System of Accounting Vol I 320 Pages

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Volume – I
WRITTEN BY:
SYED AQEEL RAZA
YEAR 2015
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THE SYSTEM OF ACCOUNTING

VOLIUM – I
Written by;
Syed Aqeel Raza
<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>
FATHER OF ACCOUNTING
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Fra Luca Bartolomeo de Pacioli (1445–1517) was an Italian

mathematician, and seminal contributor to the field now known
as accounting. He is referred to as the Father of Accounting and
Bookkeeping (he was the first to publish a work on double-entry
system of book-keeping). He was also called Luca di Borgo after
his birthplace, Borgo Sansepolcro, Tuscany.

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PREFACE
First and foremost, I want thank to Almighty Allah who attached

me to the Door-of-knowledge and encouraged me to serve
mankind by spreading education which made the human
supreme in creation.
The object of writing this book “The System of Accounting” is to

provide basic accounting concept in easy way of styles and
illustrations makes readers, students and business executives
acquainted with the concept of accounting.
This book is primarily written for the use of beginners of this

subject and for those who wish to have knowledge of it to keep
eyes on their finance applied in business.
At last in short, I shall say that this is my a little contribution

based on your suggestions.
I tried my best to avoid errors, but errors may be being human then
please notify and suggest anything for improvement with liberty on my
email addresses [email protected].
FORWARD
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I am in great pleasure of presenting my Book “The

System of Accounting Volume 1 which I think, will
be proved different others because of the reason
that I tried utmost to select suitable words with
Urdu translation where necessary to make it
comprehensive to readers and the students of
commerce.
I hope my a little struggle for this noble cause will

be admirable with suggestions for improvement.

6
COPY RIGHT
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Copy right of this book goes to writer and not

allows others to use its contents to publish but
downloads for reading and study
All the best to my readers
DISCLAIMER
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The name of book “The System of Accounting”,

contents, definition, and written material of this book is
of writer not copied from any source but taken
guideline from many other sources to complete thinking
and saving errors. The name, amount, addresses and
anything relating to personal in written materials are
imaginary and thinking of writer.
In the opinion of writer, same views or concepts of
accounting being the same subject with others may be
resemblance but difference in idea of writing and
presentation.
All the best to readers
TABLE OF CONTENTS
PAGE PAGE
LEVEL - I # LEVEL I #
INTRODUCTION INTRODUCTION
Meaning & Definition NATURE OF ACCOUNTS 24
ACCOUNTING 1 ASSETS 25
BOOK KEEPING 2 Current Assets 26
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BUSINESS 3 Fixed Assets 27

Business Terminology…..Service 4 Tangible Assets 28
Business Terminology…..Trading 5 Prepaid & Deferred Assets 29
Business Terminology…..Manufacturing 6 Intangible Assets 30
BUSINESS ORGANIZATIONS 7 LIABILITIES 31
SOLE OWNERSHIP 8 Short Term Liabilities 32
PARTNERSHIP 9 Long Term Liabilities 33
COMPANIES/CORPORATIONS EQUITIES/PROPRIETORSHIP 34
- Joint Stock Companies 10 Internal Equities 35
- Pvt. Limited Companies 11 External Equities 36
- Public Limited Companies 12 Capital 37
- Multinational Companies 13 Drawing 38
- State Corp./Nationalized Industries. 14 INCOME/REVNUE 39
FRANCHISES 15 Accrual Basis Accounting 40
CLASSIFICATION OF ACCOUNTS 16 Cash Basis Account 40
Real Accounts 16 Sale 41
Personal Accounts 16 Purchases 42
Nominal Accounts 16 EXPENSES 43
TRANSACTIONS 17 Direct Expenses 44
Cash Transaction 18 Indirect Expenses 45
Credit Transaction 19 ABBRIVATION USED IN ACCOUNTING 46-47
ENTRY 20
Single Entry 21 RULES FOR TRANSACTIONS 48
Double Entry 22
BUSINESS ENTITY 23

INTRODUCTION
ACCOUNTING I
Accounting is the “language of business “and the art
of recording, summarizing and analyzing business
10
information in a significant manner in terms of

money, transactions and events. The accounting
provides eyes and ears for management and is the
key of success of every business. The most common
accounting reports are called financial statement.
Translation
INTRODUCTION
BOOK-KEEPING
Book-Keeping is defined to record business dealings or
transactions under systematic prescribed procedures and
11
presentation in shape of money or money’s worth

instruments enables Accountant to extract complete
financial picture of a business.
Book-Keeping is the source of ascertain the working
results from the written records of transactions. It helps
and guides the management of the business to
determine their policies and to make decisions in
business operation.
Translation
INTRODUCTION
BUSINESS
12
Business means profit in term of money or money’s

worth thing through the satisfaction of human
wants under classification of Service, Trading and
Manufacturing. Any activity undertaken under
legal frame of work with the aiming of earning
profit is come under business classification such as
hawker, shopkeeper, wholesaler, dealer,
manufacturer, repair centre, banker etc.
.
Translation
INTRODUCTION
SERVICE
13
The term of business “service” describes work that

supports a business but does not produce tangible
commodity. In economics, a service is an intangible
commodity. The business engaged rendering their skills
or mechanical/technical services to his customers such as
dry cleaner, Machinery repairers, accountants,
advocates, auditors, doctors etc.
Translation
INTRODUCTION
Trading
14
The term of business “trading” describes the

business engaged in purchasing and selling of
commodities usually defined two kinds of business
wholesale or import & export who maintain a stock
and deliver their products to shops or large end
customers.
. Translation
INTRODUCTION
Manufacturing
15
The term of business “manufacturing” describes the

business engaged in producing merchandise most
commonly applied to industrial production in which
raw materials are transformed into finished goods on
a large scale. Such finished goods may be used for
other manufacturing concern or sold to wholesalers,
wholesalers in turn sell them to retailers and retailers
sell to end users.
.
INTRODUCTION
16
BUSINESS ORGANIZATION
There is need of an organization for operating of different nature of business and

job. A business organization may be defined as single individual or group of
persons having talent of different natures in order to provide goods and services to
make profit.
Actually in business, the sense of organization is a business unit operated by one

person, two or more persons making firm, concern, enterprise, company.
The main types of business organization are;
a) Sole Ownership
b) Partnership
c) Companies/Corporations
d) Franchises
Translation
INTRODUCTION
17
SOLE OWNERSHIP
This is a business owned by one person who
provides capital for the business and usually directs
and supervises its activities. The owner of the
firm/organization is known is “sole trader” who is
responsible for all losses and profits of the business.
Translation
INTRODUCTION
PARTNERSHIP
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A partnership in business occurs when two or more

persons carry on business in common with a view to make
profit and every investor is called “partner.” The firm
itself is called “partnership. The partners usually provide
the capital and direct and supervise the activities of the
business or by anyone who will act for all or by an
employee. The investment or working of each partner may
be equal or not equal on the basis of profit and loss sharing ratio.
Translation
INTRODUCTION
19
COMPANY/CORPORATION
JOINT STOCK COAMPANIES

The joint stock company is an organization, whose capital is
contributed by several persons who owned under Companies
Act 1984. The investors are called “Share holders/Stock
holders.”
Translation
<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]
INTRODUCTION
20
COMPANY/CORPORATION
PRIVATE LIMITED
The Private Limited Company consists of not less than two
persons and more than fifty persons. A private company must
have the word limited (Ltd.) included in its name. The shares in
this type of company cannot be offered to the public for sale.
The company is usually owned and operated by family
members.
Translation
INTRODUCTION
21
PUBLIC LIMITED
The Public Limited Company consist minimum number of
persons is two. However, there is no limit as to the number of
persons that can be in a public company. It must have the word
Public Limited Company (PLC) at the end of its name. The
company can offer shares and debentures for sale to the general
public.
Translation
INTRODUCTION
22
MULTINATIONAL CORPORATION
A multinational firm is one which owns controls and

operates enterprises in several countries in order to
increase market share and improve overall profits.
The parent company makes all the decisions which
are carried out by the management of the subsidiary
companies.
Translation
<SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
INTRODUCTION
23
STATE CORPORATION/NATIONALISED INDUSTIRES
The State Corporation or nationalized industries are

owned, controlled and managed by the government
or state. The main of the public corporation is to
provide specific goods and/or services that meet the
need of the country, at a reasonable price.
Translation
<SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
INTRODUCTION
24
FRANCHISES
A franchise is a right sold by one persons or firm called a franchisor. It is another

form of cooperation between a big firm and a sole trader. In franchising, a well-
known company allows someone to buy the right to use their trade names.
The potential franchisee pays to use the name, products or services of the major
company which receives a lump sum and a share of the profits of the business
sometimes called royalties.
The franchisee receives the majority of profits, but must also meet most of any
losses. In addition to allowing use of their name, products, techniques or services,
franchisors usually provide an extensive marketing back-up in return for the money
they receive.
Translation
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
INTRODUCTION
CLASSIFICATION OF ACCOUNT
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There are mainly three types of accounts.
1. Real Accounts
Accounts related to assets (tangible/touchable or intangible/none touchable) come under the category
of real account e.g. land, furniture, machinery, goodwill, patents etc. are real accounts.
2. Personal Accounts.
Accounts related to persons or organizations are called personal account.
3. Nominal Accounts
The nominal accounts represent losses, incomes, gains.
Translation
INTRODUCTION
TRANSACTIONS
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Any exchange of values is called “transaction “or

the process of doing business with another person,
company, etc. sub divided into cash transaction and
credit transaction.
Translation
INTRODUCTION
Cash Transactions:
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The transaction involves exchange of cash on the spot on receipt or

payment is called cash transaction as;
- Purchase of Merchandise, Land, Building, Furniture etc. on cash.

- Sold Merchandise, Furniture, Building, Equipment etc. on cash.
- Services rendered on cash.
- Received cash.
Translation
INTRODUCTION
28
Credit Transactions:
The transaction in which exchange valves involve but cash
payment of receipt is not made immediately and to be made later
is called Credit Transactions as;
- Purchase of Merchandise, Land, Building,

Furniture etc. on credit.
- Sold Merchandise, Furniture, Building,
Equipment etc. on credit.
- Services rendered on credit.
- Paid cash
Translation
INTRODUCTION
29
ENTRY
The posting of a business transaction in a book with the sequence of
date and with two kinds of changes “increase or decrease” known as
an entry. A written record of a commercial transaction is known as
“entry.”
Translation
INTRODUCTION
30
SINGLE ENTRY
A single entry book keeping system is a method of one side
accounting entry relating with cash receipt and payment, bank
receipt and payment and the accounts receivable and payable. It
does not involve accounting equation “Assets=Liabilities Owner’s
equity.”
This system of entry is used in small business where the business
transactions are low in volume and uncomplicated.
Translation
INTRODUCTION
31
DOUBEL ENTRY
The double entry system in book keeping means that every business
transaction involves two accounts (or more).
The double entry also allows for the accounting equation
“Assets=Liabilities Owner’s equity” to always be in balance
Another aspect of double entry is that the amounts entered into
general ledger accounts as debits must be equal to the amounts
entered as credits.
Translation
INTRODUCTION
32
BUSINESS ENTITY
Business entity means a business, division, unit or other aspect of
an organization. For example, a company with different divisions
of the business might define each division as an entity. Also, each
department or team within an organization might be its own entity.
A product can be an entity, as well as a company's investments or
assets.
The owner and the business are two separate entities such as
owner as capital and the accounts, maintained by an accountant
is related with him and business is other.
Translation
INTRODUCTION
33
NATURE OF ACCOUNT
The Account is a ledger record in a summarized form of all the
transactions showing debit and credit or increase or decrease in an
item based on assets, liabilities, proprietorship, revenues or
expenses. Each account has a separate name distinguish it from
other account.
Some examples of accounting element;
The value of furniture purchased for the business identified by Furniture a/c.
The amount is receivable from Mr. X identified by Mr. X a/c.
The amount of Capital invested in the business identified by Capital a/c.
The amount of expense incurred on account of salaries identified by Salaries a/c.
The value of sales made in business identified by Sales A/c.
The amount is available in the bank identified by Bank a/c.
The list of accounts can be endless or according to transaction or event.
INTRODUCTION
34
ASSETS
Actually some Resources or things such as merchandise, land, building, office
equipment, cash etc. are needed to run any business called Assets.
Any item of economic value convertible in cash owned by an individual or

company is an asset equal Liabilities + Proprietorship under following
categories.
- Long-term/Non-current/tangible assets (Land, building, plant,

equipment)
- Prepaid and deferred assets (expenditures for future costs such as
-insurance, rent, interest)
- Intangible Assets (Trademarks, patents, copyrights, goodwill)
Translation
INTRODUCTION
35
CURRENT/LIQUID/MOVEABLE ASSETS
An asset such as receivable, inventory, cash, securities,

prepaid expenses and other expenses that could be
converted in cash in less than one year is current asset
or circulation asset.
Translation
INTRODUCTION
36
FIXED/NON CURRENT/IMMOVABLE ASSETS
An Asset such as land, building, equipment,

machinery, vehicles, and other such items enable
owner to carry on its operations. In accounting, fixed
asset does not necessarily mean immovable, any asset
expected to last, or be in use; more than one year is
considered as fixed asset. These assets are shown at
their book value (purchase price less depreciation).
Translation
INTRODUCTION
37
TANGIBLE ASSETS
Tangible Assets or touchable assets are cash, equipment, machinery, plant,

property and anything that has long term physical existence or is acquired for
use in the operations of the business and not for sale to customers. They can
be used as collateral to raise loans, and can be more readily sold to raise cash
in emergencies.
Translation
INTRODUCTION
38
PREPAID AND DEFFERED ASSETS
Prepaid recurring expenses such as insurance, interest

or rent carried forward as an asset under the
associated service of benefit is received called deferred
assets.
Translation
INTRODUCTION
39
INTANGIBLE ASSETS
Intangible assets are the long term resources of an entity but have
no physical existence such as trademarks, patents, copyrights,
goodwill. They derive their value from intellectual or legal rights. In
contrast to tangible assets, intangible assets cannot be destroyed by
fire, hurricane, or other accidents or disasters and can help build
back destroy tangible assets.
Translation
INTRODUCTION
40
LIABILITIES
Liabilities mean the claims of suppliers on account of
purchases for business operation under head of
account “A/c Payable with individual or company
names.
Translation
INTRODUCTION
41
Short-term/Current Liabilities
In accounting, current liabilities are often understood
as all liabilities of the business that are to be settled in
cash with the fiscal year.
Translation
INTRODUCTION
42
Long Term Liabilities

