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Journal, Cash Book, General Ledger and Trial Balance: The Accounting Cycle

The document discusses the accounting cycle and key steps involved in preparing financial statements. It explains that the accounting cycle begins with recording opening balances and transactions in journals. Transactions are then posted to ledger accounts and accounts are periodically balanced. A trial balance is prepared to check the accuracy of ledger account balances. Adjusting and closing entries are made before final accounts are prepared from the balances in the ledger. The purpose is to provide an understanding of recording transactions in accounting books and the accounting cycle.

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100% found this document useful (2 votes)
1K views22 pages

Journal, Cash Book, General Ledger and Trial Balance: The Accounting Cycle

The document discusses the accounting cycle and key steps involved in preparing financial statements. It explains that the accounting cycle begins with recording opening balances and transactions in journals. Transactions are then posted to ledger accounts and accounts are periodically balanced. A trial balance is prepared to check the accuracy of ledger account balances. Adjusting and closing entries are made before final accounts are prepared from the balances in the ledger. The purpose is to provide an understanding of recording transactions in accounting books and the accounting cycle.

Uploaded by

jiraya1234
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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The  Accounting  Cycle

Journal,  Cash  Book,
General  Ledger  and 7  
U N I T

Trial  Balance

Learning Objectives
The objective of this chapter is to provide an
understanding of the mechanics of recording
transaction in account books. After reading this
chapter, you will be able to understand the following:

Accounting cycle

Journalisation of transactions

Purpose of Journal Proper and recording of


transactions in the same

Purpose of Purchase Day Book and recording


of transactions in the same

Purpose of Sales Day Book and recording


of transactions in the same

Purpose of Cash Book and recording of


transactions in the same

Purpose of General Ledger and posting of


transactions in the same

Balancing Accounts in the General Ledger

Preparation of Trial Balance, and

Potential errors in Trial Balance


The Accounting Cycle:
THE ACCOUNTING CYCLE Journal, Cash Book,
Accounting involves recording of transactions and other events in a manner that facilitates General Ledger and
preparation and presentation of financial statements. Accounting cycle refers to the cycle Trial Balance
starting with recording of opening entries (balances carried forward from the previous NOTES
reporting period) in the general ledger, and ends with the preparation of financial
statements. Following steps are involved in the preparation of financial statements:
1. Recording of opening entries in the general ledger
2. Recording of transactions and events in the journal (Journalisation)
3. Posting journal entries in appropriate accounts in the general ledger
4. Balancing the accounts in the general ledger
5. Preparing the trial balance
6. Recording adjustment entries
7. Preparing adjusted trial balance Key Terms
Accounting cycle,
8. Recording closing entries to prepare financial statements
general ledger, journal,
Transactions and other events are recorded in the journal in a chronological order. trial balance
Account heads, in accordance with accounts classification, are opened in the general ledger
and journal entries are posted in the general ledger. Accounts in the general ledger are
balanced periodically. Usually, entities prepare a trial balance, a statement that periodically
lists balances in different ledger accounts. At the end of the reporting period, adjustment
entries are passed to adjust revenue and expenses for matching expenses with revenue. A
revised trial balance is prepared and closing entries are passed to close nominal accounts
and prepare profit and loss accounts. Balances that appear in the general ledger after
preparation of the statement of profit and loss are aggregated and classified for presentation
in the balance sheet.
With rapid progress in information technology, computer-aided accounting, often with
the use of standard software packages, has become common even among small firms.
Therefore, bookkeeping does not require any special skill. The only important requirement
is to record the proper accounting code in original documents which form the basis of
bookkeeping.

Self-Test Questions
Self-test question 7.1
Indicate whether the following statements are true (T) or false (F):
(i) Transactions and other events are recorded in the journal in a chronological order.
(ii) Preparation of Trial Balance is the starting point in the preparation of financial statements.
(iii) Appropriate codification of account heads is important for recording transactions correctly.

JOURNALISATION
General Principles

The four phases in the accounting process are presented in Figure 5.1.

Journalisation of General ledger Preparation of a Preparation of


transactions and events posting and balancing trial balance final accounts

FIGURE 7.1  Four phases of accounting process.

Self-Learning
Material 119
Financial Accounting In the first phase, the transactions and events are analysed and recorded in the journal.
Accountants use the following types of journals for recording different types of transactions
and events:
1. Purchase Day Book: To record transactions relating to credit purchases of goods
NOTES in trade.
2. Sales Day Book: To record transactions relating to credit sales.
3. Purchase Return Book: To record transactions relating to purchase return.
4. Sales Return Book: To record transactions relating to sales return.
5. Cash Book: To record cash, bank and discount transactions.
6. Journal Proper: To record other transactions for which no specific journal is
maintained, and for recording entries to rectify mistakes in books of accounts.
Transactions and other events are recorded in the journal in a chronological order. The
ledger folio in which the transaction is posted in the general ledger is entered in the
journal for cross-referencing. In addition, the Journal Proper provides a brief narration
of the transaction or the event. Papers or documents that evidence the transaction or the
other event recorded in a journal should support each entry in the journal. Those papers
and documents are known as vouchers.

Journal Proper

Case Study 7.1 shows recording of transactions in the journal proper. However, in
practice, many of those transactions should be recorded in special journals mentioned in
Section  7.2.1.

