DCA2204 Principles Of Financial Accounting and Management (Manipal University Jaipur, MUJ) - Semester 4 PDF

DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) BACHELOR OF COMPUTER APPLICATIONS SEMESTER 4 DCA2204 PRINCIPLES OF FINANCIAL ACCOUNTING AND...

DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) BACHELOR OF COMPUTER APPLICATIONS SEMESTER 4 DCA2204 PRINCIPLES OF FINANCIAL ACCOUNTING AND MANAGEMENT Unit 3: Secondary Books 1 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Unit 3 Secondary Books Table of Contents SL Topic Fig No / Table / SAQ / Page No No Graph Activity 1 Introduction - - 3 1.1 Objectives - - 2 Types of Secondary Books - 1 4-5 3 Posting Techniques in the Ledger - 2 5-19 4 Summary - - 20 5 Terminal Questions - - 21-22 6 Answers - - 22-28 7 Case study - - 29 8 References - - 29 Unit 3: Secondary Books 2 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) 1. INTRODUCTION The main disadvantages of any primary book are that transactions therein are recorded date-wise and not as per their nature. Thus, if you are an accountant and your boss wants to know how much is spent on salaries during a particular year, you have to go through all the pages of the cash book to finally report the correct figure. This is everytime a time-consuming and cumbersome process. Also, you may find yourself lost in the jungle of entries in the cash book. As the basic purpose of accounting is to generate meaningful information in a systemic manner, properly classified, this cannot be achieved with only primary books. As we all know transactions and events are raw data. To generate information out or raw data, these are to be classified in such a manner that necessary information is readily available. It calls for identifying the nature of various transactions recorded in the primary books and giving an appropriate name to an identical class of transactions and, finally, re-recording the transactions in another set of books according to the defined class. That `another set of books’ is called secondary books. It is ‘secondary’ because transactions are recorded for a second time. The secondary book is also called a ledger. A ledger is a set of accounts defined as per the requirements of an organization. An account records entries of an identical nature. From the secondary book, if you open the salary account, you can out rightly tell your boss the amount spent towards salary during an accounting period with an utmost ease. What is a secondary book ? A cash book has a debit and a credit side both. Thus, it is similar to a ledger account. Hence, it acts as a subsidiary book as well as a ledger account. Unit 3: Secondary Books 3 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) 2. TYPES OF SECONDARY BOOKS Secondary books (or ledgers) can be broadly classified as follows: General Ledger is a self-sufficient secondary book in the sense that all entries in the primary books will be posted, directly or indirectly, in this ledger. On the other hand, Debtors Ledger has separate accounts for each customer, and it shows the transactions entered into with the customers (e.g. sale of goods on credit, collections from customers, goods returned by customers, discount allowed, bad debts and, finally, balance due from them). Similarly, Creditors Ledger has a separate account for each supplier, and it shows the transactions entered into with the suppliers (e.g., purchases on credit, cash paid to suppliers, goods returned, discount received and, finally, the balance due to them). The motive behind having subsidiary ledgers is to reduce the burden on the main ledger. Otherwise, the individual customer’s and supplier’s accounts will have to be opened in the General Ledger. But, as mentioned earlier, the General Ledger is self-sufficient; two control accounts are maintained in the General Ledger – one for debtors and one for creditors. These control accounts are called Sundry (or Total) Debtors Account and Sundry (or Total) Creditors Account. These control accounts are summarised versions of individual accounts maintained in the subsidiary ledgers. Therefore, at any particular point of time the total of the balances