Accounting Cycle

1 2 3 4

Journal - Ledger - Trail Balance - Final Accounts

JOURNAL
French word - jour - a day
Journal - a daily record of transactions - Day Book
All the transactions are first recorded in the journal,
So, it is called First Book/Prime Book/ Book of original Entry
Recording the transactions in to Journal is called Journalizing
Ex: 2020 Sep.18 Cash paid to Gopal Rs.5000
1. Cash - Asset - Real A/c - Goes out - Credit
2. Gopal - Person - Personal A/c - Receiver - Debit
Sep.20 Cash withdrawn from Bank Rs. 10000
1. Cash - Asset - Real A/c - Comes in -Debit
2. Bank - Firm - Personal A/c - Giver - Credit
Sep. 22 Commission paid Rs. 1000
1. Commission- Expenses - Nominal A/c -Expenses -Debit
2. Cash - Asset - Real A/c -Goes out -Credit
Sep. 25 Furniture purchased from Kumar for Rs.4000
1. Furniture - Asset - Real A/c -Comes in Debit
2. Kumar - Person - Personal A/c -Giver Credit
Sep. 29 Goods purchased from Kiran Rs.8000
1. Goods - Asset - Real a/c - Comes in - Dr
2. Kiran - Person - Personal a/c - Giver - Cr
Sep.30 Goods sold for Rs.10000
1. Goods - Asset - Real a/c - Goes out - Cr
2. Cash - Asset - Real a/c - Comes in - Dr

Journal Format:
Date Particulars L.F. Debit Credit
Amount Amount
(Rs.) (Rs.)
1 2 3 4 5
Year Name of the Account to be Debited Dr xxx -
Month, To Name of the Account to Credited - xxx
Date ( Narration)

L.F. Ledger Folio

 JOURNAL
Date Particulars L.F. Debit Credit
Amount Amount
(Rs.) (Rs.)
2020 Gopal’s Account Dr 5000 -
Sep.18 To Cash Account - 5000
(Being cash paid to Gopal)
Cash Account Dr 10000 -
“ 20 To Bank Account - 10000
(Being cash withdrawn from
bank)
“ 22 Commission A/C Dr 1000 -
To Cash A/C - 1000
(Being commission paid)
“ 25 Furniture A/c Dr. 4000 -
To Kumar’s A/C - 4000
(Being furniture purchased
from Kumar)
(Goods) Purchases A/c Dr
“ 29 8000 -
To Kiran’s Account
- 8000
(Being goods purchased from
Kiran)
Cash Account Dr
“ 30 10000 -
To (Goods) Sales A/c
- 10000
(Being goods sold)
Ex-1: Journalize the following transactions in the books of Gopal.
2020
Jan.1 Gopal started business with cash of Rs.1,00,000 (Capital)
1. Cash - Asset - Real A/c -Comes in -Dr
2. Gopal (Capital) - Person - Personal A/c - Giver -Cr
Jan 3 Goods Purchased for Rs. 10000
1. Goods - Asset - Real a/c - Come in - Dr
2. Cash - Asset - Real a/c - Goes out - Cr.
Jan 6 Goods Sold for Rs.15000
1. Goods - Asset - Real a/c - Goes out - Cr
2. Cash - Asset - Real a/c - Comes in - Dr
Jan 10 Goods Purchased from Kumar Rs.5000
Credit Transaction
1. Goods - Asset - Real a/c - Comes in - Dr
2. Kumar- Person - Personal a/c Giver - Cr
Jan 15 Cash paid to Kumar Rs.5000
Jan20 Commission paid Rs.500
1. Commission -Expenses - Nominal a/c – Expenses -Dr
2. Cash - Asset - Real a/c - Goes out -Cr
Jan23 Interest Received Rs.1000
1. Interest - Income - Nominal a/c - Income -Cr
2. Cash - Asset - Real a/c - Comes in -Dr
Jan 27 Furniture purchased from Mahesh for cash Rs.4000
Cash Transaction
1. Furniture - Asset - Real a/c - Comes in Dr
2. Cash - Asset - Real a/c - Goes out Cr
Jan30 Cash received from Ramesh Rs.6000
1. Cash - Asset - Real a/c - Comes in Dr
2. Ramesh - Person - Personal a/c - Giver Cr
Jan31 Salaries paid Rs.10000
1. Salaries - Expenses - Nominal a/c - Expenses Dr
2. Cash - Asset - Real a/c - Goes out Cr
 Journal Entries in the books of Gopal
Date Particulars L.F. Debit Amount Credit Amount
(Rs.) (Rs.)
2020 Cash a/c Dr 100000 -
Jan.1 To Capital (Gopal) a/c - 100000
(Being business started with cash)
(Goods)Purchasesa/c Dr.
“ 3 To Cash a/c 10000 -
(Being goods purchased for cash) - 10000
Cash Dr
To (Goods) Sales a/c
“ 6 (Being goods sold for cash) 15000 -
(Goods)Purchasesa/c Dr. - 15000
To Kumar’s a/c
“ 10 (Being goods purchased from Kumar) 5000 -
Kumar’s a/c Dr. - 5000
To Cash a/c
(Being cash paid to Kumar)
“ 15 Commission a/c Dr 5000 -
To Cash a/c - 5000
(Being commission paid)
“ 20 Cash a/c Dr 500 -
To Interest a/c - 500
(Being interest received)
“ 23 Furniturea/c Dr 1000 -
To Cash a/c - 1000
(Being Furniture purchased from Mahesh
“ 27 for cash) 4000 -
Cash a/c Dr - 4000
To Ramesh a/c
(Being cash received from Ramesh)
“ 30 SalariesA/c Dr 6000 -
To Cash a/c - 6000
(Being salaries paid)