CASE STUDY 7.1


Record the Following Transactions of A & Co. in Journal Proper Form
2018 `
Jan. 1 Assets: Cash-in-hand 500
Cash in bank 8,000
Stock of goods 4,000
Machinery 20,000
Furniture 5,000
Roy & Co. (amount due to A & Co.) 2,000
Sen & Co. (amount due to A & Co.) 3,000
Liabilities: Loan from State Bank of India (SBI) 10,000
Amount due to Vishwanath & Co. 5,000
Jan. 2 Bought goods on credit from Patel & Co. 2,000
Jan. 3 Sold goods for cash to Bose & Co. 500
Jan. 4 Sold goods to Roy & Co. on credit 1,000
Jan. 5 Received from Roy & Co. in full settlement of amount due
on 1 January 1,900
Jan. 6 Payment made to Vishwanath & Co. by cheque
(Vishwanath & Co. allowed discount of `50) 4,950
Jan. 8 Old furniture sold for cash (book value, `300) 350
Jan. 10 Bought goods for cash 1,000
Jan. 11 Received cheque from Sen & Co., deposited in bank 3,000
Self-Learning Jan. 12 Paid for repairs to machinery 200
120 Material
Jan. 13 Bought goods from Vishwanath & Co. on credit 2,000 The Accounting Cycle:
Paid cartage on these goods 100 Journal, Cash Book,
Jan. 14 Received cheque from Roy & Co., deposited in bank General Ledger and
Trial Balance
(discount allowed to them, `50) 950
Jan. 17 Paid cheque to Viswanath & Co. 2,000 NOTES
Jan. 18 Bank intimates that cheque received from Roy & Co. has been
returned unpaid 950
Jan. 19 Sold goods for cash to Dey & Co. 2,000
Jan. 21 Cash deposited in bank 1,000
Jan. 22 Paid municipal taxes in cash 100
Jan. 25 Borrowed from New Age Investment Co., for erecting own
premises (amount deposited with bank) 20,000
Jan. 26 Paid for advertisements 500
Jan. 29 Sold old newspapers 50
Jan. 31 Paid rent by cheque 500
Paid salaries for the month 500
Drawn by Mr. A out of bank for personal use 500

Solution
JOURNAL
Date Particulars Ledger Dr. Cr.
folio Amount Amount
(`) (`)
2018
Jan. 1 Cash a/c Dr. 500
Bank a/c Dr. 8,000
Stock a/c Dr. 4,000
Machinery a/c Dr. 20,000
Furniture a/c Dr. 5,000
Roy & Co. Dr. 2,000
Sen & Co. Dr. 3,000
To loan from SBI account Cr. 10,000
To Vishwanath & Co. Cr. 5,000
To capital (balancing figure, residual amount) Cr. 27,500
(being the assets and liabilities brought forward
from the previous reporting period)
Jan. 2 Purchases a/c Dr. 2,000
To Patel & Co. a/c Cr. 2,000
(being goods purchased from Patel & Co.
as per bill no. … dated …)
Jan. 3 Cash a/c Dr. 500
To sales a/c Cr. 500
(being goods sold for cash to Bose & Co.
as per cash memo no…)
Jan. 4 Roy & Co. a/c Dr. 1,000
To sales a/c Cr. 1,000
(being goods sold to Roy & Co. as per
invoice no … dated…)
Jan. 5 Cash a/c Dr. 1,900
Discount a/c Dr. 100
To Roy & Co. Cr. 2,000
(being the amount of `1,900 received in full
and final settlement of `2,000)
Self-Learning
Material 121
Financial Accounting Date Particulars Ledger Dr. Cr.
folio Amount Amount
(`) (`)
Jan. 6 Vishwanath & Co. a/c Dr. 5,000
NOTES To bank a/c Cr. 4,950
To discount a/c Cr. 50
(being the amount paid by cheque to
Vishwanath & Co. towards settlement
of `5,000)
Jan. 8 Cash a/c Dr. 350
To furniture a/c Cr. 300
To profit on sale of furniture Cr. 50
(being profit on sale of old furniture, book value
`300, payment received in cash)
Jan. 10 Purchases a/c Dr. 1,000
To cash a/c Cr. 1,000
(being purchase of goods for cash as per cash
memo no…)
Jan. 11 Bank a/c Dr. 3,000
To Sen & Co. a/c Cr. 3,000
(being cheque no. … received from
Sen & Co. and deposited in bank)
Jan. 12 Repairs to Machinery a/c Dr. 200
To cash a/c Cr. 200
(being the amount paid for repairs to
machinery as per bill no………)
Jan. 13 Purchases a/c Dr. 2,000
To Vishwanath & Co Cr. 2,000
(being goods purchased from
M/s. Vishwanath & Co. as per invoice no…)
Jan. 13 Freight Inward a/c Dr. 100
To cash a/c Cr. 100
(being freight paid on goods purchased from
Vishwanath & Co.)
Jan. 14 Bank a/c Dr. 950
Discount a/c Dr. 50
To Roy & Co. a/c Cr. 1,000
(being amount received from Roy & Co.
vide cheque no… dated … drawn on
…., discount allowed `50)
Jan. 17 Vishwanath & Co. a/c Dr. 2,000
To bank a/c Cr. 2,000
(being amount paid to Vishwanath & Co.
vide cheque no. … dated… drawn on …)
Jan. 18 Roy & Co. a/c Dr. 1,000
To bank a/c Cr. 950
To discount a/c Cr. 50
(being cheque no. … dated…. drawn on…
received from Roy & Co. returned by bank unpaid)
Jan. 19 Cash a/c Dr. 2,000
To sales a/c Cr. 2,000
(being goods sold for cash to Dey & Co.
vide cash receipt no …)

Self-Learning
122 Material
Date Particulars Ledger Dr. Cr. The Accounting Cycle:
folio Amount Amount Journal, Cash Book,
General Ledger and
(`) (`)
Trial Balance
Jan. 21 Bank account Dr. 1,000
To cash a/c Cr. 1,000 NOTES
(being cash deposited with bank)
Jan. 22 Municipal taxes a/c Dr. 100
To cash Cr. 100
(being municipal taxes paid vide
cash memo no.….)
Jan. 25 Bank a/c Dr. 20,000
To loan from New Age Investment Co. Cr. 20,000
(being amount borrowed for erecting own premises,
received vide cheque no. … dated … drawn on …)
Jan. 26 Advertisements a/c Dr. 500
To cash a/c Cr. 500
(being amount towards advertisement in…
vide cash memo no….)
Jan. 29 Cash a/c Dr. 50
To sale of newspapers Cr. 50
(being old newspapers sold)
Jan. 31 Rent a/c Dr. 500
To bank a/c Cr. 500
(being rent for the month of Jan. paid
vide cheque no. … dated… drawn…)
Jan. 31 Salaries a/c Dr. 500
To cash a/c Cr. 500
(being salaries for the month of Jan. paid)
Jan. 31 Capital a/c Dr. 500
To bank a/c Cr. 500
(being amount drawn by Mr. A for private
use vide cheque no… dated… drawn …)