of the debtor's ledger must tally with the balance shown by sundry debtor's account in the General Ledger. Similarly, the summary of balance of creditors ledger should tally with the balance shown by sundry creditors account in the General Ledger. Hence, these accounts in the General Ledger put a check on the accuracy of the subsidiary ledgers. One important feature of these control accounts in the General Ledger is that entries are not posted here individually. Normally, transactions with customers or suppliers for a period of time (may be a week or a month) are totalled and only one posting is made for that period. Unit 3: Secondary Books 4 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) SELF-ASSESSMENT QUESTIONS – 1 1. is a self-sufficient secondary book in the sense that all entries in the primary books will be posted, directly or indirectly, in this ledger. 2. A _________________will have separate accounts for each customer. 3. One important feature of control accounts in the General Ledger is that __________________. 4. The summary of balances of creditors ledger should tally with the balance shown by in the General Ledger. 3. POSTING TECHNIQUES IN THE LEDGER Let us take the illustration given illustration 1 of unit 2 and show how the entries are posted from the journal to the ledger. GENERAL LEDGER Capital Account Dr. Cr. Date Particulars J/F Amount Date Particulars J/F Amount Rs. Rs. To balance c/d 50,000 Jan 1 By Cash 50,000 50,000 50,000 Note: It may be noted here that an account has two equal sides – the left-hand side (the debit side) and the right-hand side (the credit side). The `JF’ column on either side stands for Journal Folio- the page number of the journal from which a particular entry is posted. The use of the words `To’ and ‘By’ on the debit and credit side, respectively, of the account is customary. The journal entry on Jan 1 shows that the owner has introduced cash (i.e. capital into the business and, as per the journal the capital account, is credited. Therefore, the posting will be made on the credit side of the capital account. Unit 3: Secondary Books 5 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Furniture Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Jan 2 To cash Account 20,000 By Balance c/d 20,000 20,000 20,000 The journal records show that the Furniture Account is debited and the same has been acquired by cash. Therefore, the entry is posted on the debit side of the Furniture Account. Purchases Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Jan 3 To cash 15,000 By Balance 1,00,000 c/d Account 85,000 To Creditors Account 1,00,000 1,00,000 Creditors Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. To Balance c/d 85,000 Jan 3 By purchases Account 85,000 85,000 85,000 You must have noticed from the journal record that on Jan. 3 the creditors account is credited by Rs. 85,000. So, in the ledger we have credited the creditors account by the same amount. Do not commit the mistake of crediting the account by the full amount of the purchases, i.e. Rs.1,00,000 as only transaction of 85000 is on credit and 15000 is paid in cash Unit 3: Secondary Books 6 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Sales Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. To Balance c/d 1,45,000 Jan 4 By cash Account 25,000 Jan 5 1,20,000 1,45,000 1,45,000 You must have noticed by now that, while making postings in the General Ledger in a particular account, the name of the other account is written. For example, in Jan 4 the journal record shows the following entry: Cash Account Dr. Rs.25,000 To Sales Account Rs.25,000 While posting in the sales account in the ledger we have mentioned ‘By cash Account; on the credit side. It shows the reason for crediting the sales account. Rent Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Jan 6 To cash Account 5,000 By Balance c/d 5,000 5,000 5,000 Stationery Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Jan 10 To cash Account 2,500 By Balance c/d 2,500 2,500 2,500 You must have also noticed that in each account we have used a common statement (Balance c/d,) on that side (debit or credit) of the account where there