UNIT 1 – Recording of Accounting Transaction (Theory and Practical problem)

1.1 Types Of Accounts and Golden rules of Accounting

1.2 Journal: Problems on Journal Entries
1.3 Types of journals: Cash book, sales Book, Purchase Book, Debtor book, Creditor Book, Petty Cash Book,
Bills Receivable Book and bill payable book
1.4 Ledger: concept, Pro-forma
1.5 Problems on Ledger Preparation
1.6 Cash Book: types
1.7 Problems on Preparation of cash Book
Meaning of Account:
An account is a summarized record of transaction relating to a particular person, asset, liability, particulars
head of expense or income recorded at one place. In day to day business activity large number of business
transaction takes place. It affects the several accounts. At the end of certain period of time, it is neccssary for
the businessman to balance the accounts to find out the information. Like total capital, total liabilities and
assets, total incomes and expenses etc. of the business.
Definition of Account:
“ An Account is summarized record of transaction affecting one person, one kind of property or one class of
gain or loss.” – G.R. Batliboi
“ An account is a ledger record in a summarized from of all the transaction that have taken place with the
particulars person or thing specified.” – carter

1.1 Types of Accounts and Golden Rules of Accounting

Classification of
Accounts

Personal Accounts Impersonal

Accounts

Natural Artificial Representative Real Nominal

Personal Personal Personal Accounts Accounts
Accounts Accounts Accounts
Tangible Real Intangible Real
1 Sunita’s A.c 1 Pune Municipal 1 Outstanding Expenses A/c Accounts Accounts
2 Ashok’s A/c Corporation A/c 2 Prepaid Expenses A/c
3 Suha’s A/c 2 Radhika Sports 3 Income Received in Advance A/c 1 Computer A/c
Club A/c 2 Cash A/c
3 Bank OF India A/c 3 Machinery A/c

1 Goodwill A/c
2 Patent A/c
3 Copyrights A/c

1. Stationary A/c 1. Interest Received A/c Expenses And Income and

2. Purchase A/c 2. Discount Received A/c Lossses Gains
3. Advertisement A/c 3. Sales A/c
Each type of accounts is explained below with examples –
1) Personal Accounts:
This account represents a person and group of persons with whom business deals.
These accounts are classified into following three categories.
a) Natural Person’s Account:
Accounts relating to individual human beings for e.g., Rajesh A/c, Sumit’s A/c,
Sushma’s A/c, Vaibhav’s A/c etc.
b) Artificial Person’s Account:
Artificial persons mean includes accounts of organizations, associations which are
created by law, for
E.g., Bank of Maharashtra A/c, ABC A/c, Co A/c, Recreation Club A/c.
c) Representative Personal Account:
These Accounts represent a certain persons or group of persons in business
dealing. Accounts relating to outstanding and items are called representative
personal account
E.g., Outstanding Rent A/c, Income received in advance A/c, Prepaid wages A/c
etc.
2) Impersonal Accounts:
Impersonal Accounts are classified into following two categories; -
1. Real Accounts:
This account represents assets and properties owned by the business. The following
are the types of Real Accounts.
a) Tangible Real Account:
Tangible Real Account means the assets and properties, which can be seen,
touched and felt. E.g., Machinery A/c, Motor Car A/c, Stock of Good A/c etc.
b) Intangible Real Accounts:
Intangible Real Accounts means assets which cannot be seen, touched, or felt but
they can be measured in terms of money e.g. Goodwill A/c, Patents A/c,
Trademark A/c, Copyright A/c etc.

2. Nominal Accounts:
The accounts of expenses, losses, incomes and gains are called as nominal accounts
e.g. Wages A/c, Stationery A/c, Salary A/c, Depreciation A/c Commission Received
A/c, Discount Received A/c etc.

Debit and Credit

1) Debit (Dr.):
Left hand side of an account is called Debit (Dr) Side.
2) Credit (Cr):
Right hand side of an account is called Credit (Cr) side.