In Case Study 7.1, we recorded all types of transactions in a Journal Proper. However,
in practice, cash and bank transactions are recorded in a Cash Book, credit purchases are
recorded in a Purchase Day Book, credit sales are recorded in a Sales Day Book, and only
the following types of transactions are recorded in the journal proper:
1. Opening entries: At the commencement of the reporting period, opening balances
of assets, liabilities and equity are journalised to record carry forward balances in
the books of accounts for the period. Opening entries will be discussed in detail
in Unit 8.
2. Closing entries: At the close of the reporting period, while preparing the profit and
loss account, revenue, gain, expense and loss accounts are closed by transferring
their balances in the general ledger to the profit and loss account through the
journal proper, called closing entries. (Closing entries will be discussed in detail in
Unit 8).
3. Rectification entries: An error that occurred while recording a transaction or event
is rectified through the journal proper.
4. Transfer entries: Transfer from one account head to another account head is made
through the journal proper.
5. Adjustment entries: At the close of a reporting period, expenses and revenue are
adjusted to match expenses with revenue for the period. Usually, such entries
pertain to outstanding expenses, prepaid expenses, interest on capital, and
Self-Learning
depreciation. Adjustment entries are recorded in the journal proper. Material 123
Financial Accounting 6. Dishonouring of cheques and other negotiable instruments: Non-payment or dishonouring
of negotiable instruments (promissory notes, bill of exchange and cheques) is taken
on record through the journal proper.
7. Miscellaneous entries: Transactions other than credit purchases, credit sales and cash
NOTES and bank transactions are recorded through the journal proper.

Self-Test Questions
Self-test question 7.2
Fill in the blanks: [Choose between the words debiting and crediting.]
(i) Introduction of capital in the firm by owners in the form of cash is recorded
by………………..Cash account and ……………..Capital account.
(ii) Purchase of stock-in-trade on credit is recorded by………………………Trade Creditors
account (name of the seller) and ……………Purchases account.
(iii) Depositing cash in the bank is recorded by………………………Cash account and
………………Bank account.
(iv) Sale of goods on credit is recorded by………………………Trade Receivables (name of
the customer) and……………………………Sales account.
(v) Amount received from a customer by cheque against amount due from it is
recorded by……………….Trade Receivable account (name of the customer) and
…………………………Bank account.
(vi) Payment of salary by cash is recorded by……………….Cash account and …………………
Salary account.
(vii) Payment to a supplier of goods by cheque against amount due to it is recorded
by………………..Trade Creditors account (name of the supplier) and……………………..
Bank account.
(viii) Amount borrowed from a bank (received in cheque) is recorded by …………………..
Loan account and ………………………Bank account.
(ix) Withdrawal of cash from bank is recorded by …………………….Cash account and
……………….Bank account.
(x) Received from a customer `10,000 by cheque against `12,000 due from it in full and final
settlement is recorded by ……………………….. Bank account by `10,000,…………………..
Discount allowed account by `2,000, and …………………….Trade Receivables account
(name of the customer) by `12,000.

Purchase Day Book

In view of the large number of transactions, a separate journal entitled, ‘Purchase Day Book’
is maintained by enterprises to record credit purchases. However, credit purchases, other
than purchases of stock-in-trade or materials being used in the manufacturing process,
are not recorded in the purchase day book. Similarly, cash transactions are not recorded
in this journal.
Entities also maintain a ‘Purchase Return Book’ to record return of goods to suppliers.
The following illustration presents the format of a ‘purchase day book’.

CASE STUDY 7.2


A & Co. deals in ladies garments. The rough book of the firm shows the following transactions for
the month of January 2018:
Jan. 1 Purchased from B & Co. on credit:
10 cotton salwar suits @ `500 per suit
10 silk salwar suits @ `1,500 per suit
Self-Learning
124 Less: Trade discount @ 10%
Material
Jan. 10 Purchased in cash from C & Co: The Accounting Cycle:
2 cotton salwar suits @ `150 per suit Journal, Cash Book,
Jan. 15 Purchased a calculator for office use from D & Co. on credit for `500 General Ledger and
Jan. 20 Purchased from Y & Co. on credit: Trial Balance
10 cotton sarees @ `600 per saree NOTES
10 silk sarees @ `2,000 per saree
Less: Trade discount @ 10%
Jan. 31 Purchased 10 cotton suit lengths @ `300 per suit length from Z & Co. on credit.
Prepare the purchase day book of A & Co. for the month of January 2018.
Solution
A & CO.: PURCHASE DAY BOOK
Date Particulars Ledger Amount Net Amount
folio (`) (`)
2018
Jan. 1 M/s B & Co.
10 cotton salwar suits @ `500 5,000
10 silk salwar suits @ `1,500 15,000
20,000
Trade discount @ 10% (2,000) 18,000
Jan. 20 M/s Y & Co.
10 cotton sarees @ `600 6,000
10 silk sarees @ `2,000 20,000
26,000
Trade discount @ 10% (2,600) 23,400
Jan. 31 M/s Z & Co.
10 cotton suit lengths @ `300 3,000
Total 44,400
Note: Transactions pertaining to cash purchase (10 January) and credit purchase of calculator (15 January)
have not been recorded in the purchase day book.

The total of the purchase day book is posted periodically to the general ledger through
the journal proper. The journal entry for January 2018 should be as follows:
Purchase Account Dr. `44,400
To B & Co. a/c Cr. `18,000
To Y & Co. a/c Cr. `23,400
To Z & Co. a/c Cr. `3,000
When an entity maintains subsidiary ledger for creditors, the journal entry from the
purchase day book should be as follows:
Purchases a/c Dr. `44,400
To trade creditors a/c Cr. `44,400

BOX 7.1  Subsidiary Ledger


Usually, the number of transactions being large, personal accounts of individual creditors, debtors,
employees and other counter parties is not maintained in the general ledger. Personal accounts
of individuals are maintained in a subsidiary ledger that does not form a part of the main books of
accounts. Only the control account is maintained in the general ledger. The balance in the control
account at a particular date reflects the amount of liability or asset that has arisen from a particular
type of transaction. For example, Trade Creditors Account shows the amount due to suppliers of goods.
Individual accounts in the subsidiary ledger are posted from day books, journal proper, and cash book.
The aggregate of balances in individual accounts in the subsidiary ledger should agree with the balance
appearing in the control account in the general ledger. Subsidiary ledgers are known as Memorandum
Book because accounting entries in those ledgers do not form a part of the double-entry accounting
system. Subsidiary ledgers are usually maintained for transaction such as trade debtors, advance to
employees, advances from customers, and other transactions where a large number of personal
Self-Learning
accounts are required to be maintained by the firm. Material 125
Financial Accounting
Sales Day Book

