Political Science Notes for Class 12 Maharashtra Board
By going through these Maharashtra State Board Organisation of Commerce and Management 11th Notes Chapter 6 Institutes Supporting Business students can recall all the concepts quickly.
Small Industrial Development Bank of India (SIDBI)-
Features of SIDBI-
(1) Sustainable Development:
(2) Nodal / Implementing Agency:
helps in implementing various subsidy schemes for upgradation, modernisation and expansion of business.
(3) Financial Institute for promotion of MSMEs (Micro, Small and Medium Enterprises:):
(4) Advisory Function:
(5) Forms of finance:
(6) Digital initiatives:
(7) Achievements of National Goals:
(8) Services to MSMEs:
National Bank for Agriculture and Rural Development (NABARD)-
Objectives:
Features of NABARD-
Financing Rural Industries:
(2) Assistance to Financial Institutes:
(3) Refinancing Facilities:
To provide refinance facilities to –
To provide – short term credit
To help during natural calamities
(4) Credit for Rural development.
(5) Apex Bank:
(6) Recommendations to Reserve Bank of India:
on issue of licenses to Co-operative Banks, opening new branches by State Co-operative Banks and Regional Rural Banks (RRBs)
(7) Development of Nation:
(8) Supervision of Financial Institutes engaged in Agricultural Finance.
To inspect Regional Rural Banks and Co-operative Banks, State Co-operative Agriculture and Rural Development Banks (SCARDBs) on voluntary basis
Khadi and Village Industries Commission (KVIC):
Objectives of KVIC-
Features of KVIC-
Research and Development.
Other Functions:
Marketing and Promotion:
Financial Assistance:
Rural Development:
Employment Generation:
Entrepreneurship Development:
Women’s Self Help Groups (Mahila Bachat Gat)-
Objectives:
1. To eradicate poverty and empower the women
2. Fundamental principle
Features Women’s Self Help Groups-
(1) Formation:
Membership:
Empowerment of Women:
Collateral Free Loan:
Democratic Setup.
Entrepreneurship Development.
Saving Habit.
Mutual Trust.
World Bank-
(1) International
‘ Bank for Reconstruction and Development (IBRD).
provides debt financing to government
(2) International Development Association (IDA)
Gives interest free loans to the governments of poor countries
(3) International Finance Corporation (IFC)
Focuses on private sector and provides developing countries with investment financing and financial advisory services
(4) Multilateral Investment Guarantee Agency (MIGA).
Promotes Foreign Direct Investments in developing countries
(5) International Centre for Settlement of Investment Disputes.
Provides arbitration on international investment disputes
Features of World Bank-
Goals-
2 goals by 2030
To end extreme poverty
To promote shared prospering by fostering the
(3) Financial Products and Services.
Provides low-interest loans, zero to low interest credits and grants to developing countries in area of education, health, public administration, infrastructure, financial and private sector development, etc.
(4) Innovative Knowledge Sharing.
(5) Innovation and Entrepreneurship:
(6) Social Development:L
Word Meaning:
hurdles – difficulties; vibrant – energetic; emerge – comes out; dedicated – committed; infusing – to fill; ecosystem – interconnection of organism and environment; channels – means/medium; co-ordinate – bring together; refinance – giving loans with low rate of interest; traditional – regular; sustainable – able to maintained; creation – formation; ecological – relation of organism and surrounding; emission – to release; upgradation – to improve; associates – connected; subsidiaries – subordinate/secondary; comprehensive – complete; micro – small; semi-urban – in between rural and urban; assistance – to help; extensive – large scale; incubators – company that helps to start up new companies; mentors – guide; portal – website; accessibility – able to reach; track – path; handbolding – to support; nodal agency – a direct office which is assigned for implementing; allied along with – executing new project; review – to check; eye opener – unexpected event; plunge – to jump; apex – at top; regulating – to control; cottage – business carried on by home; guidelines – instruction; monitors – to look after; tideover – to help at difficult; computerization – use of computer in doing work; upliftment – to raise; voluntary – not compulsory; recommendations – to advice; revolution – to bring change in society; boycott – to refuse; key – important; potential – possibility; emphasis – importance; strengthen – to power; functions – activities; self reliance – self sufficient; community spirit – feeling of togetherness of one community/group; premier – main/leading; generating – to produce; masses – people; massive – huge; per capita – by each head; avenues – direction; migration – movement of people from one place to another; formulated – to prepare; schemes – plan; subsidy – a sum pf money granted by government to support; beneficiaries – recipient/receiver; cater – to provide; publicity – to make famous; disseminating – to distribute; derive – to get; organizes – to arrange; agencies – a business firm; eradicate – to remove; refused – to say no; empower – to allow; inspired – to encourage; homogeneous – same group; collateral – security; alternative – different; voluntary association – group of individuals forming a body having same goals; reasonable – fair price; enhances – increase; collective – together; out reach – influence; affinity – harmony; inculcates – to fix; thrift – budgeting; overcome – to solve; philosophy – study of particular system; marginalized – system insignificant; grassroot – basic level; scarcity – shortage; untapped – resource not used; tool – device; clutches – holds; artisans – individual with/good proficient in particular art; vested – given/ to give; fostering – to promote; unique – special; vital – important; analysis – to evaluate.
By going through these Maharashtra State Board Organisation of Commerce and Management 11th Notes Chapter 5 Forms of Business Organisation – II students can recall all the concepts quickly.
Public Sector Organizations-
Definition of Public Sector Organizations
1. Britannica Encyclopedia
“An undertaking that is owned by a central, state or local government, supplies services or goods at a price and is operated on more or less self-supporting basis is called as Public Sector Organisation.”
2. Prof. Hansen
“Public Enterprise means state ownership and operation of industrial, agricultural, financial and commercial undertaking.”
Classification of Public Sector Organizations-
Department Organisation-
Features of Departmental Oraganisation-
Merits of Departmental Organization-
Demerits Of Departmental Organisation-
Statutory Corporation-
Meaning : A Statutory Corporation is an autonomous corporate body created by the Special Act of the parliament or state legislature with defined powers, functions and duties. State helps statutory corporation by subscribing to its capital.
Example : Reserve Bank of India, LIC, etc.
Features of Statutory Corporation
Merits of Statutory Corporations-
Demerits of Statutory Corporations-
Government Company-
Meaning : “The company which is registered under Companies Act, 2013 having minimum 51% of paid- up share capital held by the central government or any state government or partly by central government and partly by one or more state governments is known as Government Company.”
Example :
Features of Government Company-
Merits of Government Company-
Demerits of Government Company-
Multinational Corporations (MNC)-
Meaning : “A multinational corporation is a business organisation that operates in many different countries at the same time.
In other words, “It’s a Company that has business activities in more than one country.”
Example : Indian Multinationals
Features Multinational Corporation-
Features of Multinational Corporation-
Merits Multinational Corporation-
Demerits Multinational Corporation
Word Meaning:
co-existence – to exist in same time; criticism – disapproval; reliable – genuine / good; supervision – to look after; annual budget – yearly estimated income and expenditure; sanctioning – to approve; autonomous – to manage its work independently; legislature – Government body; subscribing – to enroll / to be a member; revenues – income; statutory – as per the law; government treasury – funds available with the government; interfere – to check / disturb; budgeting – to allocate; recruited – to appoint; integral – essential; remunerated
– to pay salary; centralisation – concentration of control; operations – working; red tapism – process of excessive paper work and rigid formalities; nominated – to be selected; floating – to fluctuate / change; bureaucracy – a government system where important decisions are taken by the officials; trustworthiness – truthful; initiative – to do independently; guided – to show; smooth – without any problems; hampered – to suffer; characters – nature; indulge – to involve; demoralized – to lose hope; inefficiency – not achieving maximum productivity; innovative – new ideas; comptroller – controller; expertise – skill to do best; auditor general – government officer charged with accounts auditing; bounded – to restrict; professional – person qualified in particular profession; affiliates – connected with; productivity – output; modifications – to change; framework – a structure; acquire – to get; entities – independent organizations; deputation – to give charge; host – a place or person who holds the event; budgetary – to allocate the fund; sophisticated – highly developed; undertakings – agreements; intensive – concentrated / focused; executive – administrative; boost – to encourage; relatively – in comparison; inflow – movement of large thing; active – energetic; monopolies – control of trade; personnel – human resource; exploitative – treating others unfairly; debated – discuss; brotherhood – friendship; peace – freedom from disturbance; repatriation – to send money; prosperity – being success; implicit – indirect; chronic – for a long time; challenges – problems; wipe off – clean off; wind up – to end; depletion – reduction; non renewable – resources which cannot be produced again; threat – warning; alien – foreign; synthetic – chemical substance; setback – in reverse of; injurious – harmful; concentration – at centre; enrich – improve the quality, legal entity – legal rights and obligation, overheads – expenses, of business, interference – the illegal obstruction.
By going through these Maharashtra State Board Bookkeeping and Accountancy 11th Notes Chapter 5 Subsidiary Books students can recall all the concepts quickly.
Introduction-
Journal is the main accounts book in which all types of day to day business transactions are recorded systematically and in chronological order. As in the past, business was small in size and transactions carried on by businessman were less in numbers, the journal as a book of accounts was adequate and convenient to record all transactions. Today, the journal is useful for traders whose business is small and limited in size. Journal as a single book of account is not convenient to those traders whose business is large in size and who carries on unlimited business transactions every day.
If a single journal is kept for an entire large scale business, it will be bulky and difficult to operate and handle and carry from one place to another in the same organisation. Similarly, many clerks simultaneously cannot do office work based on information written in the journal. Similarly, if all transactions are recorded in one journal, it will be time consuming to obtain necessary information. Due to this, need was felt to have subsidiary books.
Meaning: When journal is divided into a number of parts, each of those parts is individually called subsidiary book. Thus, subsidiary book is sub-division of journal. In other words sub-division of journal on the basis of ‘
nature of transactions such as purchases, sales, cash expenses, cash receipts, return of goods, etc. is called subsidiary books. When subsidiary books are prepared and maintained, transactions are first recorded in
the subsidiary books and then conveniently posted to the respective ledger accounts. That is why subsidiary books are also called books of original entry or prime entry. They are also called as special journals or day books.
Need For Subsidiary Books-
The need for subsidiary books is explained below:
Types of Subsidiary Books-
The different types of subsidiary books are:
Types of subsidiary books on the basis of transactions.
The different types of subsidiary books are explained as follows:
(1) Cash Book :
Cashbook is an important subsidiary book of accounts, which is used by a businessman for recording cash and banking transactions of the business. Credit and barter transactions do not find any place in this book. Purchase of goods and assets on cash, sale of goods and assets on cash, payment of expenses in cash, receipt of income in cash, deposits and issues of cheques etc. are recorded in the cash book. In this book all receipts in cash and deposit of cheques are debited and all payments in cash and issue of cheques are credited. Cashbook is similar to a Cash A/c and hence no separate Cash A/c is opened and maintained in the ledger when the Cash Book is operated by the businessman.