is no amount and put the total Unit 3: Secondary Books 7 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) of the other side of the account in the amount column. This is called balancing or closing of account. At the end of the accounting period, the accounts in the General Ledger cannot be left open. They are to be closed. The mechanism of `closing’ involves totalling that side of the account which is greater in amount and then putting the difference between that side and the other side as the balancing figure to square off the account. The suffix `c/d’ denotes ‘carried down’, which indicates that the balance has been carried down for the next period pending settlement. Thus, if the total of the debit side of an account is greater than credit side, the difference is put on the credit side and the same is called a debit balance (i.e., debit is greater). Similarly, if the credit side of an account is greater, the difference is put on the debit side and the same is called a credit balance (i.e., credit is greater). For example, the balance of the Sales Account as shown above is a credit balance and the balance in the Rent Account is a debit balance. Debtors Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Jan 15 To Sales 1,20,000 Jan 20 By Cash Account 19,500 Account By Discount A/c 500 By Balance c/d 1,00,000 1,20,000 1,20,000 Discount A / C Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Jan 20 To Debtors 500 By Balance 500 Account c/d 500 500 Unit 3: Secondary Books 8 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Advertisement Expenses Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Jan 21 To cash 2,500 By Balance 2,500 Account c/d 2,500 2,500 Advance to Suppliers Account Dr. Cr. Date Particular JF Amount Date Particulars JF Amount s Rs. Rs. Jan 25 To cash 10000 By Balance c/d 10,000 Account 10000 10,000 Salary Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Jan 31 To cash 20,000 By Balance 20,000 Account c/d 20,000 20,000 It can be seen that no account is opened to record cash entries in the General Ledger. This is because cash entries are recorded in a journal (cash book) which also serves the purpose of a ledger. If you want to find out at the end of January how much cash is left in the business, you have to refer to the cash book. Unit 3: Secondary Books 9 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Cash Book (Single Column) Dr. Cr. Date Particulars V L.F Amount Date Particulars V L.F. Amount No. Rs. No. Rs. Jan 1 To capital 50,000 Jan 2 By Furniture 20,000 Account Account Jan 4 To sales 25,000 Jan 3 By Purchases 15,000 Account Account Jan 20 To Debtors 19,500 Jan 6 By Rent Account 5,000 Account By Stationery Jan 10 Account 2,500 By Jan 21 Advertisement 2,500 Exp. Account By Advance to Jan 25 Suppliers 10,000 Account By salary 20,000 Account Jan 31 By Balance c/d 19,500 94,500 94,500 Here, the cash book is maintained in a single column. That is why the discount account is shown in the General Ledger. If the discount column is maintained in the cash book then it is not necessary to open a discount account in the General Ledger. Let us take another comprehensive illustration to show how entries are recorded in various journals and then posted to different ledgers. M/s. XYZ enter into the following transactions during August 2006. Aug. 1 Purchased goods from M/s. ABC at 60 days credit 25,70,000 Aug. 2 Cash purchases of goods 1,25,000 Aug. 4 Sold goods to Kiran Kumar & Sons for 30 days credit 10,75,000 Aug. 6 Purchased goods from M/s. QRS at 30 days credit 15,25,500 Aug. 7 Accepted a bill drawn by M/s. ABC for supplies 25,70,000 Aug. 8 Bills raised on Kiran Kumar & Sons accepted 10,75,000 Aug. 10 Cash sales 2,25,000 Aug. 12 Sold goods to M/s. Ahmed Bros. for 45 days credit 18,25,000 Aug. 15 Purchased stationery items 75,500 Aug. 18 Sold goods to M/s. Akbar Khan & Sons 5,65,000 Aug. 19 Purchased goods from Tuhin & Sons 6,25,000 Aug. 20 Cash received from M/s. Akbar Khan & Sons 2,25,000 Unit 3: Secondary Books 10 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Aug. 21 Cash paid to Tuhin & Sons 1,50,000 Aug. 23 Goods returned by Ahmed Bros. 45,000 Aug. 25 Goods returned