Enterprises record credit sales of stock-in-trade in a sales day book. The mechanics of
NOTES posting entries from the sales day book to the general ledger and the subsidiary ledger
for debtors are similar to those of postings from the purchase day book. The following
illustration presents the format of a sales day book:

CASE STUDY 7.3


A & Co. deals in ladies garments. The rough book of the firm shows the following transactions for
January 2018:
Jan. 2 Sold to Alpha & Co. on credit:
5 cotton salwar suits @ `600 per suit
5 silk salwar suits @ `1,800 per suit
Less: Trade discount @ 10%
Jan. 3 Sold old furniture to M & Co. for `100 on credit
Jan. 8 Sold to Beta & Co. on credit:
5 cotton salwar suits @ `600 per suit
5 silk salwar suits @ `1,800 per suit
Less: Trade discount @ 10%
Jan. 15 Sold two silk sarees to M/s. Beauty for `2,500 in cash
Jan. 31 Sold to Gamma & Co. on credit:
10 cotton sarees @ `800 per saree
10 silk sarees @ `2,500 per saree
Less: Trade discount @ 10%
Prepare the sales day book of A & Co. for January 2018.
Solution
A & CO.: SALES DAY BOOK
Date Particulars Ledger Amount Net Amount
folio (`) (`)
2018
Jan. 2 M/s Alpha & Co.
5 cotton salwar suits @ `600 3,000
5 silk salwar suits @ `1,800 9,000
12,000
Trade discount @ 10% (1,200) 10,800
Jan. 8 M/s Beta & Co.
5 cotton salwar suits @ `600 3,000
5 silk salwar suits @ `1,800 9,000
12,000
Trade discount @ 10% (1,200) 10,800
Jan. 31 M/s Gamma & Co.
10 cotton sarees @ `800 8,000
10 silk sarees @ `2,500 25,000
33,000
Trade discount @ 10% (3,300) 29,700
Total 51,300

Periodical posting of the total of the sales day book to the general ledger should be
made through the following journal entry:
Self-Learning Trade receivables a/c Dr. `51,300
126 Material To sales a/c Cr. `51,300
Postings to personal accounts of trade debtors should be made in the subsidiary ledger The Accounting Cycle:
for trade debtors. As in the case of the purchase day book, the aggregate of balances in Journal, Cash Book,
personal accounts in the subsidiary ledger should agree with the balance in the trade General Ledger and
receivables account in the general ledger. Trial Balance
Enterprises also maintain a ‘Sales Return Book’ to record inward return of goods from NOTES
customers.

Cash Book

Cash and bank transactions are recorded directly in the ‘Cash Book’. A cash book is
primarily a journal. It also serves the purpose of a ledger account and, therefore, the cash
account and bank account are not maintained in the general ledger. Balances in the cash
book are taken directly to the trial balance that lists balances in various account heads in
the general ledger. Thus, a cash book serves the dual purpose of maintaining a journal to
record cash and bank transactions, and also maintaining cash and bank accounts in the
general ledger. The following are the different types of cash books that are being maintained
by enterprises:
1. Single-column cash book. It records only cash receipts and cash payments.
2. Double-column cash book. It provides additional information on discount received
and discount allowed.
3. Three-column cash book. It has an additional column to record bank transactions.
The following illustration presents a single-column cash book.

CASE STUDY 7.4


Record the following cash transactions entered into by A & Co. in January 2018 in a single-column
cash book.
Jan. 1 Cash-in-hand 1,000
Jan. 6 Received from B & Co. 600
Jan. 10 Paid rent 500
Jan. 15 Sold goods for cash 2,000
Jan. 27 Purchased furniture for cash 1,200
Jan. 31 Paid salaries 800
A double-column cash book provides additional information on discount received and discount
allowed. There are additional columns for discount on both debit and credit sides of the cash book.
The total of discount columns are posted in the discount account in the general ledger. The following
Illustration presents a double-column cash book.
Solution
A & CO.: CASH BOOK
Receipts Dr. Payments Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018
Jan. 1 To balance b/d 1,000 Jan. 10 By rent a/c 500
Jan. 6 To B & Co. a/c 600 Jan. 27 By furniture a/c 1,200
Jan. 15 To sales a/c 2,000 Jan. 31 By salaries a/c 800
Jan. 31 By balance c/d 1,100
3,600 3,600
Feb. 1 To balance b/d 1,100 Self-Learning
Material 127
Financial Accounting

CASE STUDY 7.5


NOTES A & Co. commenced business on January 1, 2010 with a cash balance of `2,000 as capital. He had
the following cash transactions for January 2010. Prepare the cash book.
`
Jan. 1 Purchased furniture 200
Jan. 2 Purchased goods 300
Jan. 4 Sold goods 400
Jan. 6 Paid to B & Co. 500
Allowed discount 20
Jan. 15 Received from C & Co. 600
Allowed discount 30
Jan. 20 Purchased calculator 200
Jan. 31 Paid salaries 500
Solution
A&CO.: CASH BOOK
Dr. Receipts Payments Cr.
Date Particulars LF Discount Cash Date Particulars LF Discount Cash
(`) (`) (`) (`)
2018
Jan. 1 To capital a/c 2,000 Jan. 1 By furniture a/c 200
Jan. 4 To sales a/c 400 Jan. 2 By purchases a/c 300
Jan. 15 To C & Co. a/c 30 600 Jan. 6 By B & Co. a/c 20 500
Jan. 20 By calculator a/c 200
Jan. 31 By salaries a/c 500
Jan. 31 By balance c/d 1,500
Total 30 3,000 Total 20 3,000
2010
Feb. 1 To balance b/d 1,500

In a three-column cash book, additional columns are provided to enter bank transactions.
This helps dispense with the bank account in the general ledger. However, in case an entity
operates more than one bank account, it is better to have a separate bank book or bank
accounts in the general ledger. The following Illustration presents a three-column cash
book.