Long term liabilities are liabilities with a future benefit of over one
year such as notes payable that mature longer than one year.
The Examples of long-term liabilities are debentures, mortgage,
loans and other bank loans.
Long –term liabilities are a way to show that you have to pay
something off in a time period longer than one year.
Translation
INTRODUCTION
43
EQUITIES
Equity is the ownership or investor’s interest on values of assets or

resources of a business. After liabilities have been accounted for,
the positive remainder is deemed the owners' interest in the
business.
Assets are the resources owned by business and equities are the
sources from which those assets have been acquired.
There are two types of equities.
1- Internal Equities
2- External Equities
Translation
INTRODUCTION
44
EQUITIES
INTERNAL EQUITIES
The claim or interest/income of owner and
investor in the assets of the business to the
amount invested is known as “Capital”,
Proprietorship”, “Owner’s equities” or “Internal
equities.”
Translation
INTRODUCTION
45
EQUITIES
EXTERNAL EQUITIES
The claim of suppliers or loan of institutions from the
business assets are external equities called
liabilities, owner’s equity or external equities.
Translation
INTRODUCTION
46
CAPITAL
Cash or goods used in business to generate income by

investment of owner or partner are known Capital. In case of
public limited company, who has several investors and each
investor has shares of the company called share capital.
.
Translation
INTRODUCTION
47
DRAWING
The proprietor or partner of the business withdraws cash or
commodities for his personal use are known “Drawings. In case of
limited companies/corporations, no one can withdraw any value
from the business.
.
Translation
INTRODUCTION
48
REVENUE
Revenue is the amount of money that is brought into a company by its

business activities during a specific period, including discounts and
deductions of return merchandise. It is “top line” or “gross income”
from which costs are subtracted to determine net income.
In general, a transaction between two parties where the buyer

received goods, service and/or assets in exchange of money is sale.
In other words Revenue is also known as sales.
Translation
INTRODUCTION
49
REVENUE
ACCRUAL OR CASH REVENUE
Accrual basis is a method of recording accounting transactions when

revenue earned and expenses incurred. The accrual basis Revenue
requires the use of allowances for sales returns, bad debts, and
inventory obsolescence, which are in advance of such items actually
occurring.
The Alternative method of recording revenue transactions is cash

basis.
Translation
INTRODUCTION
SALE
50
A sale is the exchange of a commodity for money or service in return for money
or the action of selling something. If sale is made on cash basis known as “cash
sales” and sales under a certain understanding, on credit, known “credit sales.”
Sales Return & Allowance
When a consumer is not satisfied with a product and expects to receive the full
amount paid for the product known as Sales return or if the seller gets the claim
from the consumer about the defect, damage etc., the seller allows some rebate
in price of such goods it is known as Sales Allowance.
Sales Discount
Sales discount is a reduction in the price of a product or service that is offered

by the seller, in exchange for early payment by the buyer or to increase sales.
Translation
INTRODUCTION
51
PURCHASES
The activity of acquiring goods or services for business is purchases.

The purchases may be made on cash basis, if payment made
immediately, “called cash” purchases and later on called “credit
purchases.”
If the any item of purchased returns due to certain reasons known as

Purchase Return. If the item is not according to sample or other
reasons, the supplier or seller cut short the price of such item known
as Purchase Allowance.
Purchase Discount is the rebate amount allowed on purchase by the

seller.
Translation
INTRODUCTION
52
EXPENSES
An expense in accounting is the money spent or cost incurred in any entity’s efforts to
generate revenue. Expenses represent the cost of doing business in the sum total of the
activities directed towards making a profit.
Expenses associated with the main activity of the business are referred to as operating
expenses. Expenses associated with a peripheral activity are non-operating or other
expenses.
Operating expenses are often subdivided into categories such as fixed and variable expenses
or into selling, general and administrative expenses.
Funds used to acquire or upgrade physical assets such as building and machinery also
called capital expenses.
Profit = revenue – expenses
Expenses are mainly divided into two categories:-
1- Direct Expenses 2- Indirect expenses
Translation
INTRODUCTION
53
DIRECT EXPENSES
Direct expenses are expenses that are directly related to the creation
of a product or service or purchase of goods such as Purchase price
of goods, carriage on goods purchased, wages on goods, insurance of
goods in transit, custom duty, freight etc.
Translation
INTRODUCTION
54
INDIRECT EXPENSES
Indirect expenses are expenses that have no relationship with
purchase of goods. Examples of indirect expenses include rent of
building, salaries to employees, legal charges, insurance of building,
depreciation, printing charges and so on.
Translation
INTRODUCTION
55
ABBREVIATION USED IN ACCOUNTING
A/c Account
B/d Brought down
B/F Brought forward
C/D carried down
C/F carry forward
Dr. Debit
Cr. Credit
INTRODUCTION
56
ABBREVIATION USED IN ACCOUNTING
ALPRE Assets, liabilities, proprietorship, revenue, expenses
JV Journal Voucher
Fol. Folio/page
Inv. Invoice
Memo Memorandum
N.L. Nominal Ledger
P.C.B. Petty Cash Book
C.B. Cash Book
P.D.B. Purchase Day Book
S.D.B. Sales Day Book
P&L Profit & Loss
S.L. Sales Ledger
INTRODUCTION 48
RULES FOR TRANSACTIONS

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1 ASSETS A INCREASES DEBIT DECREASES CREDIT
2 LIABILITIES L DECREASES DEBIT INCREASES CREDIT
3 PROPRIETORSHIP P DECREASES DEBIT INCREASES CREDIT
4 REVENUE R DECREASES DEBIT INCREASES CREDIT
5 EXPENSES E INCREASES DEBIT DECREASES CREDIT
= ALPRE ASSETS= LIABILITIES + PROPRIETORSHIP
ASSETS = EQUIUTIES
RESOURCES = SOURCES
Volume – I
58
WRITTEN BY:
SYED AQEEL RAZA
YEAR 2015

59
TABLE OF CONTENTS
60
< AFFECTS ON BUSINESS TRANSACTIONS>
Brief Introduction………………………………………………………………………………………..49
Analyzing, Equation, Rules Entry…………………………………………………………….51-70
Transactions…………………………………………………………………………………………………………………………………………… 50
The Accounting equation for a new company……………………………………………………………………………………….. 51
Mr. Frances starts his business with a capital investment of Rs. 100,000/=……………………………………………… 52
Taken shop on rent Rs.5, 000/= per month with deposit of Rs.10, 000/=, the rent paid in advance….. 53-54
Purchased merchandise on cash Rs.50, 000/=………………………………………………………………………………………….. 55
Cartage on merchandise Rs.1000/= paid………………………………………………………………………………………………….. 56
Purchased merchandise of Rs.5000/= on credit from ABC & Co………………………………………………………..……… 57
Sold merchandise Rs.5, 000/= at cost for to a cash customer…………………………………………………….………………58
Sold merchandise for Rs.12, 000/= which costs to Rs. 10, 000/= to a cash customer…………..………………….. 59
Cash paid to ABC & Co. Rs.2500/= as part payment……………………………………………………..………………….. 60-61
Sold merchandise of Rs.10, 000/= on credit to AA & Co. at a profit of Rs.2000/=…………………………………… 62
Cash received Rs.5000/= as part payment from AA & Co. as part payment………………………….. ………. 63-64
Merchandise returned to ABC & Co. Rs.1000/= and paid cash Rs. 1500/=…………………………..…………………. 65
Merchandise returned by Cash customer of Rs.2000/=…………………………………………… ……………………. 66-67
Paid salary Rs. 3000/= to employee…………………………………………………………………………… ………………… 68-69
Operated a bank account with Rs.5, 000/=……………………………………………………………………………….…………. 70
Accounting Equation………………………………………………………………………………………………………..…………………. 71
AFFECTS ON BUSINESS TRANSACTIONS

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Every business transaction affects the fundamental

accounting equation as to Assets = Liabilities +
Owners’ Equity or owners’ Equity + Liabilities=
Assets under rules of Debit and Credit or Increase or
Decrease in values.
Assets are the Resources of the business and
equities provide the source to acquire these assets.
Therefore, ASSETS = EQUITIES OR RESOURCES
=SOURCES.
The accounting equation can be expressed in three
ways:
Assets = Liabilities + Owners’ Equity
Liabilities = Assets – Owners’ Equity
Owners’ Equity = Assets – Liabilities
Here are following transactions showing the effect on accounting equation;

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The Accounting equation for a new company
Jan 05, 2015: Mr. Frances starts his business with a capital investment of
Rs. 100,000/=.
Jan 06, 2015: Taken shop on rent Rs.5, 000/= per month with deposit of
Rs.10, 000/=, the rent paid in advance
Jan 07, 2015: Purchased merchandise on cash Rs.50, 000/=.
Jan 08, 2015: Cartage on merchandise Rs.1000/= paid.
Jan 08, 2015: Purchased merchandise of Rs.5000/= on credit from ABC & Co.
Jan 10, 2015: Sold merchandise Rs.5, 000/= at cost for to a cash customer.
Jan 15, 2015: Sold merchandise for Rs.12, 000/= which costs to Rs. 10,
000/= to a cash customer.
Jan 16, 2015: Cash paid to ABC & Co. Rs.2500/= as part payment.
Jan 17, 2015: Sold merchandise of Rs.10, 000/= on credit to AA & Co. at a
profit of Rs.2000/=.
Jan 20, 2015: Cash received Rs.5000/= as part payment from AA & Co. as
part payment.
Jan 22, 2015: Merchandise returned to ABC & Co. Rs.1000/= and paid cash
Rs. 1500/=
Jan 25, 2015: Merchandise returned by Cash customer of Rs.2000/=.
Jan 30, 2015: Paid salary to Rs. 3000/= to employee.
Operated a bank account with Rs.5, 000/=.

63
The Accounting equation for a new company
The accounting Equation for a brand new

company looks like;
Since the business has only been planned not
yet invested it has neither assets nor liabilities.
Therefore,
ASSETS = LIABILITIES + Owner’s Equity

0 = 0 + 0

64
Jan 05, 2015: Mr. Frances starts his business with a capital investment of Rs. 100,000/=.
When Mr. Frances was planning to start business, he had zero capital and as
soon as he put cash into business ,the value of capital has increased from zero
to Rs.100,000/= and the value of cash has also been increased by
Rs.100,000/=as an liquid assets.
Analysis:
1) Accounts involved = Cash -Frances, Capital
2) Nature of Accounts =Assets -Owner’s Equity
3) Increase or decrease =Increases -Increases
4) Rules of Debit and Credit =Debit -Credit
Accounting Equation:

CASH Owner’s, Capital
+Rs.100, 000/= = 0 +Rs.100, 000/=
Accounting Rules:
Assets increases debit decreases credit.
Capital decreases debit increases credit.
Cash/Liquid Assets = Debit

Capital/Proprietorship = Credit
Recording of Entry:
Jan 05, Cash 100,000/=

Capital/Frances 100,000/=
(To record the Investment in the business)

65
Jan 06, 2015: Taken shop on rent Rs.5, 000/= per month with cash deposit of Rs.10, 000/=,
the rent paid in advance.
Analysis:
1) Accounts involved = Prepaid Rent -Cash

2) Nature of Accounts =Assets -Assets
3) Increase or decrease =Increases -Decreases
5) Accounts involved = Shop Deposit -Cash


Frances, Capital
Cash + 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Balance +15000 + 85000 = +100000
In this entry, the pre-paid rent which assumed assets before consumption increased in Assets
and the cash has been paid which is decreasing in assets. The shop deposit is a recoverable
asset increasing in assets and the cash paid against it decreasing in assets.

66
Accounting Rules:
Prepaid Rent/Current Assets = Debit

Shop Deposit/Fixed Assets = Debit
Cash/Assets = Credit
Recording of Entry:
Compound entry:
Jan, 06 Prepaid Rent 5,000/=

Shop Deposit 10,000/=
Cash 15,000/=
(To record the payment of shop deposit & rent in advance)
Broken Entry:
Jan, 06 Prepaid Rent 5,000/=
Cash 5,000/=
(Paid shop rent in advance)
Shop Deposit 10,000/=
Cash 10,000/=
(Cash paid for shop deposit)

67
Jan 07, 2015: Purchased merchandise on cash Rs.50000/=
Analysis:
1) Accounts involved = Merchandise - Cash
Frances, Capital
Cash + 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Balance +65000 + 35000 = +100000
Accounting Rules:
Merchandise/Current Assets = Debit

Cash/ Current Assets = Credit
Recording of Entry:
Jan 07, Merchandise 50,000

Cash 50,000
(To record purchased merchandise on cash)
This transaction affects the accounting equation as to increase in assets and decrease in
assets cash too and no change is made in equities side of the equation.

68
Jan 08, 2015: Cartage on merchandise Rs.1000/= paid.
Analysis:
1) Accounts involved = Cartage -Cash
2) Nature of Accounts = Expense -Assets
3) Increase or decrease = Increases -Decreases
4) Rules of Debit and Credit = Debit -Credit

Frances, Capital
Cash + 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Balance +65000 + 34000 = +99000
Accounting Rules:
Expense increases debit decreases credit.

Cartage/Expense = Debit
Cash/Current Assets = Credit
Recording of Entry:
Jan, 08 Cartage Rs. 1000

Cash Rs. 1000
(To record paid Cartage for merchandise carried to shop)
The Asset “Cash” is decreased and the Expense decreases in owner’s Equity or from owner’s profit.
Jan 08, 2015: Purchased merchandise of Rs. 5000/= on credit from ABC & Co.
69
Analysis:
1) Accounts involved = Merchandise - A/c Payable (ABC & Co.)
2) Nature of Accounts =Assets -Liabilities
Frances, Capital
Cash + 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
A/c P/A ABC Co = +5000
Balance +70000 + 34000 = +5000 +99000
Accounting Rules:

Liabilities decreases debit increases credit.
Merchandise/Assets = Debit
A/c Payable (ABC & Co.) /Liabilities = Credit
Recording of Entry:
Jan 08, Merchandise 5000

A/c Payable (ABC & Co.) 5000
(To record merchandise purchased on credit)
This transaction affects the accounting equation as to increase assets/merchandise and

increase in liabilities A/c payable ABC & Co. by equal amount.
Jan 10, 2015: Sold merchandise Rs.5, 000/= at cost for to cash customer.
Analysis:
70
1) Accounts involved = Sale - Cash

2) Nature of Accounts =Revenue -Assets
4) Rules of Debit and Credit =Credit -Debit

Cash Frances, Capital
Cash + 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
Merchandise sold -5000 + 5000
Balance +65000 + 39000 = +5000 +99000
Accounting Rules:
Revenue decreases debit increases credit.
Cash/Assets = Debit
Sale = Credit
Recording of Entry:
Jan 10, Cash 5000

Sale 5000
(To record merchandise sold without profit & loss)
This transaction affects the equation as to increase in assets/cash and decrease in

merchandise. The sale is connected with revenue but reducing the stock of merchandise
affecting profit and loss and taken into account directly in merchandise.