“ 31 10000 -
- 10000
TOTAL 154500 154500
Purchases - Purchase of goods
Purchase Returns (or) Returns outwards -Goods returned to supplier
(Receiver)

Supplier’s a/c Dr
To (Goods) Purchase Returns a/c

Sales - Sale of goods

Sales Returns (or) Returns inwards - Goods returned from Customer
(Giver)

(Goods) Sales Returns a/c Dr

To Customer’s a/c
GOODS 1.Purchases
2. Sales
3. Purchases Returns
4. Sales Returns

1) Journalize the transactions given below in the books of Prasad.

Date Particulars
2020
Jan 1 Prasad commenced business with cash Rs.30,000
2 Sales Rs.4,000 (Goods sold or Sale of Goods)
4 Purchased machinery for Rs.15,000
7 Sold goods to Raju Rs.10,000
9 Purchased goods from Ramana Rs.8,000
10 Goods returned by Raju Rs.5,000
12 Paid for stationery Rs.1,000
14 Carriage expenses Rs.500
15 Bought furniture for proprietor’s residence and paid cash Rs.7,000 (Drawings)
Prasad is the receiver - Debit Cash is goes out- Credit
17 Sold goods to Krishna for cash Rs.3,000
22 Received interest Rs.800
24 Paid for wages Rs.1,200
25 Cash Deposited into bank Rs.10,000
30 Goods return to Ramana Rs. 2,000
Solution:
Journal Entries in books of Prasad
Debit Credit
L
Date Particulars Amount Amount
F
Rs. Rs.
Cash A/C Dr 30,000
2020
To (Prasad)Capital A/C
Jan 1
(Being business Commenced with cash) 30000
Cash A/C Dr 4,000
2 To Sales A/C 4,000
(Being goods sold for cash)
Machinery A/C Dr 15,000
4 To Cash A/C 15,000
(Being Machinery purchased)
Raju A/C Dr 10,000
7 To Sales A/C 10,000
(Being goods sold to Raju on credit)
Purchases A/C Dr 8,000
9 To Ramana A/C 8,000
(Being goods purchases from Ramana)
Sales returns A/C Dr 5,000
10 To Raju A/C 5,000
(Being goods returned by raju)
Stationery A/C Dr 1,000
12 To Cash A/C 1,000
(Being Stationery purchased for cash)
Carriage Expenses A/C Dr 500
14 To Cash A/C 500
(Being carriage expenses paid)
(Prasad) Drawings A/C Dr 7,000
To Cash A/C 7,000
15
(Being furniture purchased for personal
use and withdrawn cash)
Cash A/C Dr 3,000
17 To Sales A/C 3,000
(Being goods sold for cash)
Cash A/C Dr 800
22 To interest A/C 800
(Being discount received)
Wages A/C Dr 1,200
24 To Cash A/C 1,200
(Being wages paid by cash)
Bank A/C Dr 10,000
25 To Cash A/C 10,000
(Being cash deposited with bank)
Ramana A/C Dr 2,000
30 To Goods Purchase returns A/C 2,000
(Being goods return to Ramana)
TOTAL 97500 97500
2) Journalize the following transactions, post them in the ledger and balance the accounts on 31st
January.
1. John started business with a capital of Rs.10,000
2. He purchased goods from Mohan Rs.2,000
3. He paid cash to Mohan Rs.1,000