Cash in hand is an asset of the business. Unless a business has cash, it cannot be spent and hence cash book always shows a debit balance. Cashbook is written on the basis of cash receipts and cash vouchers. Like a Ledger A/c, a cash book has two main sides namely receipt side and payment side. On the left-hand side i.e. on the debit side all cash receipts are recorded and on the right-hand side i.e. on the credit side, all cash payments are recorded. The cash book is totalled and balanced periodically. By balancing a cash book, a trader can ascertain the balance of cash and can plan the business activities. When the cash book is operated, no journal entries and ledger posting of cash transactions are required to be passed, in the journal and ledger. It results in saving of labour, time, stationery, and business cost.
Types of Cash Book :
Cash Book is classified under the following heads :
(1) Single Column Cash Book :
(A) Meaning: This cash book is also called simple cash book. It has two sides viz. receipt side and payment side. The debit side of cash book is meant for recording all receipts and the credit side of the cash book is meant for recording all payments. This book is written on the basis of cash receipts received, cash receipts issued, cash memos received, cash memos issued and cash vouchers. The cash book is balanced from time to time and the balance is carried forward. The cash book always shows a debit balance. In this book discount earned or allowed and banking transactions are not recorded.
Specimen of single column cash book :
(B) Explanation of columns of Simple Cash Book: The columns drawn on receipt side (Debit side) are explained below:
The columns drawn on payment (credit) side are explained below:
(C) Recording in Simple Cash Book: The procedure of recording entries for cash transactions in simple cash book is explained as follows:
(D) Balancing of Simple Cashbook: Generally, at the end of the month, cash book is balanced to find out balance of cash in hand. First ‘Amount’ column on the debit side of cash book is totalled. Thereafter ‘Amount’ column on the credit side of cash book is totalled in rough. The difference is ascertained by deducting the total of the amount appearing on credit side from the total of the amount appearing on debit side. This difference is recorded on the credit side under “Particular” column as “By Balance c/d”. Here c/d stands for carried down.
Cashbook always shows debit balance. This is because one cannot spend more than what one has. This balance is then recorded on the receipt side as “To Balance b/d” to start next period, as cashbook records only cash transactions and will always have excess of receipts overpayments.
(2) Cash Book with Cash and Bank Columns :
(A) Meaning: This cash book is also called as cash book with cash and bank columns. A businessman who does business transactions through a bank, records his banking transactions along with cash transactions in double column cash book. Banking transactions like receipts and deposit of cheques, issue of cheques, deposit and withdrawal of cash from bank, etc. are recorded in the double column cash book.
By maintaining double column cash book, a businessman gets information of inflow and outflow of cash and details of banking transactions. Exact position of cash in hand and balance of cash at bank can be ascertained quickly by referring to the double column cash book. Double column cash book is useful for a businessman to take quick decisions on the business matters.
This cash book has two columns on receipts side and the payment side viz. Cash column and Bank column. Bank column appearing in two-column cash book represents bank current account.
(B) Specimen of Two Column cash book:
(C) Types of Bank Accounts :
On the basis of nature, characteristics and advantages, bank accounts are classified into the following four types, viz. (i) Current account, (ii) Savings account, (iii) Fixed deposit account and (iv) Recurring deposit account.
The above types of bank accounts are explained in detail as follows:
(i) Current Account: This type of bank account is more useful to businessmen. It is a type of bank account in which there is no restriction on deposits of money into the bank and on withdrawals of money from the bank. The account holder is permitted to deposit money into his account any number of times in a day. Similarly, the account holder is at liberty to withdraw money or issue cheques from the bank any number of times provided he has sufficient balance in his account to honour withdrawals and cheques issued.
The bank pays interest at the lowest rate ranging from 0.5% to 1% p.a. on balance amount remaining in this account, and also gives overdraft facility to account holders. Current account is a running account, as it is operated daily and continuously by the account holder. It should be noted that the bank columns in the cash book implies Current Bank Account.
(ii) Savings Account: This is a type of bank account in which the bank keeps no restrictions on deposits, but imposes restrictions on withdrawals of money from the bank. In this type of account maximum of 2 withdrawals per week and maximum 25 withdrawals per every 3 months, are permitted by the bank. The main intention of savings account is to increase the savings of account holders and to channelise them into investment and thus capital formation of the nation. This account is more useful to non-business community. Bank allows interest at the prescribed rate on balance remaining in the savings account.
(iii) Fixed Deposit Account: Fixed deposit account is a blocked account as money once deposited into the bank by account holders, cannot be withdrawn by them until the period for which it is deposited, is over. It is a type of bank account in which money is deposited for specific period of time.
This account is more useful to retired people or non-business community who are interested in earning regular fixed income. On fixed deposits, a bank pays a higher rate of interest to deposit holders. Payment of interest is made half-yearly or yearly. If interest is not paid periodically, then accumulated interest is paid to deposit holders at the time of maturity along with the principal amount deposited. The minimum period for which deposit is accepted by the bank is upto 30 days and maximum period is 6 years or even more than 6 years. The rate at which interest is paid on deposits is not fixed, but fluctuates with the length of period for which deposits are kept.
The longer the period, higher is the rate of interest payable on deposit by the bank. The rate of interest also depends on the monetary policy of the government. In case of need, an account holder can borrow from the same bank the amount equivalent to 70% of the fixed deposit against the security of the deposit. In such a case, the bank charges 2% interest more than the rate of interest paid on the fixed deposit by the bank.
(iv) Recurring Deposit Account: A bank account in which an account holder is required to deposit a fixed sum of money after every fixed interval for a specific period of time is called a recurring deposit account. In this type of account, the bank accepts the fixed amount daily or once in a month on fixed date upto the maturity date. The deposit holder is not permitted to withdraw money from this account, but in case of need, the bank gives loan to the account holder on the credit balance standing in his account.
On maturity, the bank pays the total amount deposited and interest accrued on that amount in lump sum to the account holder. The main purpose of this account is to increase savings and thereby helps lower-income groups to purchase costly articles with accumulated savings. This account is more useful to the non-business community, specially lower-income groups.
(D) Documents used by the Account Holder:
The following documents are provided by bank, free of charge to account holders. These documents are used by account holders while doing transactions with the bank. These documents are: (i) Bank Pass Book,
(ii) Pay-in-slip Book, (iii) Cheque Book, (iv) Withdrawal Slip.
The documents are explained in detailed:
(i) Bank Pass Book: The bank passbook is a small booklet, given to account holders free of charge to record their transactions with bank. Banking transactions are recorded in the passbook by bankers only. In other words, passbook is a small booklet having a number of pages, used for recording banking transactions. It provides identity giving document of account holder. By referring to the passbook, an account holder comes to know his financial position with the bank. Current account holder is not given the passbook, instead, they are provided with the monthly statement of the transactions with the bank.
(ii) Pay-in-Slip Book: Pay-in-slip book is another document used by account holder for depositing cash and cheque into the bank. Pay-in-slip book consists of either ten slips or hundred slips. Each slip is divided into two parts which can be separated easily from the other.
The longer part of the slip is called foil and smaller part is called the counterfoil. Before depositing cash or cheque into the bank, an account holder is required to fill up both parts of the pay-in-slip. Information regarding name of account holder, his account number, amount in figures and words, signature etc are required to be filled up on both the parts of the pay-in-slip. The Cashier of the bank accepts cash or cheque along with duly filled in pay-in-slip. The foil of the pay-in-slip remains with the bank for making records in the books of the bank and the counterfoil after stamping and signature of cashier is given back to the account holder.
(iii) Cheque Book: A cheque is a document used by the account holder for withdrawing cash from the bank or for making payments to other persons through the bank. A book which consists of 10 or 20 blank cheques is called a cheque book. A Cheque book is provided by the bank to account holders free of charge, if an account holder agrees to keep minimum balance of? 500/- or more in his account.
In legal language, “a cheque is a written unconditional order of the account holder to his banker to pay a certain sum of money only to himself or to the bearer or to the person named therein.” There are three parties to a cheque i.e. Drawer, Drawee and Payee. The person to whom the amount of cheque is payable is called payee and the bank on whom the cheque is drawn is called drawee bank, and the account holder who issues the cheque is called drawer.
Specimen of cheque is given below:
Types of Cheques-
Cheques used by the account holder are classified into the following three categories viz.
The above types of cheques are explained as below:
1. Bearer Cheque: Bearer means possessor. In case of bearer cheques, the bank makes immediate cash payment to the possessor of the bearer cheque on its presentation. For immediate withdrawal of cash, a bearer cheque is used by the account holder. A cheque on which instead of writing the name of the payee, the word ‘self ’ is written, is called a bearer cheque.
Bearer of the cheque has to sign on the reverse of the bearer cheque before withdrawing money from the bank. While making cash payment against bearer cheque, the bank never makes inquiry whether payee is a wrong doer or right person. Bearer cheque is dangerous because in case if it is lost the wrong doer who possesses the cheque, can easily obtain cash from the bank. Bearer cheque is as good as cash, because it can be encashed by any one at any time during banking hours.
Specimen of bearer cheque :
2. Order Cheque: A cheque in which an account holder orders the bank to make payment to the person whose name appears on the cheque, is called an order cheque. In this type of cheque, the word ‘bearer’ after the name of payee is struck off and the word ‘order’ is retained. Order cheque is safer than bearer cheque. While making cash payment against order cheques, if bank suspects, it makes inquiry whether possessor of order cheque is the right person or not.
Specimen of order cheque :
3. Crossed Cheque: A crossed cheque is a cheque on which two parallel transverse lines are drawn on the face of the cheque at the left-hand top corner with some words or without any words written between them. When the crossed cheque is presented for payment it is not paid in cash to payee or possessor, but it will be credited to payee’s account in the bank and after three days, the payee i.e. the account holder is permitted to withdraw the amount from the bank, if it is cleared and not dishonoured.
This type of cheque is more safer than any other type of cheque. If a crossed cheque is lost, a wrongdoer cannot obtain payment from the bank. The bank never makes immediate cash payment on counter on presentation of crossed cheque. Crossed cheques are sent to distant place by ordinary post safely.
Specimen of crosscd cheque:
Dealings of Cheque-
The different types of dealings of the cheque are explained below :
1. Honour of cheque,
2. Dishonour of cheque, and
3. Endorsement of cheque.
The dealings of cheque is explained :
1. Honour of Cheque: A cheque is said to be honoured if the drawee bank pays the entire amount of cheque to its holder on presentation of cheque before the bank. The bank always honours a cheque if there is sufficient fund in the account of the drawer.
2. Dishonour of Cheque: A cheque is said to be dishonoured if the drawee bank refuses to make payment to the holder of a cheque on its presentation. The drawee bank never dishonours a cheque but under the following circumstances, the drawee bank is compelled to dishonour the cheque.
(3) Endorsement of Cheque: Endorsement of cheque refers to an act of signing on the reverse of a cheque by its holder to transfer it to another person. Cheque may be endorsed in favour of a creditor to settle his debts or it may be endorsed in favour of debtor to give further loan. A person who endorses a cheque is called endorser and a person in whose favour a cheque is endorsed is called the endorsee. Endorsement is necessary in case of transfer of order and crossed cheque. Endorsement is not necessary for transfer of bearer cheque.