Jan 15, 2015: Sold merchandise for Rs.12, 000/= which costs Rs. 10,000/= to a cash customer.
Analysis:
71
1) Accounts involved = Sale = Cash =Profit

2) Nature of Accounts =Revenue =Assets =Capital
3) Increase or decrease =Increases =Increases =Increases
4) Rules of Debit and Credit =Credit =Debit =Credit
+ 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
Merchandise sold -10000 + 12000 +2000 (Profit)
Balance +55000 + 51000 = +5000 +101000
Accounting Rules:
Cash/Current Assets = Debit

Sales/Revenue = Credit
Capital/Profit = Credit
Recording of Entry:
Jan 15, Cash 12000
Sales 10000
Capital 2000
(To record merchandise sold on profit)
This transaction affects the equation as to increase in assets/cash, decrease in merchandise
and increase in owner’s equity by profit.
Jan 16, 2015: Cash paid to ABC & Co. Rs.2500/= as part payment.
Analysis:
72
1) Accounts involved = A/c Payable - Cash

2) Nature of Accounts =Liabilities -Assets
4) Rules of Debit and Credit =Credit -Credit
+ 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
ABC & Co. - 2500 -2500
Balance +55000 + 48500 = +2500 +101000
Accounting Rules:
A/c Payable/Liabilities = Debit

Recording of Entry:
Jan 16, ABC & Co. (A/c Payable) 2500
Cash 2500
(To Record cash paid to ABC & Co. as part payment)

This transaction affects the equation as to decrease in liabilities and decrease in cash/assets
with equal amount.

73
Jan 17, 2015: Sold merchandise of Rs.10, 000/= on credit to AA & Co. at a profit of Rs.2000/=.
Analysis:
1) Accounts involved = Sale - A/c Receivable (AA & Co.)
2) Nature of Accounts =Revenue -Current Assets
4) Rules of Debit and Credit =Credit -Debit
+ 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
ABC & Co. - 2500 -2500
Merchandise sold -10000
A/C R/A +12000 +2000 (Profit)
Balance +57000 + 48500 = +2500 +103000

74
Accounting Rules:

A/c Receivable/Current Assets = Debit

Sales/Revenue = Credit
Profit/Capital = Credit
Recording of Entry:
Jan 16, AA & Co. (Receivable) 12000
Sale 10000
Capital 2000
(To Record merchandise sold on credit to AA & Co. on profit of Rs.2000)
This transaction affects the equation as to increase in assets, increase in sales/revenue and
increase in capital by Rs.2000/=
Jan 20, 2015: Cash received Rs.5000/= as part payment from AA & Co.
Analysis:
1) Accounts involved = A/c Receivable = Cash
75
2) Nature of Accounts =Assets =Assets

3) Increase or decrease =Decreases =Increases
4) Rules of Debit and Credit =Credit =Debit
+ 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
ABC & Co. - 2500 -2500
Merchandise sold -10000
A/C R/A +12000 +2000 (Profit)
A/c R/A (AA & Co) -5000 +5000
Balance +52000 + 53500 = +2500 +103000
Accounting Rules:
Cash/Assets = Debit
A/c Receivable (AA & Co.) = Credit
Recording of Entry:
Jan 16, Cash 5000
A/c Receivable AA & Co. 5000
(To Record the part payment received by AA & Co.,)
Jan 22, 2015: Merchandise returned to ABC & Co. Rs.1000/= and paid cash Rs. 1500/=
Analysis:
76
1) Accounts involved = Purchase Return =A/c Payable =Cash

2) Nature of Accounts = Contra Assets =Liabilities =Assets
3) Increase or decrease =Decreases =Decreases =Decreases
4) Rules of Debit and Credit =Credit =Debit =Credit
+ 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
ABC & Co. - 2500 -2500
Merchandise sold
-10000
A/C R/A +12000 +2000 (Profit)
A/c R/A -5000 +5000
Mer.Return -1000
A/c P/A ABC & Co. -1500 -2500
Balance +51000 + 52000 = 0 +103000
Accounting Rules:

A/c Payable/Liabilities = Debit

Purchase Return/Contra Assets = Credit
Cash = Credit

77
Recording of Entry:
Jan 22 A/c payable (ABC & Co.) 2500

Purchase Return 1000
Cash 1500
(To Record merchandise returned to ABC & Co. & paid balance payment)
This transaction affects the equation as to increase in cash/assets and decrease in Account
Payable (ABC & Co.).
Jan 25, 2015: Merchandise returned by Cash customer of Rs.2000/=.

Analysis:
78
1) Accounts involved = Sale Return - Cash

2) Nature of Accounts = Contra Revenue -Assets
3) Increase or decrease =Decreases -Decreases
+ 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
ABC & Co. - 2500 -2500
Sale -10000
A/C R/A +12000 +2000 (Profit)
A/c R/A -5000 +5000
Mer.Return -1000
A/c P/A ABC & Co. -1500 -2500
Merchandise S/R +2000 -2000
Balance +53000 + 50000 = 0 +103000
Accounting Rules:
Revenue decreases debit increases credit
Sale Return/Contra Revenue = Debit
Recording of Entry:
Jan 25: Sale Return 2000
Cash 2000
(To Record merchandise returned by Cash customer)
Jan 30, 2015: Paid salary Rs. 3000/= to employee.

79
Analysis:
1) Accounts involved = Salaries -Cash
2) Nature of Accounts = Expense -Assets

+ 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
ABC & Co. - 2500 -2500
Sale -10000
A/C R/A +12000 +2000 (Profit)
A/c R/A -5000 +5000
Mer.Return. -1000
A/c P/A ABC & Co. -1500 -2500
Merchandise s/R +2000 -2000
Salaries -3000 -3000
Balance +53000 + 47000 = 0 +100000

80
Accounting Rules:
Expense increases debit decreases credit.
Salaries/Expense = Debit
Recording of Entry:
Jan, 30 Salaries Rs. 1000

Cash Rs. 1000
(To record salary paid to employee)
The Asset “Cash” is decreased and the Expense decreases in owner’s Equity or from owner’s
profit.
Operated a bank account with Rs.5, 000/=.

81
Analysis:
1) Accounts involved = Bank -Cash
2) Nature of Accounts = Assets -Assets

+ 100000 = +100000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
Merchandise s -10000 + 12000 +2000 (Profit)
ABC & Co. - 2500 -2500
-10000
Merchandise sold
A/C R/A +12000 +2000 (Profit)
A/c R/A -5000 +5000
Mer.Return -1000
A/c P/A ABC & Co. -1500 -2500
Merchandise +2000 -2000
Salaries -3000 -3000
Bank Account +5000 -5000
Balance +58000 + 42000 = 0 +100000

82
Accounting Rules:
Bank/Assets = Debit
Recording of Entry:
Jan, 30 Bank Rs. 1000

Cash Rs. 1000
(To record cash deposited into bank)
The Asset “Cash” is decreased and bank account increases)

83
ACCOUNTING EQUATION
ASSETS = LIABILITIES + OWNER’S EQUITY
CASH 42,000
BANK 5,000
SHOP DEPOSIT 10,000
ACCOUNT RECEIVEABLE 7,000
PREPAID RENT 5,000
MERCHANDISE 31,000 = 0 + 100,000
TOTAL 100,000 = 0 + 100,000

84
Volume – I
WRITTEN BY:
SYED AQEEL RAZA
YEAR 2015
85
TABLE OF CONTENTS
< ACCOUNTING CYCLE>

86
Accounting Cycle…………………………………………………………….72-73
1- Source Documents…………………………………………………74-76
I -Cash Memo………………………………………………………………..77-79
Ii - Invoice………………………………………………………… ………….80-82
Iii - Instruments of Banks……..………………………… ……………83
a) Cheque Book……………………………………………… …………..83-85
b) Deposit Slip………………………………………………………………….86
c) Funds Transfer Form…………….………………… ……………..87-89
4-Vouchers………………………………………………………… ………90
a) Cash Payment voucher………………………… ……………….91
b) Cash Receipt Voucher………………………… ………………..92
c) Bank Payment Voucher……………………… ………………..93
d) Bank Receipt Voucher…..…………………… ……………….94
e) Petty Cash Voucher…..……………………… ………………..95
2- JOURNAL……………..……………………………… ……………..96
Kinds of Journals………………………………… ……………………..97
1-General Journal………………………… ………………………98-100
2-Cash Book……………………………………………………………..101-102
3-Petty Cash Book……………………………………………………….103-105
4-Cash Receipt Journal………………………………………………..106-107

87
5-Cash Payment Journal………………………………………………108-109
6-Purchase Journal……………………………………………………..110-111
7-Purchase Returns & Allowances Journal………… ……..112-114
8-Sales Journal……………………………………………… ………. 115-116
9-Sales Returns and Allowances Journal………… ……..117-119
Debit & Credit Memorandum………………………… ……..120-123
3-General Ledger……………………………………… …………..124-128
4-Trial Balance (Unadjusted)……………………… ………..129-135
5-Adjustment……………………………………………………………136-137
6-Trial Balance (Adjusted)………………………… ……………138-142
7-Closing Entries…………………………………… ……………..143-144
8-Worksheet……………………………………… ……………….145-148
9-Final Statements……………………………… ……………..149-153
10-Post Closing Trial Balance………………… ……………154-156
ACCOUNTING CYCLE
ACCOUNTING CYCLE
88
Accounting cycle means the collective processing of

accounting events of a firm repeated in the same order in
each accounting period. The business accounting cycle is
for one year in length. The steps begin when a
transaction occurs and end with its inclusion in financial
statements.
Here are following steps in accounting cycle:-
1-Source Document
2-Journal
3-Leger
4-Trial Balance unadjusted
5-Adjustments
6-Trial Balance Adjusted
7-Closing Entries
8-Worksheet
9-Finance Statement
10- Post Closing Trial Balance

89
ACCOUNTING CYCLE

90
ACCOUNTING CYCLE
1-Source Document
The source document which describes the transactions
and events moves accounting cycle. The Cash Memo,
Invoice, Bill, Statement, Bank Instrument or any other
paper in black and white enables accountant to support
and proof the transaction incurred are source
documents. The accounting cycle involves sale,
purchase, inventory or any other system adopted by
company creating source documents manually or
electronically under trading, servicing and
manufacturing businesses.
The accounting cycle cannot move without source
document.

91
ACCOUNTING CYCLE

92
ACCOUNTING CYCLE
Some source documents with their specimen using in
accounting are narrated below:-
1-CASH MEMO
2-INVOICE/BILL
3-INSTRUMENTS OF BANK
a)Cheque
b)Deposit Slip
c) Funds Transfer Form
4) VOUCHERS
a) Cash Payment Voucher
b) Petty Cash Voucher
c) Bank Payment Voucher
d) Cash Receipt Voucher
e) Bank Receipt Voucher
f) Journal Voucher

93
ACCOUNTING CYCLE
1-CASH MEMO
Cash Memo is the document of source when sale,
purchase or service is made in cash on the spot for
business, the seller have to give written instrument like
Cash Memo to the person purchased goods or acquired
services. The cash memo is made in duplicate or
triplicate according to the requirement of business.
Generally the Cash Memo contains:
Name, address and deals in of supplier or rubber
stamp, name and address of the purchaser, serial
number, date, quantity, description, rates of goods,
amount
Goods once sold will not be back. E. &.O.E. means

if there is any mistake in cash memo that is subject
to correction.
The cash memo must be signed by the duly
authorized person.
94
ACCOUNTING CYCLE
In case of trade discount or cash discount, sales tax and

anything is shown separately or designed according to
nature of business of firm.

95
ACCOUNTING CYCLE
CASH MEMO
S.No
. Date

M/S.

Qty. Particulars Rate Amount

Total
Goods once sold will not be back. E.&.O.E.
Signature

96
ACCOUNTING CYCLE
2-INVOICE:
Invoice is the commercial document that controls the
sale of a product, inventory and taxes. It may be on cash
or credit. In case of credit, the amount will be receivable
by the purchaser or payable to the seller for a certain
period. The Invoice is made in duplicate or triplicate
according to the requirement of business manually or
electronically.
The Invoice is also known as bill, statement, sales invoice
or sales tax invoice.
It may usually contain as per specimen or design
according to nature of business of firm.

97
ACCOUNTING CYCLE

98
ACCOUNTING CYCLE
COMPANY LOGO Invoice No.
Date
COMPANY NAME P.Order No.
(Company Slogan)
(Address )
No., Street, City, code
Phone, Fax
e-mail
SALES TAX NO.
To
Name
Company Name
Address
Phone No.
SALES TAX NO.
S.NO. QUANTITY DESCRIPTION RATE AMOUNT

SUB TOTAL
SALES TAX
TOTAL
THANK YOU FOR YOUR BUSINESS

99
ACCOUNTING CYCLE
3- INSTRUMENTS OF BANK
a) Cheque Book
A small book containing 25, 50, and 100 leaves preprinted instruments issued by
bank to enable account holder to withdraw or transfer an amount from his
account.
The cheque book contains two portion of each leave one the large portion or
main portion called cheque which is presented into bank for payment the
amount written and another small portion called counter folio remains with the
account holder for record of withdrawals.
A cheque is an order, signed by account holder (drawer) to place an order to

bank (drawee) to pay a certain sum of money to the person’s name written on
the cheque (payee).

100
ACCOUNTING CYCLE
ACCOUNTING CYCLE
b) Deposit Slip
101
The bank deposit slip or pay-in-slip is a small

preprinted form used to transfer funds by way of cash
or cheque into account to fill the information in the
required fields.
The pay-in-slip contains either two portion or in
duplicate. The small portion or duplicate copy of the
deposit slip is returned by bank to account holder
after acknowledge the amount in cash or cheque and
affixing the seal and officer’s signature.
Today computerized electronic machines are making
the same job.
ACCOUNTING CYCLE
102
ACCOUNTING CYCLE
103
c) FUNDS TRANSFER FORM
The Bank issues preprinted form for making demand draft, pay order, funds
transfer to other account of out station and other countries electronically.
The account holder has to fill the form and deposit the cash or cheque for the
purpose. The bank or financial institution returns the small portion of form to
depositor after acknowledging the amount in cash and cheque with seal and
signature. The charges for rendering services are deducted by bank.
Internet Banking is also useful for transfer funds from one account to another
account throughout country or worldwide.
ACCOUNTING CYCLE
104
ACCOUNTING CYCLE
105

106
ACCOUNTING CYCLE
4) VOUCHERS
A written record of payment and receipt by way of cash

and bank is called voucher supported by evidence or
events that a transaction has taken place. To record
liabilities and adjustment journal voucher is used.
ACCOUNTING CYCLE
a)-Cash Payment Voucher
107
CASH PAYMENT VOUCHER
Name of Company
Date
Voucher No.
C.B. Folio
DEBIT A/c
PAID TO
On account of Amount
Rs
. Ps.

TOTAL
RUPEES

Prepared by: Checked by: Authorized by: Received By:
ACCOUNTING CYCLE
108
b)-Cash Receipt Voucher
CASH RECEIPT VOUCHER
Name of Company
Date
Voucher No.
C.B. Folio
CREDIT A/c
Received
from
Rs. Ps.

TOTAL
RUPEES

ACCOUNTING CYCLE
c)-Bank Payment Voucher
BANK PAYMENT VOUCHER

109
Name of Company
Date
Voucher No.
C.B. Folio
A/
DEBIT c
PAID TO
Rs
. Ps.

TOTAL
RUPEES

ACCOUNTING CYCLE
d) -Bank Receipt Voucher
110
BANK RECEIPT VOUCHER
Name of Company
Date
BP.V NO.
C.B. Folio
A/
CREDIT c
Received
from
Rs
. Ps.