4. He sold goods to Suresh Rs.2,000
5. He received cash from Suresh RS.2,000
6. He further purchased goods from Mohan Rs.2,000
7. He issued cheque to Mohan Rs.1,000
8. He further sold goods to Suresh Rs.2,000
9. He received cash from Suresh Rs.1,000
10. He received cheque from Suresh Rs.1000
Solution:
Journal Entries
Particular
L.F
Date Debit Credit
Rs. Rs.
2020 Cash A/C Dr 10,000
Jan 1 To Capital A/C 10,000
(Being commencement of business with cash)
Purchases A/C Dr 2,000
2 To Mohan’s A/C 2,000
(Being goods purchased from Mohan on Credit)
Mohan A/C Dr 1,000
3 To Cash A/C 1,000
(Being cash paid to Mohan)
Suresh’s A/C Dr 2,000
4 To Sales A/C 2,000
(Being goods sold to Suresh)
Cash A/C Dr 2,000
5 To Suresh’s A/C 2,000
(Being cash received from Suresh)
Purchase A/C Dr 2,000
6 To Mohan A/C 2,000
(Being purchase of goods from Mohan)
Mohan A/C Dr 1,000
7 To Bank A/C 1,000
(Being cheque issued to Mohan)
Suresh A/C Dr 2,000
8 To Sales A/C 2,000
(Being goods sold to suresh)
Cash A/C Dr 1,000
9 To Suresh A/C 1,000
(Being cash received from Suresh)
Bank A/C Dr 1,000
10 To Suresh A/C 1,000
(Being cheque received from Suresh)
Ex:1 Commission paid Rs.1000
Commission a/c Dr
To Cash a/c
(Being commission paid)
Ex:2 Commission paid by cheque Rs.5000
Commission a/c Dr
To Bank a/c
(Being commission paid by cheque)
Ex: 3 Interest received by cheque Rs.2000
(Cash) Bank a/c Dr
To Interest
Ex: 4 Cash received from Mahesh Rs.2000
Cash a/c Dr
To Mahesh’s a/c
Ex: 5 Cheque received from Mahesh Rs.10000
Bank a/c Dr
To Mahesh a/c

Rent Paid Rs.1000

Rent a/c Dr
To Cash a/c

Rent paid to Ramesh Rs.1000

Rent a/c Dr
To Cash a/c

Paid to Ramesh Rs.1000

Ramesh a/c Dr
To Cash a/c
 LEDGER

Leger is a set of various accounts relating to Person, Firm, Asset,

Expense, Losses, Incomes and Gains.

Format of Leger Account: English letter ‘T ’

Dr Name of the Ledger Account Cr

Amount Amount
Date Particulars J.F Date Particulars J.F
(Rs.) (Rs.)

Dr Cash Account Cr
Amount Amount
Date Particulars J.F Date Particulars J.F
(Rs.) (Rs.)
2020 2020
Jan 1 To Capital a/c 10000 Jan 3 By Mohan’s a/c 1000
“ 5 “ Suresh’s a/c 2000
“ 9 “ Suresh’s a/c 1000
“ 31 By Balance c/d 12000
13000 13000
Feb.1 To Balance b/d 12000

Dr Capital Account Cr
Amount Amount
Date Particulars J.F Date Particulars J.F
(Rs.) (Rs.)
2020
Jan 1 By Cash a/c 10000
2020
Jan 31 To Balance c/d 10000
10000 10000
Feb.1 By Balance b/d 10000
 Dr Purchases Account Cr
Amount Amount
Date Particulars J.F Date Particulars J.F
(Rs.) (Rs.)
2020
Jan 2 To Mohan’s a/c 2000 2020
“ 6 “ Mohan’s a/c 2000 Jan 31 By Balance c/d 4000
4000 4000
Feb.1 To Balance b/d 4000