CASE STUDY 7.6


A commenced business as A & Co. on January 1, 2018 with a cash balance of `2,000.
Record the transactions for January 2018 in a cash book with discount and bank columns.
`
Jan. 1 Deposited cash with bank 1,500
Jan. 4 Received cheque from B & Co. 1,000
Jan. 5 C & Co. is paid by cheque. He allowed a discount of `20 330
Jan. 6 Received cheque from M & Co.
after allowing a discount of `50 450
Jan. 10 Goods sold in cash to R & Co. 500
Jan. 12 Cash drawn for office use 500
Jan. 15 Paid for office expenses in cash 500
Jan. 25 Paid salaries for January in cash 500
Self-Learning Jan. 25 Cheque received from Y & Co. 400
128 Material Jan. 31 Cheque received from Y & Co. returned unpaid by bank 400
Solution The Accounting Cycle:
A&CO.: CASH BOOK Journal, Cash Book,
Dr. Receipts Payments Cr. General Ledger and
Date Particulars LF Discount Cash Bank Date Particulars LF Discount Cash Bank Trial Balance
(`) (`) (`) (`) (`) (`) NOTES
2018 2018
Jan. 1 To capital 2,000 Jan. 1 By cash C 1,500
Jan. 1 To bank C 1,500 Jan. 5 By C & Co. 20 330
Jan. 4 To B & Co. 1,000 Jan. 12 By cash C 500
Jan. 6 To M & Co. 50 450 Jan. 15 By office expenses 500
Jan. 10 To sales 500 Jan. 25 By salaries 500
Jan. 12 To bank C 500 Jan. 31 By Y & Co. 400
Jan. 25 To Y & Co. 400 Jan. 31 By balance c/d 500 2,120
50 3,000 3,350 20 3,000 3,350 Key Terms
Feb. 1 To balance b/d 500 2,120 Cash book, contra
‘C’ denotes “Contra”, that is, there is a corresponding entry on the other side in the bank/cash entry, journalisation,
column. negotiable instruments,
petty cash book,
promissory note,
Petty Cash Book purchase day book,
sales day book,
As a matter of convenience, an imprest (a predetermined amount of cash) is sanctioned subsidiary ledger
to some individuals authorised to make payments of small amounts of high frequency.
Examples of such payments are: postage, conveyance, carriage, and stationery. The
individual so authorised maintains a cash book known as a petty cash book. The individual
periodically recoups his ‘imprest’ by submitting an account of payments released to him
during the period. A petty cash book usually has multiple columns to accommodate
different types of payments.

SUMMARY
Accounting involves recording of transactions and other events in a manner that facilitates
preparation and presentation of financial statements. Accounting cycle refers to the cycle starting
with recording of opening entries (balances carried forward from the previous reporting period)
in the general ledger, and ends with the preparation of financial statements. Transactions and
other events are recorded in the journal in chronological order. Account heads, in accordance with
accounts classification, are opened in the general ledger and journal entries are posted in the
general ledger. Accounts in the general ledger are balanced periodically. Usually, entities prepare
a trial balance—a statement that periodically lists balances in different ledger accounts. At the
end of the reporting period, adjustment entries are passed to adjust revenue and expenses for
matching expenses with revenue. A revised trial balance is prepared and closing entries are passed
to close nominal accounts and prepare the statement of profit and loss. Balances that appear
in the general ledger, after preparation of the statement of profit and loss, are aggregated and
classified for presentation in the balance sheet. Accountants use different types of journals, such
as Purchase Day Book, Sales Day Book, Purchase Return Book, Sales Return Book, and Cash Book.
Journal Proper is used to record opening entries, closing entries, rectification entries, transfer
entries, adjustment entries, dishonouring of cheques, and other negotiable instruments and
miscellaneous entries which are not recorded in day books or cash book.

GENERAL LEDGER AND TRIAL BALANCE


General Ledger
The general ledger is the principal book of accounts. Journal entries are the bases for Self-Learning
Material 129
Financial Accounting preparing the general ledger. After recording transactions in journals, the next phase in the
accounting process is to post entries in appropriate account heads in the general ledger.
Periodically, accounts in the general ledger are balanced. For example, if in a particular
account the total of the debit side comes to `10,000 and the total of the credit side comes
NOTES to `8,000, the account shows a debit balance of `2,000. Thus, a debit balance of `2,000
reflects that the total of the debit side exceeds the total of the credit side by `2,000.
Financial statements are prepared on the basis of balances in ledger accounts at the end
of the accounting period. Case Study 7.7 explains the process of posting transactions from
journals to accounts in the general ledger. Accounts in the general ledger are often termed
as ledger accounts.

CASE STUDY 7.7


From the information provided in Case Study 7.1, prepare ledger accounts in the general ledger
of A & Co.
Solution
A & CO.: GENERAL LEDGER
Capital Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 31 To bank a/c 500 Jan. 1 By balance b/d 27,500
Jan. 31 To balance c/d 27,000
27,500 27,500
Feb. 1 By balance b/d 27,000

Cash Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 1 To balance b/d 500 Jan. 10 By purchase a/c 1,000
Jan. 3 To sales a/c 500 Jan. 11 By repairs to machinery a/c 200
Jan. 5 To Roy & Co. 1,900 Jan. 13 By freight inward a/c 100
Jan. 8 To sundries a/c 350 Jan. 21 By bank a/c 1,000
Jan. 19 To sales a/c 2,000 Jan. 22 By municipal taxes a/c 100
Jan. 29 To sale of newspapers a/c 50 Jan. 26 By advertisement a/c 500
Jan. 31 By salaries a/c 500
Jan. 31 By balance c/d 1,900
5,300 5,300
Feb. 1 To balance b/d 1,900

Bank Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 1 To balance b/d 8,000 Jan. 6 By Vishwanath & Co. a/c 4,950
Jan. 11 To Sen & Co. a/c 3,000 Jan. 17 By Vishwanath & Co. a/c 2,000
Jan. 14 To Roy & Co. 950 Jan. 18 By Roy & Co. a/c 950
Jan. 21 To cash a/c 1,000 Jan. 31 By rent a/c 500
Jan. 25 To loan from New Age Jan. 31 By capital a/c 500
Inv. Co. a/c 20,000 Jan. 31 By balance c/d 24,050
32,950 32,950
Self-Learning Feb. 1 To balance b/d 24,050
130 Material
Stock of Goods Account The Accounting Cycle:
Dr. Cr. Journal, Cash Book,
Date Particulars LF Amount Date Particulars LF Amount General Ledger and
(`) (`) Trial Balance

