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Questions:

Generic 3

10 x 3 = 30

Prepare bank reconciliation statement as on 31^st December 2017 from the following information:
(a) Balance as per bank statement (pass book) is Rs.25,000.
(b) No record has been made in the cash book for a dishonour of a cheque for Rs.250.
(c) Cheques deposited into bank amounting to Rs.3,500 were not yet collected.
(d) Bank charges of Rs.300 have not been entered in the cash book.
(e) Cheques issued amounting to Rs.9,000 have not been presented for payment.

State the various types of coding methods.

The following errors were located by the accountant after the preparation of trial balance. There exists a suspense account. Rectify them.
(a) The total of the discount column of Rs.1,180 on the debit side of the cash book was not posted.
(b) Purchase of goods from Arivuchelvan on credit for Rs.600 was posted to the debit side of his account.
(c) The total of the discount column on the credit side of the cash book was undercast by Rs.400.
(d) The total of sales returns book of Rs.570 was posted twice.
(e) Sold goods to Mukil on credit for Rs.87 was posted to her account as Rs.78.

Compute cost of goods sold from the following information:

Particulars	Rs	Particulars	Rs
Opening stock	10,000	Indirect expenses	5,000
Purchases	80,000	Closing stock	15,000
Direct expenses	7,000

Sundry debtors as per trial balance as on 31^st March, 2016 is Rs. 10,000.
Adjustment: Write off bad debts amounting to Rs. 300.
Give adjusting entry and show how these appear in the final accounts as on 31^st March, 2016.

Prepare trading account for the year ended 31^st December 2017, from the following balances:

Particulars	Rs	Particulars	RS
Opening stock	4,00,000	Purchases returns	1,20,000
Purchases	20,00,000	Carriage on purchases	2,00,000
Net sales	48,00,000	Carriage on sales	1,00,000
Freight and octroi	65,000	Advertisement	1,20,000
Selling expenses	1,10,000	Office rent	75,000
Coal, gas and water	22,000	Import duty on goods purchased	7,28,000

Closing stock is valued at Rs. 6, 00,000.

Show the accounting equation on the basis of the following transactions:
i) Ramya started business with Cash Rs.25,000
ii) Purchases goods from Harsha Rs.20,000
iii) Sold goods to Amala costing Rs.18,000 Rs.25,000
iv) Ramya withdrew from business Rs.5,000

State the principles of double entry system of book keeping.

What are the advantages of subsidiary books?

10.

What are the limitations of trial balance?

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Answers Key:

Generic 3

10 x 3 = 30

Bank reconciliation statement as on 31^st December, 2017
Particulars	Amount Rs	Amount Rs
Balance as per bank statement		25,000
Add: Dishonour of a cheque	250
Cheques deposited into bank, but not yet collected	3,500
Bank charges not entered in the cash book	300	4,050
		29,050
Less: Cheques issued, but not presented for payment		9,000
Balance as per cash book		20,050

Following are the three methods of codification.
(a) Sequential Codes:
(i) In sequential code, numbers and/or letters are assigned in consecutive order.
(ii) These codes are applied primarily to source documents such as cheques, invoices, etc.
(iii) A sequential code can facilitate document search. For example:
CODE ACCOUNTS:
CL001 ABC LTD
CL002 XYZ LTD
CL003 SCERT
(b) Block Codes:
(i) In a block code, a range of numbers is partitioned into a desired number of sub-ranges and each sub-range is allotted to a specific group;
(ii) Inmost of the cases of block codes, numbers within a sub-range follow sequential coding scheme, i.e. the numbers increase consecutively. For example:
CODE DEALER- TYPE :
100 - 199 Small pumps
200 - 299 Medium pumps
300 - 399 Pipes
400 - 499 Motors
(c) Mnemonic Codes:
A mnemonic code consists of alphabets or abbreviations as symbols to codify a piece of information.
For example:
CODE:
SJ Sales Journals
HQ Head Quarters

Rectification of Errors
S.No.	Particulars		Debit Rs	Credit Rs
(a)	Discount allowed A/c	Dr.	1,180
	To Suspense A/c			1,180
	(Being the omission to post the total of discount allowed, now rectified)
(b)	Suspense A/c	Dr.	1,200
	To Arivuchelvan A/c			1,200
	(Being the excess amount posted to Arivuchelvan account rectified)
(c)	Suspense A/c	Dr.	400
	To Discount received A/c			400
	(Being Partial omission in discount received A/c is now rectified)
(d)	Suspense A/c	Dr.	570
	To Sales returns book			570
	(Being Sales return book of Rs. 570 was po ted twice, now rectified)
(e)	Mukil A/c	Dr.	9
	To Suspense A/c			9
	(Being Sales to Mukil Rs 87 was posted to her Account as Rs. 78, now rectified)

