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FINANCIAL ACCOUNTING (LECTURE # 14) We have demonstrated the carrying forward of balances in lecture-13. Another solved example is given below: ILLUSTRATION Following is the trial balance of Rahil & co. for the month ended January 31, 2002. Rahil & co.. Trial Balance As On ( January 31, 2002) Title of Account

Code

Dr. Rs.

Cr. Rs.

Cash Account

01

Accrued expense Account

02

Bank Account

03

Loan Account

04

Furniture Account

05

20,000

Office Equipment

06

10,000

Debtors account

07

12,000

Creditors account

08

10,000

Sales account

09

20,000

Purchase account

10

Total

30,000 10,000 50,000 100,000

18,000 140,000

140,000

During the month, following entries took place: No.

Date

Particulars

01

Feb 07

They purchased stationery worth of Rs. 3,000

02

Feb 10

They paid their first installment of loan Rs. 12,000

03

Feb 12

They received a cheque from a customer of Rs. 5,000

04

Feb 13

They paid a cheque of Rs. 8,000 to a creditor

05

Feb 15

Purchased goods of Rs 6,000 & paid through cheque

06

Feb 17

Accrued expenses of Rs. 5,000 are paid.

07

Feb 20

They purchased furniture of Rs. 2,000

08

Feb 21

Sold goods for cash Rs.5,000

09

Feb 22

Purchased goods on credit Rs. 5,000

10

Feb 23

Office equipment of Rs. 5,000 is Purchased

11

Feb 25

Staff salaries are paid by cheque Rs. 15,000

12

Feb 28

Utility expenses of Rs. 3,000 are accrued.


FINANCIAL ACCOUNTING (LECTURE # 14) Leger accounts of Rahil & co. during the month will show following picture: Date 1-2-02 21-2-02

Particulars Balance c/f Sold goods

Total

Date 17-2-02

Accrued Expenses Account Date Particulars Code Amount # Rs. (Dr.) Accrued 01 5,000 1-1-02 expenses paid Balance c/d Total

Date

12-2-02

Cash Account Account code # 1 Code Amount Date Particulars # Rs. (Dr.) Stationery 01 30,000 7-2-02 purchased 09 5,000 10-2-02 Loan paid 17-2-02 Accrued expenses paid Furniture purchased 23-2-02 Office equipment purchased Balance c/d 35,000 Total

Particulars Balance c/f Cheque received

Total

Code Amount # Rs. (Cr.) 3,000 10 04 02

12,000

05

5,000 2,000

06

5,000 8,000 35,000

Account code # 2 Particulars

Code Amount # Rs. (Cr.) 10,000 Balance c/f Expenses accrued 3,000

8,000 13,000

Total

Bank Account Account code # 3 Date Particulars Code Amount # Rs. (Dr.) 50,000 13-2-02 Paid to creditors 15-2-02 Goods purchased 5,000 25-2-02 Salaries paid 07

55,000

Balance c/d Total

13,000

Code Amount # Rs. (Cr.) 8,000 08 6,000 10 11 15,000

26,000 55,000


FINANCIAL ACCOUNTING (LECTURE # 14) Date 10-2-02

Loan Account Particulars Code Amount # Rs. (Dr.) 01 12,000 Installment paid

Balance c/d Total

Date 10-2-02 20-2-02

23-2-02

Balance c/f

Total

Furniture Account Account code # 5 Date Particulars Particulars Code Amount # Rs. (Dr.) 20,000 23-2-02 Balance c/f 2,000 01 Furniture purchased

Total

Date

88,000 100,000

Account code # 4 Date Particulars

22,000

15,000

100,000

Code Amount # Rs. (Cr.)

Balance c/d

22,000

Total

22,000

Office Equipment Account Account code # 6 Particulars Code Amount Date Particulars # Rs. (Dr.) 10,000 Balance c/f 01 5,000 Office Equipment purchased

Total

Code Amount # Rs. (Cr.) 100,000

Code Amount # Rs. (Cr.)