2018 2018 NOTES


Jan. 1 To balance b/d 4,000 Jan. 31 By balance c/d 4,000
4,000 4,000
Feb. 1 To balance b/d 4,000

Machinery Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 1 To balance b/d 20,000 Jan. 31 By balance c/d 20,000
20,000 20,000
Feb. 1 To balance b/d 20,000

Furniture Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 1 To balance b/d 5,000 Jan. 8 By cash a/c 300
Jan. 31 By balance c/d 4,700
5,000 5,000
Feb. 1 To balance b/d 4,700

Roy & Co. Account


Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 1 To balance b/d 2,000 Jan. 5 By cash a/c 1,900
Jan. 4 To sales a/c 1,000 Jan. 5 By discount a/c 100
Jan. 18 To bank a/c 950 Jan. 14 By bank a/c 950
Jan. 14 By discount a/c 50
Jan. 31 By balance c/d 950
3,950 3,950
Feb. 1 To balance b/d 950

Sen & Co. Account


Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 1 To balance b/d 3,000 Jan. 11 By bank a/c 3,000
3,000 3,000

Loan from SBI Account


Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 31 To balance c/d 10,000 Jan. 1 By balance b/d 10,000
10,000 10,000
Feb. 1 By balance b/d 10,000 Self-Learning
Material 131
Financial Accounting
Vishwanath & Co. Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
NOTES
2018 2018
Jan. 6 To bank a/c 4,950 Jan. 1 By balance b/d 5,000
Jan. 6 To discount a/c 50 Jan. 13 By purchases a/c 2,000
Jan. 17 To bank a/c 2,000
7,000 7,000

Purchases Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 2 To Patel & Co. a/c 2,000 Jan. 31 By balance c/d 5,000
Jan. 10 To cash a/c 1,000
Jan. 11 To Vishwanath & Coa/c 2,000
Feb. 1 To balance b/d 5,000 5,000

Patel & Co. Account


Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 31 To balance c/d 2,000 Jan. 2 By purchases a/c 2,000
2,000 2,000
Feb. 1 By balance b/d 2,000
Sales Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 31 To balance c/d 3,500 Jan. 3 By cash a/c 500
Jan. 4 By Roy & Co. a/c 1,000
Jan. 19 By cash a/c 2,000
3,500 3,500
Feb. 1 By balance b/d 3,500
Discount Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 5 To Roy & Co. 100 Jan. 6 By Vishwanath & Co. a/c 50
Jan. 14 To Roy & Co. 50 Jan. 31 By balance c/d 100
150 150
Feb. 1 To balance b/d 100
Profit on Sale of Furniture Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 31 To balance c/d 50 Jan. 8 By cash a/c 50
50 50
Self-Learning Feb. 1 By balance b/d 50
132 Material
The Accounting Cycle:
Repairs to Machinery Account Journal, Cash Book,
Dr. Cr. General Ledger and
Date Particulars LF Amount Date Particulars LF Amount Trial Balance
(`) (`)
NOTES
2018 2018
Jan. 12 To cash a/c 200 Jan. 31 By balance c/d 200
200 200
Feb. 1 To balance b/d 200

Freight Inward Account


Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 13 To cash a/c 100 Jan. 31 By balance c/d 100
100 100
Feb. 1 To balance b/d 100

Municipal Taxes Account


Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 22 To cash a/c 100 Jan. 31 By balance c/d 100
100 100
Feb. 1 To balance b/d 100
Loan from New Age Inv. Co. Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 31 To balance c/d 20,000 Jan. 25 By bank a/c 20,000
20,000 20,000
Feb. 1 By balance b/d 20,000
Advertisement Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 26 To cash a/c 500 Jan. 31 By balance c/d 500
500 500
Feb. 1 To balance b/d 500
Sale of Newspapers Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 31 To balance c/d 50 Jan. 29 By cash a/c 50
50 50
Feb. 1 By balance b/d 50

Self-Learning
Material 133
Financial Accounting Rent Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
NOTES 2018 2018
Jan. 31 To bank a/c 500 Jan. 31 By balance c/d 500
500 500
Feb. 1 To balance b/d 500

Salaries Account
Dr. Cr.
Date Particulars LF Amount Date Particulars LF Amount
(`) (`)
2018 2018
Jan. 31 To cash a/c 500 Jan. 31 By balance c/d 500
500 500
Feb. 1 To balance b/d 500

Trial Balance

After balancing the accounts in the general ledger, a statement listing the debit and credit
balances in various account heads in the general ledger is prepared. This statement is
known as the trial balance. The total in the debit column of the trial balance should agree
with the total in the credit column. This is because in the double-entry system, for each
transaction or event, the total of the amounts debited to various accounts equals the total
of amounts credited to various accounts. The trial balance forms the basis of preparing
the statement of profit and loss and the balance sheet. The following is the trial balance
prepared from the account balances appearing in the solution to Case Study 7.7.
Solution
A & Co.: Trial Balance as on 31 Jan 2018
Sl. No. Particulars Ledger Dr. Cr.
folio Amount Amount
(`) (`)