Dr Mohan’s Account Cr
Amount Amount
Date Particulars J.F Date Particulars J.F
(Rs.) (Rs.)
2020 2020
Jan 3 To Cash a/c 1000 Jan 2 By Purchases a/c 2000
“ 7 “ Bank a/c 1000 “6 “ Purchases a/c 2000
“ 31 “ Balance c/d 2000
4000 4000
Feb.1 By Balance b/d 2000
Dr Suresh’s Account Cr
Amount Amount
Date Particulars J.F Date Particulars J.F
(Rs.) (Rs.)
2020 2020
Jan 4 To Sales a/c 2000 Jan 5 By Cash a/c 2000
“ 8 “ Sales a/c 2000 “ 9 “ Cash a/c 1000
“ 10 “ Bank a/c 1000
4000 4000

Dr Sales Account Cr
Amount Amount
Date Particulars J.F Date Particulars J.F
(Rs.) (Rs.)
2020
Jan 4 By Suresh’s a/c 2000
2020 “ 8 By Suresh’s a/c 2000
Jan 31 To Balance c/d 4000
4000 4000
Feb.1 By Balance b/d 4000
 Dr Bank Account Cr
Amount Amount
Date Particulars J.F Date Particulars J.F
(Rs.) (Rs.)
2020 2020
Jan 10 To Suresh a/c 1000 Jan 7 By Mohan’s a/c 1000

1000 1000

TRAIL BALANCE
It is a statement of debit and credit balances of all the ledger accounts.
It is prepared to know the arithmetical accuracy.

Format of Trail Balance:

Trail Balance of Mr……… as on ……..
Debit Balance Credit Balance
S.No. Name of the Account
(Rs.) (Rs.)

TOTAL

Trail balance of Mr. John as on 31 January 2020

Debit Balance Credit Balance
S.No. Name of the Account
(Rs.) (Rs.)
1. Cash Account 12000 -
2. Capital Account - 10000
3. Purchases Account 4000 -
4. Mohan’s Account - 2000
5. Suresh’s Account - -
6. Sales Account - 4000
7. Bank Account - -

TOTAL 16000 16000

 Trail Balance of Mr……… as on ……..
Debit Balance Credit Balance
S.No. Name of the Account
(Rs.) (Rs.)
Assets Liabilities
Expenses Incomes
& &
Losses Gains
TOTAL
Debit Balances:
Assets: Cash balance, Bank balance, Furniture & Fixtures, Plant & Machinery,
Land & Buildings, Premises, Vehicles, Investments, Good will, Patents, Trade
Marks, Copy rights, Debtors, Bills Receivables
Expenses: Salaries, Wages, Rent, Postage & Telegrams, Printing & Stationary,
Bank Charges, Advertisements, Interest, Commission, Carriage inwards, Carriage
outwards, Transport, Taxes, customs duty, excise duty, dock duty, Coal, Gas,
Water, Power, Electricity, Manufacturing Expenses, interest on capital
Losses: Discount allowed, Bad Debts, Loss by fire accidents, Depreciation etc.

Drawings, Purchases, Sales returns

Credit Balances:
Liabilities: Capital, Bank overdraft, Bank Loan, Mortgage Loans, Creditors, Bills
Payable etc.
Incomes: Interest received, Commission received, interest on drawings etc.
Gains: Discount received
Ex-1 : Prepare the Trial Balance from the following Ledger Balances:
Purchases 82,800, Buildings 30,000, Wages 68,000, Fuel 2,000, Creditors 18,000, Bills payable 700, Discount
received 100, Sales 1,93,000, Insurance 1,300, Income Tax 3,700, Opening stock 18,000, Commission paid
300, Debtors 19,000, Bad debts 800, Salaries 25,000, Printing and stationary 7,600, Postage and Telegrams
3,400, Bills receivable 6,90,0 Cash at bank 13,000, and Capital 70,000.
Trail Balance of Mr……… as on ……..
Debit Balance Credit Balance
S.No. Name of the Account (Rs.) (Rs.)
A,E,L Li, I,G
1 Purchases (Exp.) 82,800 -
2 Buildings (Asset) 30,000 -
3 Wages (Exp.) 68,000 -
4 Fuel (Exp.) 2,000 -
5 Creditors (Lia) - 18000
6 Bills payable (Lib) - 700
7 Discount received (Gain) - 100
8 Sales (income) - 1,93,000
9 Insurance (Exp.) 1,300 -
10 Income Tax (Exp.) 3,700 -
11 Opening stock (Asset) 18,000 -
12 Commission paid (Exp.) 300 -
13 Debtors (Asset) 19,000 -
14 Bad debts (Loss) 800 -
15 Salaries (Exp.) 25,000 -
16 Printing and stationary (Exp.) 7,600 -
17 Postage and Telegrams (Exp.) 3,400 -
18 Bills receivable (Asset) 6,900 -
19 Cash at bank (Asset) 13,000 -
20 Capital (Liability) - 70,000
TOTAL 2,81,800 2,81,800
 FINAL ACCOUNTS
Sole trader
Partnership
Joint Venture
Cooperative Societies
Joint Stock Company
1. Private Limited Company (ABC Pvt. Ltd.)
2. Public Limited Company (ABC Ltd.) – Shares/ Debentures/Loans

