GOLDEN RULES - WAY OF WORKING EXAMPLE

We can take the following transactions and mention which accounts are involved in each case and which of them is to be debited and credited

April 2 Bought goods from AJAY Rs 8000

10 Paid cash to AJAY Rs 5000

21 Sold goods to vikram Rs 3000

25 Received cash from vikram Rs 2000

30 Paid salaries to employees Rs 500

30 Received commission Rs 250

 In the following table, we show the accounts to be debited and credited in the case of each transaction.

Date of transaction	Account to be debited	Account to be credited	Type of account	Reason for debit or credit
Apr - 02	Goods A/c ...................	.................... Ajay A/c	Real Personal	Good come in Ajay is the giver
Apr - 10	Ajay A/c ...............	.................. Cash A/c	Personal Real	Ajay is the receiver. cash goes out
Apr - 21	Vikram A/c ..................	................. Goods A/c	Personal Real	Vikram is the receiver. Goods goes out
Apr - 25	Cash A/c .................	............... Vikram A/c	Real Personal	Cash comes in vikram is the giver
Apr - 30	Salaries A/c ..................	................. Cash A/c	Nominal Real	Expense Cash goes out
Apr - 30	Cash A/c ..................	................. Commission A/c	Real Nominal	Cash come in Income

CASH BOOK MEANING

Every business receives cash and pays cash practically every day, all the receipts and payment of cash are recorded in a separate book called the cash book.

In modern times cash includes not only legal tender money likes notes and coins but also other form of money like cheques, bank drafts etc.

The business man derives the following advantages by maintaining separate  cash book .

It shows owner how much he has received and how much he has paid.

It shows the owner how much money there should be left his cash box at any given time

it receives the owner of the trouble of counting his money whenever he wants to know how much money he has in hand.

Features of Trial Balance

The main features of the trial balance are

It is tabulation of balances of all accounts.

It classifies accounts into two classes

a) Accounts having debit balances

b) Accounts having credit balances

It refers to a specified date

LEDGER BALANCING (IE) EXAMPLE

LEDGER BALANCING IE EXAMPLE

FOR OLD BUSINESS

The following are some of the balancing appearing in the ledger of trader on 31-12-1995. Compute gross profit taking and closing stock as Rs 12000.

Opening stock 1-1-95                                             - 6000

Purchases                                                                - 48000

Purchases returns                                                    - 4000

Sales                                                                        - 63200

Sales returns                                                            - 1600

Wages                                                                      - 4000

Solution :

Cost of goods sold = Opening stock + net purchases + Wages – Closing stock

= Rs.6000 + 44000 + 4000 – 12000

= Rs 42000

Net sales = Sales – Sales Returns

= Rs 63,200 - 1600

= Rs 61,600

Gross Profit = Net Sales – Cost of goods sold

= Rs 61,600 – 42,000

= Rs 19,600

Balancing – Meaning

Balancing

After the ledger posting the next stage is “balancing” the accounts , we have seen that account is debited whenever its receives the benefit of the transaction and is credited when ever it gives the benefit of the transaction,Generally both the sides of account will not be equal.Either the debit side total may be more than the credit side total or the credit side total may be more than the debit side

total.An account is said to show a debit balance if debit side is heavier and is said to show a credit balance if the credit side is heavier.The process of showing the debit or credit balance of a particular account ' or ' striking the balance '

The difference between the total debits and the total credits of an account is called the balance.

'ie',,,, the net result of debits and credits in an account is the balance.

Balancing may be defined as the process of finding the difference between total debits and total credits of an account and writing of the difference in the lighter side so that the total of two sides becomes equal.