Illustration » Solution [Journal and Ledger]

Journal Entries » Hide/Show Journal in the books of M/s Trinity Foods for the period from 1st June 2005 to 30th June 2005 Date V/R No. Particulars L/F Debit Amount (in Rs) Credit Amount (in Rs) 1st to 30th – Cash a/c       To Capital a/c Dr – – 1,00,000 1,00,000 [For the amount brought in by the proprietor towards his capital contribution.] 1st to 30th – Bank a/c       To Cash a/c Dr – – 10,000 10,000 [For the amount paid into bank.] 1st to 30th – Furniture a/c       To Cash a/c Dr – – 25,000 25,000 [For the amount paid towards purchase of Furniture.] 1st to 30th – Purchases a/c       To Cash a/c Dr – – 50,000 50,000 [For the amount paid towards purchase of goods/stock.] 1st to 30th – Purchases a/c       To Ram a/c Dr – – 15,000 15,000 [For the value of goods bought from Ram on credit.] 1st to 30th – Bank a/c       To Sales a/c Dr – – 75,000 75,000 [For the sales made for cash and the proceeds paid into bank directly.] 1st to 30th – Rahim a/c       To Sales a/c Dr – – 50,000 50,000 [For the value of goods sold on credit to Rahim.] 1st to 30th – Salaries and Wages a/c       To Cash a/c Dr – – 5,000 5,000 [For the amount paid in cash towards salaries and wages.] 1st to 30th – Rent Paid a/c       To Bank a/c Dr – – 8,000 8,000 [For the amount paid towards rent by cheque.] Ledger Accounts » Hide/Show Dr Cash a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 1st-30th To Capital a/c – 1,00,000 1st-30th " " " 30/06/05 By Bank a/c By Furniture a/c By Purchases a/c By Sal. & Wages a/c By Balance c/d – – – – – 10,000 25,000 50,000 5,000 10,000   Total   1,00,000   Total   1,00,000 30/06/05 To Balance b/d – 10,000         Dr Capital a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 30/06/05 To Bal c/d – 1,00,000 01/06/05 By Cash a/c – 1,00,000   Total   1,00,000   Total   1,00,000         30/06/05 By Balance b/d – 1,00,000 Dr Bank a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 1st-30th To Cash a/c To Sales a/c – – 10,000 75,000 1st-30th 30/06/05 By Rent Paid a/c By Bal c/d – – 8,000 77,000   Total   85,000   Total   85,000 30/06/05 To Balance b/d – 77,000         Dr Furniture a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 1st-30th To Cashl a/c – 25,000 30/06/05 By Bal c/d – 25,000   Total   25,000   Total   25,000 30/06/05 To Balance b/d – 25,000         Dr Purchases a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 1st-30th " To Cash a/c To Ram a/c – – 50,000 15,000 30/06/05 By Bal c/d – 65,000   Total   65,000   Total   65,000 30/06/05 To Balance b/d – 65,000         Dr Ram a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 30/06/05 To Bal c/d – 15,000 1st-30th By Purchases a/c – 15,000   Total   15,000   Total   15,000         30/06/05 By Balance b/d – 15,000 Dr Sales a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 30/06/05 To Bal c/d – – 1,25,000 1st-30th " By Bank a/c By Rahim a/c – – 75,000 50,000   Total   1,25,000   Total   1,25,000         30/06/05 By Balance b/d – 1,25,000 Dr Rahim a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 1st-30th To Sales a/c – 50,000 30/06/05 By Bal c/d – 50,000   Total   50,000   Total   50,000 30/06/05 To Balance b/d – 50,000         Dr Salaries and Wages a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 1st-30th To Cash a/c – 5,000 30/06/05 By Bal c/d – 5,000   Total   5,000   Total   5,000 30/06/05 To Balance b/d – 5,000         Dr Rent Paid a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 1st-30th To Bank a/c – 8,000 30/06/05 By Bal c/d – 8,000   Total   8,000   Total   8,000 30/06/05 To Balance b/d – 8,000

Illustration » Solution [Trial Balance]

The trial balance is nothing but a statement of ledger account balances as on a particular instance. Trial Balance of M/s Trinity Foods" as on 30th June 2005 Particulars L/F Debit Amount (in Rs) Credit Amount (in Rs) Cash a/c Capital a/c Bank a/c Furniture a/c Purchases a/c Ram a/c Sales a/c Rahim a/c Salaries and Wages a/c Rent Paid a/c — — — — — — — — — — 10,000 77,000 25,000 65,000 50,000 5,000 8,000   1,00,000 15,000 1,25,000 Total   2,40,000 2,40,000