FINAL ACCOUNTS OF SOLE TRADER

1. Trading Account - to know the Gross Profit/Gross Loss
2. Profit and Loss Account - to know the Net Profit/ Net Loss
3. Balance Sheet - to know the Financial Position

Purchased goods - Rs. 200000

Wages (Loading and unloading) - 10000
Carriage inwards - 20000
Power, Fuel, Gas, water, coal - 5000
-----------------
Total Direct Expenses (Non- recurring Exp.) 235000
Sales 400000
-----------------
Gross Profit 165000
Rent
Salaries
Advertisements
Carriage outwards
Bank charges
Insurance
Commission
Interest
Total Indirect Expenses (Recurring Exp.) 100000
---------------
Net Profit 65000
---------------
Dr. Trading Account of Mr. ______ for the year ended _______ Cr.
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Opening stock Xxx By Sales xxx
To Purchases xxx Less: Sales returns xx Xxxx
Less: purchase returns xx To Xxx
Wages Xxx By Closing Stock Xxx
To Carriage inwards Xxx
To Fuel and power Xxx
To Coal, gas & water Xxx
To Import duty Xxx By Gross Loss (if any) XXX
To Manufacturing Exp. Xxx
To Other Direct expenses Xxx

To Gross profit c/d XXXX

(Transferred to profit and loss xxxxxx xxxxx
account)

Dr. Profit and Loss Account of Mr. ______ for the year ended _______ Cr.
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Office & Administration By Gross profit b/d xxxx
Expenses: By discount received xxx
Salaries Xxx By commission received By xxx
Rent Xxx interest received xxx
Taxes Xxx By income from investments xxx
Insurance Xxx By dividends on shares
Telephone exp. Xxx By Miscellaneous incomes xxx
Printing & stationary postage Xxx xxx
& telegrams Xxx
Legal charges Xxx
Audit fees Xxx
General expenses etc. Xxx
To Selling & Distribution
Expenses:
Advertisements Xxx
Godown rent Xxx
Carriage outwards, salesmen Xxx
salary Xxx
Commission Xxx By Net Loss (if any)
bad debts Xxx xxxx
To Repairs& Maintenance To Xxx
Depreciation Xxx
To Financial Expenses:
Interest on capital Xxx
interest on loans Xxx
discount allowed etc. Xxx
To Extra-ordinary expenditure:
Loss by fire etc.
xxx
To Net profit c/d (Transferred
to Capital account)
XXXX
xxxxxx xxxxx

Balance Sheet of Mr.______ as on ______

Liabilities Amount Assets Amount
(Rs.) (Rs.)
Capital xxx Cash in hand Xxx
Add: Net profit xx Cash at bank Xxx
---- ----- Sundry debtors Xxx
xxx Bills receivables Xxx
Add: Interest on Capital xxx Closing Stock Prepaid Xxx
Less : Drawings xx expenses Xxx
Less: Interest on drawings xx Accrued incomes Xxx
Less: Income tax xx Xxxx Fixed Assets
Plant and machinery Furniture Xxx
Bank overdraft Xxx and fixtures Xxx
Sundry creditors Xxx Land and buildings Xxx
Bills payable Xxx Loose tools Xxx
Outstanding expenses Incomes Xxx Horses and carts Xxx
received in advance Business premises Xxx
Long –term liabilities Xxx Good will Xxx
Bank Loan Xxx Patents Xxx
Mortgage Loans Xxx trade marks Xxx
Xxxx copy rights Xxx

XXXX XXXX
 1) From the following trial balance of Mr. Ramesh, prepare trading and profit and loss account for the
year ending 31st march 2020 and the balance sheet as on that date.