TOTAL
RUPEES


111
ACCOUNTING CYCLE
e- Petty Cash Voucher

Name of Company

PETTY CASH VOUCHER
No.

Paid to

Rupees Rs.

on account of



112
ACCOUNTING CYCLE
2-Journal
A journal is a book or computer file in which monetary
transactions systematically are entered the first time
they are processed in chronological sequence to control
large number of transactions of a day.
A daily record of events or business is referred to diary as
private journal.

113
ACCOUNTING CYCLE
KINDS OF JOURNALS
1-GENERAL JOURNAL
2-CASH BOOK
3-PETTY CASH BOOK
4-CASH RECEIPT JOURNAL
5-CASH PAYMENT JOURNAL
6-PURCHASE JOURNAL
7-PURCHASE RETURN AND ALLOWANCES
JOURNAL
8-SALES JOURNAL
9-SALES RETURN AND ALLOWANCES
JOURNAL

114
ACCOUNTING CYCLE
1-GENERAL JOURNAL
In accounting, a first step for recording of financial
transactions is General Journal where double entry
book keeping entries are recorded by debiting one or
more account and crediting another one or more
accounts with the same total amount under accounting
equation.
A general journal entry includes the date of the
transaction, the titles of the accounts debited and
credited, and an explanation of the transaction also
known as narration.
There are some other journals used for special purposes
called Special Journals same as General Journal or book
of original entry.
115
ACCOUNTING CYCLE
116
ACCOUNTING CYCLE
PAGE NO.
GENERAL JOURNAL
DATE DESCRIPTION REF. DEBIT CREDIT


117
ACCOUNTING CYCLE
2-CASH BOOK
The Cash Book is usually maintained all cash receipts and
cash major payments including bank deposits and
withdrawals.
The cash book is periodically reconciled with the bank
statement as an internal auditing.
Large business organizations that have a number of
transactions of cash payments and cash receipts use cash
receipt and cash payment journals.

118
ACCOUNTING CYCLE

119
ACCOUNTING CYCLE
3-PETTY CASH BOOK
Petty cash is a small amount of discretionary funds in the
form of cash used for payment of expenses. Because of
the inconvenience, cost of writing, signing, saving time
and energy of cashier, petty cash book is written where
cashier issues a cheque or cash from main cash book as
petty cash funds to petty cashier. The book keeping entry
for this initial fund would be to debit Petty Cash Funds
and credit bank account or main cash account
automatically.
Petty Cash Book contains five normally columns namely
(1) Receipt (2) Date (3) Description (4) Voucher Number
(5) Payments link to separate head of account.

120
ACCOUNTING CYCLE

121
ACCOUNTING CYCLE

122
ACCOUNTING CYCLE
4-CASH RECEIPT JOURNAL

The Cash Receipt Journal is used to record cash receipt
only designed by the requirements of business and
below is commonly used;-

123
ACCOUNTING CYCLE
CASH RECEIPT JOURNAL
OTHER ACCOUNTS: A/C RECEIVABLE:

DATE DESCRIPTION Cr. SALES Cr. SALES CASH RECEIPT
Ref. Amount Cr. Ref. Amount DISCOUNT DR.
Dr.

ACCOUNTING CYCLE
124
5-CASH PAYMENT JOURNAL

The Cash Payment Journal known as “Multi Columns
Cash Payment Journal” is used to record major cash and
bank payments in various ways designed according to the
requirement of the business.
ACCOUNTING CYCLE
CASH PAYMENTS JOURNAL

125
Vouche OTHER Purchase Purchas

DAT r ACCOUNTS s Trnas- A/C PAYABLE e CASH PAYMENTS
DESCRIPTION
E Ref Amoun portatio Ref Amoun Discoun
No.
. t n . t t
Dr. Dr. Dr. Dr. Cr. Cr.

ACCOUNTING CYCLE
126
6- PURCHASE JOURNAL
The Purchase Journal is used for recording transactions

relating to credit purchases of merchandise and not for
cash purchases as cash purchases of merchandise are
recorded in Cash Book or Cash Payment Journal.
ACCOUNTING CYCLE
PURCHSASE JOURNAL
127
Page No.
POST
DATE NOVICE NO. NAME OF SUPPLIER AMOUNT
Ref.

ACCOUNTING CYCLE
128
7-PURCHASE RETURN AND ALLOWANCES JOURNAL

Purchase Return and Allowances Journal is a Book known
as Purchase Return outwards book and purchase return
day book, wherein purchaser records all the debit
memorandum of parties of Purchase returns to seller for
certain reasons. Buyer sends a debit note to the seller
contains the quantity of goods returned and reasons for
return of goods.
The Purchase return and allowances journal is the
summary of parties whom goods has returned and the
claim of returns has been adjusted making General
Journal Entry by debiting Account Payable and crediting
Purchase Return and Allowances under reference.
ACCOUNTING CYCLE
129
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL

RAZA<[email protected]>
ACCOUNTING CYCLE
130
PURCHASE RETURN AND ALLOWANCES JOURNAL
Page No.
POST
DATE CREDIT MEMO NO. NAME OF SUPPLIER AMOUNT
Ref.

ACCOUNTING CYCLE
131
8-SALES JOURNAL
The Sales journal is used to record credit sales of
merchandise and not for cash sales.
ACCOUNTING CYCLE
132
SALES JOURNAL
Page No.
POST
DATE ACCOUNT DEBITED INVOICE NO. AMOUNT
Ref.

ACCOUNTING CYCLE
133
9-SALES RETURNS AND ALLOWANCES JOURNAL
Sales Return and Allowances Journal is a book,

known as Sales Return Inwards Book or Sales
Return Day Book, wherein seller records only all
the credit memorandum of Parties of sales
returns to him by his customers for sold reasons.
The sale return and allowances journal is the
summary of parties who returned the goods and
the claim of returns has been adjusted making
General Journal Entry by debiting Sales Return
and Allowances and crediting Account receivable
under reference.

ACCOUNTING CYCLE
134

135
ACCOUNTING CYCLE
SALES RETURNS AND ALLOWANCES JOURNAL

Page No.
CREDIT POST
DATE ACCOUNT CREDITED AMOUNT
MEMO Ref.


136
ACCOUNTING CYCLE
DEBIT AND CREDIT MOMORANDUM
If any defect in commodities found, the purchaser will

inform the supplier for deduction of amount payable by
debit memorandum. If the supplier accepts the request,
he will issue a credit memorandum for deduction of
amount receivable.
The debit memorandum reduces the liability to vendor
and credit memorandum reduces accounts receivable to
vendor.

137
ACCOUNTING CYCLE
ACCOUNTING CYCLE 122

138
ISSUED BY PURCHASER
SPECIMEN OF DEBIT MEMORANDUM

KARACHI TRADING COMPANY
P.O. BOX 990,
KARACHI- PAKISTAN
Debit Memorandum NO. 001
To: Date: January 10,2015
M/s. Azad Traders
S.I.T.E., Karachi

We are debiting your account with the value of under mentioned goods
returned;

Qty. Particulars Amount(Rs.)
5 Radio sets @ Rs.100 as per invoice. 500.00
No. 002 dated 12.1.2015
Less

Returned goods being of inferior
quality
via Malik Transport Co. E.&O.E.
Signature
ACCOUNTING CYCLE
ISSUED BY SELLER
139
SPECIMEN OF CREDIT MEMORANDUM

AZAD TRADERS
S.I.T.E.,
KARACHI-PAKISTAN

To: Credit Memorandum No. 10
Karachi Trading Co., Date: January 15,2015
P.O. BOX 990,
KARACHI- PAKISTAN

We are crediting your account with the value of under mentioned goods
Received from you for the reason stated in your Debit Note.

Qty. Particulars Amount(Rs.)
Radio sets @ Rs.100 as per Debit
5 Note No. 500.00
No. 0012 dated 10.1.2015
Less

Returned (goods being of inferior
quality)
E.&O.E.
Signature
ACCOUNTING CYCLE
3-GENERAL LEDGER
140
General journal shows debit and credit the accounts

head but the actual increase or decrease is ascertained in
an individual account and the group of accounts is known
as LEDGER or as book of final entry.
There are three types of accounts in ledger;
1-Standard Form
2-Skeleton Form “T” Shape.
3-Self Balancing Form

ACCOUNTING CYCLE
141
GENERAL LEDGER
COMPANY NAME LEDGER
Account of
DEBIT CREDIT Dr. BALANCE

DATE PARTICULARS FOLIO Rs. Rs. or Rs.
Cr.

Standard Form of Ledger Account
ACCOUNTING CYCLE
142
GENERAL LEDGER
COMPANY NAME LEDGER
Account of
DATE PARTICULARS FOLIO DEBIT DATE PARTICUALRS FOLIO CREDIT

Standard Form of Ledger Account

143
ACCOUNTING CYCLE
Cash Acc: No.

Specimen of Skeleton Form or "T" Shape Form
ACCOUNTING CYCLE
144
GENERAL LEDGER
COMPANY NAME LEDGER
Account of
PARTICULAR FOLI PARTICUALR

DATE S O DEBIT S FOLIO CREDIT

Specimen of self balancing form

145
ACCOUNTING CYCLE
4-TRIAL BALANCE (UNADJUSTED)
All the ledger accounts are summarized into a statement
at the end of a period such as month, quarter or year
known as TRIAL Balance. An unadjusted trial balance is
the one which is summarized before any adjustments
made in ledger accounts.
The debit and credit result of account balance is taken or
kept in its proper place account related to;
Debit Balance Credit Balance
Assets Contra Assets
Expenses Liabilities
Prepaid expenses Capital
Drawing Revenue
The Trial balance is formed in two as to Standard Form
and Skeleton Form specified below;

146
ACCOUNTING
CYCLE

147
ACCOUNTING
CYCLE
TRIAL BALNACE
AT THE END OF THE YEAR JUNE,30 2014
Account DEBIT CREDIT
TITLE OF ACCOUNT
No. Rs. Rs.

Specimen of trial Balance standard form

148
ACCOUNTING CYCLE
COMPANY NAME
TRIAL BALNACE
AT THE END OF THE YEAR JUNE,30 2014
ASSETS

CONTRA ASSET

LIABILITIES

PROPRIETORSHIP

INCOME

EXPENSES

Specimen of trial Balance Skeleton form

149
ACCOUNTING CYCLE

150
ACCOUNTING CYCLE
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL [email protected]

151
ACCOUNTING CYCLE
152
ACCOUNTING CYCLE
5-ADJUSTMENT
In order to present a true and fair view of the financial
position, an entry is made in accounts which does not
record a transaction but made to rectify errors, missed
recording, not recorded properly or wrong amounts were
recorded previously or some transactions are recorded
only at the end of the year. These transactions or entries
are related with the adjustment, reversing, correction of
errors.
Below is the most common adjustment;

ACCRUED EXPENSES/UNRECRODED EXPENSES
PREPAID EXPENSES
DEPRESCIATION EXPENSES
BAD DEBITS/UNCOLLECTIBLE
UNUSED SUUPLIES OR MERCHANDISE
ACCRUED INCOME/UNRECORD EXPNESES.
UNEARNED REVENUE
ACCOUNTING CYCLE
153

154
ACCOUNTING CYCLE
6-TRIAL BALANCE (ADJUSTED)

After adjusting and positing the entries into ledger
accounts, re-trial balance is prepared called adjusted trial
balance.
Like the unadjusted trial balance, the adjusted trial
balance accounts are listed usually in or order as “assets,
liabilities, and equity, income and expenses accounts.”
An adjusted trial balance is formatted exactly like an
unadjusted trial balance.

155
ACCOUNTING CYCLE
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156
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157
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158
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159
7- CLOSING ENTRIES
Revenue, expense and capital withdrawal (dividend) accounts are temporary

accounts need to rest at the end of the accounting period through Income
Summary or Expense and revenue summary. Closing entries are the journal
entries used to transfer the balances of these temporary accounts to permanent
accounts. The closing journal entries may be in the form of a compound journal
entry if there are several accounts to close.
The sequence of closing process is as under:
1. Close the revenue accounts to Income Summary
2. Close the expense account to Income Summary
3. Close Income Summary to Retained Earnings
4. Close Dividends to Retained Earnings

160
ACCOUNTING CYCLE
EXAMPLES
1. Close the revenue accounts to Income Summary
DATE ACCOUNTS DEBIT CREDIT

XXXX.X
mm/dd Revenue X
XXXX.X
Income Summary X
2. Close the expense account to Income Summary
DATE ACCOUNTS DEBIT

mm/dd Income Summary XXXX.XX
Expenses
3. Close Income Summary to Retained Earnings

mm/dd Income Summary XXXX.XX
Retained Earnings XXXX.XX
4. Close Dividends to Retained Earnings

mm/dd Retained Earnings XXXX.XX
Dividends XXXX.XX
4. Unrecorded expenses or accrued expenses

161

mm/dd Expense Account XXXX.XX <THE SYSTEM OF ACCOUNTING <
Accrued Expense XXXX.XX VOLUME 1< SYED AQEEL
ACCOUNTING CYCLE
8- WORKSHEET
The worksheet means working paper containing different types of information

or accounting data prepared to minimize errors in the permanent record of
accounting, simplify work and for testing of ledger accounts, adjusting entries
and financial accounts.
The worksheet or working paper specimen below is very useful providing

information for;
Financial statement
Owner’s equity
Posting of adjusting entries in the accounting records
Recording of closing entries

162
ACCOUNTING CYCLE
163
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164
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165
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166
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9-FINANCIAL STATEMENTS
167
At the end of the accounting period, financial statements

as income statement and Balance sheets are prepared to
close up all the financial activities during the year.
All the expenses and revenue accounts are closed by
Income Statement or Expense and Revenue Summary
showing Net Income or Net Loss for the period.
All the Assets, Liabilities and Proprietorship accounts are
presented in Balance Sheet.
ACCOUNTING CYCLE
168
ACCOUNTING CYCLE
169
COST OF MERCHANDISE
The rule of cost of merchandise in profit and loss
summary is important to find out the net income or loss.
The amount of cost of merchandise sold is obtained by
the process of the following;

170
ACCOUNTING CYCLE
COST OF MERCHANDISE SOLD STATEMENT

AT THE END OF THE YEAR 201..
COST OF MERCHANDISE SOLD

Merchandise Inventory (Opening) xxxx.xx
Purchases xxxx.xx
Less: Purchase Returns & Allows. xxx.xx
Less: Purchase Discount (+)xxx.xx (-)xxxx.xx
NET PURCHASES xxxx.xx

Add: Transportation in;
Cartage xxx.xx
Import Duties xxx.xx
Custom Duties xxx.xx
Clearing & forwarding Exp. xxx.xx
Freight Charges xxx.xx (+)xxx.xx