Contra Entry-
The accounting entries which appear on both the sides of the cash book with cash and bank column is called contra entries. Contra entry appears only in cash book with cash and bank column and not in single column cash book. An accounting entry for an amount withdrawn from bank which is posted on the debit side of a two column cash book in the cash column and on the credit side in the bank column or an accounting entry for an amount deposited with the bank which is posted on the debit side of two column cash book in the bank column and on credit side in cash column is called contra entry. Letter ‘C’ which stands for contra is written in“L.F. No.” column to identify, contra entry.
Contra entry is passed in three column cash book under the following circumstances :
1. Cheque received on earlier day and deposited today: Journal entry for this transaction is:
2. Cash deposited into the bank: Journal entry for this transaction is:
(The above entries appear in the bank column on the debit side of the three-column cash book and in the cash column on the credit side).
3. Cash withdrawn from the bank for office use: Journal entry for this transaction is:
(This entry appears in cash column on debit side of the three-column cash book and in bank column on the credit side.)
(A) Journal Entries For Cash And Banking Transactions :
(B) Journal Entries For Dishonour of Cheque-
Dishonour of Cheque: When a bank refuses to make payment on cheque on any justifiable ground, cheque is said to be dishonoured. When a cheque is dishonoured, the value of cheque reduces to zero. On dishonour of cheque, earlier accounting effects given to cheque are required to be cancelled. Accounting effects of cheque are cancelled by passing reverse entry of earlier entry. For example:
Petty Cash Book-
When business develops, a businessman prefers to meet his business payments and receipts through the bank. Due to fast development in banking sectors, most of the businessmen carry on their day to day business activities through the bank. Generally, bank cheques are used for payments and receipts of higher amount. But generally a cheque is not used for payments and receipts of small or minor amount whose payments and receipts are inevitable in the business. For example cheque is not used for payment of taxi fare, coolie charges, sweeping charges, payment of postage etc. and receipt of sale proceeds of old newspapers etc.
In big business house or in industry to manage and pay minor expenses in cash, a separate clerk or cashier is appointed. The cashier or clerk who manages, looks after and makes payment of petty i.e. minor expenses in the organisations is called petty cashier. An account book in which the petty cashier records payments of petty expenses and receipts is called petty cash book.
In other words, a petty cash book is a separate account book in which a businessman keeps records of daily transactions which are minor in nature and whose payments and receipts are made in cash only. The Petty cashier is given lump sum amount of cash at the beginning of every month by the head cashier and he is also permitted to spend that amount on various minor expenses and also permitted to receive minor receipts during a specific period. At the end of the month the petty cashier is required to return the balance amount to the head cashier. This procedure is followed every month.
Types of Petty Cash Book-
Petty cash book is classified into the following three categories viz.
1. Simple petty cash book,
2. Columnar petty cash book,
3. Petty cash book kept on imprest system.
They are explained below.
1. Simple Petty Cash Book: A Simple petty cash book is similar to simple or single column cash book. To record receipts and payments made in cash, this cash book has two main sides viz. receipts side and payments side. In this cash book, columns like date and particulars are common for both receipt and payment side. This cash book is not extensively used in business field.
Specimen of Simple Petty Cash Book :
Importance of Columns:
2. Columnar Petty Cash Book: As the name indicates, this petty cash book has many sub-columns on payment side to record minor expenses individually. This cash book has two main sides viz. receipts.side and payment side. In comparison to receipt side, the payments side is much longer. The payment side of this cash book has many sub-columns which are not fixed in number.
On. the payment side of this cash book, one sub-column is provided for one similar nature of expenditures. In short, the payment side has as many columns as expenditures on which the business has spent money. In addition to these columns, at the end, two more columns are provided for L.F. No. and ledger account. In ledger account column, entries of personal account and real account are posted. This cash book is more popular and extensively used in the business field.
Specimen of columnar petty cash book :
3. Petty Cash Book kept on Imprest System: In many business houses, Petty Cashbook kept on imprest system is more popular. In this system, at the beginning of every month, the head cashier gives to the petty cashier that much amount of cash or cheque which is equivalent to amount spent in the last month. This makes the opening cash in hand with petty cashier equal in the beginning of every month. In other words, in imprest system, a definite amount of cash is given to the petty cashier at the beginning of a certain period.
This amount is known as imprest money. The petty cashier is then allowed to spend money on various petty expenses and when he has spent substantial amount of his imprest amount, he gets reimbursement of the amount he has spent from the head cashier. Thus, he again has the same amount of imprest cash. The reimbursement may be made on a weekly, fortnightly, or monthly basis, depending on the frequency of small payments.
This system renders the following advantages:
Purchase Book-
A subsidiary book in which only credit purchases of goods are recorded is known as the purchase book. This book is used to record credit purchase of goods in which a trader regularly deals. In this book, cash purchases of goods and assets are not recorded. Similarly, the purchase of asset on credit is also not recorded in this book. The purchase book is written on the basis of inward invoice i.e. a statement received from the supplier.
Trade discount is never recorded in this book. Trade discount is calculated and deducted from invoice price and net price is recorded in the purchase book. If a bookseller purchases books on credit, same will be recorded in his purchase book. Purchase of furniture by the bookseller on credit, will not be recorded in his purchase book. At the end of each month the purchase book is totalled and this total shows the total amount of goods purchased on credit. Purchase Book is also known as Purchase Journal, Purchase Register and Bought Book.
Specimen of Purchase book is given below :
Explanation of Columns :
Sales Book-
A subsidiary book in which only credit sales of goods are recorded, is known as sales book. This book is meant for recording credit sales of goods in which the trader regularly deals. In this book sale of goods as well as assets on cash basis are not recorded. Similarly, sale of assets on credit is also not recorded in this book. This book is written on the basis of the outward invoice. Trade discount never appears in this book. Trade discount is simply calculated and deducted from the invoice price and net price is recorded in this book.
If a grocer sells different types of grains to his customers on credit, it will be recorded in his sales book. Cash sales made by the grocer will not be recorded in his sales book. Sales book is also known as sales day book. At the end of each month the sales book is totalled and this total shows the total amount of goods sold on credit, and the net amount receivable from customers. Sales book is also known as Sales Day Book, Sales Journal, Sales Register and Sold Book.
Specimen .of Sales Book is given below :
Explanation of Columns :
Purchase Return Book :
A subsidiary book in which return of goods purchased on credit is recorded, is known as the purchase return book. The purchase return book is also known as return outward book or debit note book or purchase return journal. This book is used by the trader for recording the returns of goods purchased on credit to the suppliers. Goods may be returned by trader to supplier on one of the following reasons, viz.
(a) defective goods,
(b) damaged goods,
(c) delayed goods,
(d) inferior goods,
(e) goods which are not as per design, colour or sample sent
(f) excess goods received, etc. This book is written on the basis of debit. Purchase return book is totalled at the end of each month. This total shows value of goods returned to suppliers.
Specimen of Purchase Return Book is given below :
Sales Return Book-
A subsidiary book in which transactions relating to return of goods sold on credit are recorded, is called
the sales return book. This book is used by the trader for recording the goods returned by customers which were purchased by them on credit. Goods sold to customers on credit, may be returned by them for one of the following reasons, viz. (a) defective goods, (b) damaged goods, (c) delayed goods, (d) inferior quality goods, (e) goods not in accordance with sample, specification, colour, design, (f) over supply of goods, etc. Sales return book is written on the basis of a credit note. This book is also called credit note book or return ’ inward book or sales return journal. At the end of each month sales return book is totalled.
Specimen of Sales Return Book is given below :
Bank Book-
When businessman operates more than one bank account, it is convenient for him to maintain separate account book to record only hanking transactions entered with various banks. The account book in which only banking transactions are recorded is called Bank Book. The bank book is combined with discount columns for recording discount allowed and earned in banking transactions.
This book has two main sides viz left hand side (i.e. Debit / Receipt side) and Right hand side (i.e. Credit
/ Payment side). Cheque received and deposited into the bank, direct deposit received by bank, dividend,
interest and commission collected by the bank, etc. are recorded on the receipt side and cheques issued, bank charges paid, interest on overdraft, payments made by cheques, etc. are recorded on the payments side of Bank Pass Book.
Advantages: Maintaining Bank book is benefited the businessman in different ways such as:
Journal Proper-
A subsidiary book which is used to record all those business transactions which do not find any place in the purchase book, sales book, return books, cash book, bills receivable book, bills payable book, etc. is called journal proper.
This book is used for recording the following types of the transactions viz.
(1) Purchase and sale of assets on credit.
(2) Opening entries
(3) Transfer entries
(4) Rectification entries
(5) Adjustment entries
(6) Closing entries
(7) Other transactions like bad debts written off, dishonour of the bill, depreciation, interest on capital, loss of goods by fire or theft or goods damaged in transit, distribution of goods as free samples, withdrawal of goods by proprietor, discount received and allowed on cash transactions, etc.
General Information-
The following points should be considered while recording entries in the subsidiary books:
Debit Note And Credit Note-
Sometimes some corrections become necessary in the original documents prepared for business transactions. Such correction cannot be made by cancelling the entry on the original documents or adding new entry in the original documents. Such correction can be done by preparing another new document for the amount of difference in the original document. Such a new document is called as debit note or credit note. Debit note is prepared for debiting the account of the counterpart with the amount by specifying reasons thereon. It is issued:
Credit note is prepared for crediting the account of the counterpart with amount by specifying reasons thereon. It is issued:
In order to avoid the handling of original documents again and again such are prepared.
When a businessman issues debit note to a party, the party receiving debit note should issue a corresponding credit note to give acknowledgement of acceptance and vice versa. The entry of such debit and credit should be passed in the journal proper. If they are recurrent and large in numbers, the separate register called Debit Note Register and Credit Note Register should he maintained.
Usually these are printed and are serially numbered by machine. These are prepared in duplicate. The original copy is issued to the opposite party and second copy is retained by the businessman for office record. These are kept serially and in chronological order in the bound book.
Circumstances under which are issued:
Importance of Notes-
Contents of: The debit note and credit note contains the following details:
By going through these Maharashtra State Board Book Keeping & Accountancy Notes 12th Chapter 4 Reconstitution of Partnership (Retirement of Partner) students can recall all the concepts quickly.
Introduction, Meaning and Reasons-
To retire means to give up or to cause a person to give up his work, especially reaching superannuation age. Accordingly, retirement of partner refers to a process in which a partner leaves the firm or severs his connection or relationship with other partners on account of old age or continued ill health or loss of interest in the firm, misunderstanding amongst the partners, loss in the business or any other similar reasons. On retirement, retired partner ceases to be a partner of the firm. A partner who leaves the firm or goes away from the business is called “retiring partner” and partners who continue (or remain) in the partnership firm are called “continuing partners”. On retirement of partner, it is just necessary to ascertain or compute the amount payable to him. It is ascertained by considering net balance in Capital Account and Current Account, his share in accumulated profit, Reserve fund, part losses, goodwill, revaluation profit or loss, etc.
A partner may retire from the firm due to : (1) old age, or continued sickness (2) loss incurred in the business (3) loss of interest in the firm on account of any reason (4) partner intends to start another or new business (5) differences of opinion or misunderstanding with the other partners, etc.