Debit balance Rs. Credit balance Rs.

Opening Stock 7,000 Sundry creditors 15,000
Purchases 65,000 Purchases return 800
Sales return 2,500 Sales 1,00,000
Carriage 800 Commission 2,500
Wages 2,000 Capital 37,500
Repairs 700 Interest on bank deposit 1,500
Printing and stationary 1,500 Bills payable 11,000
Trade expenses 1,500
Rent and taxes 2,300
Cash in hand 1,000
Bills receivable 3,000
Sundry debtors 18,000
Land and buildings 25,000
Plant and machinery 18,000
Drawings 5,000
Bank deposit 15,000
1,68,300 1,68,300
Adjustments: Closing stock was Rs.9,000.

Dr. Trading and Profit and Loss Account of Mr. Ramesh for the year ended 31st March 2020 Cr.
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Opening stock 7000 By Sales 100000
To Purchases 65000 Less: Sales returns 2500
Less: purchase returns 800 -----------
---------- 64200 97500
To Wages 2000 By Closing Stock 9000
To Carriage 800

To Gross profit c/d 32500

(Transferred to profit and loss 106500 106500
account)
To Repairs 700 By Gross Profit b/d 32500
“ Printing and stationary 1500 “ Commission (Received) 2500
“ Trade Expenses 1500 “ Interest on bank deposit 1500
“ Rent and taxes 2300

To Net profit c/d

(Transferred to Capital account) 30500
36500 36500
 Balance Sheet of Mr.Ramesh as on 31st March 2020
Liabilities Amount (Rs.) Assets Amount (Rs.)
Capital 37500 Cash in hand 1000
Add: Net profit 30500 Bills receivable 3000
--------- Sundry debtors 18000
68000 Land and buildings 25000
Less : Drawings 5000 Plant and machinery 18000
Less: Income tax - Bank deposit 15000
63000 Closing Stock 9000
Sundry creditors 15000
Bills payable 11000

89000 89000
2) The Trail balance of Kamal as at March 31, 2020 revealed the following balances:

Particulars Amount Particulars Amount

Plant & machinery 160,000 Capital Account 200,000
Purchases 136,000 Sales 250,000
Sales returns 2,000 purchase returns 6,550
opening Stock 60,000 Discount Received 1,600
Discount Allowed 700 Sundry Creditors 50,000
Bank charges 150
sundry debtors 90,000
salaries 13,600
wages 20,000
freight 1,500
Carriage outwards 2,400
Rent and Rates 4,000
Advertisements 4,000
cash in hand 13,800
508,150 508,150

Adjustments:
1. Closing Stock was valued at Rs. 70,000
Prepare trading, profit and loss A/c for the year ending March 31, 2020 and a balance sheet as on
that date.

Dr. Trading and Profit and Loss Account of Mr. Kamal for the year ended 31st March 2020 Cr.
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Opening stock 60000 By Sales 250000
To Purchases 136000 Less: Sales returns 2000
Less: purchase returns 6550 -----------
---------- 129450 248000
To Wages 20000 By Closing Stock 70000
To Freight (Carriage inwards) 1500

To Gross profit c/d

(Transferred to profit and loss 1,07,050
account) 318000 318000
To Discount allowed 700 By Gross Profit b/d 1,07,050
“ Bank Charges 150 “ Discount Received 1,600
“ Salaries 13,600 “
“ Carriage outwards 2400
“ Rent and rates 4000
“ Advertisements 4000
To Net profit c/d
(Transferred to Capital account) 83,800
1,08,650 1,08,650
 Balance Sheet of Mr.Kamal as on 31st March 2020
Liabilities Amount (Rs.) Assets Amount (Rs.)
Capital 200000 Cash in hand 13800
Add: Net profit 83800 Sundry debtors 90000
--------- Plant and machinery 160000
283800 Closing Stock 70000
Less : Drawings -
Less: Income tax -
-----------------
283800
Sundry creditors 50000

