FINANCIAL ACCOUNTING

FA is defined as the art of recording, classifying and summarising in a significant manner and in terms of money transactions and events which
are in part at least of a financial character and interpreting the results thereof.

Chronological order – date wise

Recording :
Is done in the basic book of accounts called the Journal
Recording is done in a chronological order

All recording done in the journal is based on the 3 golden rules of accounting

Account Rule
Real account (deals with assets) Debit what comes in
Credit what goes out.
Personal account (deals with persons Debit the receiver
Credit the giver.
Nominal account (deals with expenses and losses on one hand and Debit all expenses and losses
incomes and gains on the other. Credit all incomes and gains.

Journalise the following transactions:

April 1 2022: A started business with cash Rs. 10,00,000

Cash is coming in = asset

Giver is businessman namely A – do not include his name = Capital or A’s Capital
April 2 2022: Paid into bank Rs. 5,00,000
April 3 2022 : Purchased machinery for cash Rs. 1,00,000
April 20 2022 : Paid salaries Rs. 50,000
Journal Entries in the Books of A for the month of April 2022
Amt. in Rupees

Debit Credit
Date Particulars L/F
Rs. Rs.
1.4.22 Cash a/c Dr. 10,00,000
To A’s Capital 10,00,000
(Being the capital introducing)
2.4.22 Bank a/c Dr. 5,00,000
To Cash a/c 5,00,000
(Being the cash deposited in bank)
3.4.22 Machinery a/c Dr. 1,00,000
To Cash a/c 1,00,000
20.4.22 Salaries a/c Dr. 50,000
To cash a/c 50,000

Journalise the following transactions:

1. Purchased goods for cash Rs. 15,000 – cash transaction
2. Purchased goods for cash Rs. 12,000 from D – cash transaction
3. Purchased goods Rs. 10,000 from B – credit transaction
Journal entries

Debit Credit
Date Particulars L/F
Rs. Rs.
1. Purchases a/c Dr. 15,000
To cash a/c 15,000
 2. Purchases a/c Dr. 12,000
To cash a/c 12,000
3. Purchases a/c Dr. 10,000
To B’s a/c 10,000

Journalise the following transactions

1. Sold goods for cash Rs. 25,000 – cash transaction
2. Sold good to F Rs. 15,000 for cash – cash transaction
3. Sold good to G Rs. 5,000 – credit transaction
Journal entries

Debit Credit
Date Particulars L/F
Rs. Rs.
1. Cash a/c Dr. 25,000
To sales a/c 25,000
2. Cash a/c Dr. 15,000
To sales a/c 15,000
3. G’s a/c Dr. 5,000
To sales a/c 5,000

Journalise the following transaction:

1. Purchased good from S Rs. 20,000 – credit transaction
2. Returned goods to S Rs. 2,000 – Purchase Returns / Returns outward
3. Paid S Rs. 17,800 in full settlement of account with S.
 Journal entries

Debit Credit
Date Particulars L/F
Rs. Rs.
1. Purchases a/c Dr. 20,000
To S’s a/c 20,000
2. S’s a/c Dr. 2,000
To Purchase Returns 2,000
3. S’s a/c Dr. 18,000
To cash a/c 17,800
To discount received a/c 200

Journalise the following transaction

1. Sold goods to Mr. T Rs. 15,000 – credit transaction
2. Mr. T returned goods worth Rs. 1,500 – Sales returns or returns inwards
3. Mr. T paid Rs. 13,250 in full settlement of his account with us.

Debit Credit
Date Particulars L/F
Rs. Rs.
1. Mr. T’s a/c Dr. 15,000
To sales 15,000
2. Sales returns a/c Dr. 1,500
To T’s a/c 1,500
3. Cash a/c Dr. 13,250
Discount allowed a/c Dr. 250
To T’s a/c 13,500
Journalise the following transaction
1. X started business with cash Rs. 5,00,000
2. Paid into bank Rs. 3,00,000
3. Withdrew cash from business for office use Rs. 5,000
4. Withdrew cash from bank for office use Rs. 10,000
5. Withdrew cash from business for personal use Rs. 3,000
6. Withdrew cash from bank for private use Rs. 6,000
7. Withdrew goods from business for domestic use Rs. 2,000
Journal entries

Debit Credit
Date Particulars L/F
Rs. Rs.
Cash a/c Dr. 5,00,000
1.
To X’s capital a/c 5,00,000
Bank a/c Dr. 3,00,000
2.
To cash a/c 3,00,000
Expenses a/c Dr. 5,000
3.
To cash a/c 5,000
Cash a/c Dr. 10,000
4.
To bank a/c 10,000
Drawings a/c Dr. 3,000
5.
To cash a/c 3,000
Drawings a/c Dr. 6,000
6.
To bank a/c 6,000
Drawings a/c Dr. 2,000
7.
To Purchases a/c 2,000
CLASSIFICATION - PRIM BOOK OS ACCOUNTS – LEDGER – it is in the form of T
Journalise the following transactions and post them to the ledger
April 1 2022: A started business with cash Rs. 10,00,000