The partner may retire from the firm by undertaking one of the following steps or procedures : (i) As per the terms mentioned in the partnership agreement or Deed (ii) By taking consent of other partners, (iii) By giving notice of retirement in writing to other partners.
New Ratio-
New ratio is a ratio or proportion in which continuing partners decide to share profits or losses of the business after retirement of a partner.
Calculation of new profit sharing ratio :
Gain Ratio-
Profit sharing ratio which is acquired by continuing partners on account of retirement or death of a partner is called Gain Ratio. It is generally calculated at the time of retirement or death of a partner. Gain ratio is calcualted by using the following formula :
Gain Ratio = New Ratio – Old Ratio.
Gain ratio is calculated and used to write off the goodwill raised or created to the extent of retiring partner’s share only.
Treatment of Goodwill-
At the time of retirement of a partner for adjustment of goodwill, one of the following courses may be adopted :
(1) When goodwill does not appear in the books of account:
If goodwill account is not shown at all in the books of account on the date of retirement, it may be adjusted in any one of the following five ways :
(a) When goodwill is raised to its full value and retained in the business :
(Note : In this case, the full value of goodwill is shown in the Balance Sheet on Assets side.)
(b) When goodwill is raised to its full value and then written off from the books of account:
(i) When Goodwill is raised :
(ii) When Goodwill is written off:
(Note : In this case, goodwill does not appear in the Balance Sheet.)
(c) When goodwill is raised partially, that is by an amount equal to retiring partners’ share and then retained in the business :
(Being goodwill to the extent of retiring partner’s share raised and credited to his Capital A/c)
(d) When goodwill is raised only to the extent of retiring partner’s share and then written off from the books of account:
(i) When Goodwill is raised :
(Being goodwill to the extent of retiring partner’s share raised and credited to his Capital A/c)
(ii) When goodwill is written off :
(Being goodwill adjusted to continuing partners’ Capital or Current A/cs In their gain ratio)
(e) When goodwill is adjusted through Current A/cs or Capital A/cs of the partners without opening a Goodwill A/c :
(Being continuing Partners’ Current A/cs or Capital A/cs are debited in their gain ratio)
(2) When goodwill is already appearing in the books of account:
(i) If the amount of goodwill appears in the Balance Sheet is less than its actual value of goodwill (undervalued):
(Being increased value of goodwill transferred to all Partners’ Capital A/cs/Current A/cs in their old profit sharing ratio)
(Being increased value of goodwill transferred to Profit and Loss Adjustment A/c or Revaluation A/c)
(ii) If the amount of goodwill appears in the Balance Sheet is greater than the value of goodwill (overvalued) :
(Being decreased value of goodwill adjusted to all Partners’ Capital / Current A/cs in their old profit sharing ratio)
Alternatively, following entry may be passed :
(Being decreased value of goodwill adjusted to Profit and Loss Adjustment A/c or Revaluation A/c)
Transfer of Reserve Fund or General Reserve / Accumulated Profit or Loss-
On retirement of a partner, balance in general reserve, as well as past accumulated undistributed profit are transferred to all partners’ capital accounts or current accounts in their old profit sharing ratio. Similarly accumulated past losses of the firm are also adjusted to all partners’ capital accounts or current accounts in their old profit sharing ratio.
However, sometimes, if continuing partners so desire, only retiring partners’ share in general reserve and accumulated past profits or losses is transferred to his capital account or current account. Following journal entries are passed for transfer of general reserve and accumulated undistributed profits or losses, i.e. balance of Profit and Loss Account:
(1) Transfer of general reserve, accumulated profits, etc. :
(Being general reserve. accumulated profit transferred)
(2) Transfer of accumulated losses :
(Being accumulated losses transferred and debited to all partners’ capital/current A/cs in old ratio)
Revaluation of Assets and Re-assessment of Liabilities-
At the time of retirement of a partner, all the assets and liabilities of the partnership firm are usually revalued and changes in their values are, therefore, effected through a Profit and Loss Adjustment A/c or Revaluation A/c. A reduction in the values of assets and an increase in the values of liabilities are debited to this account while an increase in the values of assets and a reduction in the values of liabilities are credited to this account. The balance of Profit and Loss Adjustment A/c or Revaluation A/c is then transferred to all partners’ capital accounts or current accounts in their old profit sharing ratio.
Adjustment of Capitals-
The continuing partners if they so desire, may make their capitals proportionate to their new profit sharing ratio either through their Current Accounts or Loan Accounts or by actually bringing in or withdrawing cash. In this case, total capital of the new firm is decided and following steps are taken :
Pro forma journal entries of adjustment, of deficit or surplus :
Ascertainment of retiring partner’s share of profit till retirement:
(i) For transfer of retiring partner’s share in proportionate profit:
(ii) For adjustment of retiring partner’s share in proportionate loss :
Total payable amount to Retiring Partner-
The total amount payable to retiring partner may be paid as per the terms of partnership deed or otherwise as per the mutual agreement among the partners. The partnership firm may pay either full or part of the amount due to retiring partner at the time of retirement and balance if any, is transferred to his Loan A/c. The various types of repayment of retiring partners’ dues are explained as follows :
(1) Lumpsum : Under this method, entire amount due to the retiring partner is paid in one instalment or at a time. The journal entry is given as follows :
Payment of retiring partner’s dues in one instalment or in lumpsum :
(2) Instalment: Under this method, retiring partner’s dues are paid in several convenient instalments. Journal entries relating to this are shown below :
(3) If the total amount due transferred to Loan A/c :
(4) If part of the total amount due to retiring partner is paid in cash and balance is transferred to his Loan A/c :
Accounting steps to record retirement of a partner : The usual accounting steps for recording
the retirement of a partner are stated below :
By going through these Maharashtra State Board Organisation of Commerce and Management 11th Notes Chapter 7 Business Environment students can recall all the concepts quickly.
Business Environment-
Definition:
Boyard O Wheeler
The total of all things external to firm and industries which affect their organization and operations is called as Business Environment”.
Barry M. Richman and Melvyan Copan
“Environment factors of constraints are largely if not totally external and beyond the control of individual enterprises and their arrangement”.
William F. Glueck
“Business Environment is the process by which strategists monitor the economic, governmental, market, supplier, technological, geographic and social settings to determine opportunities and threat to the firms.
Importance of Business Environment
Dimention of Business Environment-
Business Environment:
1. Internal (Controllable):
2. External (Uncontrollable)
Natural:
Social:
Political:
Economic:
Technological:
Method & Techniques
Legal:
Dimension of Business Environment-
Internal (Controllable):
Other factors:
Financial Factors-
Dimension in Business Environment
External (Uncontrollable) Factors:
Natural Environment:
Social Environment:
Political Environment:
Economic Environment:
Condition:
1. Economic Condition
2. Economic Policies
3. Economic System:
Technology Environment:
Methods and Techniques
Legal Environment
New Economic Policy and Business
Liberalization-
Meaning: The process of eliminating unnecessary controls and restrictions for smooth functioning of business.
Indian Economic Liberalization Includes:
Privatization-
Meaning : To reduce the involvement of state or public sectors by involving of private sector in economic activities.
Need for Privatization :
Privatization Includes-
Globalisation-
Meaning : Integration of national economy and societies through cross country flows of information, ideas, technologies, goods securities, capital, finance and people.
Includes-
Features of globalization-
Impact of Globalisation-
Impact of New Economic policy on Business-
Word Meaning:
isolated – unreachable; relevant – appropriate / related; negotiates – work out; thrives – prosper / grow; survive – to stay on; disturbances – distraction / trouble; spell – amount to; threats – dangers; appraise – to judge; orientations – direction of something; demographic – related to structure of population; trends
– movement; strategies – planning; constraints – restrictions; beyond – extreme; overcoming – deal with; sensitivity – reactivity; analyze – to examine; formulate – to prepare; frontiers – limits; intimacy – relationship; controllable – influence; domain – area / sector; structure – formation; logistic – activity of transporting; preservation – to protect; non-replenishable – cannot be renewed; to cope with – to deal with; reciprocal – give and take; ethics – principles; expectancy – hope; heritage – tradition; mobility – ability to move; ideology
– ideas; survival – to exist/to live; monetary – in terms of money; dramatic – considerable; alert – aware; persist – to continue; amendments – changes; eliminating – to remove; accountability – responsibility; disinvestment – reduction in investment; interdependent – depend on each other; implication – indications; reliance – to be dependent; diminishing – reducing; tremendous – huge; discontinuation – not to continue; varying – differ; nurtured – to raise; restructuring – to rearrange; fundamentally – basics; reliable – to good; integration – combination.
By going through these Maharashtra State Board Bookkeeping and Accountancy 11th Notes Chapter 7 Depreciation students can recall all the concepts quickly.
Meaning And Definition of the Term Depreciation-
When fixed assets are used for producing goods and services of a business, their values are bound to decrease. Such reduction in the value of fixed assets due to their productive use is called depreciation. The word ‘depreciation’ is derived from the Latin word ‘depretium’ which means ‘decline’ or ‘reduction’ in value of a fixed asset due to its natural wear and tear or any other similar causes.
In the words of well-known author Carter, “Depreciation is a gradual, continuous and permanent decrease in the value of the asset from any cause whatsoever according to William Pickles, “Depreciation is the gradual and permanent decrease in the value of an asset from the cause.” The following illustration will make the above idea clear. If the computer costs you ₹ 35,000 when you purchase it.
After using it for two years, if you want to sell it away, you will not get ₹ 35,000 but much less than its original price. Such reduction or loss in price whatsoever takes place and in accounting, the terminology is known as depreciation. Depreciation is always charged on fixed assets. It is a part of operating expenses. It is a reduction in the value of assets due to their productive uses, and such reduction is gradual, continuous, and permanent. Depreciation A/c is a nominal account. Depreciation is always charged to Profit and Loss A/c at the end of the accounting year to arrive at a correct net profit or net loss of business. .
Causes of Depreciation-
Causes of depreciation are explained below:
Need And Importance of Depreciation-
1. To ascertain true and correct profit and loss: Depreciation reduces value of assets. It is an expense of the business. This operating expense is charged to Profit and Loss Ac. Unless depreciation is written off to Profit & Loss Ac, profit or loss whichever is shown by P/L Ac will not give, correct result.
2. To present a true financial position of business: A1 types of assets belonging to business are listed
and shown on the asset side of the balance sheet. Balance Sheet shows correct and true financial position of a business if assets are shown by deducting depreciation from its original value.
3. Replacement of assets: Every asset used in business has specific life. At the end of its life that asset is required to be replaced by new asset. If depreciation fund is created and accumulated by charging it to Profit & Loss A/c every year, it enables the business to replace asset at due time.
4. To compute correct tax liability: When depreciation is charged to Profit & Loss A/c correctly along
with other business expenses and losses, it will give correct result of profit or loss. This enables business to compute and pay correct tax on taxable profit. It is necessary to charge depreciation to comply with the provisions made in Companies Act and Income Tax Act.
