of credit balance in commission account to profit and loss Account) 14,220 14,220 Profit and Loss Account Dr. To Capital Account (Transfer of net profit to capital account) 3,75,200 3,75,200 Note: Profit and Loss Account has already been debited in respect of provision for bad debts and commission payable to manager. Refer to adjustments entries. Illustration 3: Following are the balances in the ledger of Mr. for the year ended 31st March, 2013: ` Stock (1.4.2012): Raw materials 1,00,000 Semi-finished goods 50,000 Finished 2,60,000 Purchases: Raw materials 8,00,000 Finished goods 1,70,000
Prepare manufacturing account and trading and profit and loss accounts for the year ended March, 2013. Manufacturing Account for the year 31st March, 2013 Dr. Cr. Particulars ` ` Particulars ` ` To Opening stock: Raw materials Semi-finished Goods To Purchases Less : Returns To Carriage on raw materials To Manufacturing wages To Factory expenses: Salary of supervisor Rent of factory Gas and Fuel and coal Factory power Fire insurance Depreciation 1,00,000 By Closing stock: Raw materials Semi-finished goods By Cost of production transferred to Trading Account 80,000 50,000 1,50,000 1,30,000 2,10,000 8,00,000 13,000 7,87,000 11,76,000 30,000 1,00,000 36,000 70,000 30,000 33,000 1,25,000 13,000 12,000 3,19,000 13,86,000 13,86,000
Particulars `’000 `’000 Particulars `’000 `’000 To Manufacturing A/c (cost of produced) To Gross profit c/d To Salaries Add : Outstanding Less : Pre-paid To Interest and bank charges Add : Outstanding To Discount allowed To Insurance Less : Pre-paid To Carriage outwards To Provision for bad Debts To Loss on sale of furniture To Depreciation on: Building Furniture To Interest on capital To Net profit transferred to capital account By Closing 755 4,247.5 2,348.9 7,496.4 7,496.4 28,000 By Gross Profit b/d 2,348.9 10 By Discount 70.2 290 5 28.5 12.6 100 22.6 15 300 100 200 42 65 15 3,750 1,350 51 250 1,653.5 2,419.1 2,419.1
Mr. Murthy Balance Sheet as on 31st March, 2013 Liabilities `’000 `’000 Assets `’000 `’000 Capital Add: Profit Interest Less: Drawings Current Liabilities: Bank overdraft Sundry creditors Outstanding expenses: Salaries Manufacturing wages Interest on bank loan 2,500 Fixed Assets: Building Less: Depreciation Plant and machinery Add: Additions Less: Depreciation Furniture Less: Cost of furniture disposed of during the year Less: Depreciation Current Assets: Stock Debtors Less: Provision for bad and doubtful debts Cash at bank Cash in hand Pre-paid expenses: Insurance Salary 1,653.5 1,500 250 37.5 1,462.5 4,403.5 1,200 700 3,703.5 500 1,700 400 132.5 800 185 10 5 50 10 25 13.5 121.5 755 1,100 110 990 14 3 10 5 15 4,928.5 4,928.5 Working Note: (i) Provision for bad and doubtful ` Provision required 11,000 Add: Bad debts 1,500 12,500 Less: Existing provision 6,000 6,500 (ii) Book value of furniture sold has been deducted for calculating depreciation.
Buildings 1,000 Machinery, Plant and Furniture (Cost ` 2,500 thousand) 1,500 Book Debts 728 Bank Balance (Dr.) 488 Investment, 9% Government Loan at par 200 Bills Receivable 450 Salaries an Wages 660 Fees 100 Office Expenses 440 Repairs and Renewals 236 Interest Paid 14 Bad Debts Recovered 5 The value of stocks on hand as at 31st March, 2013 was `1,360 thousand including goods costing `18 thousand received on 30th March, 2013 in respect of which supplier’s bill had not yet been received. Goods of the cost of ` 30 thousand were sent to a customer on sale or approval The invoice for ` 40 thousand was entered in the Sales Book. Provision is to be made for bad debts to the extent of ` 8 thousand, and for depreciation of buildings at 2% per annum: Machinery, Plant and Furniture have been depreciated at 20% of the diminishing Niyati, however, considers that the proper method is 8% of the original cost and wishes to adopt it with effect from 1st April, 2009. [Ans.: G.P. = ` 1,386 thousand; N.P. = ` 652.5 thousand; of B/S =` 2,866 thousand].