to Tuhin & Sons 50,500 Aug. 26 Sold goods to Kakkar & Sons 12,74,000 Aug. 27 Purchased goods from Mankad Bros. 8,76,000 Aug. 28 Cash received from Kakkar & Sons 2,65,000 Aug. 29 Cash paid to Mankad Bros 1,67,000 Aug. 30 Salary paid to staff 2,34,000 Aug. 31 Furniture purchased from Ram Kumar & Sons at 15 days credit 1,25,000 Opening cash balance at the beginning of August 1,05,000 Solution: We shall start with recording in the primary books. Cash Book (Without narration) Dr. Cr. Date Particulars V J.F Amount Date Particulars V LF. Amount No. Rs. No. Rs. Aug 1 To Balance b/d 1,05,000 Aug.2 By Purchase A/c 1,25,000 Aug 10 To sales A/c 2,25,000 Aug 15 By stationery A/c 75,000 Aug 20 To M/s, Akbar 2,25,000 Aug 21 By Tuhin & Sons 1,50,000 Khan & Sons A/c Aug 29 A/c 1,67,000 Aug 25 To Kakkar & Sons 2,65,000 Aug 30 By Mankad Bros 2,34,000 A/c Aug 31 A/c 68,500 By salary A/c By Balance c/d 8,20,000 8,20,000 Note: 1. The suffix ‘b/d/ denotes ‘brought down’. It shows the balance brought down in the cash book from the previous month. As a rule, the opening balance in any account starts with the suffix ‘b/d’ and the closing balance with the suffix ‘c/d’ 2. ‘A/c’ is an abbreviation of ‘Account’ Unit 3: Secondary Books 11 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Purchase Day Book Date Particulars V.No. L.F. Amount Rs. Aug 1 M/s. ABC – Goods purchased 25,70,000 Aug 6 M/s QRS – Goods purchased 15,25,500 Aug 19 M/s. Tuhin & Sons – Goods purchased 6,25,000 Aug 27 Mankad Bros. – Goods purchased 8,76,000 55,96,500 Sales Day Book Date Particulars V.No. L.F. Amount Rs. Aug 4 M/s. Kiran Kumar & Sons – sold goods 10,75,000 Aug 12 M/s Ahmad Bros – sold goods 18,25,000 Aug 18 M/s. Akbar Khan & Sons – sold goods 5,65,500 Aug 26 M/s Kakkar & Sons – sold goods 12,74,000 47,39,500 Return Outward Book Date Particulars V.No. L.F. Amount Rs. Aug 25 Tuhin & Sons – Goods returned 50,500 50,500 Return Inward Book Date Particulars V.No. L.F. Amount Rs. Aug 23 M/s, Ahmed Book – Goods returned 45,000 45,000 Bills Receivable Book Date V.No. Party from Date of Due Place of Amount LF whom received Bill Date Payment Rs. Aug 8 Kiran Kumar & Sons Sept. 11 10,75,000 10,75,000 Unit 3: Secondary Books 12 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Bills Payable Book Date of Drawer Date of Due date Place of Amount LF acceptance Bill Payment Rs. Aug 7 M/s ABC Oct. 10 25,70,000 25,70,000 Journal Proper Date Particulars V.No. L.F. Dr. Amount Cr. Amount Rs. Rs. Aug 31 Furniture A/c 1,25,000 To Ram Kumar & Sons (Furniture purchased at 1,25,000 15 days credit Due date is normally calculated after giving 3 days grace from the date of maturity. In this case the bill accepted by Kiran Kumar & Sons was due to mature on 8th September. So after adding 3 days of grace, the due date is arrived at. If it is found that the due date is a public holiday then automatically the day immediately before the public holiday will be the due date. For example, if the due date falls on 15th August in any case, automatically for practical purposes the due date will be considered to be 14th August. On the other hand, if the due date happens to be a holiday by accident natural calamities,or sudden public holiday then the immediate next day will be considered as the due date. After recording every entry in the primary book, we shall see how the postings are done in the secondary book, i.e., the ledger. We shall show the postings in both the General Ledger and the subsidiary ledgers. GENERAL LEDGER Purchase Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 1 To M/s ABC A/c 25,70,000 Aug 31 By Balance c/d 57,21,500 Aug 2 To cash A/c 1,25,000 Aug 6 To M/s. QRS A/c 15,25,500 Aug 19 Tuhin & Sons A/c 6,25,000 Aug 27 Mankad Bros A/c 8,76,000 57,21,500 57,21,500 Unit 3: Secondary Books 13 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Note:1. In purchase and sales accounts, instead of showing each credit purchase and credit sales entry separately, total credit purchases & sales for the month can be posted from the day books. Sales Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 31 To Balance c/d 49,64,500 Aug 4 By Kiran Kr.