Golden Rules of Debit and Credit (Traditional Approach):

 Golden Rules of Debit and Credit for different Accounts

Personal Accounts Real Accounts Nominal Accounts

Debit the receiver Debit what comes in Debit all expenses and losses
Credit the giver Credit was goes out Credit all incomes and Gains

1.2 JOURNAL gains

INTRODUCTIONS
When the business transactions take place, the first step is to record the same in the
books of original entry or subsidiary books or books of prime or journal. Thus, journal is
simple books od accounts in which all the business transactions are originally recorded in
chronological order and from which they are posted to the leader accounts at any convenient
time. Journalising refers to the act of recording each transaction in the journal and the form in
which it is recorded, is known as a journal entry.
ADVANTAGES OF JOURNAL
The following are the inherent advantages of using journal, though the transactions can aslo
be directly recorded in the respective ledger accounts;
1. As all the transactions are entered in the journal chronologically, a date wise record
can easily be maintained;
2. All the necessary information and the required explanations regarding all transactions
can be obtained from the journal; and
3. Errors can be easily located and prevented by the use of journal or book of prime
entry.
The specimen journal is as follows:

Date Particulars L.F Debit Rs. Credit Rs.

1 2 3 4 5
- -

The journal has five columns, viz (1) Date; (2) particulars; (3) Ledger Folio; (4) Amount
(Debit); and (5) Amount (Credit) and a brief explanation of the transaction by way of
narration is given after passing the journal entry.
1. Date: In each [age of the journal at the top pf the date column, the year is written and
in the next line, month and date of the first entry are written. The year and month need
 not be repeated until a new page is begun or the month or the year changes. Thus, in
this column, the date on which the transaction takes place is alone written.
2. Particulars: In this column the details regarding account titles and description are
recorded. The name of the account to be debited is entered first at the extreme left of
the particular’s column next to the date and the abbreviation ‘Dr’ is Written at the
right extreme of the same column in the same line. The name of the Account to be
credited is entered in the next line preceded by the word “To leaving a Few spaces
away from the extreme left of the particular’s column. In the next line immediately to
the account credited a short about the transaction is given which is known as
“Narration”. Narration may include particulars required to identify and understand the
transaction and should be adequate enough to explain the transaction. It usually starts
with the word "Being" is completely dispense with, in modern
parlance. To indicate the completion of the entry for a transaction, a line is usually
drawn all through the particular’s column.
3. Ledger Folio: This column is meant to record the reference of the main book, i.e.,
ledger and is not filled in when the transactions are recorded in the journal. The page number
of the ledger in which the accounts are appearing is indicated in this column, while the debits
and credits are posted o the ledger accounts.
4. Amount (Debit): The amount to be debited along with its unit of
measurement at the top of this column on each page is written against the account
debited.
5 Amount (Credit): The amount to be credited along with its unit of measurement at
the top of this column on each page is written against the account credited.

1.4 LEDGER
Ledger is a main book of account in which various accounts of personal, real and
nominal nature, are opened and maintained. In journal, as all the business transactions are
recorded chronologically, it is very difficult to obtain all the transactions pertaining to one
head of account together at one place. But, the preparation of different ledger accounts helps
to get a consolidated picture of the transactions pertaining to one ledger account at a time.
Thus, a ledger account may be defined as a summary statement of all the transactions relating
to a person, asset, expense, or income or gain or loss which have taken place during a
specified period and shows their net effect ultimately. From the above definition, it is clear
that when transactions take place, they are first entered in the journal and subsequently
posted the concerned accounts in the ledger. Posting refers to the process of entering in the
ledger the information given in the journal. In the past, the ledgers were kept in bound books.
But with the passage of time, they became loose-leaf ones and the advantages of the same lie
in the removal of completed accounts, insertion of new accounts and arrangement of
accounts in any required manner.
Ruling of ledger account
The ruling of a ledger account is as follows:
Type- 1