Factors Affecting Depreciation-
The factors affecting depreciation are stated as follows:
(i) Cost of an Assets: Cost of asset is one of the important factors required to be considered for computation of depreciation. Cost of asset refers to the purchase price of asset and its incidental or installation charges. In short Cost of Asset = Purchase price of asset + its incidental or installation charges. Incidental or installation charges refer to all those expenses incurred by business in connection with purchase of asset i.e. transportation cost, custom duty, octroi, brokerage, coolie charges, cost of fixing asset in factory, electrification charges, etc., e.g. a company purchased a machinery for ₹ 18,500/- and spent ₹1,500/- for erection of machinery. In this case cost of machinery is (18,500 + 1,500) ₹ 20,000/-. There is a direct relation between cost of asset and depreciation chargeable on that asset per year.
(ii) Residual Value (or Estimated Scrap Value): This is another important factor considered for computation of depreciation on asset. Total amount whatsoever received by selling used or obsolete asset or its spare parts is called residual value or scrap value, e.g. a company purchased a machinery for ₹ 20,000 and used it for 9 years. Then company sold it away for ₹ 3,000/-. Here residual value is ₹ 3,000/-.
(iii) Estimated Life of an Asset: The specific period for which fixed assets give useful services to the business organisation is called estimated life of an assets e.g. a machinery may be useful to the business say for 10 years. After 10 years its replacement is necessary to carry on business further. Usually life of the fixed assets is determined by the experts in the respective field. Depreciation is calculated by dividing net cost of asset by the estimated life of the asset.
Formula For Computation of Depreciation-
For computation of depreciation on fixed asset, following factors are considered viz. (a) cost of asset (b) estimated life of an asset and (c) residual value of asset i.e. scrap value.
(Where Cost of asset = Purchase price + Incidental charges.)
e.g. A Ltd. Co. purchased a machinery for ? 44,000/- and spent ? 1,000/- on its installation. Its estimated life is 10 years and its estimated residual value is ? 5,000/- work out depreciation chargeable per year.
Methods of Depreciation-
Depreciation on fixed asset may be charged by any one of the following given methods:
(Only first two methods of depreciation are covered in this syllabus)
Fixed Instalment Method-
Meaning: This method of depreciation is also known as straight line method or original cost method or fixed percentage method of depreciation. This is one of the simplest method of depreciation. As name indicates, under this method depreciation at fixed percentage is computed on original cost of asset every year. According to this method, over a every full year period amount of depreciation and rate of depreciation remain same. This method of depreciation enables the business to spread depreciation evenly over a life period of asset.
Main features: Main features of fixed instalment method of depreciation are explained below :
Advantages: Advantages of fixed instalment method of depreciation are as follows:
Disadvantages:
Reducing Balance Method-
Meaning: This method of depreciation is also known as written down value method or diminishing balance method of depreciation. It is a method of depreciation in which depreciation is computed at a fixed rate not on original cost of asset but on reducing balance of asset appearing at the beginning of each year. Under this method of depreciation, amount of depreciation goes on reducing year after year, but rate of depreciation remains fixed and same.
Main features : Main features of reducing balance method of depreciation are as follows:
Advantages:
Disadvantages:
Illustrations: The following illustration will explain difference between fixed instalment method of depreciation and reducing balance method of depreciation. Let us presume that cost of machinery is ? 1,00,000/-. Rate of depreciation chargeable is 10% p.a.
| Year | Fixed Instalment Method | Reducing Balance Method |
| I | ₹ 10,000/- (10% of 1,00,000) | ₹ 10,000 (10% of 1,00,000) |
| II | ₹ 10,000/- (10% of 1,00,000) | ₹ 9,000 (10% of 90,000) |
| III | ₹ 10,000/- (10% of 1,00,000) | ₹ 8,100 (10% of 81,000) |
| IV | ₹ 10,000/- (10% of 1,00,000) | ₹ 7,290 (10% of 72,900) ‘ |
| V | ₹ 10,000/- (10% of 1,00,000) i.e. 10% on the original cost | ₹ 6,561 (10% of 65,610) i.e. 10% on the balance. |
Difference Between Fixed Instalment Method And Reducing Balance Method-
Fixed Instalment Method:
Reducing Balance Method:
Accounting Treatment of Depreciation-
(A) Journal entries in the books of firm.
(B) Ledger Accounts in the books of firm
By going through these Maharashtra State Board Bookkeeping and Accountancy 11th Notes Chapter 3 Journal students can recall all the concepts quickly.
Introduction-
The businessman or accountant records all day-to-day business transactions in the books of account on the basis of supporting documents. The word ‘document’ means a piece of paper or booklet providing information, especially of an official or legal nature. Accordingly, a source document refers to the first document to record the transactions in the journal or subsidiary books of account. It is a first or original document on the basis of which information is recorded in, the different books of accounts. When we purchase machinery in cash for ₹ 50,000, we get the cash memo. Such a cash memo is a sources document.
Thus, cash memos, vouchers, debit and credit notes, pay-in-slip, receipts, withdrawal slips, inward and outward invoices, cheques, etc. are the different source documents, businessmen use in their day-to-day business transactions. Each and every accounting entry is supported by the relevant documentary evidence called ‘accounting documents’. Accounting documents provide a base for entering business transactions in the books of accounts.
Importance and Utility Of Accounting Documents-
Important Accounting Documents are Explained As Follows-
Voucher : A document that supports a payment made by the business is called voucher. It is a legal proof of certain amount money is paid to a person or party. The different types of vouchers prepared by the accountants, e.g. Cash voucher, Bank voucher, Purchase vouchers, Sales vouchers, Travel bills, Wage bill, Salary bill, etc. Vouchers are classified as internal voucher and external voucher.
(iv) Cash voucher : The legal proof or evidence of cash receipts and cash payments is called cash voucher. Accounting document obtained from payee is also called cash voucher. Entries in the cash book are made on the basis of cash vouchers. The specimen of cash voucher is given below:
(v) Tax invoice : A document which is prepared by the seller to inform the buyer about the quantity of goods supplied rates and terms of payment, trade discount if any allowed, CGST and SGST charged on the goods supplied and total amount payable by the buyer is called Tax invoice. Tax invoice is considered by buyer as ‘Purchase invoice’ or ‘Inward invoice’. Same tax invoice is considered by seller as ‘Sales invoice’ or ‘Outward invoice’. Tax invoice is prepared and sent by seller to buyer after the goods are supplied to buyer. The buyer makes the entries in the purchase book on the basis of purchase invoice and the seller makes the entries in the sales book on the basis of sales invoice.
The specimen of Tax invoice is given below :
(vi) Credit Memo : When the goods are sold on credit the supplier of the goods issues a document called credit memo to the purchaser of goods. It is also known as ‘Bill’ or ‘Invoice’. The period of credit, date of payment, name of customer, address of the customer, etc. are mentioned on this document. Credit memos are usually printed and serially numbered by machine. Credit memo is prepared in duplicate. The second copy i.e. carbon copy is retained by the seller. On the basis of carbon copy of the credit memo entries in the books of seller are made. Credit memo is sent by the seller to the buyer. The buyer’s signature is obtained on the carbon copy. The entries made in the sales book are verified on the basis of credit memo.
(vii) Receipt : A document issued by the receiver of money or creditor to acknowledge the receipt of cash or payment of debt is called a receipt. It serves as proof of payment. It is a written acknowledgement that one has received goods or money. It is issued by the receiver to the person who makes payment or gives money. Receipt is a main document on the basis of which the debit side or the receipts side of the cash book is written. The specimen of Receipt is given below:
(viii) Cheque : A cheque is a document used by an account holder for withdrawing cash from the bank or for making payments to other people through the bank. A cheque book contains 10, 25, 50 or 100 blank cheques. Cheques are serially numbered. A cheque book is provided by the bank to account holders free of charge, if the account holder agrees to keep a minimum balance of ₹ 1,000/- in his account.
In legal language, a cheque is a written unconditional order of the account holder to his banker to pay a certain sum of money only to himself or to bearer or to the person named therein. The person to whom the amount of cheque is payable is called payee and the bank on whom the cheque is drawn is called the drawee bank, and account holder who issues the cheque is called the drawer.
A separate slip with the printed columns are attached at the end of the cheque book to write details regarding cheques issued.
The cheque may be classified as Bearer Cheque, Order Cheque and Crossed Cheque.
Contents : The cheque contains the following details:
Specimen of cheque is given below:
(a) Bearer Cheque: Bearer means possessor. In case of bearer cheques, a bank makes immediate cash payment to the possessor of the bearer cheque on its presentation. For immediate withdrawal of cash, a bearer cheque is used by the account holder. A cheque on which instead of writing name of the payee, the word self is written, is called a bearer cheque. The bearer of a cheque has to make a signature on the back
of the bearer cheque before withdrawing money from the bank. While making cash payment, against bearer cheques a bank never makes inquiry whether the payee is a wrong doer or not. A bearer cheque is very dangerous, because, in case it is lost, the possessor, can easily obtain cash from the bank. A bearer cheque is as good as cash, because it can be encashed by any one at any time during banking hours.
Specimen of bearer cheque is given below:
(b) Order Cheque : A cheque in which the account holder orders the bank to make payment to a person whose name appears on the cheque, is called an order cheque. In this type of cheque, word ‘bearer;’ after the name of payee is struck off and word ‘order’ is retained. An order cheque is safer than a bearer cheque. While making cash payments against order cheques, a bank makes inquiry whether the possessor of the order cheque is the right person or not.
Specimen of order cheque is given below :
(c) Crossed Cheque :
Crossed cheque is a cheque on which two parallel transverse lines are drawn on the face of the cheque at the left hand top corner with some words or without any word. When the crossed cheque is presented for payment it is not paid in cash to payee or possessor, but it is credited to the payee’s account in the bank and after two or three days, payee i.e. account holder is permitted to withdraw the amount from the bank if it is cleared and not dishonoured. This type of cheque is more safe than any other. If a crossed cheque is lost, a wrong doer cannot obtain payment from the bank. The bank never makes immediate cash payment on counter on presentation of a crossed cheque. Crossed cheques are sent to distant places by ordinary post safely.
Specimen of crossed cheque is given below :
(d) Account Payee Cheque :
A cheque is said to be A/c payee crossed cheque, when the drawer inserts the words ‘A/c payee’ in between the two parallel transverse lines of a crossed cheque. When the drawer of a cheque desires to pay the amount of a cheque to the banker who has an account of the payee for the benefit of the payee; he issues an A/c payee crossed cheque. In this type of crossing, there is direction to the collecting banker to collect the amount of the cheque for the benefit of the payee. This type of crossing prevents further negotiability of a cheque.
Specimen of an A/c payee crossed cheque is given below:
Journal-
Meaning:
Journal is the most important book of accounts, in which business transactions are systematically recorded.
It is a book of daily records. As and when a businessman completes a business transaction, he records it in
the rough or waste book in a short and summarised form. Then this business information from the rough
book is recorded in a journal. Thus, business transactions are recorded in a journal on the basis of the rough
book or waste, book.
The word bJournal is derived from the French word ‘jour’, which means ‘a day’. Accordingly, journal is a book of daily records. Journal is one of main books of original entry in which transactions are recorded for
the first time, from source documents. This is also known as the book of original entry or first entry or
primary entry. Business transactions are first entered in a journal and subsequently they are posted to another account book called ledger. Journal is a book of account in which all types of day to day business transactions are recorded in chronological order (i.e. datewise). In a journal, business transactions are recorded systematically and in summarised form by following the rule of debit and credit.