& 10,75,000 Sons A/c Aug 10 By Cash A/c 2,25,000 Aug 12 By Ahmad Bros 18, 25,000 A/c Aug. 18 By Akbar Khan & 5,65,500 Sons A/c Aug 26 By Kakkar & Sons 12,74,000 A/c 49,64,500 49,64,500 Return Outward Account Dr. Cr. Date Particulars J Amount Date Particulars JF Amount F Rs. Rs. Aug 31 To Balance c/d 50,000 Aug 25 By Tuhin & Sons 50,000 50,000 50,000 Return Inward Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 23 To Ahmed 45,000 Aug 31 By Balance c/d 45,000 Bros A/c 45,000 45,000 Unit 3: Secondary Books 14 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Total Debtors Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 30 To Sundries * 47,39,500 Aug 8 By Bills Receivable A/c 10,75,000 By Cash A/c Aug 20 By Return 2,25,000 Aug 23 Inward A/c 45,000 By Cash A/c 2,65,000 Aug 28 By Balance c/d 31,29,500 Aug 31 47,39,500 47,39,500 * It is the total of credit sales during August taken from the Sales day book. Total Creditors Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 7 To Bills payable A/c 25,70,000 Aug 1-30 By Sundries A/c* 55,96,500 Aug 21 To cash A/c 1,50,000 Aug 25 To Return Outward A/c 50,500 Aug 29 To cash A/c 1,67,000 Aug 31 To Balance c/d 26,59,000 55,96,500 55,96,500 *It is total of credit purchases during August taken from the Purchases day book. Bills Receivable Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 8 To Kiran 10,75,000 Aug 31 By Balance c/d 10,75,000 Kumar & Sons A/c 10,75,000 10,75,000 Unit 3: Secondary Books 15 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Bills payable Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 31 To Balance c/d 25,70,000 Aug 7 By M/s ABC A/c 25,70,000 25,70,000 25,70,000 Furniture Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 31 To Ram Aug 31 By Balance c/d 1,25,000 Kumar & sons 1,25,000 1,25,000 1,25,000 Salary Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 31 To cash A/c 2,34,000 Aug 31 By Balance c/d 2,34,000 2,34,000 2,34,000 Stationery Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 15 To CASH A/c 75,500 Aug 31 By Balance c/d 75,500 75,500 75,500 Unit 3: Secondary Books 16 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Ram Kumar & Sons Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 31 To Balance c/d 1,25,000 Aug 31 By Furniture A/c 1,25,000 1,25,000 1,25,000 DEBTORS LEDGER M/s. Kiran Kumar & Sons Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 31 To Balance c/d 1,25,000 Aug 31 By Furniture A/c 1,25,000 1,25,000 1,25,000 M/s. Ahmed Bros. Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 12 To sales A/c 18,25,000 Aug 23 By Return 45,000 Inward A/c Aug 31 By Balance c/d 17,80,000 18,25,000 18,25,000 M/s. Akbar Khan & Sons Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 18 To sales A/c 5,65,000 Aug 20 By Cash A/c By 2,25,000 Aug 31 Balance c/d 3,40,500 5,65,,000 5,65,000 Unit 3: Secondary Books 17 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) M/s. Kakkar & Sons Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 26 To sales A/c 12,74,000 Aug 20 By Cash A/c By 2,65,000 Aug 31 Balance c/d 10,09,000 12,74,000 12,74,000 CREDITORS LEDGER M/s. ABC Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 7 To Bills Payable 25,70,000 Aug 1 By Purchases A/c 25,70,000 A/c 25,70,000 25,70,000 M/s. QRS Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 31 To Balance c/d 15,25,500 Aug 6 By Purchases 15,25,500 A/c A/c 15,25,500 15,25,000 M/s. Tuhin & Sons Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 21 To cash A/c 1,50,000 Aug 19 By Purchases A/c 6,25,000 Aug 25 To Return Outward A/c 50,500 Aug 31 To Balance c/d 4,24,500 6,25,000 6,25,000 Unit 3: Secondary Books 18 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) M/s. Mankad Bros. Account Dr. Cr. Date Particulars JF Amount Date Particulars JF Amount Rs. Rs. Aug 29 To cash A/c 1,67,000 Aug 27 By Purchases 8,76,000 A/c Aug 31 To Balance c/d 7,09,00 8,76,000 8,76,000 You may see that the totalof balances in individual accounts of debtor's ledger is equal to the balance in the total debtors account, and the sum of balances in the creditor's ledger is equal to the balance in the total creditors account. You may feel confused about why same entries are posted in the total