Dr. Cr.
Date Particulars J.F Rs. Date Particulars J.F Rs.
To name of the By name of the
account to be account to be
credited debited
1.5 Problems on Journal & Ledger
1. Journalise the following transactions in the books of Gajanan
1. Purchased goods for ₹ 90,000 and amount paid by Bank directly
2. Sold goods to Satish on credit ₹ 30,000.
3. Paid for Postage ₹ 10,000 ₹
4. Paid for Wages ₹ 15,000.
5. Received cheque of ₹ 30,000 from Sati.
6. Received Dividend ₹ 5000.
7. Purchased Laptop of ₹ 40,000 and paid by cheque.
8. Deposited cash ₹ 10,000 into State Bank of India
2. Journalise the following transactions in the books of Virat traders, open necessary ledger
accounts balance the accounts and prepare a Trial Balance as on 31st March 2019
1. Virat started business with Cash ₹ 50,000, Cash at Bank of India ₹ 7,000, Furniture
₹10,000.
2. Purchased goods from Rohit worth ₹ 10,000 less 10% T.D.
3. Sold goods to Sunil ₹ 5,000 less 5% T.D. 10 Deposited Cash with Bank of India
5,000.
4. Purchased Furniture from Varma on credit worth ₹ 20,000.
5. Paid to Varma by net banking ₹ 8,000.
6. Paid Printing expenses ₹ 200.
7. Received Commission ₹ 200.
8. Withdrew Cash from Bank ₹ 1,000 by ATM
9. Paid to Varma ₹ 11,500 in full settlement of his account.
10. Paid Advertisement bill ₹ 500
 2018 Feb
1. Sold goods to Raghav ₹ 6,000.
2. Received cash from Raghav ₹5,400 and allowed him cash discount ₹ 7600.
3. Invoiced goods to Raghav ₹ 14000.
4. Received from Raghav ₹ 6,000.

3. The Following Balance appeared in the ledger of Kiran on 1st Jan 2018.
Debit Balance Amt (₹) Credit Balance Amt (₹)
Cash Account Cash 60,000 Karan’s Capital A/c 2,00,000
Purchase Account Bank 80,000 Sales A/c 40,000
of Maharashtra A/c 1,00,000
1. Bought goods from Rushi ₹ 10,000.
2. Drew from Bank ₹ 20,000 for office and ₹ 6,000 for self-use.
3. Return goods to Rushi ₹ 2,000
4. Cash Purchases ₹ 14,000.
5. Cash Sales ₹ 20,000.
6. Deposited into Bank ₹ 16,000.
7. Interest collected by Bank ₹ 7,000 on our behalf.
4. From the following transactions prepare necessary Ledger Accounts in the Books of
Vinay and balance the same.
1. Started business with Cash ₹ 10,000
2. Bought goods from Vikas ₹ 3,000
3. Sold goods to Bhushan ₹ 2,400
4. Paid to Vikas on account ₹ 1,600
5. Received on account from Bhushan ₹ 1,000
6. Cash Purchases ₹ 3,600
7. Cash Sales ₹ 5,000
8. Paid Wages ₹ 400

5. The following transactions took place during July 2019. Post them into Ledger and
prepay Trial Balance as on 31" July 2019.
 1. Introduced additional Capital ₹ 40,000
2. Bought goods from Rakesh ₹ 80,000 @ 10% Trade Discount
3. Sold goods to Rashmi ₹ 30,000
4. Returned goods to Rakesh ₹ 20,000 (Gross)
5. Rashmi returned goods to us ₹ 400
6. Paid to Rakesh ₹ 40,000 @ 2% Cash Discount
7. Made purchases ₹ 17,000 and amount paid by cheque
8. Cash Sales ₹ 8,000
9. Bought Stationery ₹ 3,000
10. Received from Rashmi ₹ 39,000 by RTGS and discount allowed ₹ 1000
11. Paid Salary ₹ 10,000
12. Sold goods to Rashmi ₹ 20,000
13. Bought goods from Rakesh ₹ 36,000 and paid by cheque.
1.3 Types of Journal (subsidiary Book)
Meaning: The sub division of Journal on the basis of nature of transaction is known a
Subsidiary Books. These books are also called as Books of Original entries or Prime entries
because the transactions are first recorded in Subsidiary Books and then posted in the Ledger.
Types of subsidiary Books on the basis of transaction :