333800 333800

Accounting Equation : Assets = Capital + Liabilities

Treatment of adjustment items in final accounts

S.No. Adjustment item Trading & Profit and Loss Balance Sheet
Account
1 Closing Stock Credit side of the trading Assets side
account
2 Outstanding expenses Added to the concerned Liabilities side
(Expenses payable) expenses on the debit side of
trading (or) profit and loss a/c
3 Prepaid expenses Deducted from the concerned Assets side
(unexpired expenses) expenses on the debit side of
trading (or) profit and loss a/c
4 Income receivable Added to the concerned Assets side
(Accrued income) income on the credit side of
profit and loss a/c
5 Income received in advance Deducted from the concerned Liabilities side
income on the credit side of
profit and loss a/c
6 Depreciation on assets Shown on the Debit side of the
Deducted from the
profit and loss a/c concerned asset on the
asset side
7 Bad debts/ Reserve for bad Shown on the Debit side of the Deducted from the
debts/provision for bad debts/ profit and loss a/c Debtors on the asset
Provision for doubtful debts side
8 Interest on Capital Shown on the Debit side of the Added to the capital on
profit and loss a/c the Liabilities side
9 Interest on Drawings Shown on the Credit side of the Deducted from the
profit and loss a/c capital on the
Liabilities side
 3) The following trial balance belongs to Mr.Mahesh. Prepare trading and profit & loss
A/c for the year ended 31st March 2020 and balance sheet as on that date.

Particulars Debit Credit

(Rs.) (Rs.)
Capital 1,00,000
Drawing 18,000
Furniture 32,500
Machinery 15,000
Loan payable 15,000
Salaries 900
Sales 1,00,000
Purchases 75,000
Opening stock 25,000
Advertisement 15,000
Wages 2,000
Insurance 1,000
Commission received 4,500
Sundry debtors 28,100
Cash in hand 20,000
Sundry creditors 10,000
Interest received 3,000
Total 2,32,500 2,32,500
Adjustments:

1. Closing Stock Rs.60,000

2. Outstanding wages ( Wages payable) Rs.500
3. Outstanding salaries Rs.600
4. Prepaid insurance of Rs.200
5. Accrued interest Rs.300
6. Commission received in advance Rs.500
7. Calculate depreciation on Machinery at 10%.
8. Bad debts written off Rs.2,100

Debtors:
Good debts
Doubtful debts
Bad debts
Dr. Trading and Profit and Loss Account of Mr. Mahesh for the year ended 31st March 2020 Cr.
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Opening stock 25000 By Sales 100000
To Purchases 75000 Less: Sales returns -
Less: purchase returns - ----------- 100000
---------- 75000 By Closing Stock 60000
To Wages 2000
Add: Outstanding wages 500 2500
----------
To Gross profit c/d 57500 160000
(Transferred to profit and loss 160000
account) By Gross Profit b/d 57500
To Salaries 900 “ Commission received 4500
Add: Outstanding salaries 600 1500 Less: Received in advance 500 4000
------ ---------
“ Advertisements 15000 “ Interest received 3000
“ Insurance 1000 Add: Accrued interest 300
Less: Prepaid insurance 200 800 --------- 3300
----------
“ Depreciation on Machinery@10% 1500
“ Bad debts 2100

To Net profit c/d 43900

(Transferred to Capital account) 64800 64800

Balance Sheet of Mr.Mahesh as on 31st March 2020

Liabilities Amount (Rs.) Assets Amount (Rs.)
Capital 100000 Furniture 32,500
Add: Net profit 43900 Machinery 15000
----------- Less: Depreciation 1500
143900 ------------ 13500
Less : Drawings 18000 Sundry Debtors 28100
Less: Income tax - 125900 Less: Bad debts 2100
----------------- ---------- 26000
Cash in hand
Loan Payable 15000
Accrued interest 20000
Sundry creditors 10000
Closing Stock 300
Outstanding wages 500 Prepaid insurance 60000
Outstanding salaries 600 200
Commission received in advance 500