COST OF MERCHANDISE AVAILABLE FOR SALE xxxx.xx
LESS: MERCHANDISE INVENTORY (ENDING) (-)xxxx.xx

COST OF MERCHANDISE SOLD xxxx.xx
(Transferred to Profit & Loss Account)
ACCOUNTING CYCLE
INCOME STATEMNET
171
PROFIT AND LOSS STATEMENT

AT THE END OF THE YEAR 201
SALES REVNUE:
Sales
xxxx.x
Less: Sales Return & Allowances x
xxxx.x
Less: Sales discounts x
(-)xxxx.xx
NET SALE xxxx.xx

LESS : COST OF MERCHANDISE SOLD (-)xxxx.xx
GROSS PROFIT OR LOSS (+/-)xxxx.xx

LESS EXPENSES
xxxx.x
Operating Expenses x
xxxx.x
General Expenses x
xxxx.x
Financial Expenses x (-)xxxx.xx
NET PROFIT OR LOSS (+/-)xxxx.xx
(Transferred to Capital Account)
If net sales exceed the cost of merchandise sold, it means
that there is gross income and if it is less to cost of
merchandise sold, there is gross loss. And for this,
expenses increase or decrease the gain or loss.
ACCOUNTING CYCLE
172
BALANCE SHEETS
COMPANY NAME
BALANCE SHEET AS AT 30.06.2015
ASSETS Amount EQUITIES Amount
CURRENT ASSETS CURRENT LIABILITIES

xxxx.x xxxx.x
Cash in hand x Accounts Payable x
xxxx.x xxxx.x
Cash at Bank x Bank Over draft x
xxxx.x xxxx.x
Accounts Receivable x Salaries Payable x
xxxx.x xxxx.x
Stock x Wages Payable x
xxxx.x xxxx.x
Unexpired Insurance x Utilities Payable x
xxxx.x
Unexpired Rent x
XXXX.X XXXX.X
X X
NON-CURRENT ASSETS LONG TERM LIABILITIES
xxxx.x xxxx.x
Land x Mark-up x
xxxx.x xxxx.x
Building x Loan x
xxxx.x XXXX.X
Furniture & Fixtures x X
xxxx.x
Office Equipment x OWNER'S EQUITY
Less: Accumulated Depreciation (F&F) (-)xxxx.xx Capital xxxx.xx
Less: Accumulated Depreciation (OE) (-)xxxx.xx Less: Drawing (-)xxxx.xx
XXXX.X XXXX.X
TOTAL X TOTAL X

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ACCOUNTING CYCLE
10-POST CLOSING TRIAL BALANCE

A post closing trial balance contains only the balance
sheet accounts and their amounts i.e. assets, liabilities,
owner equities. It is prepared after closing the expenses
and revenue accounts.
The preparation of post-closing trial balance is the last
step of the accounting cycle and gives the assurance that
sum of debits equal the sum of credits before the start of
new accounting period. It provides the opening balances
for the next ledger accounts of the new accounting
period.
This is the end of the accounting cycle and in the next
accounting period; the accounting cycle will be repeated
again as before.
The following is the example of closing trial balance;
174
ACCOUNTING CYCLE
175
ACCOUNTING CYCLE
COMPANY NAME
POST CLOSING TRIAL BALANCE
AT THE END OF THE YEAR JUNE, 30 201…
DEBIT CREDIT
TITLE OF ACCOUNT
Rs. Rs.
Cash xxxx.xx
Accounts receivable xxxx.xx
Stock xxxx.xx
Prepaid Insurance xxxx.xx
Prepaid Rent xxxx.xx
Land xxxx.xx
Building xxxx.xx
Furniture & Fixtures xxxx.xx
Office Equipments xxxx.xx

Accounts Payable xxxx.xx
Bank overdraft xxxx.xx
Salaries Payable xxxx.xx
Wages payable xxxx.xx
Utilities Payable xxxx.xx
Mark up xxxx.xx
Loan xxxx.xx
Capital xxxx.xx

TOTAL XXXX.XX XXXX.XX
176
ENDING WORDS
ON
ACCOUNTING CYCLE
Accounting covers all the department of life, the life

cannot move or survive without food and food comes
from money, money comes from doing business,
business needs accountancy and accountancy has
process like cycle revolves all finances resulting in
financial statements showing the true and fair financial
position enables businessman to take further decisions
on business movement.
The Accounting cycle which starts once has no break
either to carry on or wind up the business activities.
I tried a little to describe the subject concisely to follow
the concept within no time.
Your comments and support is assurance of writing
further.
Author
177
Volume – I
WRITTEN BY:
SYED AQEEL RAZA
YEAR 2015
178
It is my pre-words to accounts making that accounts

making in the system of accounting is like to build
home, set characters to any story, apply labor to
job, to make map of any plan or any work for
completion needs hands. I think anything has many
hands to make something. Whence the word makes
to joint alphabet thence the accounts makes the
building of accounting under umbrella of ALPRE and
provides cycling power to it afterwards.
Your comments and encourages is better than fruit.

179
180
THE SYSTEM OF ACCOUNTING
ACCOUNTS MAKING
TABLE OF CONTENTS
Accounts making note 157-160
1-ASSSETS 160-163
1.1 Fixed Assets 163
1.1.1 Land 163-165
1.1.2 Building 166+168
1.1.3 Plant & Machinery 169-170
1.1.4 Furniture & Fixtures 171-173
1.1.5 Office Equipment 174-175
1.1.6 Other Assets 176-178
1.2 Current Assets 178
1.2.1 Cash in Hand 179-180
1.2.2 Cash at Bank A/c 181-182
1.2.3 Account Receivable A/c 183-185
1.2.4 Purchase Merchandise A/c 186-187
181
1.2.5 Prepaid Rent A/c 187-188

1.2.6 Prepaid Insurance A/c 189-193
1.2.7 Unexpired Insurance A/c 194-196
1.2.8 Prepaid Insurance A/c 197-198
1.2.9 Security Deposit A/c 199-200
1.2.10 Deferred Assets A/c 201-202
1.3 Intangible Assets 202-204
1.4 Contra Assets 204-205
1.4.1 Accumulated Depreciation A/c 205-206
1.4.2 Purchase Return A/c 207
1.4.3 Purchase Discount A/c 208
1.4.4 Uncollectable Bad Debts 209
2- LIABILITIES 210
2.1 Short Term Liabilities 211
2.1.1 Account Payable A/c 211-212
2.1.2 Salaries Payable A/c 212-213
2.1.3 Accrued Expense A/c 214-215
2.1.4 Sales Tax Payable 216-217
182
2.1.5 Income Tax Payable 218-220

2.1.6 Notes Payable A/c 220-221
2.1.7 Interest Payable A/c 221-222
2.2 Long Term Liabilities 223-224
3- PROPRIETORSHIP/OWNERS’EQUITY 224
3.1 Capital 224-225
3.2 Drawing 226
4 – REVENUES 227-228
4.1 Sales 229-230
4.2 Commission Income 230-231
4.3 Other Income 231-232
4.4 Unearned Revenue 232-233
4.5 Accrued Revenue Receivable 233-234
4.1 CONTRA REVENUE ACCOUNTS 234
4.1.1 Sales Return 234-235
4.1.2 Sales Discount 236-237
5- EXPENSES 237-238
5.1 Direct Expenses 239
183
5.2 Indirect Expenses 240

5.3 Operating Expenses 241
5.4 Non-Operating Expenses 242
5.4.1 Administrative Expenses 243
5.4.1.1 Advertising Expense A/c 243-244
5.4.1.2 Insurance Expense A/c 244-245
5.4.1.3 Repair & Maintenance Expense 245-246
5.4.1.4 Salaries & Allowances 246-247
5.4.1.5 Depreciation Expense A/c 248
5.4.1.6 Office Supplies 249-250
5.4.1.7 Other Accounts Admin 250-251
5.4.2 Selling Expenses 252
5.4.2.1 Advertising Expense A/c 252-253
5.4.2.2 Sales Promotion A/c 254-255
5.4.2.3 Sales Distribution A/c 255-257
5.4.2.4 Other Accounts Sales 257-258
5.4.3 General Expenses 259
5.4.3.1 Rent Expense A/c 259-260
184
5.4.3.2 Utility Expense A/c 260-261

5.5 Finance Expenses 262-263
185
ACCOUNTS MAKING
ACCOUNTS MAKING
In the System of Accounting there are five principle of

recording transactions wherein Assets, Liabilities, Equities,
Revenues and Expenses increasing or decreasing under rules
of debit and credit as Assets and Expenses increases debit and
decreases credit and Liabilities, Equities and Revenues
increases credit and decreases debit. Assets, Liabilities and
Equities are the permanent member of double entry
accounting Equation “Assets=Liabilities + Equities” revolving
accounting cycle round the years and Expense and Revenue
related accounts are the temporary members of accounting
equation perform to calculate Profit and Loss Account, the
profit and loss relate to owners’ equity and the owners’ equity
is the part of accounting equation. The Expenses and
Revenues and related accounts are for making profit & loss
account do not move accounting cycle or transfer their
balances to next accounting year. The expense and revenue
accounts are related with single entry, the old accounting
system used or using in small businesses where to earn and
expense daily or to avoid record accounting applied
procedures.
ACCOUNTS MAKING
186
The Accounts making in the system of accounting is too

essential to reach the goal of accounting equation or to close
up them for accounting cycle. The thousands of account are
made under matching of five accounting principles; the
accounting principle plays the rules of head and controls huge
accounts created under them.
On creating accounts Land, Building, Furniture, Plant,
Machinery, Equipment, we find out that they relate to
Principle head “Asset” means the value to business or things
which we have in our possession, if we make accounts of
account payable, loan, advance, mark up etc. indicate the
debt and debt comes under Principle account “Liabilities”, and
so on, on making capital, profit & loss account etc we reach on
the decision that these accounts relate to Owners’ Equity, the
principle account head.

187
ACCOUNTS MAKING
On making accounts sales, revenues, other incomes etc., we

find out they indicate income from business operation and
come under accounting principle head “Revenues” and like
this, if we make account, salaries expenses, cartage,
conveyance, wages expense, advertising expense, insurance
Expense so on, we ascertain that they relate to expenses of

five principle head of account. Expenses reduce income that
earned from doing business.
In the system of accounting there are three businesses are
described which are trading, manufacturing and servicing
have same concept of accounting system and requires the five
principle of accounting head but sub accounts relating to five
principal of accounting head mostly are common and not
common can be made according to the nature of business,
business activities, events and needs, and for the
manufacturing business, manufacturing process involves
machineries, equipments, finished goods, advertising,
promotion etc. accounts, for trading and servicing businesses
common accounts and some uncommon accounts are made.

188
ACCOUNTS MAKING
In order to have knowledge and definition of accounts, I am

discussing individually on accounts most commonly used in
the system of accounting.
The System of Accounting has five principal head which are
Assets, Liabilities, Proprietorship, Revenue and Expenses
wherein Assets, Liabilities and Proprietorship are permanent
accounts rounding accounting cycle and Revenue and
Expenses are temporary accounts end on Income & loss
account or provide the source of income or loss to capital
account.
Here we discuss thoroughly each principal head, its sub
accounts and related with accounts mostly used in accounts
making;-
1-ASSETS
Assets are the resources of the business and equities are
sources, sources provide finances to resources for conversion
capital into assets enable business to start functioning. Assets
are the main head which generate sub heads and sub heads
189
ACCOUNTS MAKING
further generate related accounts according to the nature of

the business.
Many terms of assets are used in accounting such as fixed
assets, tangible assets, non-current assets, immoveable
assets, long term resources having live more than one year,
and these are recorded at book value or on purchase price
decreasing depreciation and placed sub head of ASSETS in
financial statement .Other assets are current assets, liquid
assets, value assets, moveable assets, intangible assets and
short term assets having life under one year.
Some assets are contra assets which reduces the value of

assets.

190
ACCOUNTS MAKING
Much Kind of assets according to the nature of business are in

accounts or can give name or make account to any asset
purchased or acquired for business.

191
ACCOUNTS MAKING
Here are the details and description some of assets relating to

fixed assets, tangible assets, non-current assets, immoveable
assets, long term assets.
1-FIXED ASSETS
1- Land
2- Building
3- Plant & Machinery
4- Furniture & Fixtures
5- Office Equipment
6- Other Assets
1.1.1 LAND A/c

Land is required mostly in manufacturing concerns producing
raw material or convert raw material into finished goods for
home country and out countries and having huge production,
labor, materials and process.

192
ACCOUNTS MAKING
The land is fixed, non- current, tangible, long term resources

or immovable asset of the business and the permanent
member of accounting cycle and shown in balance sheet as
land. There is no depreciation is charged on land and the value
of land is recorded as book value or purchase value instead of
market value.
Banks offer loan on mark up or on demand finance against
mortgage of land to assess market value of the land.
The account of land is made under head Fixed Assets and
according to accounting rules as asset increases debit
decreases credit it will be debited and other account which is
cash or bank also an asset is credited. There is no affect on
accounting equation is made as cash converted into asset
“Land,” and this action is called asset for asset entry or
conversion entry.
Entry;
Land
Cash/Bank
(Purchase land by cash/bank)
193
ACCOUNTS MAKING

194
ACCOUNTS MAKING
1.1.2 BUILDING A/c

After purchasing of land, the building is needed to be
constructed and designed according to the nature or work of
business keeping in view all the aspects of health and safety
of workmen.
The expense on construction of building is capital
expenditure, and capital expenditure is converted into asset
as Building Account. Money spending any kind on all repairs
and maintenance on building is charged as expenses under
head Repair & Maintenance Building.
The building is fixed, non- current, tangible asset, long term
resources or immoveable asset of the business and the
permanent member of accounting cycle and shown in balance
sheet as Building. The value of building is recorded as book
value or construction value instead of market value, and
depreciation is charged on building.