debtors account, and in individual debtors' accounts in the debtors ledger. This repetition is because of the fact that the total debtors account is a summarized version of the debtor’s ledger. SELF-ASSESSMENT QUESTIONS – 2 5. State whether the following statements are True or False: a) At the end of the accounting period the accounts in the General Ledger can be left open. b) Summation of balances in individual accounts of debtor's ledger is equal to the balance in the total debtor's account. c) As a rule, the opening balance in any account starts with the suffix ‘b/d’ and the closing balance with the suffix ‘c/d’. d) If the total of the debit side of an account is greater than credit side, the difference is put on the credit side and the same is called credit balance. Unit 3: Secondary Books 19 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) 4. SUMMARY A secondary book is a set of accounts defined as per the requirements of an organization. Entries are posted from the primary books to the secondary book under appropriate account heads. The secondary book is also called the ledger. There are broadly two types of ledgers – the General Ledger and the subsidiary ledger. The subsidiary ledger is further subdivided into the Debtors Ledger and the Creditors Ledger. These subsidiary ledgers contain individual customers and suppliers accounts. The individual accounts in the secondary books are to be closed at the end of the accounting period. GLOSSARY Posting: It refers to the recording of transactions from journal to the ledger. Ledger: It is a book of secondary entries. Account: A formal record of a particular type of transaction. Sundry Debtors Account: It is a control account maintained in the General Ledger which records transactions of individual customers accounts in a summarized manner. Sundry Creditors Account: It is a control account maintained in the General Ledger which records transactions of individual suppliers accounts in a summarized manner. Balancing: It refers to the closing of the ledger accounts by putting the balance (i.e., the difference) on the appropriate side of the account. Unit 3: Secondary Books 20 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) 5. TERMINAL QUESTIONS Short answer type questions 1. What are the different types of ledgers? 2. Explain the concept of closing or balancing an account. 3. What are the two control accounts are maintained in the General Ledger? Long answer type questions 4. Write a short note on the type of ledgers. 5. The following are the transactions for Crimston Software Ltd (CSL). Pass journal entries and check the solution using ledger accounts. March 1st Rajesh invested Rs. 50,000 in cash 2nd Took loan of Rs.20,000 from Mr. Deeraj for RSL. No interest is paid to him. 3rd CSL purchased for cash two computer each costing Rs.29,000 4TH CSL purchased supplies for Rs.6000 on credit 15th CSL completes its maiden sale of software and receives a price of Rs.12,000 20th CSL pays Rs.2000 to its creditors for supplies 29th CSL pays salaries to its employees amounting to Rs.4,000 and as office rent Rs.1,200 30th CSL delivers a software package to a shop and the shopkeeper has agreed to pay Rs.8,000 a month later 31st Rajesh withdraws Rs.3,500 for his personal use as profit share 6. Open necessary ledger accounts for M/s Rao & Co for the period Jan 2004. 2004 Particular Rs. January 1 Rao commenced business with 5,000 January 2 Bought goods for cash 2,500 January 3 Bought office furniture for cash 500 January 4 Paid for postage 10 January 5 Purchased goods from Rajkumar 2,000 January 7 Goods sold for cash 150 January 8 Bought goods from Rahim 400 January 9 Goods sold to Suresh 400 January 10 Sold goods to Nayak 300 January 11 Purchased goods for cash 350 Unit 3: Secondary Books 21 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) January 13 Received cash from Nayak 250 January 15 Paid cash to Rahim 400 January 17 Returned goods to Rajkumar 200 January 20 Suresh returned goods 50 January 22 Paid salaries 150 January 25 Goods sold for cash 500 January 26 Rao withdrew for personal use 800 January 27 Paid for stationery 100 January 29 Paid rent 225 January 31 Received commission 50 6. ANSWERS Self-Assessment Questions 1. General Ledger 2. Debtors Ledger 3. Entries are not posted here individually. 