152500 152500
 4) Prepare a trading and profit and loss account for the year ending 31-03-2020 from the following
balances from the books of Madhav furniture Mart.
Debit balances: (Assets, Expenses and Losses)
Opening stock 5,000, Purchases 29,200, Sundry debtors 25,000, Bills receivable 2800, Plant 10,000, Interest
on loan 300, Wages 15,000, Buildings 24,000, Loose tools 600, Cash on hand 600, Stationary 500,
Salaries 8200, Discount 100,
Credit balances : (Liabilities, Incomes and gains)
Capital 20,000, Sales 62,500, Sundry creditors 13,400, Bills payable 5,000, Loan and mortgage 18,000, Bank
overdraft 2400.
Adjustments: (1). Closing stock Rs 5,600 (2) Write off loose tools Rs 540 (3). Provide 5% reserve for
doubtful debts.
Dr. Trading and Profit and Loss Account of Madhav Furniture Mart for the year ended 31st March 2020 Cr.
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Opening stock 5000 By Sales 62500
To Purchases 29200 Less: Sales returns -
Less: purchase returns - ----------- 62500
---------- 29200 By Closing Stock 5600
To Wages 15000

To Gross profit c/d 18900

(Transferred to profit and loss 68100 68100
account)
To Interest on loan 300 By Gross Profit b/d 18900
“ Stationary 500
“ Salaries 8200
“ Discount 100
“ Loose tools written off 540
“ Reserve for bad debts @5% on
debtors 1250

To Net profit c/d 8010

(Transferred to Capital account) 18900 18900

Balance Sheet of Madhav Furniture Mart as on 31st March 2020

Liabilities Amount (Rs.) Assets Amount (Rs.)
Capital 20000 Sundry Debtors 25000
Add: Net profit 8010 Less: Reserve for bad debts 1250
Less : Drawings - --------- 23750
Less: Income tax -
----------------- Bills Receivable 2800
Sundry creditors 28010 Plant 10000
Bills payable Buildings 24000
Loose tools 600
Loan and Mortgage 13400
Less: Written off 540
Bank overdraft 5000
---------- 60
18000
2400 Closing stock 5600

66810 66810
 5) Following is the trail balance of Mr. Gopala Krishna as on 31st December 2016. Prepare Trading
and Profit and Loss Account and Balance Sheet.
Debit Balances Credit Balances
Salaries 6,000 Capital 25,000
Purchases 26,000 Sales 47,000
Wages 9,300 Creditors 21,000
Carriage inwards 400 Bills payable 7000
Commission 1,800
Cash in hand 500
Cash at bank 3,600
Debtors 30,000
Furniture 3,000
Machinery 10,000
Bills receivable 2,000
Insurance 400
Opening stock 7,000
1,00,000 1,00,000
Adjustments:
a) Closing stock 50000, b) Outstanding Salaries 1000, c) Prepaid insurance 100

6) The Trail balance of Kumar as on March 31, 2017 revealed the following balances. Prepare trading,
profit and loss A/c for the year ending December 31, 2017 and a balance sheet as on that date.

Particulars Amount Particulars Amount

Plant & machinery 160,000 Capital Account 200,000
Purchases 136,000 Sales 250,000
Sales returns 2,000 purchase returns 6,550
opening Stock 60,000 Discount Received 1,600
Discount Allowed 700 Sundry Creditors 50,000
Bank charges 150
sundry debtors 90,000
salaries 13,600
wages 20,000
freight 1,500
Carriage outwards 2,400
Rent and Rates 4,000
Advertisements 4,000
cash in hand 13,800
508,150 508,150

Adjustments:
1. Closing Stock was valued at Rs. 70,000
2. Provide discount on debtors @4%
3. Provide for depreciation on plant @10% per Annum.
4. Salaries yet to be paid Rs.500
 7) The following balances are extracted from the books of Mr. Mahesh for the year ending 31st March,
2018. Prepare a Trading and Profit and Loss account and Balance sheet.

Particulars Debit (Rs.) Credit (Rs.)

Capital 70,000
Purchases 40,000
Sales 75,000
Returns 2,000 5,000
Opening Stock 10,000
Loans 5,000
Discounts 1,000
Wages 3,000
Debtors 25,000
Creditors 5,000
Cash in hand 20,000
Cash at Bank 10,000
Plant and Machinery 30,000
Buildings 10,000
Drawing 5,000
Bills Receivable 10,000
Bills Payable 6,000
Total 1,66,000 1,66,000
Adjustments:
i) Closing stock was valued at Rs. 30,000/-, ii) Provide Rs.5,000/- Doubtful Bad debts., iii) Outstanding
Wages Rs.500, iv) Calculate interest on capital Rs.1000, and v) Calculate interest on drawings Rs.500