According to L. C. Cropper, “A journal is a book, employed to classify or sort out transactions in a form convenient for their subsequent entry in the ledger. ”
Generally, the following Books of Accounts are maintained by a businessman for recording the business transactions.
(ii) JOURNAL (Definition) :
(iii) IMPORTANCE OF JOURNAL :
The importance of a journal is explained as below:
(iv) Utility of Journal :
Utility means usefulness. Journal is useful to different parties in different ways. The utility of a journal is explained as below:
(v) Specimen Form of the Journal :
(a) Specimen form of the journal is given below:
(b) Significance and explanation of columns provided in the journal :
(1) Date column: In this column of the journal, the date of transaction is written. Date of transaction is written in order of year, month and date. For example, 1st July, 1997 is written as 1997 July 1st.
(2) Particulars column: In the particulars column of the journal, the accounting entry is written in summarised form of debit and credit. On the first line account debited is written. The word ‘Dr’ is written at the right end of particular column or the same line of account debited. On the second line account credited is written with a prefix the word ‘To’ after leaving short space from the date column. Just below this accounting entry narration i.e. explanation of business transaction, is written in brackets. Narration begins with the word “Being”.
(3) Ledger Folio No. Column : In the Ledger Folio No. (L.F. No.) column of the journal, the page number of s
the ledger on which the journal entry is posted, is recorded. The page number of the ledger is recorded in ,
red ink for easy reference. By referring to the ledger page as indicated in the journal under L.F. No. column, businessman can easily ascertain the exact financial position of that account.
(4) Debit amount and Credit amount columns : In the journal, the fourth and fifth columns are provided
for debit amount and credit amount respectively. In those columns, amounts of business transactions are entered, in figures.
Totalling (Casting) of Journal: At the end of each page of the journal, the total of the amounts recorded ‘
in Debit column and Credit column is done to check arithmetical accuracy of the amount recorded in debit ‘
and credit columns of the journal. The total of both the columns must agree with each other. This totals are again recorded on the next page in the beginning as total brought forward from the previous page. On the
last page of journal ‘Grand Total’ is cast.
(vi) Journalisation:
(a) Meaning of Journalisation : Journalisation refers to recording business transactions systematically and in summarised form in the journal. In other words, journalisation means a process of entering two fold effects of business transactions –
in the summarised form of debit and credit in the journal.
(b) Steps to be taken for journalisation of business transactions are discussed below:
Steps in journalisation :
(vii) Goods Account : In the books of account, Goods Account does not appear. It is usually classified as Purchase A/c, Return Outward A/c (Purchase Return A/c), Sales A/c, Return Inwards A/c (Sales Return A/c), Goods destroyed by Fire A/c, Goods distributed as free samples, Goods withdrawn by the Proprietor’s A/c, Goods damaged or Lost in Transit A/c, etc.
Purchases are of two types viz. Cash Purchases and Credit Purchases. Similarly Sales are of two types viz. Cash Sales and Credit Sales.
(viii) Types of Journal Entry :
The different types of journal entries are shown in the following chart:
The different types of journal entries are explained below:
(a) Simple Journal Entry : A journal entry in which only two accounts are affected of which one account is debited and the other account is credited is called simple journal entry. In a simple entry, one account is always debited and othei account is always credited.
Example of simple jourr al entry is given below:
Purchase furniture for ₹ 25,000.
(b) Combined Journal Entry: Journal entry may be classified as simple journal entry and compound / combined journal entry. A journal entry which contains more than one debit and more than one credit or both is called combined or compound journal entry. In a combined journal entry: (i) one account is debited and more than one account are credited or (ii) more than one account are debited and one account is credited or (iii) more than one account are debited and more than one account are credited.
Illustration of combined entry is shown below :
(c) Opening Entry: The combined journal entry which is passed in the books of accounts in the beginning of the accounting year to record the balances of all assets and liabilities of the business carried forward from the last Balance Sheet is called opening entry. In the Balance Sheet, balancing value of assets, liabilities and capital of the business enterprise on the last day of the financial year are recorded. In the beginning of the next financial year, new books of accounts are opened and balances of assets, liabilities and capital account recorded in the previous balance sheet are brought forward. The positive difference between account debited and account credited in the opening entry is treated as capital fund of the proprietor. Thus, in the beginning of the year capital fund is ascertained by deducting all liabilities from all the assets. In the form of equation.
Capital = Total Assets – Total Liabilities
GST-
(i) Meaning : GST is the abbreviation of Goods and Service Tax. Before the application of GST every state used to impose variety of taxes at different stages of trading. The different taxes which existed before were: Excise duty, Custom duty, VAT i.e. Value Added Tax, Entertainment Tax, Central Sales Tax, Octroi, etc. Now all these taxes are brought under one head called GST. GST is also called One nation, one tax, one market. GST is implemented with effect from 1st July, 2017.
In the tax invoice for Goods there is Harmonised System of Nomenclature Code (HSN) whereas in the tax invoice for services there is Service Accounting Code (SAC).
The chart showing goods and services and Rate of GST applicable is given below :
Note :
(1) The rates and types of GST are as prescribed by the government. GST rates are subject to change. Electricity, petrol, diesel etc are not under purview of GST.
(2) IGST means Integrated Goods and Service Tax. This is one of the three categories under Goods and service Tax (CGST, IGST and SGST) with concept of‘One Tax One Nation’.
IGST falls under integrated Goods of Service Tax Act 2017.
IGST is charged when movement of goods and services take place from one state to another.
Discount-
Discount is a concession given in monetary term by one trader to another trader for purchase of large quantity or for quick repayment. There are two types of discount viz.
(i) Trade discount and (ii) Cash discount.
(i) Trade Discount: It is a discount given by one trader to another trader like manufacturer to wholesaler or wholesaler to retailer to induce the later to purchase a large quantity of goods. It is given for credit transaction also. It is deducted from invoice price of goods and not recorded in the books of account, e.g. Sold goods to Ravi for ₹ 1,000 on 10% Trade discount.
(ii) Cash Discount: It is a discount given by the seller to the purchaser for quick cash payment. It is given or received for cash transaction and cash payment only. It is calculated after deducting trade discount i.e. on the net price and recorded in the journal by means of entry, e.g. Sold goods to Ravi for ₹ 1,000 on 10% T.D. and 5% C.D. terms and cash paid.
Distinguish Between Trade Discount And Cash Discount-
Trade Discount Cash Discount:
Cash Discount:
By going through these Maharashtra State Board Bookkeeping and Accountancy 11th Notes Chapter 10 Single Entry System students can recall all the concepts quickly.
Introduction-
On account of many factors such as incomplete knowledge of accounting principles, lack of experience of writing accounts, less staff,.shortage of finance, time factor, etc., small businessmen cannot adopt the scientific method of accounting to record their business transactions systematically in the separate set of books.
However, they record only a single aspect of every business transaction in their books to ascertain the result of business and to know the amount receivable from customers and amount payable to suppliers or lenders. They keep record of cash received, cash paid, cash sales, cash purchases, debtor’s account, creditor’s accounts, etc. Thus, any set of procedure adopted to ascertain business result is usually referred as Single entry system of accounting. Although single entry system of accounting.is suitable for small business, it suffers from many drawbacks.
Meaning And Definition of Single Entry Book Keeping System-
A system of book-keeping in which the accountant or the businessman records only one aspect of business transaction and ignores the other aspect is called ‘Single entry book keeping system’. Under single entry system of book keeping, only record of cash and personal accounts are maintained.
According to Kohler, single entry book-keeping refers to “a system of book-keeping in which as a rule only records of cash and of personal accounts are maintained, it is always incomplete double entry, varying with circumstances.”
According to this definitioft, under single entry system accountants or businessmen keep records of those transactions and accounts which they find absolutely necessary. Under this system cash accounts, debtor’s accounts and creditor’s accounts are maintained. The record of impersonal accounts such as real accounts and nominal accounts is not maintained under this system.
When businessmen or accountants adopt single entry book-keeping system, they calculate profit or loss made during the accounting year by any one of the following two methods viz. (i) Statement of Affairs methods and (ii) Conversion method.
Difference Between Single Entry System And Double Entry System-
Single Entry System:
Double Entry System:
Statement of Affairs-
A list of all assets and liabilities prepared under single entry system to find out capital balance is called statement of affairs. It is just similar to Balance Sheet prepared under double entry system. On left hand side of this statement all liabilities are recorded and on the right hand side all assets are recorded. It is usually prepared to find out capital employed in the business.
Statement of affairs prepared on the basis of opening balances of assets and liabilities in the beginning of the accounting year is called opening statement ,
of affairs and a statement of affairs prepared on the basis of closing balances at the end of the year is called closing statement of affairs. From the opening statement of affairs, opening capital is ascertained and from closing statement of affairs capital at the end of year is ascertained. If capital at the end of the year exceeds the opening capital, there is a profit. If opening capital exceeds the capital at the end of the year, there will
be loss.
Proforma of Statement of Affairs :
Difference Between Balance Sheet And Statement of Affairs-
Balance Sheet:
Statement of Affairs:
Statement of Profit or Loss-
Under single entry system financial position is ascertained by preparing statement of affairs. Similarly business result is ascertained by preparing statement of Profit or Loss.
Under single entry book keeping system, Profit or Loss of the business in a particular year is calculated by following one of the following two method viz.
(i) Net Worth Method and (ii) Conversion Method
(Please note that conversion method is not prescribed in XI syllabus)
Net Worth Method :
Under this method profit is calculated by deducting capital at the beginning of the year from the capital at the end of that accounting year. From the balancing figure amount of drawings made during the accounting year is added and addition made to capital if any is deducted. The balancing figure represents trading profit or profit before adjustments. From trading profit business expenses are deducted and business incomes are added to get net profit of the business. For this statement of Profit or Loss is prepared.
The statement prepared by the business organisation under single entry to find out profit earned or loss suffered is called statement of Profit or Loss. The following accounting items are considered in the Statement of Profit or Loss viz. Opening Capital, Capital at the end of the year, drawings made during the year, additional capital introduced during the year, interest on capital, interest on drawings, all business expenses and all business incomes.
Proforma of Profit or Loss :
[Note: If result comes positive there is profit and if result comes negative there is loss]
Additional Information (Adjustments):
Information in respect of unrecorded transactions or unrecorded accounting effects are called additional information or adjustments :
(1) Additional Capital : Amount of cash or any other asset brought into the business by the proprietor any time during the accounting year is called additional capital.
Additional capital is introduced into the business by the proprietor, it increases the amount of closing capital. Hence, in order to calculate the profit, additional capital is deducted from the Closing Capital.
(2) Drawings: Total amount of cash or any other business asset withdrawn by the proprietor from the business for self use or family use is called drawings. Due to withdrawal of funds or assets closing capital decreases. Hence the amount of drawings is added to Closing Capital.
(3) Depreciation: The reduction in the value of fixed assets due to it use, wear and tear, etc. is called depreciation. Depreciation is charged against profit. Hence the amount of depreciation is deducted from trading profit.
(4) Bad Debts : Irrecoverable amount from the debtor is called Bad debts. Bad debts is treated as business loss. Hence the amount of bad debts is deducted from trading profit.