195
ACCOUNTS MAKING
Therefore, the account of building is made under head Assets

and sub head Fixed Assets and according to accounting rules
asset increases debit decreases credit it will be debited and
other account which is cash or bank also an asset is credited.
There is no affect on accounting equation as cash converted
into asset (Building) and this action is called asset for asset
entry or conversion entry.
Entry;
Building Debit
Cash/Bank Credit
(Purchase building by cash/bank)

196
ACCOUNTS MAKING
197
ACCOUNTS MAKING
1.1.3 PLANT AND MACHINERY A/c

There will be needed to have plant and machinery to run any
manufacturing concern according to the nature and work of
business after acquiring of land and building.
The Plant and Machinery is fixed, non- current, tangible asset,
immoveable or long term resources of the business and the
sheet as Plant & Machinery. The value of plant and machinery
is recorded as book value or purchase value, and depreciation
is charged on plant and machinery.
Money spending any kind on all repairs and maintenance on
plant and machinery is recorded as expenses under head
Repair & Maintenance (Plant & Machinery).
The account of plant and machinery is made under head Fixed
Assets, the sub head of Assets and according to accounting
rules asset increases debit decreases credit it will be debited
and other account which is cash or bank also an asset is
credited. There is no affect on accounting equation is made as
cash converted into asset “Plant & Machinery and this action
is called asset for asset entry or conversion entry.
198
ACCOUNTS MAKING
Entry;
Plant & Machinery Debit
Cash/Bank Credit
(Purchase plant & machinery by cash/bank)
199
ACCOUNTS MAKING
1.1.4 FURNITURE & FIXTURES A/c

Furniture and fixtures according to the nature and work of
business is also required in any concern after acquiring land,
building and plant and machinery.
The Furniture and fixtures is fixed, non- current, tangible
asset, immoveable or long term resources of the business and
the permanent member of accounting cycle and shown in
balance sheet as Furniture and Fixtures. The value of furniture
and fixtures is recorded as book value or purchase value, and
depreciation is charged over it.
Furniture and fixtures is recorded as expenses under head
Repair & Maintenance (furniture and fixtures) or Repair &
Maintenance (F&F).
The account of Furniture and Fixtures is made under

head Fixed Assets, the sub head of Assets and according to
200
accounting rules asset increases debit decreases credit it will

be debited and other account which is cash or bank also an
ACCOUNTS MAKING
asset is credited. There is no affect on accounting equation is

made as cash converted into asset “Furniture & Fixtures,” and
this action is called asset for asset entry or conversion entry.
Entry;
Furniture & Fixtures Debit
Cash/Bank Credit
(Purchase furniture & fixtures by cash/bank)
201
ACCOUNTS MAKING
202
ACCOUNTS MAKING
1.1.5 OFFICE EQUIPMENT

Office Equipments like typewriters, computers, printers, fax
machines, etc. are also required to control and run any
concern according to the nature and work of business.
The Office Equipment is fixed, non- current, tangible asset,
sheet as Office Equipment. The value of Office Equipment is
recorded as per book value or purchase value, and
depreciation is charged over it.
office equipment is recorded as expenses under head Repair &
Maintenance (Office Equipment).
The account of Office Equipment is made under head Fixed
Assets, the sub head of Assets and according to accounting
rules asset increases debit decreases credit it will be debited
and other account which is cash or bank also an asset is
credited. There is no affect on accounting equation is made as
203
cash converted into asset (office equipment) and this action is

called asset for asset entry or conversion entry.
ACCOUNTS MAKING
Entry;
Office Equipment Debit
Cash/Bank Credit
(Purchase office Equipment by cash/bank)
204
ACCOUNTS MAKING
1.1.6 OTHER ASSETS

Other assets are a group of accounts of minor value adding
during business operation to avoid lengthiness in the system
of accounting. Like land, building, plant & machinery,
Furniture and fixtures and office equipment there may be
other assets like Air Conditioning unit, generator, power
factor, tools, vehicles etc.
205
The Other Assets is fixed, non- current, tangible asset,

sheet as Other Assets. The value of Other Assets is recorded
as book value or purchase value, and depreciation is charged
over it.
other assets is recorded as expenses under head Repair &
Maintenance (Other Assets head wise).
The account of Other Assets is made under head Fixed Assets,
the sub head of Assets and according to accounting rules asset
increases debit decreases credit it will be debited and other
account which is cash or bank also an asset is credited.
ACCOUNTS MAKING
There is no affect on accounting equation is made as cash converted

into asset (Other Assets) and this action is called asset for asset entry
or conversion entry.
Entry;
Other Assets Debit
Cash/Bank Credit
(Purchase generator by cash/bank)

206
ACCOUNTS MAKING
Like fixed assets many Kind of assets according to the nature

of business are therein or can give name or make account to
any asset.
Here are the details and description some of assets relating to
current assets, liquid assets, moveable assets, value assets,
intangible assets, short term assets;
207
1.2 Current Assets

1- Cash in hand
2- Cash at Bank
3- Accounts Receivable
4- Merchandise Inventory
5- Purchases Merchandise
6- Prepaid Rent
7- Prepaid Insurance
8- Unexpired Rent
9-Unexpired Insurance
10-Prepaid Advertising
11-Security Deposit
12-Deferred Assets
ACCOUNTS MAKING
1.2.1 CASH IN HAND A/c

Cash is used for payments relating to purchases, expenses,
debts and all financial matters which are expedited during
business operation. The source of cash is transferred by
capital, conversion of assets, sale, any kind of revenue and all
other sources where cash comes during business operation.
208
Cash in hand means cash balance in cash book and petty cash
book or the cash remained unused during business operation
at the end of accounting period and shown in balance sheet as
Cash-in-hand.
Cash in hand is current asset, liquid asset, moveable asset or
value asset of any entity.
The account of cash is made under head Current Asset, the
sub head of asset and cash comes from capital assume. It will
be transfer entry of cash from the sources of the business and
shown debit balance in cash book. The account cash debit and
credit from cash book.
ACCOUNTS MAKING
Entry;
Cash Debit
Capital Credit
(Cash by investment)
209
ACCOUNTS MAKING
1.2.2 CASH AT BANK A/c
All cash comes from the sources of business during business

operation is kept in bank account for all payments to save risk
and according to the instruction of government issued from
210
time to time for controlling taxes by bank. All records of cash

drawn and paid are furnished by bank which is reconciled with
cash book by account holder.
The balance unused in bank at the end of the accounting
period is cash at bank shown in balance sheet.
Cash at bank is current asset, liquid asset, moveable asset or
value asset of any entity.
The account of Cash at bank is made under head Current
Asset, the sub head of Assets and shown in debit balance in
cash book as;
ACCOUNTS MAKING
Entry;
Bank Debit
Cash Credit
(Cash deposited into bank)
211
ACCOUNTS MAKING
1.2.3 ACCOUNTS RECEIVABLE A/c

The money recoverable from customer whom goods or
services sold on credit is called account receivable.
Account receivable is a current asset, liquid asset or value
assets, the sub head of Assets shown in balance sheet as
Accounts receivable under note, the detail of parties.
212
On account of sale on credit, an account “Account R/A “with

party’s name individually created in the ledger to record
increase or decrease the amount due on customer. As per
accounting rule debt is debited to account receivable and
credited by cash, cash is also an asset, therefore, cash move to
other hand and this action is called asset for asset or moving
entry. When cash is the amount of debt is received, it will be
reversed.
Entry;
Account Receivable Debit
Cash Credit
On recovery of cash, the entry will be;
Cash Debit
Account Receivable Credit

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1.2.4 MERCHANDISE INVENTORY A/c

Merchandise inventory means the merchandise remain unsold
at the end of accounting period.
Merchandise Inventory is current asset and shown in balance
sheet as Stock or Merchandise Inventory.
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The merchandise inventory ending is reduced by cost of

merchandise sold statement as unsold goods already recorded
In purchases and opening inventory therefore, the entry will
be;
Merchandise Inventory Debit
Income Summary Credit
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1.2.5 PURCHASES MERCHANDISE A/c

Merchandise means to things or commodities bought and
sold. Purchases are made on cash basis where payment made
immediately is cash purchases and on account where payment
made after purchases on certain understanding called credit
purchases.
Unused merchandise into Purchases is current asset shown in
balance sheet as stock or Merchandise Inventory and
permanent member of accounting cycle but used merchandise
relates to income summary and temporary asset.
On purchasing of commodities, the Local purchase account or
import purchase A/c is debited and cash a/c or party’s account
in case of credit purchase is credited. It is asset for asset or
conversion entry.
Entry’
Local Purchases Debit
Cash/bank Credit
Import Purchases Debit
Bank Credit
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1.2.6 PREPAID RENT A/c

On starting business, there will be need to have a place, shop,
go-down, building etc. which is acquired by applying capital or on
rent and rent is paid in advance and advance remains unutilized
is owned and ownership claims to be an asset.
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Therefore prepaid rent is a current asset and debited as Prepaid

rent or unexpired rent and unexpired rent is claimable or utilizable
in the next accounting cycle.
Entry;
Prepaid Rent Debit
Cash Credit
(Cash paid for rent in advance)
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1.2.7 PREPAID INSURNACE A/c

Prepaid Insurance is an account which shows the amount
paid for business insurance in advance at the time of
taking business policy from Insurance Company for any
asset’s value covering all losses covered under policy. It is
an asset before expiry, affects accounting equation, and
debited under rules of double entry and on completion the
period covered prepaid insurance credited and Insurance
Expenses debited. Like unexpired insurance, if the some
portion of it remains to consume will also be an asset.
Entry;
Prepaid Insurance Debit
Cash Credit
(Insurance paid in advance)
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1.2.8 UNEXPIRED RENT A/c
Unexpired rent is meant that some part of rent which was

paid in advance saved to consume and value to business
owned and claimable or recycle able for the next
accounting period. The rent when was paid in advance
then debited as Prepaid Rent and on the end of
accounting period credited the consumed rent by crediting
Prepaid Rent. The balance of unexpired rent is charged as
asset of the company.
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Therefore, unexpired rent is the amount which is the asset of the

company is consumable or claimable in next accounting cycle.
Example
Prepaid Rent 10,000/=

Cash 10,000/=
(Rent paid in advance)
Rent Expenses 8,000/=
Prepaid Rent 8,000/=
(Rent consumed during the year)
Balance of Prepaid Rent Rs.2, 000/= is unexpired rent.
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1.2.9 UNEXPIRED INSURNCE A/c

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The some part of business insurance which saved to

consume is unexpired insurance and by definition
unexpired insurance is an asset. It is an example that a
businessman takes policy worth Rs.100000/= from
Insurance Company for one year on 1st September and it
was debited with prepaid insurance. On ending of the year
at 30th June, consumed part of the insurance which
becomes 75000/= for nine months is debited by Insurance
expense and credited by Prepaid Insurance. The balance
of Prepaid Insurance Rs.25000/= is consumable or
claimable from Insurance Company for the next
accounting period.
In other words unexpired insurance is the amount that is
the asset of the company and balanced into prepaid
insurance means already paid insurance in advance
consumable or claimable from Insurance Company for the
next accounting period.
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Example
Prepaid Insurance 10,000/=
Cash 10,000/=
(Insurance paid in advance)
Insurance Expenses 8,000/=
Prepaid Insurance 8,000/=
(Insurance consumed during the year)
Balance of Prepaid Insurance Rs.2, 000/= is unexpired insurance.
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1.2.10 PREPAID ADVERTISING A/c
The prepaid advertising is current asset/liquid asset/value

asset and debited as Prepaid Advertising or unexpired
Advertising and unexpired Advertising is claimable or
utilizable in the next accounting cycle.
The account Prepaid Advertising comes under Assets, sub
head Current Asset/Liquid Asset/Value Asset and
according to accounting rules asset increases debit
decreases credit then it will be debited and other account
which is cash or bank also an asset is credited. There is
no affect on accounting equation is made as cash
converted into value asset “Pre-Paid advertising” and this
action is called asset for asset or conversion entry to value
asset.
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Entry;
Prepaid Advertising Debit
Cash Credit
(Cash paid for advertising in advance)
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1.2.11 SECURITY DEPOSIT A/c

Security deposit is the amount that company has to give on
import stage or to acquire fixed assets from parties that take
some amount from buyer to have with him for assurance of
their assets in other custody.
On taking shop, go down, office or any premises for business on
rent, one should have to deposit some amount with the owner
that is refundable.
Security deposit is short term asset or current asset in case of
returning within one year of the balance sheet date and after
one year, it will be long term asset or non-current asset.
The account security deposit comes under Assets, sub

head Current Asset or non-current asset conditionally and
as per accounting rule it is debited to Security Deposit and
credited by cash or bank, cash is also an asset, therefore, cash
move to other hand and this action is called asset for asset or
moving entry.
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Entry;
Security Deposit Debit
Cash/Bank Credit
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1.2.12 DEFERRED ASSETS A/c

Unconsumed prepaid expenses, which could not be expired
during accounting period such as insurance, rent, interest,
advertising etc., are carried forward as an asset for future
benefit is called deferred assets.
Deferred Assets are long term current assets transferred by
prepaid expenses shown in balance sheet.
Entry;
Deferred Assets Debit
Prepaid Expenses Credit
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1.3 Intangible Assets

1- Goodwill
2- Trade Mark
3- Copy Right
4- Brands
5- Logos
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Intangible assets such as goodwill, logos, trade mark, brands, copy

write etc. are long term current assets and have no physical
existence but relate to the value of reputation of business generated
gradually by first day of its having. It may be purchased to increase
the value of business and sold to take benefit of having it.
Entry;
For purchase of intangible asset
Intangible Asset Debit
Cash Credit
For sale of intangible asset
Cash Debit
Intangible Asset Credit
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Intangible assets of having limited life can be amortize under

formula annual amortization expense=cost/useful life debiting
Amortization Expense and crediting Accumulated Amortization and
of an indefinite life, there is not amortization but is test of
impairment and written down to its recoverable amount under
formula impairment loss = carrying value-recoverable amount
debiting Loss on Impairment and crediting Accumulated
Impairment Loss.
1.4 Contra Assets

1. Accumulated Depreciation(O.E.)
2. Accumulated Depreciation (P&M)
3. Accumulated Depreciation (F)
4. Purchase Return
5. Purchase Discount
6. Allowance for Uncollectable Bad Debts
CONTRA ACCOUNTS
Contra accounts reduce the value of a related account and to
correct previous mistakes.
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1.4.1 ACCUMULATED DEPRESCIATION A/c

Contra assets accounts are reduced by accumulated
depreciation, a collection of depreciation, on fixed assets like
building, plant and machinery, furniture and fixtures, office
equipment and other fixed assets. Contra assets relating to
depreciation credited by accumulated depreciation, a new
account is generated instead of asset account and shown in
balance sheet reducing the amount of fixed assets accounts.
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Adjusting Entry;
Depreciation Expenses Asset Debit
Accumulated Depreciation - Asset Credit
Closing Entry;
Expense and Revenue Summary asset Debit

Depreciation Expenses Asset Credit
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1.4.2 PURCHASE RETURN A/c

Purchase return which relates to purchase account, a
temporary asset account, reduces the value of cost of goods
sold in cost of goods sold statement or in income statement.
Entry;
Account payable Debit
Purchase Return Credit
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1.4.3 PURCHASE DISCOUNT A/c

Purchase discount which relates to purchase account, a
temporary asset account, reduce the value of cost of goods
sold in cost of goods sold statement or in income statement.
Account Payable Debit

Purchase discount Credit
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1.4.4 UNCOLLECTABLE BAD DEBTS

The new account “Allowance for uncollectable bad debt” is
created against accounts receivable accounts. Allowance for
uncollectable bad debit consists on estimated value by
percentage of receivables from suppliers.
Uncollectable/Bad Debits Expenses Debit

Allowance for uncollectible/Bad debts Credit
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2-LIABILITIES
Liabilities mean the claim of suppliers on account of purchases
or the debts taken or have to pay on various causes during
business operation.
Liabilities are the second main principle of accounting consists
on short term and long term liabilities and shown in balance
sheet.
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2.1 SHORT TERM LIABILITIES

