Account 3 Marks Question

A balance of an account is the difference between the total of its debit and credit sides. If the total of debit side is more than the total of credit side, the account is said to have a debit balance. It has a credit balance when total of credit side is more than the total of debit side. Balancing a Cash Account.

		₹			₹
1.	Cash sales	50,000	2.	Sold goods to X on credit	80,000
3.	Cash received from X	56,000	4.	Purchased goods from Y on credit	44,000
5.	Paid to Y	30,000	6.	Cash purchases from Y	16,000

	Effect of Transaction	Example
i.	Increase in an asset and a liability.	Goods purchased on credit.
ii.	Decrease in an asset and a liability.	Cash paid to creditors.
iii.	Increase in assets and capital.	Additional capital brought in by the proprietor.
iv.	Decrease in assets and capital.	Salary paid in Cash.

Raghubir is a creditor, which means, it is a liability for the business. As we know, increase in liability is recorded on the credit side while decrease in liability will be shown on the debit side of the concerned liability account.

Increase in Creditors (being a liability) will be shown on the credit side and decrease in the creditors will be recorded on the debit side of the Creditors Account.

Note: Transaction Number (4) will not be recorded in Creditors Account as goods are purchased for cash. Thus, there will be no impact on Creditors Account.

	Accounts	Increase Recorded at Side	Nature
i.	Furniture	Debit	Asset
ii.	Rent Paid	Debit	Expense
iii.	Commission Received	Credit	Income
iv.	Salary Paid	Debit	Expense
v.	Proprietor’s Account	Credit	Capital
vi.	Debtor	Debit	Asset
vii.	Creditor	Credit	Liability

Compound Journal Entry: Compound Journal entry is a Journal entry in which more than two accounts are affected, i.e., one or more accounts are debited and/or one or more accounts are credited or vice versa. For example, a sale of 5,000 is made to Satish. It is discharged by Satish by paying 2,000 in cash, balance to be paid later. This transaction of sale affects three accounts as follows:Images

An Accounting Equation is a mathematical expression which shows that the assets and liabilities of a firm are equal. An Accounting Equation is based on the Dual Aspect Concept of accounting meaning, every transaction has dual aspect or two aspects debit and credit. It holds that for every debit there is a credit of equal amount and vic? versa. It means, total claims (those of outsiders and of the proprietors) will always be equal to the total assets of the firm. The claims, also known as equities, are of two types:

1. Owner's equity or capital
2. Liabilities or amounts due to outsiders (i.e., Outsider's Equity).

We can express it mathematically as follows:
Assets = Equities (Total Claims)
OR
Assets = Liabilities + Capital

OR
Liabilities = Assets - Capital

OR
Capital = Assets - Liabilities

Voucher is a document evidencing a business transaction. It flows from the above definition that when a transaction is entered into, an evidence to that effect is also established. Such evidences are Source Documents. On the basis of Source Documents, a voucher detailing the accounts that are debited and credited is prepared. A specimen of a Voucher is given below:

	Accounts	Increase Recorded at Side	Increase Recorded at Side
i.	Furniture	Debit	Asset
ii.	Wages Paid	Debit	Expense
iii.	Rent Received	Credit	Income
iv.	Cash	Debit	Asset
v.	Proprietor’s Account	Credit	Capital
vi.	Debtor	Debit	Asset
vii.	Prepaid Insurance	Debit	Asset
viii.	Outstanding Salary	Credit	Liability

Journal or Books of Original Entry	Ledger
All the transactions are first of all recorded in these books, i.e., journal or subridiary books such as purchase book sales books etc.	All the transactions entered in jouenal or subsidiary Books are later transferred to the ledger.

Assets = 1,12,000 + 10,000 + 30,000 = ₹ 1,52,000
Liabilities = ₹ 30,000
Capital = ₹ 1,22,000

Sometimes, two or more transactions relating to one particular account take place on the same date. In such cases, instead of passing separate entries for all such transactions, only one entry is passed. Such a Journal entry is termed as Compound Journal Entry.