Cash /Bank Credit Bill Other

Transaction Transactions Transactions

Journal
1 2 3 4 Proper
Purchase Sales Purchase Sales
Book Book Return Return
Book Book

Bills Bills
Single Bank Two Petty Receivable Payable Column
Cash Books Books Column Cash Book Book
Cash Book Book
Following are the important Subsidiary Books.
1) Cash Book
2) Petty Cash Book.
3) Purchase Book
4) Purchase Return Books (Return Outward Book)
5) Sales Book
6) Sales Return Book (Return Inward Book)
7) Journal Proper

1.6 Cash Book:

All Cash and Bank transactions are recorded in the Cash Book. The Cash Book has
two sides where the left-hand side is Receipt Side (Debit-side) and the right-hand side is
Payment Side (Credit side). When amount is received details are recorded on the Receipt side
and when payments are made details are recorded on the Payment side. Cash Book a Journal
since it is a Book of Original entries and it also a ledger since it constitutes a classified record
of all cash transactions in the form of Ledger and helps in finding out Cash and Bank balance
at the end of particular accounting period. Thus, it can be said that cash book serves dual
purpose of journal as well as ledger.

Format of simple Cash Book

In the books of _________
Simple Cash Book

Date Receipts Receipt L.F Amt Date Payments Voucher L.F Amt
No ₹ No. ₹

1.7 Problem on Prepare of Cash Book

1) Prepare a Simple Cash Books
2019 March
1. Cash in Hand ₹ 2,500
2. Cash paid to Suresh ₹ 1,000
3. Cash Purchase ₹ 500
4. Cash Received from Prakash ₹ 1,000
5. Cash Sales ₹ 800
6. Paid Carriage ₹ 100
7. Paid Salary ₹ 500

Enter the following transactions in the Simple Cash Book of M/s Sourabh Traders
2019y
1. Started business with cash ₹ 1,00,000
2. Deposited cash into Bank ₹ 80,000
3. Purchased Stationary for cash ₹ 2,000
4. Cash Purchase ₹ 15,000
5. Sold goods for cash ₹ 20,000 at 8% Trade Discount
6. Paid Insurance Premium ₹ 5,000
7. Paid Cash to Dixit ₹ 10,000
8. Received Cash from Saxena ₹ 80,000
9. Received Commission ₹ 2,000
10. Drew for domestic use ₹ 4,000
11. Sold old Furniture ₹ 5,000
12. Paid Salary to Ram ₹ 6,000
13. Received Interest ₹ 4,000

Two column Cash Book (Cash Book with Cash and Bank column)
Rank plays an important role in providing various services to traders. It accepts
deposits from customers and allows withdrawals by way of cash or cheque or various net
banking transactions. In addition to this bank provides a number of functions, like, payment
by cheques and drafts, loan facility, cash credit, collection of cheques and above all safety of
cash. Moreover, when a trader opens a current account with the bank, he can avail Overdraft
facility.
A businessman who indulges in a number of banking transactions opens a Current
Account with the bank to take the advantage of Overdraft facility.
Columns In Cash Book with Cash and Bank columns:
Cash book with Cash and Bank columns has one additional column on receipt side
and payment side along with cash column. This column is known as 'Bank column. Only
banking transactions are recorded in this column. Bank column represents the Bank Current
Account.
Format of cash Book with Cash and bank columns:
In the books of ________
Two column Cash Book

Date Receipts R.No L.F Cash Bank Date Payments V.No. L.F Cash Amt
₹ ₹ ₹ ₹

Consider the following example.