Balance c/d

15,000

Total

15,000


FINANCIAL ACCOUNTING (LECTURE # 14) Date

Debtors Account Particulars Code Amount # Rs. (Dr.) 12,000 Balance c/f

Total

Date 13-2-02

12-2-02 Cheque received

Balance c/d Total

Creditors Account Account code # 8 Date Particulars Particulars Code Amount # Rs. (Dr.) 03 8,000 Paid to Balance c/f 22-2-02 Goods purchased creditors

Balance c/d Total

Date

12,000

Account code # 7 Date Particulars

Particulars

7,000 15,000

Total

Sales AccountAccount code # 9 Date Particulars Code Amount # Rs. (Dr.) Balance c/f 21-2-02 Goods sold

Balance c/d

25,000

Total

25,000

Total

Code Amount # Rs. (Cr.) 03 5,000

7,000 12,000

Code Amount # Rs. (Cr.) 10,000 10 5,000

15,000

Code Amount # Rs. (Cr.) 20,000 01 5,000

25,000


FINANCIAL ACCOUNTING (LECTURE # 14) Date

15-2-02 22-2-02

Particulars Balance c/f Goods purchased Goods purchased

Purchases Account Account code # 10 Code Amount Date Particulars # Rs. (Dr.) 03

18,000 6,000

07

5,000

Total

Date 25-2-02

Particulars Salaries paid

29,000 Salaries Account Code Amount # Rs. (Dr.) 03

Total

Date 25-2-02

Particulars Stationery purchased

Total

Balance c/d

29,000

Total

29,000

Account code # 11 Date Particulars

Code Amount # Rs. (Cr.)

15,000

15,000

Balance c/d Total

Stationery Account Account code # 12 Code Amount Date Particulars # Rs. (Dr.) 01

Code Amount # Rs. (Cr.)

15,000 15,000

Code Amount # Rs. (Cr.)

3,000

3,000

Balance c/d Total

3,000 3,000


FINANCIAL ACCOUNTING (LECTURE # 14) Utility Expenses Account Account code # 13 Particulars Code Amount Date Particulars # Rs. (Dr.)

Date 28-2-02

Accrued utility expenses

02

Code Amount # Rs. (Cr.)

3,000

Total

Balance c/d Total

3,000

3,000 3,000

The trial balance at the end of the month is as follows: Rahil & co.. Trial Balance As On ( January 31, 2002) Title of Account

Code

Dr. Rs.

Cr. Rs.

Cash Account

01

Accrued expense Account

02

Bank Account

03

Loan Account

04

Furniture Account

05

22,000

Office Equipment

06

15,000

Debtors account

07

7,000

Creditors account

08

7,000

Sales account

09

25,000

Purchase account

10

29,000

Salaries Account

11

15,000

Stationery Account

12

3,000

Utility Expenses Account

13

3,000

Total

8,000 8,000 26,000 88,000

128,000

128,000

Difference between expenses & Purchases • If business purchases items for its own use (items that are not meant to be resold) are charged to expense account. • If business purchases items for resale purposes are charged to purchases account. STOCK Stock is termed as “the value of goods available to the business that are ready for sale”. For accounting purposes, stock is of two types


FINANCIAL ACCOUNTING (LECTURE # 14) • •

In trading concern, Stock consists of goods that are purchased for the purpose of resale, but not sold in that accounting period. Trading concern is that organization, which purchases items for resale purposes. In manufacturing concern(an organization that converts raw material into finished product by putting it in a process), stock consists of: o Raw material o Work in process o Finished goods

Raw material Raw material is the basic part of an item, which is processed to make a complete item. Work in process In manufacturing concern, raw material is put in a process to convert it into finished goods. At the end of the year, some part of raw material remains under process. i-e. it is neither in shape of raw material nor in shape of finished goods. Such items are taken in stock as work in process. Finished goods Finished goods contain items that are ready for sale, but could not be sold in that accounting period. In manufacturing concern, entries for stock are: Purchase of stock Debit: Stock Account Credit: Cash/ Supplier Account When the stock is purchased, stock account gets the benefit, so it is debited & cash or supplier account provides the benefit, so it is credited. Payment to creditors Debit: ` Credit:

Supplier account Cash

Sale of goods Debit: Credit: Cost of goods sold

Cost of goods sold Stock Account

Cost of goods sold is different in both form of organization • In trading concern, cost of goods sold is the value of goods unsold(goods stands for the items purchased for resale purpose) • In manufacturing concern, cost of goods sold is the value of raw material consumed plus any other manufacturing cost. e.g. salaries of labour, cost of machinery etc.


FINANCIAL ACCOUNTING (LECTURE # 14) Stock and cost of goods sold in manufacturing concern In manufacturing concern, Raw material stock is put into process. For accounting purposes, all value of stock and other manufacturing costs are charged to work in process account. When the process is completed and the goods are prepared, all the value of work in process is charged to finished goods account. The business sells finished goods for the whole accounting year. At the end of the year, goods that are unsold are deducted from cost of goods sold account.


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