1 Capital a/c 27,000


2 Cash a/c 1,900
3 Bank a/c 24,050
4 Stock of goods a/c 4,000
5 Machinery a/c 20,000
6 Furniture a/c 4,700
7 Roy & Co. a/c 950
8 Loan from SBI a/c 10,000
9 Patel & Co. a/c 2,000
10 Loan from New Age Inv. Co. a/c 20,000
11 Purchases a/c 5,000
12 Sales a/c 3,500
13 Discount a/c 100
14 Profit on sale of furniture a/c 50
15 Repairs to machinery a/c 200
16 Freight inward a/c 100
17 Municipal taxes a/c 100
18 Advertisement a/c 500
19 Sales of newspapers a/c 50
20 Rent a/c 500
21 Salaries a/c 500
Self-Learning
62,600 62,600
134 Material
Usually, debit balances in the trial balance represent either assets or expenses and credit The Accounting Cycle:
balances represent equity or liability or income. Journal, Cash Book,
General Ledger and
Errors not detected by trial balance Trial Balance
Matching of the debit side total with the credit side total of the trial balance is not a NOTES
conclusive proof of the correctness of books of accounts. The trial balance fails to disclose
errors that do not affect the agreement of the trial balance. Following are examples of errors
not disclosed by the trial balance:
1. Errors of omission: These comprise omission in recording a transaction or other
event in books of original entry. If only one aspect of the transaction is recorded,
the partial omission throws the trial balance out of agreement.
2. Errors of commission: These pertain to incorrect recording of a transaction or other
event in books of original entry. For example, a purchase of `10,000 is recorded
as a purchase of `1,00,000. If recording of a transaction is partially incorrect, it
throws the trial balance out of agreement.
3. Clerical errors: These errors relate to posting of an entry in a wrong account with
the correct amount, and the correct side does not throw the trial balance out
of agreement. For example, a credit purchase of `1,000 from Shyam is credited
wrongly to the account of Shyam Lal.
4. Compensating errors: A compensating error is one that is counterbalanced by another
error or errors of the same amount either in the same account or other accounts. For
example, omission of posting an entry of `1,500 on the debit side is compensated
by underposting of `1,500 on the credit side.
5. Errors of principle: An error of principle arises by reason of a transaction being
recorded in a fundamentally incorrect manner. For example, conversion of a
temporary shed into a permanent building is recorded as repair and maintenance
of building.

Self-Test Questions
Self-test question 7.3
Prepare a trial balance from the balances in various account extracted fro General Ledger as
at March 31, 2018:
Particulars Amount (`)
Capital 1,24,000
Furniture 20,000
Equipment 40,000
Bank balance 1,00,000
Cash balance 10,000
Trade receivables 50,000
Trade creditors 30,000
Loan outstanding 50,000
Purchase of goods in trade 3,00,000
Sale 4,00,000
Carriage inward 6,000
Carriage outward 8,000
Employee benefits expenses 40,000
Advertisement 5,000
Travelling expenses 6,000
Communication expenses 10,000
Discount received 1,000
Discount allowed 2,000
Repairs and maintenance 3,000
Self-Learning
Electricity and power 5,000 Material 135
Financial Accounting
SUMMARY
The general ledger is the principal book of accounts. After recording transactions in journals, the
next phase in the accounting process is to post entries in appropriate account heads in the general
NOTES ledger. Periodically, accounts in the general ledger are balanced. After balancing the accounts in
the general ledger, a statement listing the debit and credit balances in various accounts in the
general ledger is prepared. This statement is known as the trial balance. The total in the debit
column of the trial balance should agree with the total in the credit column. This is because,
in the double-entry system, for each transaction or event, the total of the amounts debited to
various accounts equals the total of amounts credited to various accounts. The trial balance forms
the basis of preparing the profit and loss account and the balance sheet.

Key Terms
Balancing ledger ANSWERS TO SELF-TEST QUESTIONS
accounts
7.1 (i) T; (ii) T; (iii) T
7.2 (i) Debiting, Crediting (ii) Crediting, Debiting; (iii) Crediting, Debiting;
(iv) Debiting, Crediting (v) Crediting, Debiting; (vi) Crediting, Debiting;
(vii) Debiting, Crditing; (viii) Crediting, Debiting; (ix) Debiting, Crediting;
(x) Debiting, Debiting, Crediting
7.3 Trial Balance as at March 31, 2018

Particulars Dr. Amount (`) Cr. Amount (`)


Capital 1,24,000
Furniture 20,000
Equipment 40,000
Bank balance 1,00,000
Cash balance 10,000
Trade receivables 50,000
Trade creditors 30,000
Loan outstanding 50,000
Purchase of goods in trade 3,00,000
Sale 4,00,000
Carriage inward 6,000
Carriage outward 8,000
Employee benefits expenses 40,000
Advertisement 5,000
Travelling expenses 6,000
Communication expenses 10,000
Discount received 1,000
Discount allowed 2,000
Repairs and maintenance 3,000
Electricity and power 5,000
Total 6,05,000 6,05,000

Self-Learning
136 Material
The Accounting Cycle:
ASSIGNMENTS Journal, Cash Book,
General Ledger and
Multiple Choice Questions Trial Balance
1. Tick the correct answer:
(i) A cash book: NOTES
(a) Is a journal.
(b) Is a ledger account.
(c) Serves the dual purpose of journal and ledger account.
(d) None of the above.
(ii) A purchase day book is used:
(a) To record only credit purchases.
(b) To record only credit purchases of stock-in-trade and materials being used; in
manufacturing activities.
(c) To record credit as well as cash purchases.
(d) For none of the above.
(iii) Dishonouring of cheques and other negotiable instruments received are taken in books
through:
(a) Sales day book.
(b) Journal proper.
(c) Journal proper or cash book.
(d) None of the above.
(iv) A government grant received by a company results in:
(a) Increase in liability.
(b) Increase in asset.
(c) Increase in asset and equity.
(d) None of the above.
(v) Sale of goods, purchased for `8,000, on credit for `10,000 results in:
(a) A gain of `2,000 and increase in current assets and equity by `2,000.
(b) A gain of `2,000 and increase in current assets and liability by `2,000.
(c) An increase in asset and liability by `2,000.
(d) None of the above.
(vi) A trial balance fails to disclose:
(a) Errors in casting the books of subsidiary records.
(b) Errors in balancing the account.
(c) Errors in posting from the book of subsidiary record to the ledger.
(d) None of the above.
2. State whether the following statements are true (T) or false (F):
(i) A bank account is a real account.
(ii) A prepaid insurance account is a nominal account.
(iii) A cash account is a real account.
(iv) A capital account is a personal account.
(v) An asset account should be credited for increase in its carrying amount.
(vi) Journals record transactions in chronological order while entries in general ledger are
analytical.
(vii) Debtors’ account can never be credited.
(viii) A trial balance discloses all types of errors.
(ix) A credit purchase of plant should be recorded in the purchase day book.
(x) Purchase of goods (stock-in-trade) is usually recorded as an asset.
(xi) Cash book is both a journal and a ledger.
3. Against each item in the following list, indicate whether it should usually show a debit
balance or a credit balance. If it shows a debit balance, indicate by marking ‘D’ against it and
if it shows a credit balance, indicate by marking ‘C’ against it. Also, classify each item into
current asset (CA), non-current asset (NCA), current liability (CL), non-current liability (NCL),
valuation allowance (V), income (I), and expense (E).