Prepare two column Cash Book of Seema Traders
2019 Jan 1. Started business with cash ₹ 60,000
2. Cash deposited into Bank of India ₹ 25,000
3. cash Purchase ₹ 6,000
4. Purchased Computer for office use ₹ 22,000
5. Sold goods to Rakesh & Co.
And received a bearer cheque. ₹ 10,000
6. Rakesh Cheque deposited into Bank ₹ 10,000
7. Paid Carriage ₹ 300
 8. Cash withdrawn for personal use ₹ 3,000
9. Paid Rent by cheque ₹ 1,200

From following transaction related to sunder and Co. Prepare cash Book with two
columns.
Date Details Amt (₹)
2018 Sept 01 Bank Balance 52,000
01 Cash Balance 15,000
04 Purchase goods and payment made by cheque 15,000
08 Sold goods for cash 8,000
13 Purchased Machinery and payment made by cheque 10,000
16 Sold goods and received cheque (deposited same day) 12,000
17 Purchased goods for cash from Mrunal 18,000
20 Purchased Stationery and paid by cheque 2,100
24 Cheque given to Avadhut 1,800
27 Cash withdrawn from Bank 12,000
30 Paid Rent by cheque 500
30 Paid Salary 4,000

Prepare two columns’ Cash Book of Guru Dakshina Brothers. (Narration not required)
2019 March 1. Cash balance ₹ 13,000 and Bank Overdraft ₹ 18,000
2. Received from Neha cash ₹ 1,700 and bearer cheque ₹ 500.
3. Paid to Dhanraj ₹ 6,000 by cheque.
4. Cash Sales ₹ 6,545 and discount allowed ₹ 55
5. Cheque received on 2nd March 2019 deposited into Bank.
6. Deposited into Bank ₹ 5,000
7. Goods purchased from Prachi on credit ₹ 5,000
8. cheque received from Neha returned dishonoured.
9. Purchased goods from sweety ₹ 5,000 at 7% T.D and paid half the amount
immediately.
10. Bank paid insurance premium ₹ 1,000 and collected interest on investment
₹ 1,650
11. Cheque issue to Dhanraj was dishonoured.
12. Gupta stores directly deposited into our Bank A/c ₹ 7,500
13. Deposited cash in excess of ₹ 3,920 into Bank.

Petty Cash Book

In large business organization the accounting work is divided
systematically. There are various departments spending small amount on
stationary, postage and telegram, refreshment carriage etc.
The person maintaining petty cash book is known as petty cashier. The
Petty cashier is certain amount by the main cashier as an advance at the
 beginning of every month from which petty expenses are paid and recorded by
petty cashier. The term petty is derived from the French w "Petit" which means
"small". So, this book is maintained for recording small expenses which cannot
be paid by cheque.
Types of Petty Cash Book:
There are two types of Petty Cash Book which are as under:
1) Simple petty cash
2) Analytical Columnar Petty Cash Book
1) Simple Petty Cash Book:
Simple Petty Cash Book is divided into two sides Receipt side and Payment
side. Cash or cheque received from head cashier is recorded in column of
amount received and petty expenses paid are recorded in amount paid column.
Transactions recorded in Simple Petty Cash Book a to be posted in respective
Expenses A/c in Ledger. This requires additional time and labour therefore
business firm do not use Simple Petty Cash Book.
1. From the following transactions prepare Simple Petty Cash Book
In the Books of Noha Brothers
Date Details Amt (₹)
2019 Jan. 01 Received from head cashier 1,200
04 Paid Telephone Charges 193
07 Paid for Mobile Charges 57
10 Purchased Office Files 125
14 Gave tip to peon 40
16 Sale of old Newspaper 60
19 Gave advance to Sweety 100
22 Paid Packing charges 170
24 Gave Donations 120
27 Paid Salary 60
28 Received from head cashier 101
30 60

2. Mr. Sourabh the petty Cashier of Raje mobile Company, Latur received ₹ 8,000 on
June 01, 2019 from head cashier Details of Petty Expenses for the month are as
follows.