As we know, Machinery Account is an asset, so, increase in machinery will be recorded on the debit side while decrease in machinery will be recorded on the credit side of the Machinery Account.

Journal Folio (J.F.) Column in the ledger records Page No. of the journal from which the posting to the Ledger has taken place. Purpose of posting J.F. numbers is that it provides a ready reference for tracing the page of journal from where the entry has been posted.

Some accounting systems are called double accounting systems because under this system there are two aspects of every transaction, i.e., every transaction has dual effect.
Every transaction affects two accounts simultaneously, that is represented by debiting one account and crediting the other account. It is based on the fact that if there is receiver, there should be a giver.

The books in which a transaction is recorded for the first time from a source document are called 'Books of Original Entry'. Journal is one of the basic books of original entry in which transactions are originally recorded in a chronological (day-to-day) order according to the principles of double entry system.

The elements of fundamental accounting equation are Capital, Assets and Liabilities. Assets = Things that a business owns Liabilities = Things that a business owes Capital = Amount invested by the owner in the businessThe equation is:
Capital = Assets + Liabilities Expenses and Revenue are related to capital; increase in revenue leads to increase in capital while expenses leads to decrease in capital. It is because any income/ expense belongs to the owner and thus his capital in the business gets affected with the amount of expenses incurred and revenue earned.

• Revenue: Owner's equity (Capital) is increased by the amount of revenue.
• Expenses: Owner's equity (Capital) is increased by the amount of revenue.

Income = Revenue - Expense Income is the profit earned during an accounting period. Profit increases the owner's equity (Capital) and loss decreases the owner's equity (Capital).

Types of Accounting Vouchers: Accounting Vouchers are of two types, i.e.,

1. Cash Vouchers: Cash Voucher refers to the voucher prepared at the time of receipt or payment of cash and includes receipt and payment through cheques. Cash Vouchers can be of two types namely,

1. Credit Voucher.

Credit Vouchers are prepared when cash is received. Cash may be received against

1. sales of goods,
2. sale of fixed assets,
3. sale of investments,
4. receipts from debtors,
5. withdrawal from bank, etc.

2. Debit Voucher.

2. Non-Cash Vouchers or Transfer Vouchers: Non-Cash Vouchers are the vouches prepared for transactions not involving cash. Examples of these are Invoice or Bills, Debit and Credit Notes, etc. Non-Cash Vouchers are prepared for the transactions of credit sales, credit purchases, goods returned (both inwards and outwards), rectifying the mistakes, etc.

Increase in Debtors (being an asset) will be shown on the debit side and decrease in them will be recorded on the credit side of the Debtors Account.

The evidence provided by the source document is important in the following manners:

1. It provides evidence that a transaction has actually occurred.
2. It provides important and relevant information about date, amount, parties involved and other details of a particular transaction.
3. It acts as a proof in the court of law.
4. It helps in verifying transactions during the auditing process.

After posting the transactions in the accounts and balancing them, a statement is prepared to show separately the debit and credit balances. Such a statement is known as Trial Balance. The total of the debit side of Trial Balance should be equal to that of its credit side. This is based on the Dual Aspect Concept which states for every debit there is a corresponding credit of equal amount.

When in a Journal entry, two or more accounts are debited and only one account is credited or vice versa, the entry is termed as compound journal entry. In case of posting of a compound journal entry, posting has to be made in all the accounts whether debited or credited in the entry. For example, if on 10th April 2017, cash received from Gopal & Co. is ₹ 14,800 and discount allowed to them is ₹ 200, the compound entry and the Ledger Accounts will be as follows:

Opening Capital (Capital as on March 31, 2011) = ₹ 3,00,000 Calculation of Closing Capital (Capital as on March 31, 2012)Assets = Liabilities + Capital
5,00,000 = 1,00,000 + Capital
Capital = ₹ 4,00,000
Calculation of Profit Earned during the year
Closing Capital = Opening Capital + Additional Capital + Profit - Drawings
4,00,000 = 3,00,000 + 0 + Profit - 0
Profit = 4,00,000 - 3,00,000
= ₹ 1,00,000