April 2 2022: Paid into bank Rs. 5,00,000

April 3 2022 : Purchased machinery for cash Rs. 1,00,000
April 20 2022 : Paid salaries Rs. 50,000

Debit Credit
Date Particulars L/F
Rs. Rs.
1.4.22 Cash a/c Dr. 10,00,000
To A’s Capital 10,00,000
2.4.22 Bank a/c Dr. 5,00,000
To Cash a/c 5,00,000
3.4.22 Machinery a/c Dr. 1,00,000
To Cash a/c 1,00,000
20.4.22 Salaries a/c Dr. 50,000
To cash a/c 50,000

Journal Ledger

Debited Cash that which is debited in the journal will be posted on the credit side of ledger
Credited A’s capital that which is credited in the journal will be posted on the debit side of the ledger.
 1.4.22 Cash a/c Dr. 10,00,000
To A’s Capital 10,00,000

CASH ACCOUNT
Dr. Cr,
Date Particulars J/F Amount Amount Date Particulars J/F Amount Amounts
2 To bank 5,00,000 1. By A’s Capital 10,00,000

CAPITAL ACCOUNT
Dr. Cr,
Date Particulars J/F Amount Amount Date Particulars J/F Amount Amounts
1 To cash a/c 10,00,000
2 To Machinery a/c 1,00,000

2.4.22 Bank a/c Dr. 5,00,000

To Cash a/c 5,00,000

BANK ACCOUNT
Dr. Cr,
Date Particulars J/F Amount Amount Date Particulars J/F Amount Amounts
2 By Cash a/c 5,00,000
 3.4.22 Machinery a/c Dr. 1,00,000
To Cash a/c 1,00,000

MACHINERY ACCOUNT
Dr. Cr,
Date Particulars J/F Amount Amount Date Particulars J/F Amount Amounts
3 By cash a/c 1,00,000

SALAIRES ACCOUNT
Dr. Cr,
Date Particulars J/F Amount Amount Date Particulars J/F Amount Amounts
 Trial balance

Summarising
Is a summary or list of ledger balances standing in the books of accounts of a firm
as on a particular date.

Trial balance as on ----

Particulars Debit Credit
Rs. Rs.
All assets xx
All liabilities including capital, provisions and reserves xx
All expenses and losses xx
All Incomes ad gains Xx
Purchases xx
Sales Xx
Purchase returns/ Returns out Xx
Sales returns / Returns in xx
Debtors Xx
Creditors Xx
Drawings Xx

Classification of assets;

Current assets : (order of liquidity)

1. Cash in hand
2. Cash at bank
3. Marketable securities/ Short-term or temporary investments.
4. Bills Receivables
5. Sundry debtors (book Debts) - S.Drs + BR = Trade debtors or receivables
6. Closing stock
“2/10 net 30 days”

Fixed Assets :

1. Plant and machinery

2. Land and buildings
3. Furniture and fixtures
4. Office Vehicles – Motor cars
5. Long-term investment.

Current assets + Fixed assets = Tangible assets – assets which you can touch see and
feel
 INTANGIBLE ASSETS = asset which you cannot touch see or feel

1. Goodwill
2. Patents
3. Trademarks
4. Copyrights
5. Royalties

FICTITIOUS ASSETS - strictly speaking these are not assets but for convenience sake we
show them as assets

1. Preliminary expenses
2. Alternations to shop
3. Advertisement expenses.

LIABILIITES

Current liabilities

1. Sundry creditors S. Crs. + BP = Trade creditors or payable

2. Bills payable
3. Short – terms loans
4. Bank overdraft

Bank OD and Cash credit

Long-term Liabilities

1. Capital
2. Long-term loans
Prepare a Trial Balance as on 31st March 2023
Trial Balance on ____
Particulars Debit Credit
Capital Xx
Drawings Xx
Purchases Xx
Sales Xx
P/R or R/O Xx
S/R or R /I Xx
Sundry debtors Xx
Sundry creditors Xx
Bills receivable Xx
Bill payable Xx
Bad debts (Irrecoverable loss of business on a/c of selling on credit) xx
Provision for bad and doubtful debts Xx
Wages Xx
Salaries Xx
Carriage inwards / cartage on purchases/Carriage in Xx
Carriage outwards/ Cartage on sales/Carriage out Xx
Discount allowed (when you sell) -loss Xx
Discount received (when you buy) – gain Xx
Insurance - premium paid for insuring the assets of business xx
Electricity, heating, lighting, gas, water, fuel Xx
Bank charges Xx
Short -term investments / marketable or temporary investments Xx
Long term investments / investments xx
Short-term loan Xx
Long- term loan / loans xx
Bank overdraft Xx
Machinery Xx
Cash in hand Xx
Cash at bank xx
Stationery Xx
Rent / rent paid Xx
Commission received Xx
Depreciation Xx
 Trial Balance as on -----
Particulars Debit Credit
General reserve Xx
Salaries Xx
Cash in hand Xx
Bills payable Xx
Cash at bank Xx
Investments Xx
Wages Xx
Freight charges on purchases Xx
Stock of material Xx
Sundry creditors Xx
Bills receivable Xx
Rent Xx
Commission Xx
Insurance Xx
Bad debts Xx
Sundry debtors Xx
Short -term investments Xx
Loans Xx
Purchases Xx
Returns in Xx
Returns out Xx
Sales Xx
Furniture Xx
Office equipment Xx
Capital Xx
Printing and stationery Xx
Drawings Xx
TRADING ACCOUNT is prepared by taking into consideration all factory related expenses – direct expenses.