Date Details Amt (₹)

2019 Jan. 01 Auto Fare 255
03 Courier Expenses 60
04 Postal stamps purchase 210
05 Eraser/Pen/Pencils/ purchased 525
06 Speed post charges 198
08 Taxi Fare 390
08 Refreshment 850
10 Auto Fare 310
 12 Registered postal charges 142
13 Files purchased 45
14 Cartage 65
16 Computer Stationery purchased 1,650
19 Bus fare 240
19 Mobile charges 270
20 Office sanitation charges paid 160
22 Refreshment 450
23 Photocopy charges paid (Zerox) 270
28 Courier expenses 140
29 Unloading charges 170
30 Bus fare 150

Prepare analytical Petty Cash Book

Purchase Book (Bought Day Book):
Goods purchased on credit for manufacturing or for resale are only recorded in
purchase book Cash purchases are not recorded in purchase book. Similarly, credit purchases
other than goods like purchase of office equipment, furniture, stationery and building are not
recorded in purchase book. For example, a business dealing in machinery spare parts will
record only credit purchase of machinery spare parts in purchase book. This book is also
known as Purchase Journal
Goods purchased on credit are always recorded at net value.
Purchase Book - Format of Purchase Book
Date Name of supplier Inward Invoice L.F Amt
No. ₹

1) Prepare Purchase Book in the books of Noha Traders

2019 Apr 1 Purchased goods from Mrs. kamal ₹ 1,000 on Credit (Invoice No.4)
4 Purchased goods from sakshi for cash ₹500
5 Purchased machinery from Machinery Tools Company on credit ₹ 5,000
8 Purchased goods from Sourabh on Credit ₹ 2,000 (Invoice No. 10)
10 Purchased goods from Aishwarya on credit ₹ 5,000 (Invoice No.11)

Sales Book.
Goods sold on credit are only recorded in Sales Book. Cash sales are not recorded in Sales
Book Similarly goods assets newspaper sold on credit are not recorded in Sales Book
 E.g., A businessman dealing in furniture will record only credit sale of Furniture in
sales book Cash sales of Furniture will not be recorded in sales book. It is also known as
Sales Journal
Goods sold on credit are always recorded at net value.
Format of Sales Book
Date Name of customer Outward L.F Amt
invoice No. ₹

Prepare Sales Book in the Books of Bhairavanath Traders

2019 Apr 1 Sold goods on credit to Arun ₹ 5,000 (Invoice No.112)
4 Purchased goods for cash from Arun ₹ 3000
5 Invoiced goods to noha credit ₹ 4,000 (Invoice no.115)
8 Sold goods to Mrunal on credit ₹ 5,000 (Invoice No.118)
10 Sold old Furniture to Avadhut on credit ₹ 8,000

Bills Payable
It is kept up like a bills receivable book. It is intended to record every one of the detailed
elements, identifying with the bills acknowledged by an entity or a party, which are held for
being utilized later on, in the event of need.
Performa of bills payable
No of Bill To Whom Drawer Payee Where Term Due Date Ledger Amount Date
Given Payable Folio Paid

Cash Book Remarks

folio

Bills Receivable
It is utilized to record the full subtle elements of bills got from clients and others. Every one
of the points of interest of the bill-date, acceptor’s name, sum term, place of payment, and so
on are entered in the bills receivable book for introduction and reference.
Performa Of Bill Receivable
No of Bill Date Date Drawer Acceptor Where Term Due Ledger Amt
Received Of bill payable Date folio

Cash book Remarks

folio