(5) Reserve for Doubtful Debts (Provision for Bad and Doubtful Debts): The provision made for probable loss is called ‘Provision for Bad and Doubtful Debts’. The amount of Provision for Bad and Doubtful Debts is deducted from Trading Profit.
(6) Undervaluation of Assets : Assets which are undervalued previously and if they are brought to correct value, there will be increase in the value of concerned assets.
Since Capital = Assets – Liabilities.
Increase in the value of asset results into the capital gain and therefore such increase is to be added to trading profit.
(7) Overvaluation of Assets : Assets which are overvalued previously and if they are brought to correct value, there will be decrease in the value of the concerned assets. Decrease in the value is a loss and hence overvaluation i.e. decrease in the value of asset is to be deducted from the trading profit.
(8) Undervaluation of Liabilities: Liabilities which are undervalued previously and if they are to be brought to the correct value, there will be increase in the value of liabilities. Increase in the value of liabilities deduces the volume of profit and hence undervaluation of liabilities i.e. increase in the value of liabilities is deducted from the trading profit.
(9) Overvaluation of Liabilities : Liabilities which are overvalued previously and if they are brought to correct value, there will be decrease in the value of liabilities. Decrease in the value of liabilities is a gain to the business and hence overvaluation of liabilities i.e. decrease in the value of liabilities is to be added to trading profit.
(10) Interest on Loan : Amount borrowed by the business enterprises from the financial institutions including banks for productive purpose is called loan. Interest on loan required to be paid by the business enterprise to the lending institutions. While calculating interest on loan the period for which it is used is to be considered. Interest on loan is an expenditure and hence the amount interest is to be deducted from trading profit.
(11) Interest on Capital: Interest on capital changed by the proprietor is an expense of the business. Hence amount of interest is deducted from the trading profit. On opening balance of capital interest at specified rate is to be calculated for complete one year and interest on additional capital introduced into the business during the accounting year is to be calculated at specified rate for the proportionate period i.e. from the date of investment of additional capital to the 31st March of the accounting year. E.g..Capital as on 1st April 2019 is ₹ 2,50,000 and additional capital of ₹ 50,000 is introduced into the business on 1st August 2019. The rate of interest on capital is 12% p.a.
Interest on capital is calculated as follows:
(12) Interest on Drawings : Interest charged on the drawing is an income for the business enterprises. Hence, amount of interest is always added to trading profit. If the dates of drawings are given, then interest is to be charged at specified rate for proportionate period i.e. from the date of drawing to the end of that accounting year.
If the dates of drawings are not given, then interest at the specified rate is to be calculated for average period of 6 months.
(13) Outstanding / Unpaid Expenses: Expenses that are due for payment but not yet paid are called outstanding or unpaid expenses. The amount of outstanding or unpaid expenses is charged against Profit and Loss A/c and hence the amount of outstanding/unpaid expenses is deducted from the trading profit.
(14) Prepaid Expenses / Expenses paid in Advance: Expenses that are paid before they are due for payment are called prepaid expenses. The amount of prepaid expense is added to the trading profit.
By going through these Maharashtra State Board Bookkeeping and Accountancy 11th Notes Chapter 2 Meaning and Fundamentals of Double Entry Book-Keeping students can recall all the concepts quickly.
Meaning and Definition of Double Entry Book-Keeping System-
Meaning:
The Double Entry Book keeping system is scientific, perfect and a complete method of recording business information in the books of accounts. Usually, in every business transaction, we find two accounts, out of which one account is given debit effect and other account is given credit effect. In this system for every debit, there is a corresponding credit and in money term all debits are equal to all credits. If any thing comes into business, an account of that item is to be debited and if any thing goes out from business, an account of that item is to be credited in the books of account, e.g. Ashok purchases goods worth ₹ 5,000 from Kishor by paying cash. Here, Ashok gets goods of ₹ 5,000 and parts with cash of ₹ 5,000. In the books of Ashok, Goods A/c. will be given debit effect to extent of ₹ 5,000 and Cash A/c will be given credit effect to extent of ₹ 5,000. Thus, every business transaction is split up into two parts or two aspects, i.e. debit aspect and credit aspect. Debit effect is posted to the debit side of one Ledger A/c. and credit effect is recorded on the credit side of the other Ledger A/c.
It means every business transaction is recorded in two different accounts at two different places. In this manner, in double entry book keeping system, completed business transactions are first recorded in journal and then in ledgers. At the end of the accounting year, all ledger accounts are closed and balanced. The balance shown by each ledger account is then recorded on a separate sheet in order of debit and credit. This is known as trial balance. When this process is over, the debit column and credit column of trial balance are totalled. The total of debit side always agrees or equals with the total of credit side. It means every debit is given equivalent credit under the double entry book-keeping system.
Thus, double entry book-keeping system seeks to record every business transaction in money or money’s worth in its double aspects viz. debit and credit.
Definition of Double Entry Book Keeping System:
(1) J. R. Batliboi : “Every business transaction has a two fold effect and that it affects two accounts in opposite directions and if a complete record is to be made of each such transaction it would been necessary to debit one account and credit another account. It is this recording of two fold effect of every transaction that has given rise to term Double Entry. ”
(2) William Pickles : “The Double Entry System seeks to record every transaction in Money or Money’s worth in its double aspect – the receipt of a benefit by one account and the surrender of a like benefit by another account, the former entry being to the debit of the account receiving and the later to the credit of the account surrendering.’’
Methods of Recording Accounting Information-
Book keeping system is classified as (i) Indian system of recording accounting information and (ii) English system of recording accounting information.
(i) Indian System : Traditional method of recording and keeping the records of accounts in any one of Indian languages like Marathi, Hindi, Gujarati, Urdu, etc. is called the Indian accounting system. It is also called Mahajani / Deshi Nama system. Under this system, transactions are recorded in long books known as Kird or Bahi Khata and it is not based on Double Entry book-keeping system. This system does not have scientific base. This system is still used in India by small business organisations.
(ii) English System: When business informations are recorded in the books of accounts in English language as per modern (advanced) method, it is called. English accounting system. Now-a-days, English accounting system is more advanced and popular and universally followed all over the world. In India, in many large scale business organisations, English system of recording accounting is followed. English accounting system is sub classified as (i) Single entry book-keeping system and (ii) Double entry book-keeping system.
Single Entry Book-Keeping System :
A book-keeping system in which only one aspect of business transaction is considered and systematically recorded in the books of accounts and other aspect is completely ignored is called single entry book-keeping system. Under this system of book keeping only Cash Book and personal accounts are prepared and maintained. It is incomplete and unscientific method of book-keeping. It cannot provide accurate information about the profitability and financial position of the business. It has several drawbacks and defects. It is not as popular as double entry book-keeping system. It is rarely used in the modern business world. This system is suitable for small business organisations.
Double Entry Book-Keeping System :
A book-keeping system in which double or two fold effects of each transaction is recorded systematically is called double entry book-keeping system. In this system one account is debited and another account is credited with equal amount. It is scientific method of recording all business transactions in the books of accounts.
The main principles of double entry system are stated as follows :
In every business transaction minimum two interested parties are involved.
Every business transaction has minimum two aspects or effects viz. one receiving benefit and another giving benefit.
Two aspects or effects of every business transaction are recorded in the books of accounts.
In monetary term every debit has equal credit. It means every debit has corresponding credit of equal amount. Two fold effects of every business transaction are recorded by debiting one account and crediting another account.
Advantages of Double Entry Book – Keeping System-
Conventional System of Accounting-
Conventional system of accounting is an old and traditional method of recording business transactions in the books of accounts. Indian accounting system is one of the finest example of conventional system of accounting. Under this system accounting information are recorded in any one of the Indian languages such as Marathi, Gujarati, Hindi, Marwadi, Urdu, etc.
It is a system of accounting in which businessman or accountant (in local language called ‘munimjV) prepares conventional cash book, Journal i.e. Rojmel and Ledger i.e. Khatavahi to record business transactions. Conventional system of accounting is more suitable and useful for those businessmen whose turnover is small and number of business activities is limited. Even today this accounting system is adopted by many professionals and businessmen.
Left hand side of every ledger account is called Debit i.e. ‘Jama’ and right hand side is called Credit i.e. ‘Udhar’ or ‘Nave’. This system suffers from many drawbacks. It is incomplete system of maintaining accounting records. It is not recognised by law as an accounting system.
Classifications of Accounts-
(i) Account:
(A) Meaning: An account is a list of business transactions falling under the same description for a given period of time. A systematic and summarised record of business transactions with respect to person, property, loss, gain, income or expense is known as account. An account is generally prepared for one complete year. The word ‘Account’ in abbreviation can be written as ‘A/c.’ Accounts are prepared and maintained in the Ledger. Separate Ledger sheet or page is used for one specific account.
According to J. R. Batliboi, “An account is summarised record of transactions affecting one person, one kind of property or one class of gain or loss. ”
An account is divided into two equal parts, viz. left hand side called debit side and right hand side called credit side.
(B) Specimen of an account: The specimen form of an account is given below:
An account is divided into two equal parts by drawing a double line in middle of the account (i.e. T form). The left hand side is called debit side (Debit record) and right hand side is called credit side (Credit record).
(ii) Classification of Accounts :
Classification of accounts means dividing or grouping different accounts into certain well defined classes with certain objectives.
Accounts are classified into two main groups as (i) Personal Account, and (ii) Impersonal Account.
(1) Personal A/c : Account of person or account relating to person with whom a business keeps dealing is called Personal A/c. Therefore, an account of an individual, partnership firm, company, club, institution, local authority, association, State Government and Central Government with which business keeps dealings is called a personal account. From the view point of law, persons are classified as (a) natural or living persons,(b) legal or artificial persons and (c) Representative Persons. The term natural person implies individuals human beings, e.g. Ashok’s A/c, Kishor’s A/c etc. A legal person does not have life, body and soul, but the law recognises it as a person because all business transactions are done in its name.
For instance Bank of India’s A/c is a personal account as Bank of India is a financial institution which deals in money. It is a legal person. Under the title of legal person the following institutions and legal bodies are included, viz. partnership firm, joint stock company, association, clubs, legal, medical, financial, educational and charitable institutions, gram panchayat, district body, State Government, Central Government, etc. Account of Debtor, Account of Creditor, Bank A/c, College’s A/c, Hospital’s A/c, Club’s A/c and Partnership Firm A/c. are called Personal A/cs.
Representative Personal Account represents an account of a group of certain persons with whom business keeps dealings e.g. Sundry Debtors A/c, Prepaid Insurance A/c, Outstanding Salaries A/c , etc.
(2) Impersonal Account : All accounts other than personal accounts are known as impersonal accounts. In other words, all accounts which are not personal accounts are grouped under impersonal account. For instance Cash A/c, Rent A/c, Wages A/c and Furniture A/c. are impersonal accounts. Impersonal accounts are classified as (a) Real A/c. and (b) Nominal A/c.