Self-Learning
Material 137
Financial Accounting S. No. The Accounts Head S. No. The Accounts Head
(i) Share capital (xxi) Penalty paid
(ii) Share premium (xxii) Power expenses
(iii) Land (xxiii) Advertisement expenses
(iv) Salaries and wages (xxiv) Depreciation
NOTES (v) Sales (xxv) Training expenses
(vi) Telephone charges (xxvi) Research expenses
vvii) Conveyance (xxvii) Goodwill
(viii) Travelling expenses (xxviii) Bad debt
(ix) Purchases (xxix) Accumulated depreciation
(x) Provident fund contribution (xxx) Provision for doubtful debts
(xi) Prepaid insurance (xxxi) Provision for income tax
(xii) Advances from customers (xxxii) Loan from bank
(xiii) Sales return (xxxiii) Interest due but not paid
(xiv) Purchase return (xxxiv) Trade debtors
(xv) Discount allowed (xxxv) Trade creditors
(xvi) Building (xxxvi) Loss by fire
(xvii) Interest income (xxxvii) Investment in a subsidiary company
(xviii) Royalty received (xxxviii) Investment in 180-day treasury bills
(xix) Land development (xxxix) Cash in hand
(xx) Interest paid (xL) Bank overdraft

(xxxv) C, CL; (xxxvi) D, E; (xxxvii) D, NCA; (xxxviii) D, CA; (xxxix) D, CA; (XL) C, CL
(xxix) C, V; (xxx) C, V; (xxxi) C, CL; (xxxii) C, CL/NCL; (xxxiii) C, CL; (xxxiv) D, CA;
E; (xxii) D, E; (xxiii) D, E; (xxiv) D, E; (xxv) D, E; (xxvi) D, E; (xxvii) D, NCA; (xxviii) D, E;
from purchase; (xv) D, E; (xvi) D, NCA; (xvii) C, I; (xviii) C, I; (xix) D, NA; (xx) D, E; (xxi) D,
E; (x) D, E; (xi) D, CA; (xii) C, CL; (xiii) D, I to be deducted from sales; (xiv) C, E to be deducted
3. (i) C, Equity; (ii) C, Equity; (iii) D, NCA; (iv) D, E; (v) C, I; (vi) D, E; (vii) D, E; (viii) D, E; (ix) D,
2. (i) F; (ii) F; (iii) T; (iv) T; (v) F; (vi) T; (vii) F; (viii) F; (ix) F; (x) F; (xi) T
1. (i) c; (ii) b; (iii) c; (iv) c; (v) a; (vi) d
Answers to Multiple Choice Questions

Analytical Question
1.
Do you agree that the concept of subsidiary ledgers has helped in allocation of duties and
analysis and scrutiny of accounts in the general ledger? Explain your views on the issue.

Problem
1.
The following are the transactions entered into by Mr. A during April 2018:
April 1 Opening balances:
Stock-in-trade: `1,000.
Amount due from Alpha & Co.: `2,000.
Cash-in-hand: `500.
Cash-in at bank: `1,000.
Amount due to B & Co.: `2,000.
A brought in cash, `10,000.
A deposited `8,000 in the bank.
2 A purchased goods for `2,000 on credit from Y & Co.
A purchased goods for `1,000 on credit from B & Co.
3 A purchased furniture for `3,000 on credit from R & Co.
A purchased goods for `3,000 on credit from C & Co.
4 A sold goods to Alpha & Co. for `2,000 on credit.
5 A received a cheque for `20,000 from New India Investment Co., towards loan.
A purchased goods for `500 in cash.
A paid `100 towards conveyance charges.
A purchased electrical fittings for `500.
6 A withdrew `1,000 from the bank for office use.
Self-Learning A purchased goods for `3,000 from M & Co. on credit.
138 Material
7 A paid `500 towards office expenses. The Accounting Cycle:
8 A sold goods for `3,000 to Gamma & Co. on credit. Journal, Cash Book,
9 A paid `1,950 by cheque to Y & Co. Y & Co. allowed a discount of `50. General Ledger and
10 A paid `100 towards cartage inward. Trial Balance
A purchased goods for `8,000 from Y & Co. on credit. NOTES
A purchased furniture for `15,000 from R & Co. on credit.
A paid `3,000 to R & Co. by cheque.
April 11 A received a cheque for `1,950 from Alpha & Co. He allowed a discount of `50.
A sold goods for `8,000 to Delta & Co. on credit.
A paid `100 towards freight outward.
A paid `200 towards conveyance charges.
12 A withdrew `1,000 from the bank towards personal expenses.
13 A paid `200 towards travelling expenses.
A paid `1,000 to B & Co. by cheque.
A received a cheque of `3,000 from Gamma & Co.
15 The bank informed that the cheque received from Gamma & Co. was returned
unpaid by his banker. The banker levied a service charge of `20.
16 A received a bank demand draft of `2,900 from Gamma & Co. towards full and
final settlement of the amount due from them.
A purchased goods for `2,000 on credit from B & Co.
17 A received a cheque of `7,900 from Delta & Co. A discount of `100 was allowed.
18 A sold goods for `500 to Mr. Z on cash basis.
A sold goods for `2,000 to Delta & Co. on credit.
19 A paid Y & Co. `7,900 by cheque. A discount of `100 was allowed.
20 A withdrew `2,000 for office use.
21 A purchased goods for `3,000 from Y & Co. on credit.
22 A paid `15,000 to R & Co. by cheque.
23 A paid insurance premium of `1,200 by cheque.
24 A paid rent of `2,000 by cheque.
25 A sold goods for `3,000 to Alpha & Co. on credit.
A sold goods for `2,000 to Beta & Co. on credit.
26 A paid `200 towards conveyance charges.
27 A sold goods for `500 to Mr. Z on cash basis.
28 A purchased goods for `1,000 from X & Co. on cash basis.
29 A received `2,950 from Alpha & Co. by cheque. A discount of `50 was allowed.
31 A paid `1,000 in cash towards wages.
A paid `1,500 in cash towards salaries.
Required: Record the above transactions appropriately in the cash book (with discount and
bank columns), purchase day book, sales day book and journal proper. Also, prepare the trial
balance after posting the transactions in the general ledger.

Self-Learning
Material 139

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