Preparing Trading and Profit and Loss Account : Journal & Ledger

Consider the above Trial Balance. There are a total of 4 nominal accounts with either debit or credit balances. Purchases a/c [Debit Balance] Sales a/c [Credit Balance] Salaries and Wages a/c [Debit Balance] Rent Paid a/c [Debit Balance] To ascertain the profit or loss made by the organisation, the balance in these accounts should be transferred to the "Trading and Profit & Loss a/c". The journal entries for these transfers would be: » Journal Entries Hide/Show Journal in the books of M/s Trinity Foods for the period from 1st June 2005 to 30th June 2005 Date V/R No. Particulars L/F Debit Amount (in Rs) Credit Amount (in Rs) June 30th – Trading and Profit & Loss a/c       To Purchases a/c       To Salaries & Wages a/c       To Rent Paid a/c Dr – – – – 78,000 65,000 5,000 8,000 [For the transfer of debit balances in nominal accounts at the end of the accounting period to the Trading and Profit & Loss a/c for the purpose of ascertaining profits.] June 30th – Sales a/c       To Trading and Profit & Loss a/c Dr – – 1,25,000 1,25,000 [For the transfer of credit balances in nominal accounts at the end of the accounting period to the Trading and Profit & Loss a/c for the purpose of ascertaining profits.] » Trading and Profit & Loss a/c The "Trading and Profit & Loss a/c" would be Dr Trading and Profit & Loss a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 30/06/05 " " To Purchases a/c To Salaries & Wages a/c To Rent Paid a/c – – – 65,000 5,000 8,000 30/06/05 By Sales a/c – 1,25,000   sub-total   78,000   sub-total   1,25,000 30/06/05 To Bal (Profit) – 47,000           Total   1,25,000   Total   1,25,000 Since the credit side total is greater, the account has a credit balance. Since a credit balance in a nominal account indicates a gain, we can say that there is a profit. » Other Ledger Accounts Affected Hide/Show Dr Purchases a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 1st-30th " To Cash a/c To Ram a/c – – 50,000 15,000 30/06/05 By Bal c/d – 65,000   Total   65,000   Total   65,000 30/06/05 To Balance b/d – 65,000 30/06/05 By Trdg. P/L a/c – 65,000   Total   65,000   Total   65,000                 Dr Sales a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 30/06/05 To Bal c/d – – 1,25,000 1st-30th " By Bank a/c By Rahim a/c – – 75,000 50,000   Total   1,25,000   Total   1,25,000 To Trdg, & P/L a/c –   1,25,000 30/06/05 By Balance b/d – 1,25,000   Total   1,25,000   Total   1,25,000                 Dr Salaries and Wages a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 1st-30th To Cash a/c – 5,000 30/06/05 By Bal c/d – 5,000   Total   5,000   Total   5,000 30/06/05 To Balance b/d – 5,000 30/06/05 By Trdg. P/L a/c – 5,000   Total   5,000   Total   5,000                 Dr Rent Paid a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 1st-30th To Bank a/c – 8,000 30/06/05 By Bal c/d – 8,000   Total   8,000   Total   8,000 30/06/05 To Balance b/d – 8,000 30/06/05 By Trdg. P/L a/c – 8,000   Total   8,000   Total   8,000                 The balance in these nominal accounts becomes zero after the balances are transferred to the "Trading and Profit & Loss a/c". Thus, nominal accounts are closed at the end of the accounting period by transfer to the "Trading and Profit & Loss a/c". In the subsequent accounting period, if the same nominal account heads are used, they are opened anew. Thus these accounts pertaining to the current accounting period are independent of the nominal accounts with the same name in any other accounting period.

Trial Balance Redrawn/Remade

The trial balance is a list of ledger account balances at an instance when it is drawn. If we consider the instance after having prepared the "Trading and Profit & Loss a/c", we do not find a balance in any nominal account. All the nominal accounts are closed by transfer to the "Trading and Profit & Loss a/c", thereby leaving a nil balance in all of them. The "Trading and Profit & Loss a/c" is also a nominal account and has a credit balance if there is a profit and a debit balance if there is a loss. If we make a trial balance after having prepared the "Trading and Profit & Loss a/c" we will find only real and personal accounts in it apart from the nominal account "Trading and Profit & Loss a/c".   Trial Balance of M/s Trinity Foods" as on 30th June 2005 [After closing Nominal accounts] Particulars L/F Debit Amount (in Rs) Credit Amount (in Rs) Cash a/c Capital a/c Bank a/c Furniture a/c Ram a/c Rahim a/c Trading and Profit & Loss a/c — — — — — — — 10,000 77,000 25,000 50,000   1,00,000 15,000 47,000 Total   1,62,000 1,62,000

Author Credit : The Edifier

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