	Accounts	Decrease Recorded at Side	Nature
i.	Cash	Credit	Asset
ii.	Bank Overdraft	Debit	Liability
iii.	Rent Paid	Credit	Expense
iv.	Outstanding Rent	Debit	Liability
v.	Prepaid Insurance	Credit	Asset
vi.	Manoj, Proprietor of the business	Debit	Capital

Goods and Service Tax (GST) is an indirect tax levied at prescribed rate on every supply of goods and services except on petroleum and alcohol for human comsumption. Supply of goods means sale of goods and supply of services means rendering of services. It is a nation-wide tax seeking to unify several indirect taxes and is based on the principle of 'One Nation one Tax'.

S.no	Assets	=	Liabilities	+	Capital
(i)	₹ 20,000	=	₹ 15,000	+	₹ 2,000
(ii)	₹ 5,000	=	₹ 5,000	+	₹ 10,000
(iii)	₹ 10,000	=	₹ 15,000	+	₹ 8,000

Difference between Journal and Ledger

	Basis	Journal	Ledger
1.	Nature of Book	It is a book of primary entry.	It is a book of final entry.
2.	Basis for preparation	Primary documents (such as vouchers, receipts, etc.) are the basis for recordng transactions in the journal.	Journal is the basis for recording transactions in the ledger.
3.	.Stage of Recording	Recording in the joumal is the first stage.	Recording in the ledger is the second stage.
4.	Object	It is pepared to record all transactions in a chronologlcal order.	It is prepared to see the net effect of various transaction affecting a particular account.
5.	Format	Joumal has five columns: 1. Date. 2. Particulars. 3. Ledger Follo. 4. Debit Amount.	Ledger has four identical columns on debit and credit sides: 1. Date. 2. Particulars. 3. Journal Follio. 4. Amount.

Total = Cash + Bank + Stock
Assets = 40,500 + 4,500 + 11,200 = ₹ 56,200
Liabilities = ₹ 11,200
Capital = ₹ 45,000

As we know, Furniture is an asset, so, increase in furniture will be recorded on the debit side while decrease in furniture will be recorded on the credit side of the Furniture Account.

1. Increase in revenue: Increase in revenue is credited as it increases the capital. Capital has credit balance and if capital increases, then it is credited.
2. Decrease in expense: Decrease in expense is credited as all expenses have debit balance. If expense decreases, then it is credited.
3. Record drawings: Capital has credit balance; if the capital increases, then it is credited. If capital decreases, then it is debited. Drawings are debited as they decrease the capital.
4. Record of fresh capital introduced by the owner: Capital has credit balance, if capital increases, then it is credited. The introduction of fresh capital increases the balance of capital, and so, it is credited.

1. Increase in Cash (being an asset) will be shown on the debit side and decrease in cash will be recorded on the credit side of the Cash Account.

2. Increase in Debtors (being an asset) will be shown on the debit side and decrease in them will be recorded on the credit side of the Debtors Account.

3. Increase in Creditors (being a liability) will be shown on the credit side and decrease in the creditors will be recorded on the debit side of the Creditors Account.

The main objective is to keep systematic records:

• To determine profits and loss.
• To ascertain financial position.
• To communicate the information.

Trade Discount Trade Discount is a discount allowed by the seller on purchase of goods in large quantity. It is normally allowed by the seller to the purchaser who further sells goods to the consumer. It is deducted in the invoice from sale price and is not recorded in the books of account. Sale is recorded at the net value, i.e., sale price less trade discount For example, Amit sells goods to Vikas of ₹ 10,000 allowing him trade discount of 20%. The invoice will be prepared for net amount ₹ 8,000, i.e., after trade discount. Amit will pass following Journal entry in his books of account:Images.