4. Sundry creditors account 5. True/False Answers a) False b) True c) True d) False Terminal Questions 1. Secondary Books Main Ledger Subsidiary Ledger General Ledger Debtors Ledger Creditors Ledger 2. At the end of the accounting period, the accounts in the General Ledger cannot be left open. They are to be closed. The mechanism of `closing’ involves totalling that side of the account which is greater in amount and then putting the difference between that side and the other side as the balancing figure to square off the account. The suffix `c/d’ Unit 3: Secondary Books 22 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) denotes ‘carried down’, which indicates that the balance has been carried down for the next period pending settlement. Thus, if the total of the debit side of an account is greater than credit side, the difference is put on the credit side and the same is called a debit balance (i.e., debit is greater). Similarly, if the credit side of an account is greater, the difference is put on the debit side and the same is called a credit balance (i.e., credit is greater). This is called balancing or closing of accounts. 3. Two control accounts are maintained in the General Ledger – one for debtors and one for suppliers creditors. These control accounts are called Sundry (or Total) Debtors Account and Sundry (or Total) Creditors Account. These control accounts are summarised versions of individual accounts maintained in the subsidiary ledgers. 4. General Ledger is a self-sufficient secondary book in the sense that all entries in the primary books will be posted, directly or indirectly, in this ledger. On the other hand, Debtors Ledger has separate accounts for each customer, and it shows the transactions entered into with the customers (e.g. sale of goods on credit, collections from customers, goods returned by customers, discount allowed, bad debts and, finally, balance due from them). Similarly, Creditors Ledger has a separate account for each supplier, and it shows the transactions entered into with the suppliers (e.g., purchases on credit, cash paid to suppliers, goods returned, discount received and, finally, the balance due to them). The motive behind having subsidiary ledgers is to reduce the burden on the main ledger. Otherwise, the individual customer’s and supplier’s accounts will have to be opened in the General Ledger. 5. Cash Account Mar 1st Capital 50,000 3rd Computers 58,000 15th Sale of 12,000 21st Sundry 2,000 software creditors 29th Salaries 4,000 29th Rent 1,200 30th Dividend 3,500 Balance 13,300 Total 82,000 Total 82,000 Unit 3: Secondary Books 23 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Capital Account Mar.31 To balance a/c 50,000 Jan. By cash 50,000 31 Total 50,000 Total 50,000 Loan Account 31st To balance c/d 50,000 2nd By cash 50,000 Total 50,000 Total 50,000 Computer Account Jan.31 To cash 58,000 3rd By 58,000 balance Total 58,000 Total 58,000 Supplies Account 4th To cash A/c 6,000 31st By Balance c/d 6,000 March Total 6,000 Total 6,000 Sundry Creditors Account Jan.3 To Cash A/c 2,000 Jan.31 By 6,000 supplies To balance c/d 4,000 Feb.1 Total 6,000 Total 6,000 Sales of Software Account 2004 To balance c/d 20,000 15th By cash 12,000 31st By Accounts receivable 8,000 Total 20,000 Total 20,000 Salaries Account 29th To cash 4000 31st By balance 4000 Total 4000 Total 4000 Unit 3: Secondary Books 24 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Rent Account 29th To cash A/c 1200 31st By balance 1200 1200 Total 1200 To balance b/d 50 Accounts Receivable Account 30th To sale of software 8000 Jan.31 By Balance c/d 8000 Total 8000 Total 8000 Dividend Account 31st To Cash A/c 3500 Jan. 31 By Balance c/d 3500 Total 3500 Total 3500 6. Ledger Accounts Capital Account 2004 Rs 2004 Rs Jan.31 To balance c/d 5,000 Jan. 1 By cash A/c 5,000 Total 5,000 Total 5,000 Feb.1 By balance b/d 5,000 Drawings Account 2004 Rs 2004 Rs Jan.31 To cash a/c 800 Jan. 31 By Balance c/d 800 Total 800 Total 800 To balance b/d 800 Cash a/c Jan1 To