Calculation of Cost of goods sold:
Particulars	Rs.
Total Purchases	80,000
Add: Direct expenses	7,000
To Octroi on purchase of goods	87,000
Less: Indirect expenses	5,000
Cost of goods sold	82,000

Adjusting entry
Date	Particulars	Debit Rs	Credit Rs
2016	Bad debts A/c Dr.	300
March 31	To Sundry debtors A/c		300
	(Bad debts written off)

Dr. Profit and loss account for the year ended 31^st March, 2016 Cr.

Particulars	Rs	Rs	Particulars	Rs	Rs
To Bad debts		300

Balance Sheet as on 31^st March, 2016
Liabilities	Rs	Rs	Liabilities	Rs	Rs
			Sundry debtors	10,000
			Less: Bad debts	300	9,700

Dr. Trading account for the year ended 31st December, 2017 Cr.
Particulars	Rs	Rs	Particulars	Rs
To Opening stock		4,00,000	By Net sales	48,00,000
To Purchases	20,00,000		By Closing stock	6,00,000
Less: Purchases returns	1,20,000	18,80,000
To Freight and Octroi		65,000
To Carriage on purchases		2,00,000
To Coal, gas and water		22,000
To Import duty		7,28,000
To Gross Profit c/d		21,05,000
		54,00,000		54,00,000

S.no	Transaction	Cash	Stock	Debtors	Total Assets		Total Liabilities	Capital	Creditors
i)	Ramya started business	+25,000	-	-				+25,000
	Balance	+25,000						+25,000
	Equation				+25,000	=	+25,000
ii)	Credit purchases		+20,000						+20,000
	Balance	+25,000	+20,000					+25,000	+20,000
	Equation				+45,000	=	+45,000
ii)	Credit Sales		-18,000	+25,000				+,7000
	Balance	+25,000	+2,000	+25,000				+32,000	+20,000
	Equation				+52,000	=	+52,000
iv)	Cash withdraw for personal use	-5,000						-5,000
	Balance	+20,000	+2,000	+25,000				+27,000	+20,000
	Equation				+47,000	=	+47,000

Following are the principles of double entry system:
(i) In every business transaction, there are two aspects
(ii) The two aspects involved are the benefit or value receiving aspect and benefit or value giving aspect.
(iii) These two aspects involve minimum two accounts; at least one debit and at least one credit.
(iv) For every debit, there is a corresponding and equivalent credit. If one account is debited the other account must be credited.

The advantages of maintaining subsidiary books can be summarised as under :
(i) Proper and systematic record of the business transactions : All the business transactions are classified and grouped conveniently as cash and non cash transactions, which are further classified as credit purchases, credit sales and returns etc.
(ii) Convenient posting: All the transactions of a particular nature are recorded at one place, i.e., in one of the subsidiary books. For Example: All credit purchases of goods are recorded in the purchases book and all credit sales of goods are recorded in the sales book.
(iii) Division of work: As journals are sub-divided, the work will be sub-divided and different persons can work on different books at the same time and the work can be speedily completed.
(iv) Efficiency: The sub-division of work gives the advantage of specialisation. Thus specialisation leads to efficiency in accounting work.
(v) Helpful in decision making: Subsidiary books provide complete details about every type of transactions separately. Hence the management can use the information as the basis for deciding its future actions.
(vi) Prevents errors and frauds: Internal check becomes more effective as the work can be divided in such a manner that the work of one person is automatically checked by another person. With the use of internal check, the possibility of occurrence of errors or fraud may be avoided or minimised.
(vii) Availability of requisite information at a glance : The maintenance of subsidiary books helps in obtaining the necessary information at a glance.

10.

The following are the limitations of trial balance.
(i) It is possible to prepare trial balance of an organisation, only if the double entry system is followed.
(ii) Even if some transactions are omitted, the trial balance will tally.
(iii) Trial Balance may tally even though errors are committed in the books of account.
(iv) If trial balance is not prepared in a systematic way, the final accounts prepared on the basis of trial balance may not depict the actual state of affairs of the concern.
(v) Agreement of trial balance is not a conclusive proof of the arithmetical accuracy of entries made in the accounting records.