(a) Real A/c : An account of tangible as well as intangible property or any thing owned and possessed by a business is called Real A/c. In other words Real A/c is that account which relates to tangible as well.as intangible assets, objects, etc. of the business. For example Cash A/c, Furniture A/c, Land and Building A/c, Goods A/C, Goodwill A/c, Patent A/c, Plant and Machinery A/c. are called Real A/c. as they relate to the property of the business. Real A/c is further divided into Tangible Real A/c and Intangible Real , A/c.
Tangible Real assets are those which can be seen, touched, felt and measured. It has physical existence. Accounts of Tangible assets are called Tangible Real A/c. E.g. Cash A/c, Goods A/c etc. Intangible Real assets are those which cannot be seen or touched, but it can be measured in terms of money. Accounts of intangible assets are called Intangible Real A/c., e.g. Goodwill A/c, Patent A/c, Trademark A/c, Copy right A/c etc.
(b) Nominal Account: An account relating to business expense, income, gain and loss is called Nominal account. In other words, an account of business expense, business income, business loss or business gain is called Nominal A/c. For instance Rent A/c. is a Nominal A/c, as rent is an expense if it is paid by business and it is an income if it is received by business. Similarly, Salaries A/c, Interest A/c, CQmmission A/c, Discount A/c., etc are Nominal A/c. Nominal A/c is also called as Fictitious A/c. In the ledger, separate account is prepared and maintained for each head of business expenses, losses, incomes and gains. Nominal A/c represents business incomes, gains, expenses and losses. Thus, a classification of accounts is shown in summarised form as below.
(iii)List of Legal Persons Are Given Below:
Legal Persons:
(iv) Illustrations on Different types of Accounts :
(v) Table Showing Classification of Accounts Into Personal Accounts, Real Accounts & Nominal Accounts :
(vi) Meaning of Debit and Credit:
Examples :
(1) Paid ₹ 10,000 to Seema.
In this transaction since Seema is receiver of cash, her account is to be debited i.e. we have to enter this transaction on the debit side of Seema’s A/c. On the other hand as cash goes out from the business, Cash A/c is to be credited i.e. we have to enter the transaction on the credit side of Cash A/c.
(2) Received ₹ 6,000 from Sameer.
In this transaction since cash comes into the business, Cash A/c is to be debited i.e. we have to enter the transaction on the debit side of Cash A/c. On the other hand Sameer is the giver of cash and hence his account is to be credited i.e. we have to enter this transaction on the credit side of Sameer’s A/c.
Rules For Journalisation : (Golden Rules of Accountancy) (Traditional Approach)-
(a) Personal A/c.: Personal A/c. relates to persons with whom a business keeps dealings. A person may be a natural person or a legal person. If a person receives anything from the business, he is called receiver and his account is to be debited in the books of the business. If person gives anything to the business, he is called a giver and his account is to be credited in the books of the business.
Principle of Personal A/c. states that:
Debtt the Receiver of The BenefiT Credit the Giver of the Benefit:
E.g.
(b) Real A/c.: Real A/c relates to property which may either come into the business or go from the business. If any property or ‘goods’ comes into the business, account of that property or goods is to be debited in the books of the business. If any property or ‘goods’ goes out from the business, account of that property or goods is to be credited in the books of the business. Principle of Real A/c states that:
Debit What Comes in Credit What Goes Out:
E.g. Goods sold on cash for ₹ 1,500/-. In this transaction cash, an asset comes into the business on sale of goods, and therefore Cash A/c is to be debited in the books of business. On the other hand, goods, an asset of the business goes out of the business on sale and therefore Goods A/c. is to be credited in the books of the business.
(c) Nominal A/c.: Nominal account is an account that relates to business expenses, loss, income and gain. If business incurs expense to manage and run business, account of that expense is to be debited in the books of business. When a business earns income by rendering services or hiring business assets, an account of that income is to be credited in the books of business. In the transaction of sale or purchase of goods or assets, if any loss is incurred by the business, account of that loss is to be debited in the books of the business. If in the transaction of sale of goods or asset any profit is earned by the business, then account of that profit is to be credited in the books of the business.
Principle of Nominal A/c. states that:
Debit All The Expenses or Losses
Credit All Incomes, Gains or Profits
E.g.
In the first transaction, commission which is paid to an agent is business expense and it is to be debited in the books of the business. In the second transaction interest which is received is business income and therefore it is to be credited in the books of the business. In the third transaction, the business has incurred a loss of ₹ 1,000/- on account of sale of furniture. The account of loss is to be debited in the books of the business.
Activity II (Given in the Text book to solve)
(I) From the following transactions find out
(1) Two Aspects (2) Two Accounts (3) Classify the Accounts
(i) Started business with Cash ₹ 50,000.
(ii) Purchased Machinery on credit from Avinash ₹ 20,000.
(iii) Purchased goods ₹ 5,000 from Rahul on cash.
Solution :
(1) Two Aspects
| Aspect I | Aspect II |
| Cash comes in | Proprietor is giver |
| Machinery comes in | Avinash is giver |
| Purchases is an expense | Cash goes out |
| Aniket is the receiver | Sales is an income |
| Salaries is an expense | Cash goes out |
| Cash comes in | Furniture goes out |
(2) Two Aspects and Two Accounts :
| Two Aspects | Two Accounts | |
| Cash comes in Proprietor is giver | Cash A/c ……………………. |
……………………. Capital A/c |
| Machinery comes in Avinash is giver | Machinery A/c, ……………………. |
……………………. Avinash’s A/c |
| Purchases is an expense Cash goes out | Purchases A/c ……………………. |
……………………. Cash A/c |
| Aniket is the receiver Sales is an income | Aniket’s A/c ……………………. |
……………………. Sales |
| Salaries is an expense Cash goes out | Salaries A/c ……………………. |
……………………. Cash A/c |
| Cash comes in Furniture goes out | Cash A/c ……………………. |
……………………. Furniture A/c |
(3) Two Aspects, Two Accounts and Classify the Accounts :
| Two Aspects | Two Accounts | Classification |
| Cash comes in Proprietor (Capital) is giver | Cash A/c Capital A/c |
Real A/c Personal A/c |
| Machinery comes in Avinash is giver | Machinery A/c Avinash A/c |
Real A/c Personal A/c |
| Purchases is an expense Cash goes out | Purchases A/c Cash A/c |
Nominal A/c Real A/c |
| Aniket is the receiver Sales is an income | Aniket’s A/c Sales A/c |
Personal A/c Nominal A/c |
| Salaries is an expense Cash goes out | Salaries A/c Cash A/c |
Nominal A/c Real A/c |
| Cash comes in Furniture goes out | Cash A/c Furniture A/c |
Real A/c Real A/c |
Analysis of transaction by applying rules of Debit and Credit
(Traditional Approach)
Table showing various business transactions, two aspects affected, two accounts involved, classification of accounts, rules applicable, account to be debited and account to be credited is given below.
Activity: 02 (Given in Textbook to Solve)
Fill the following table.
Analysis of transaction by applying rules of Debit and Credit
(Traditional Approach)
Rules For Debit And Credit: (Modern approach) :
The chart showing the rules of debit and credit as per modern approach is given below.
Two fundamental rules are followed to record the changes in the accounts are stated below:
(1) For changes in Assets / Expenses.
(2) For changes in Liabilities / Revenues (Gains)
Activity: 03 : Fill the following table.
Analysis of transaction by applying rules of Debit and Credit (Modern Approach)
Analysis of the Following Transactions and Finding Out Their Effects-
(1) Started business with cash ₹ 50,000.
In this transaction cash comes in and increases (↑) Capital by ₹ 50,000. Hence, Cash A/c is debited by ₹ 50,000. On the other hand Liability of the business viz. Capital is created and increased (t). Hence, Capital A/c is credited by ₹ 50,000.
(2) Deposited ₹ 40,000 into the bank.
In this transaction after depositing Cash ₹ 40,000 into the bank, Bank balance increases (↑) and hence Bank A/c is debited by ₹ 40,000. On the other hand cash balance decreases (4) and hence, Cash A/c is credited by ₹ 10,000.
(3) Purchased goods worth ₹ 6,500 from Sameer on credit.
In this transaction Goods worth ₹.6,500 comes into the business after purchases. Purchases is our expense and it increases (↑). Hence, Purchases A/c is debited by ₹ 6,500. On the other hand Sameer is our Creditor and Liability towards creditor increases (↑). Hence, Sameer’s A/c is credited by ₹ 6,500.
(4) Sold goods worth ₹ 4,000 to Mr. Sawant on Credit.
In this transaction after sale of goods of ₹ 4,000, our revenue increases (↑) by ₹ 4,000. Hence, Sales A/c is credited. Mr. Sawant is our debtor and our assets in the form of cash receivable from debtors increases (↑). Hence, Mr. Sawant’s A/c is debited.
(5) Purchased Furniture for ₹ 25,000 for office use and amount paid by cheque.
In this transaction value of furniture i.e. assets increases (↑) and hence, Furniture A/c is debited by ₹ 25,000. After payment, bank balance i.e. our assets decreased (↓) and hence, Bank A/c is credited by ₹ 25,000.
(6) Received cash ₹ 2,000 from Mr. Sawant.
In this transaction cash comes in and cash balance i.e. assets increases (↑). Hence, Cash A/c is debited by ? 2,000. Amount receivable from Mr. Sawant i.e. debtor (asset) decreases (↓). Hence, Mr. Sawant’s A/c is credited by ₹ 2,000.
(7) Paid cash ₹ 1,500 to Sameer.
In this transaction, Sameer is our creditor and amount payable to Sameer i.e. Liability decreases. Hence, Sameer’s A/c is debited by ₹ 1,500. Cash goes out and cash balance i.e. asset decreases. Hence, Cash A/c is credited by ₹ 1,500.
From the following information prepare a chart showing assets, liabilities, incomes, expenses and capital.
(1) Furnitures and Fixtures
(2) Commission Received
(3) Machinery
(4) Sundry Creditors
(5) Bills Payable
(6) Discount Allowed
(7) Sundry Debtors
(8) Patents
(9) Royalty
(10) Discount Earned
(11) Bills Receivable
(12) Drawings
(13) Capital
(14) Bank Loan
(15) Bank Balance
(16) Cash in Hand
(17) Salaries Paid
(18) Travelling Expenses
(19) Repairs and Renewals
(20) Goodwill
(21) Depreciation
(22) Bank Overdraft
(23) Prepaid Insurance
(24) Outstanding Salary
(25) Wages
(26) Carriage
(27) Premises
(28) Dividend Received.
Answer:
Accounting Equations :
Accounting equation implies that the total assets of a business are always equal to the total liabilities of a business plus capital i.e. Owner’s equity.
This equation is symbolically expressed as follows:
Assets = Liabilities + Capital OR
A = L + C
Other equations are stated below:
Capital = Total Assets – External Liabilities Total Assets = Total Liabilities Assets = External Liabilities + Capital Assets = Equities
Above fundamental equations provide foundation to Double Entry Book-keeping System.
Equities: The properties owned and possessed by the business are called as Assets. The rights to the properties are called equities. Equities may be sub-divided into two categories viz. the right to creditors and the right to the owners. The equity of creditors represents debts of the business. It is called liabilities. The equity of owner is called as Capital. Proprietor is the debtor of all his expenses and creditor for all his incomes. This relationship is shown in the following diagram.