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1. Accounts Payable
2. Salaries & Wages Payable
3. Accrued Expenses
4. Sales Tax Payable
5. Income Tax Payable
6. Notes payable
7. Interest payable on banks’ loan
2.1.1 Accounts Payable

Short term liabilities is meant by debts payable shorter than one
year such as accounts payable, shown in balance sheet under the
heading current liabilities covering note, the detail of parties to
whom the debt is payable. Short term liabilities are credited as A/c
payable with party name from whom the goods purchased and
purchases are debited under rules.
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Merchandise/Assets = Debit
A/c P/A ABC & Co. /Liabilities = Credit
2.1.2 Salaries Payable A/c

At the end of the year, the balance of salaries, the salaries to
staff permanently working in an organization, and wages, the
wages to workmen working on daily basis, remain to pay
because of the reason that the some companies pay salaries
and wages to their staff after last day of the month. The
remaining part of the salaries & wages, already charged in
expenses, comes under head Salaries & Wages payable,
showing the salaries & wages are remaining to pay.
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Salaries are wages payable come under short term liabilities

journalized as;
Salaries & Wages Expenses Debit
Salaries & Wages Payable Credit
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2.1.3 ACCRUED EXPENSES

Accrued Expenses, the amount of expenses relating to current
accounting year, are the liabilities of short term and payable
under head Accrued Expenses in the next accounting period.
The account of Accrued Expenses is temporary account from
which all expenses relating to previous accounting year are paid
and charged in balance sheet under Current Liabilities. The
accrued expenses on one side make profit & loss actual and on
other side wipes out the matter of expenses relating to
previous accounting year.
The Expenses relating to previous year are debited in new
accounting year under head Accrued Expenses and credited in
previous accounting year in lump sum as Accrued Expenses.
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Ledger Entry in current year

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Accrued Expenses Debit

Cash/Bank Credit
Ledger Entry in previous year
Expenses (Head wise) Debit
Accrued Expenses Credit
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2.1.4 SALES TAX PAYABLE

Sales tax payable, the amount of sales tax balance of sales and
purchases in ledger account at the end of the accounting year,
comes under liabilities shown in balance sheet.
Sales tax on supplies or services is charged by Estate on
prescribed rate which is deducted by Sales Tax Invoice and
journalized as;
Goods or Services a/c Debit
Sales Tax payable a/c Credit
Sales tax payable a/c credit Credit
Sales tax allows the adjustment of purchases and other related
expenses as;
Sales Tax Payable A/c Debit
Purchases/related expenses A/c Credit
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The balance of ledger in sales tax payable account is meant to

pay the tax into bank as;
Sales Tax Payable A/c Debit
Cash/Bank A/c Credit
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2.1.5 INCOME TAX PAYABLE A/c

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Income tax payable, the amount of Income tax balance in

ledger account at the end of the accounting year, comes under
liabilities shown in balance sheet.
Income tax on supplies and services is charged by Estate on
prescribed rate which is deducted by withholding agent;
withholding agent is that who makes payment to suppliers and
service providers. The tax, which is deducted by withholding
agent, is credited to withholding agent under credit note by
suppliers or service provider.
In case of salaried persons, the Income tax on payment of
salaries to employees is deducted and deposited by company
and received the amount of income tax from employees.
The income tax deducted by withholding agent on sales is
claimable or adjustable by government.
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The following accounts are generated in connection with

income tax;
As withholding agent
Party’s account A/c Debit
Income tax payable A/c Credit
As other than withholding agent

Income Tax payable A/c Debit
Party’s Accounts A/c Credit
As an Employer
Salaries Expenses A/c Debit
Income Tax payable A/c Credit
As a Depositor
Income Tax Payable Debit
Cash/Bank Credit
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2.1.6 NOTES PAYABLE A/c
A promissory note is an instrument of formal written

promise by one person or maker, who makes note and
promises to pay, to another person or payee, the person
whom the amount is payable, for payment of liabilities. For
example, if company or person received cash against
promissory note from person or financial institution on
promise to repay a note recorded as;
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Cash/Bank Debit
Notes payable Credit
2.1.7 Interest on Notes Payable

In case of interest on notes, mentioned in promissory note
with the specific rate of interest and terms therein, the
borrower will accrue the transaction debiting Interest
Expenses and crediting Interest payable and on payment of
interest debiting interest payable and crediting cash as;
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Accrual of Interest on notes payable

Interest Expenses
Interest payable
Payment of Interest on Notes payable
Interest payable
Cash
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2.2 LONG TERM LIABILITIES

1. Loans
2. Debentures
3. Mortgage
4. Bank Loans
2.2.1234 Long Term Liabilities
Long term liabilities is meant by debts payable longer than one year
such as loans, debentures, mortgage, bank loans etc. as shown in
balance sheet under main head liabilities.
In order to operate business or to solve funds problems,

organizations take loans from some sources such as persons, banks,
financial institution or on leasing on fixed assets. The assets against
loans, debentures, mortgages, banks loans are debited and
persons/organization/financial institution are credited in the book of
company having liabilities.
Assets/Cash/Bank Debit
A/c Payable (Financial Institution) Credit
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3 - PROPRIETORSHIP/OWNERS’ EQUITY
1. CAPITAL
2. DRAWING
3.1 CAPITAL A/c
Capital, a permanent member of accounting cycle, in shape of
cash or goods invested in business is a part of owner’s equity
means owner’s interest on values of assets or the recourses of
business.
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Capital account is generated in connection with investment in

business as to credit capital account and debit asset account;
Cash Invested in business
Cash Debit
Capital Credit
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3.2 DRAWING A/c

Drawing is a contra equity account which reduces the capital of
owner because of the owner withdraws cash or goods for his
personal use as;
Cash drawn for personal use
Drawing Debit
Cash Credit
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4 – REVENUE/INCOME
Revenue is the fourth main principle head of the system of
accounting and many accounts relating to income linked with
like income from sales, commission income, other incomes etc.
Under rules of debit and credit revenue increases credit
decreases debit then on selling, cash or account
receivable/asset increases and merchandise/asset sold
decreases. it is asset for asset entry but the profit or
commodity purchased for doing business is involved in selling
this asset therefore, it belongs to revenue, ascertain in profit
and loss account, profit and loss transferred to equity and
equity is the source. It is concluded that the profit is the source
generated by sales and sales contra to commodities.
Revenue is the part of income summary and temporary

member of accounting cycle. It ends on profit and loss account
which transferred to Balance sheet under owners’ equity or
capital account.
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4.1 SALES
4.2 COMMISSION INCOME
4.3 OTHER INCOMES
4.4 UNEARNED REVENUE
4.5 ACCRUED REVENUE RECEIVABLE
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4.1 SALES A/c

The merchandise or commodities that was purchased or
manufactured for doing business or to make profit by selling
them to customer is sale. In sale, the process involves that
manufacturer manufactures goods, sells to distributor;
distributor to whole seller and whole seller to retailer and
retailer to end user.
Sales come under the fourth main head “Revenue”, the
temporary member of accounting cycle, ends on profit and
loss account. Under rules, it is credited either on cash or on
credit and debited cash and on account receivable in case of
sale on account like;
Sale on cash
Cash Debit
Sales Credit
Sales on account
A/c Receivable (ABC Co.) Debit
Sales Credit
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4.2 COMMISSION INCOME A/c

Commission income relates to the business of services wherein
no merchandise or commodity is involved but consultancy or
making help in executing commercial transactions like
commission on sale, commission on property selling etc.
Commission income comes under main head revenue crediting
commission income debiting cash/bank.
Cash/Bank Debit
Commission income Credit
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4.3 OTHER INCOMES

Other incomes is the summary of incomes from other sources
besides business specific incomes but relates to business like
scrap sale, shop sale, income from bank interest, etc.
Other income generates sub accounts according to the nature
of incomes and recorded as;
Cash/Bank Debit
Other Income Credit
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4.4 UNEARNED REVENUE

Unearned revenues mean company receives the money in
advance for services or sale of goods that not performed or
delivered or pre-receipt for undelivered goods or unperformed
services. In other words, the unearned revenue is the liability
until it earns so recorded as;
Cash/Bank
Unearned revenues
On delivery of goods or performing services, unearned revenue
will be debited and credit sales/service as;
Unearned revenues
Sales
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4.5 ACCRUED REVENUE RECEIVABLE

Accrued revenue means to build up revenues that have been
earned and sales performed but not received or recorded at
the end of accounting period which could be recognized by
adjusting entry.
Accrued revenue is treated as an asset instead of liability.
Accrued Account receivable Debit
Income account Credit

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4.1 CONTRA REVENUE ACCOUNT

4.1.1 SALES RETURN
4.1.2 SALES DISCOUNT
4.1.1 SALES RETURN
Sales return account, a contra revenue account, is made if the

goods sold returned causing defects, expiry, damage and any
reason. It reduces income but balance to inventory or stock. In
case of sale on credit, the amount of credit is given to
purchaser on receipt of his complain or debit note recording

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journal entry for adjustment of claim as to debit sales return

and allowances and credit account receivable.
One side, sales return and allowances reduce the account of
account receivable or liability of purchaser and on other side
sales in income statement as;
Sales Return & Allowances Debit
Account Receivable Credit.

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4.1.2 SALES DISCOUNT

Sales discount account, a contra revenue account, is made if
reduction in the price of a product or service offered by seller in
place of early payment or to increase sales. It reduces income
but not affect on inventory or stock. The amount of credit is
given to purchaser at the time of purchasing on cash sale or/on
credit in later adjustment by crediting purchaser’s account as;
Sales Discount Debit

Account Receivable Credit.
Sales return reduces the account of account receivable or

liability of purchaser and sales in income statement.

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5 - EXPENSES
Expenses are the fifth part of main principle head of the system
of accounting and numerous accounts linked with it like direct
expenses, freight charges, insurance of goods in transit,
carriage, wages, custom duty, import duty, octroi, other taxes
etc. and all indirect expenses, operating and non-operating,
other than direct expenses like rent of building, salaries to
employees, legal charges, insurance expense, depreciation
expense, printing expense, office stationery expense, financial
charges etc., revolving in selling expenses, administrative
expenses, financial expenses, general expenses etc.

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Expenses are the member of temporary accounts ending on

profit and loss account. The net profit and loss is ascertained by
reducing them to income and loss account.

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5.1 DIRECT EXPENSES

Direct expenses involve in purchases from purchase point to
business place like cartage, freight, goods insurance in transit,
carriage inward, wages, custom duty, import duty, octroi, taxes
and all other expenses included in goods or in process of
making goods directly.
Direct expenses affect on the cost of goods sold by adding them
in merchandise purchased. In other words they increase the
value of actual purchases or to the cost of goods sold.

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5.2 INDRECT EXPENSES

Indirect expenses relate to operating and non-operating
expenses containing manufacturing expenses, selling expenses,
administrative expenses, financial expenses, general expenses
etc. which generate numerous accounts like rent of building,
salaries to employees, legal charges, insurance expense,
depreciation expense, printing expense, office stationery
expense etc.
The net profit and loss is ascertained by reducing indirect
expenses to income and loss account.

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5.3 OPERATING EXPENESES
All expenditures involve in business operation but not

directly associated with the cost of goods usually sub
divided administrative expenses, sales expenses and
general expenses like salaries expenses, repair &
maintenance expenses, advertising expenses, insurance
expenses, rent expenses, utility expenses.
The net profit or loss is ascertained by reducing them to
revenues in income statement.

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5.4 NON OPERATING EXPENSES

Some expenditure in business are incurred for reasons
and not involve normal business operations are non
operating expenses like interest charges or other costs of
borrowing and expenses relating to employee benefits,
such as pension contributions, non recurring items such
as accounting adjustments, obsolete of equipment or
currency exchange etc.
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5.4.1 ADMINSTRATIVE EXPENSES

Advertising Expenses
Insurance Expenses
Repair & Maintenance
Salaries &Allowances
Depreciation Expenses
Office Supplies
5.4.1.1 ADVERTISING EXPENSES
Advertising may be administrative expense, in case of giving
advertising for hiring staff, property transfer, sale, legal rights
etc.
On payment of advertising cost, it must be debited with
Advertising expenses and cash/account payable credit in cash
of credit advertising.
Advertising Expense debit

Cash/account payable credit
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5.4.1.2 INSURANCE EXPENSE

Insurance expense means the amount of insurance is paid on
policies for any business value in anticipation of recovering losses
from any kind of fire, theft, hazardous etc. in the business. There
will be no return, in case of nothing is occurred like personal
insurance.
The expenditure on insurance is debited by Insurance Expenses
and credited cash/bank under rules of debit and credit.
Example:
Paid for insurance on goods
Insurance Expense debit
Cash/Bank credit
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5.4.1.3 REPAIR & MAINTENANCE EXPENSES

The Assets involves in business operation need to renovate,
repair and maintain or to keep in working condition, there will
be accounts like repair & maintenance, building, plant &
machinery office equipment, air conditioners etc.
All repair and maintenance on assets are expenses, debited
under rules and reduce income;
Repair & Maintenance debit
Cash credit

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5.4.1.4 SALARIES & ALLOWANCES

A business unit has different departments, huge labors, officers
and directors for business operation and their salaries and
allowances, remunerations, benefits are recorded under head
Salaries & Allowances A/c, Remuneration A/c, Benefits A/c
generated to specific benefit.
Salaries and allowances are journalized at the end of the month
to create liability of the period as;

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Salaries & Allowances Debit

Salaries & Allowances payable Credit
And when, salaries & allowances are distributed by cash or
bank, the recording of entry will be as;
Salaries & Allowances payable Debit
Cash/Bank Credit.
Salaries & Allowances comes under Expense Account may be
split out department wise, station wise, category wise etc.

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5.4.1.5 Depreciation Expense A/c

The Account depreciation expense is derived from accumulated
depreciation which reduces the net income under Income and
loss account.
Depreciation expense is the result of calculation of
accumulated depreciation on fixed assets under different
methods and recorded at the end of the year as;
Depreciation Expense Debit
Accumulated Depreciation Credit

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5.4.1.6 Office Supplies
Office requires stationery like pens, pencils, calculators, papers,

staplers, toners, ink, etc besides printing vouchers, forms,
books, etc.
The expense on stationery and printing for office comes under
administrative expenses debited under rules and the account of
all purchases relating to printing and stationery using in office
will be Office Supplies Expense A/c or Printing & Stationery A/c
like;
Office Supplies Expense A/c Debit

Cash/Bank Credit

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5.4.1.7 OTHER ACCOUNTS (ADMINSTRATIVE)

Many other expenses relating to cash or petty cash commonly
used under administration like EOBI Expense a/c, Social
Security A/c Security Expenses A/c, conveyance a/c, cartage
a/c, vehicle running expenses a/c, staff welfare a/c, ex-gratia
a/c, mobile expense a/c, janitorial expenses a/c, entertainment
a/c, potage a/c, incidental a/c, rent rates & tax a/c,
miscellaneous a/c, consumable stores a/c and many other
accounts creatable according to the need of recording
transactions.
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The expenses in question may be passed through petty cash

system or directly from cash book as shown below;
Petty Cash Funds a/c Debit
Petty cash expenses (accounts) Credit
OR
Conveyance Debit
Cash Credit
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5.4.2 SELLING EXPNESES

Advertising Expenses
Sales Promotion Expenses
Sales Distribution Expenses
5.4.2.1 Advertising Expense A/c

In all three business; trading, manufacturing and servicing,
there is need to advertise the item that the manufacture is
producing and benefiting its traders to increase its
manufacturing process by selling its produces. The traders
who imports items not known in the region, they should have
to introduce imported items by advertising with the support
of newspaper, magazines, TV. Channels, cables, wall chalking,
hand bills and all other sources come under advertising. As far
as servicing is concerned, the one is introduced oneself by
doing advertising.