Direct expenses – expenses which can directly be apportioned to the cost of production.

It is a dynamic report – all expenses and incomes pertaining to one year period are taken into account for preparing this account

Trading account for the year ended 31st March 2022

Dr. Cr.
Particulars Amount Amount Particulars Amount Amounts
To opening stock Xx By sales Xx
Less : SR / R/I Xx
To purchases Xx Xx
Less : P/R R/O Xx
xx By closing stock Xx
To wages Xx
To gas, water, fuel, electricity, lighting Xx
To carriage in Xx
To import duties Xx
To Gross profit c/d Xx
Xx xx
Problem 1
Prepare trading account from the following ledger balances presented by P. Sen as on 31st March, 2016

Additional information:
Stock on 31st March, 2016 Rs. 20,000

Trading account for the year ended 31st March 2016

Dr. Cr.
Particulars Amount Amount Particulars Amount Amounts
To opening stock 10,000 By sales 3,00,000
Less : SR / R/I 16,000
To purchases 1,60,000 2,84,000
Less : P/R R/O 10,000
1,50,000 By closing stock 20,000
To wages 30,000
Gas and fuel 8,000
Carriage inwards 10,000
Freight inwards 8,000
To Gross profit c/d 98,000
3,04,000 3,04,000

If credit side is > debit side = Gross profit

If debit side is >credit side = gross loss.
Profit and Loss Account : is prepared by taking into consideration all indirect expenses and losses and indirect incomes and gains.

In other words : P&L account takes into consideration all

Office and administration expenses - rent, insurance, depreciation , salaries

Selling and Distribution expenses – carriage outwards, bad debts, commission received or paid

P& La/c we will get to know whether we made Net profit or net loss

Profit and Loss account for the year ended 31st March 2016
Dr. Cr.
Particulars Amount Amount Particulars Amount Amounts
To salaries Xx By Gross profit b/d xx
To rent, rates and taxes
To insurance By discount received
To depreciation By commission received
To printing and stationery
To bank charges
To bad debts
To discount allowed
To commission paid
To advertising expenses
To carriage out
To Net profit (Transferred to Balance xx
Sheet)
Xx xx
Problem No. 3
The following balances were extracted from the books of Thomas as on 31st March, 2022. Prepare Trading and Profit and Loss Account and
Balance Sheet as on 31st March, 2022.

Additional information:
Closing stock was valued at Rs. 9,000
 Trading and Profit and Loss account for the year ended 31st March 2022
Dr. Cr.
Particulars Amount Amount Particulars Amount Amounts
To Opening Stock 10,000 By sales 1,20,000
Less : Returns inwards 2,000
To purchases 75,000 1,18,000
Less : Returns outwards 1,000
74,000 By closing stock 9,000
To wages 2,000
To Freight inwards 4,000
To Gross profit c/d 37,000
1,27,000 1,27,000

To bank charges 1,000 By Gross profit b/d 37,000

To net profit (transf to B/S) 36,000
37,000 37,000

Balance Sheet as on 31st March 2022

Liabilities Amount Amount Assets Amount Amounts

Current Liabilities: Current Assets:
Sundry creditors Cash
Bills payable Bank
Short-term loans Marketable securities
Bank overdraft Bills receivable
Sundry debtors
Closing stock
Long-term Liabilities : Fixed Assets:
Capital Xx Intangible Assets
Less : Drawings Xx
Add : Net profit (Tranf from P&L a/c) Xx
Xx

Xx Fictitious Assets

Long-term loans
xx Xx

Balance Sheet as on 31st March 2022

Liabilities Amount Amount Assets Amount Amounts

Current liabilities Current assets :
Sundry creditors 30,000 Cash in hand 4,000
Cash at bank 18,000
Long-term liabilities Closing stock 9,000
Capital 60,000 Fixed assets
Add : Net Profit (Trans from P&L a/c) 36,000 Machinery 30,000
96,000 Land 30,000
Buildings 25,000
Investments 10,000
1,26,000 1,26,000
Problem No. 4
Given below are the balances extracted from the books of Nagarajan as on 31st December 2016

Prepare the trading and profit and loss account for the year ended 31st December 2016 and the balance sheet as on that date after adjusting the
following:
i. Closing stock on 31st December 2016, Rs. 2,100
Following is the trial balance of Brijesh. Prepare final accounts for the year ended on 31st March, 2016.

Adjustments:
Stock on 31st March, 2016 was valued at Rs. 4,00,000.