Capital 5000 Jan 3 By drawings 800 7 To sales 150 2 By purchases 2500 25 To sales 500 11 By purchases 350 13 To Nayak 250 3 By furniture 500 31 To commission 50 7 By Rahim 400 4 By postage 10 22 By salaries 150 27 By stationery 100 28 By rent 225 31 By balance c/d 915 Total 5950 Total 5950 To balance b/d 915 Unit 3: Secondary Books 25 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Purchase Account 2004 Rs 2004 Rs Jan. 2 To Cash A/c 2,500 Jan.31 By Balance c/d 5,250 Jan. 5 To Rajkumar’s A/c 2,000 Jan. 8 To Rahim’s A/c 400 Jan. 11 To Cash A/c 350 Total 5250 Total 5,250 Feb 2 To balance b/d 5250 Sales Account 2004 Rs 2004 Rs Jan.31 To Balance c/d 1,350 Jan. 7 By Cash A/c 150 Jan. 9 By Suresh A/c 400 Jan. 10 By Nayak’s A/c 300 Jan. 25 By cash A/c 500 Total 1,350 Total 1,350 Feb.1 By balance b/d 1,350 Sales Return Account 2004 Rs 2004 Rs Jan.20 To Suresh A/c 50 Jan. 31 By Balance c/d 50 Total 50 Total 50 Feb.1 To balance b/d 50 Office Furniture Account 2004 Rs 2004 Rs Jan.3 To Cash A/c 500 Jan.31 By Balance c/d 500 Total 500 Total 500 Feb.1 To balance b/d 500 Unit 3: Secondary Books 26 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Rahim’s Account 2004 Rs 2004 Rs Jan.15 To Cash A/c 400 Jan. 8 By Purchases A/c 400 Total 400 Total 400 Suresh’s Account 2004 Rs 2004 Rs Jan. 7 To Sales A/c 400 Jan.20 By Sales Return A/c 50 Jan. 31 By Balance c/d 350 Total 400 Total 400 Feb. 1 To balance b/d 350 Nayak’s Account 2004 Rs 2004 Rs Jan.10 To Sales A/c 300 Jan.13 By Cash A/c 250 Jan.31 By Balance c/d 50 Total 300 Total 300 Feb. 1 To balance b/d 50 Postage Account 2004 Rs 2004 Rs Jan.4 To Cash A/c 10 Jan.31 By Balance c/d 10 Total 10 Total 10 Feb.1 To balance b/d 10 Salaries Account 2004 Rs 2004 Rs Jan.22 To Cash A/c 150 Jan. 31 By Balance c/d 150 Total 150 Total 150 Feb.1 To balance b/d 150 Unit 3: Secondary Books 27 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) Stationery Account 2004 Rs 2004 Rs Jan.27 To Cash A/c 100 Jan. 31 By Balance c/d 100 Total 100 Total 100 Feb.1 To balance b/d 100 Rent Account 2004 Rs 2004 Rs Jan.28 To Cash A/c 225 Jan. 31 By Balance c/d 225 Total 225 Total 225 Feb.1 To balance b/d 225 Commission Account 2004 Rs 2004 Rs Jan.31 To balance c/d 50 Jan. 31 By Cash A/c 50 Total 50 Total 50 Feb. 1 By balance b/d 50 Purchase Return Account 2004 Rs 2004 Rs Jan.31 To balance c/d 200 Jan. 17 By Rajkumar’s A/c 200 Total 200 Total 200 Feb. 1 By balance b/d 200 Rajkumar’s Account 2004 Rs 2004 Rs Jan.17 To Purchase Return A/c 200 Jan. 5 By Purchase A/c 2,000 Jan.31 To Balance c/d 1,800 Total 2,000 Total 2,000 By Balance b/d 1,800 Unit 3: Secondary Books 28 DCA2204: Principles of Financial Accounting and Management Manipal University Jaipur (MUJ) 7. CASE STUDY Record the following transactions in journals and subsequently post them to ledgers: July 1. Opening Cash balance 1,65,500 July 2 Cash sales 2,60,000 July 3 Cash Purchase 3,50,000 July 4 Credit sales to M/s XYZ 10,75,000 July 6 Credit purchases from M/s. ABC 15,25,000 July 8 Cash received from M/s MN in full settlement of dues of Rs.1,75,000 1,74,900 July 10 Bills raised by M/s ABC accepted 5,25,000 July 12 Bills raised on M/s XYZ accepted 6,50,000 July 15 Credit sales to Hanif & Sons 13,25,000 July 16 Goods returned by M/s XYZ 25,000 July 18 Goods returned to M/s ABC 40,000 July 20 Credit purchases from Sardar Bros 15,65,000 July 22 Goods sold to Anil & Co 18,20,000 July 24 Cash received from Anil & Co 2,65,000 July 25 Rend paid 1,05,000 July 27 Dividend received 15,000 July 30 Salary paid 1,25,000 8. REFERENCES N. Ramachandra, Ramkumar Kakani, (2008) Financial Accounting for Management, Second Edition, Tata Mcgrawhill. R. Narayanaswamy (2008) Financial Accounting, A Managerial perspective Third Edition, Prentice Hall of India, New Delhi. P. C. Tulsian (2009), Financial Accounting, Fifth Impression, Pearson Education. R. L. Gupta, Radhaswamy (2010), Financial Accounting. S. Chand and Company Maheshwari S. N and S. K. Maheshwari, (2009), Advanced Accountancy, Vikas Publishing House. Jain and Narang (2009), Financial Accounting, S.Chand and Company. M. C. Shukla (2010), Advanced Accountancy, S.Chand and Company. Unit 3: Secondary Books 29