281
ACCOUNTS MAKING
Advertising Expense account is made to record all the

transaction relating to advertising.
Advertising Expense comes under the fifth principle account
ALPRE and the sub account of Selling expenses on the income
statement.
On payment of advertising cost, it must be debited with
Advertising expenses and cash/account payable credit in cash
of credit advertising.

282
ACCOUNTS MAKING
5.4.2.2 Sales Promotion Expenses

Sales promotion is an essential part of business which
introduces the items that are new or imported and none is
known about its function or advantages. Sales promotion also
makes goodwill of the items promoted by means of installing
stall, door to door introduction, different activities in school,
college, health institution etc. in city or out city, in country or
out country.
The Expenditure on promotion comes under Sales Promotion
Expenses directly head or having sub accounts like travelling
expense a/c, conveyance a/c, communication a/c, field expense
ac, salaries & allowances a/c, staff welfare a/c, vehicle expense
a/c, conveyance a/c, cartage a/c and many other accounts
relating to sales promotion.
Sales promotion expenses linked with Selling Expenses and
debited under expenses rules like;
Sales Promotion Expenses a/c Debit
Cash/Bank Credit
ACCOUNTS MAKING
283
5.4.2.3 Sales Distribution Expenses

Another essential part of sales is distribution from which the
demand of items is distributes to distributor, whole seller,
retailer or end user in city or out city, in country or out country.
ACCOUNTS MAKING
284
The expenditure on distribution come under Sales Distribution

Expenses a/c directly or having sub accounts like travelling
expense a/c, communication a/c, field expense a/c, salaries &
allowances a/c, staff welfare a/c, vehicle expenses a/c,
conveyance a/c, freight & cartage a/c and may other accounts
relating to sales distribution.
Sales distribution expenses linked with Selling Expenses and
debited under expenses rules like;
Sales Distribution Expenses a/c Debit
Cash/Bank Credit

285
ACCOUNTS MAKING
5.4.2.4 Other Accounts (Sales & Marketing)

Many other expenses relating to cash or petty cash commonly
used under sales & marketing like conveyance a/c, cartage a/c,
vehicle running expenses a/c, staff welfare a/c, ex-gratia a/c,
mobile expense a/c, entertainment a/c, potage a/c, incidental
a/c, miscellaneous a/c, commission a/c, incentive a/c, field
expenses a/c, printing & stationery a/c and many other
accounts creatable according to the need of recording
transaction.
ACCOUNTS MAKING
286
The expenses in question may be passed through petty cash

system or directly from cash book as shown below;
Petty Cash Funds a/c Debit
Petty cash expenses (accounts) Credit
OR
Conveyance Debit
Cash Credit
ACCOUNTS MAKING
287
5.4.3 GENERAL EXPENSES
Rent Expenses
Utility Expenses
5.4.3.1 Rent Expenses A/c

0n starting of business, the business man needs some assets
either to purchase or take on rent. In the form of rent, he must
have to pay deposit, pre rent, monthly rent of the asset
acquired for business use.
When the rent is paid for business premises, the account
“Rent Expense” is made and debited as Rent Expense
and credited cash under rules of debit and credit.
Rent Expense Debit
Cash Credit Credit
(Rent for Jan 2015)

288
ACCOUNTS MAKING
5.4.3.2 Utilities Expense A/c
Utility expenses mean electricity, Sui gas, water and

other useful items for smooth operation of business. It
may be itself account or divided into other accounts like
Electricity charges a/c, Sui gas charges a/c, water &
sewerage a/c, etc.
ACCOUNTS MAKING
289
The expenditure on utilities comes under general

expenses or under sub accounts in question and debited
under expenses rules like;
Utilities Expense a/c Debit

Cash/Bank Credit
ACCOUNTS MAKING
290
5.5 FINANCIAL EXPENSES
BANK CHARGES
BANK COMMISSION
MARK UP
Financial charges are the amounts that are deducted by

financial institutions on making financial instruments, on line
transfer, check books; accounting maintaining charges, mark up
on loans, credit cards, late charges, taxes, postages, excise duty
and many other charges based on the nature of transactions.
Financial charges are considered as non-operating expenses but
charges relates to business operation are operating expense
like mark up on loan taken for business operation.
Many accounts may be created for financial charges but mostly
used as bank charges, bank commission, mark up etc. and
recorded as;
Bank charges Debit
Cash/Bank Credit
ACCOUNTS MAKING
291

292
Volume – I
WRITTEN BY:
SYED AQEEL RAZA
YEAR 2015
293
Q&A 01 QUESTION/ANSWER
What is an account?
An account, already designed, is the summary of

information relating to transactions with it. The word
account, a noun, is derived from accounting, an
adjective. Accounts are made according to accounting
principle “Assets, Liabilities, Proprietorship, Revenues,
Expenses (ALPRE) like building a/c, an asset, loan a/c, a
liability, capital a/c, equity, sales a/c, and an income and
insurance expenses a/c, an expense.
QUESTION/ANSWER
294
Q&A 02
What are sources and resources terms used in
accounting?
Funds or things carried for investment in business are

sources of business as capital or owners’ equity and
acquiring assets like land, building, merchandise, cash,
etc. are resources of the business. Therefore, sources are
equal to resources or conversion sources into resources.
QUESTION/ANSWER
295
Q&A 03
Why is drawing contra equity account?
A.3 If cash or goods are used for personal above

limitation and recorded in business, the destruction of
sources of business means assets will be ruined. In
order to save sources, the withdrawal of cash or goods
from business for personal use is recorded in a separate
account named Drawing, reduces or contra the capital
account, alarms the owner about ups and downs in
business.
QUESTION/ANSWER
296
Q&A 04
What is the difference between double entry system and single entry
system?
Single entry is bookless system and consists on revenues and expenses.

It is used in small businesses where no remarkable capital, assets and
liabilities are applied.
Single entry system has no rule for recording transactions just writing
information on registers or verbally.
Double entry system applies five principles in the system of accounting

which are assets, liabilities, proprietorship, revenue and expenses
where revenues and expenses are is temporary accounts end on
income or loss.
The double entry system of accounting has accounting equation

“assets=liabilities + proprietorship”.
Double entry system can use in small and large businesses showing true
financial picture.
QUESTION/ANSWER
297
Q&A 05
What is the connection of accounting with book keeping?
Accounting is the language of business and provides idea of keeping

money in written properly which shows the true picture of finances
invested in business.
Accounting defines a complete system and rules of recording

transactions to book keeping under five main principle; assets,
liabilities, proprietorship, revenue and expenses.
The book keeping is the art of transferring idea of accounting in the

shape of books as ledger, cash books, journals and various statements.
The book keeping adopts the system and rules of recording

transactions, style, designs, and many more from accounting.
Accounting is an idea and book keeping practical.

298
QUESTION/ANSWER
Q&A 06
Does revenue or expense affect accounting equation?
Revenue or expense is the temporary member of accounting cycle and

ends on profit and loss account transferable to capital account. So, they
do not affect directly to accounting equation “Assets=Liabilities +
Proprietorship” but affect proprietorship indirectly and the
proprietorship is the part of accounting equation.
QUESTION/ANSWER
QUESTION/ANSWER
299
Q&A 07
What do you mean by Entity?
In business any unit, division or an organization is an entity. A

company may have different entities like unit, department,
team, division as well the goods which it sells.
Company’s investments or assets as well as owner and business
are also entities.
Entity means individual, team, thing or unit of an organization
and the account relating to separate entities

300
QUESTION/ANSWER
Q&A 08
Explain the period applied on fixed assets for calculation of
depreciation. If any asset exists but life is low, then will depreciation
applied over it? (Shakir)
The depreciation is accumulated on fixed assets having life over one

year or more depending on the value of fixed assets, if the value of
fixed assets below the mark, it will directly be charged in expenses. For
example a calculator which comes under fixed assets but the price or
value of it is cheap so it will be charged directly in expenses as printing
and stationery office. But computer, printer, scanners may be fixed
assets if comes under the value for calculation of depreciation.
Plant and machinery, office equipment, air conditioning unit, furniture,

etc. having long life and heavy values are accumulated for depreciation
up to ten years under different methods of depreciation.
It is concluded that the period applied on fixed assets for calculation of

depreciation is more than one year depending on the value of asset.
QUESTION/ANSWER
QUESTION/ANSWER
301
Q&A 09
What is Goshwara and how to make it? (Shakir)
The word goshwara is of Urdu word and in English means
schedule which means to make details or plan of anything for
any department of life but in accounting it represents the
summary or detail of accounts relating to the same nature. If a
company sales or purchases goods on credit from different
parties, different parties accounts are maintained in ledger for
paying and receiving in future date and prepares a schedule of
creditors and debtors wherein details of paying and receiving
amounts from customers or suppliers or makes according to its
facilitation as date, amount, maturity of amounts, reasons etc.
In financial statements, some schedule of creditors, debtors
and other accounts having huge information indicating notes.
Income tax or sales department also requires schedules or
statements relating to details of taxes at the end of the year.
It also refers to statement which prepared at the end of the
accounting year for submitting income tax, sales tax and
management.
QUESTION/ANSWER
302
Q&A 10
What is accounting cycle and its steps working?
Accounting cycle is the process of accounting and the process

of accounting has ten steps which moves the cycle with no end
as the source document provides evidence to journal, journal
helps ledger to make accounts, ledger enables trial balance
unadjusted to summarize accounts, trial balance unadjusted
requires adjustment, adjustment provides trial balance
adjusted, trial balance adjusted closes entries to worksheet,
worksheet to financial statements and balances of financial
statements as post closing trial balance re-cycle accounting for
the next period like before.
The connection of every step is joined to each other enables
accounting cycle rounding with no end.

303
QUESTION/ANSWER
Q&A 11
What do you mean by purchase and sale?
In accounting, purchase or sale relates to goods or merchandise

used in doing business. In manufacturing concerns, materials
are purchased and converted in finished goods, and sold to
distributors or whole sellers; distributors and whole seller
purchase and sale to retailers and retailers purchase and sell to
end user.
Purchase and sale both have transactions of cash and credit.
Purchase is asset and sale is revenue then purchase is debited
and sale is credited. Purchase and sale are temporary account
and make the cause of income or loss, and end on income and
loss statement.
Therefore, purchase and sale are the main source of rounding
account cycle.

304
QUESTION/ANSWER
Q&A 12
Explain the difference between tangible and intangible assets?
Tangible assets are the assets which have long term physical
existence like plant, machinery, equipment, furniture and
fixtures etc and or touchable assets like cash, account
receivable, merchandise inventory, prepaid expense etc.
Tangible assets are acquired for operation of business and not
for sale like commodities
When intangible assets have no physical existence like trade
mark, goodwill, copy right etc. but convert into current asset to
sell them. Intangible assets are the long term recourses of
business and made slowly by reputation. Intangible assets help
business in bad times to acquire to loan against fire or any
hazards in business.
QUESTION/ANSWER
305
Q&A 13
What do you understand by single entry and doe single entry
accounting system convert into double entry?
Single entry relates to cash receipts and payments or expenses and

revenues and receivables and payables and it does not involve
accounting equation of double entry system. This system of
accounting is used in small business where the transactions or
information are in diary, register or in memory.
Single entry accounting system may be converted into double entry

accounting system because payments and receipts, expenses and
revenues, and receivables and payments can be taken from diary,
register or memory and the amount brought for doing business as
capital depends on the information or on estimation.
Financial statements may be prepared basing the information from

diary, register or memory but the true financial picture under this
system may be under question.
Self assessment of accounts by income tax is based on the same

system of accounting.
QUESTION/ANSWER
306
Q&A 14
What do understand by double entry accounting system and does double entry
convert into single entry system of accounting?
In double entry accounting system all transactions are recorded

according to rules of debit and credit and the rules of debit and
credit should be in accordance with accounting equation as
Assets=liabilities + proprietorship. The amount of debit must be
equal to the amount of credit and there may be two or more
debit and credit.
The single entry system is quite different because it has only
information of transactions on diary, register or in memory
which may be recovered in individual accounts according to the
five principles of accounts.
As far as the question does double entry convert into single
entry system is concerned, it may be said that the trial balance
or post closing trial balance which resulted the information of
transactions is the example of single entry wherein debit and
credit is shown of every individual account.
Double entry accounting system provides true accounting
picture, every transaction has proof and complete books of
accounts presentable to income tax, sales tax, management,
shareholders etc.
307
QUESTION/ANSWER
Q&A 15
How many kinds of business?
There are three types of businesses wherein trading,

manufacturing and services are in practice but purpose
of each business is to make profit by its investment and
efforts. Trading and manufacturing business require
capital to start business but services business does not
require capital but requires efforts.

308
QUESTION/ANSWER
Q&A 16
What do you known about trading business, explain many

aspect of it?
This type of business relates to commodities. In trading
business, trader purchases commodities from manufacturer or
importer and sale to wholesaler or retailer in profit.
In trading business many aspects of trading are therein;
- Trader has to invest his capital and from this capital, he
purchases goods and sale to others in profit.
- The trader sells commodities on commission to link
business parties. This business is called Commission
trading.
- The trader gets commodities on credit and pays the
amount after sale it is called credit trading.
- A trading in which trader holds commodities and searches
parties, on getting parties he picks up the commodities on
credit and/or on cash and sale it out by his own price.
Nowadays, trading from internet is flourishing. Any trader can
find out parties to trade his products.
309
QUESTION/ANSWER
Q&A 17
What do you mean by transaction?
Exchange of values is meant by transaction and transaction

affects by double entry accounting system under debit and
credit rules. It may be on cash and on credit.
QUESTION/ANSWER
310
Q&A 18
What do you mean by accrual?
Accrual, relates to payment and receipt, and is journalized to

create liability or revenue before payment and receipt. An
accrual as an expense relates to liability of the period when it
occurred but not paid and as revenue relates to receivables of
the period when it earned but not received.

311
QUESTION/ANSWER
Q&A 19
What is deferred used in accounting?
Deferred, relates to income and expense, and is referred by

unconsumed or unsettled part of account at the end of
accounting period shown in balance sheet directly or without
appearing in income statement.
Deferred refers to payment made but reported as an expenses
in a later period and revenue received but earned in future
accounting period.
QUESTION/ANSWER
312
Q&A 20
Describe the rules of transaction and its affect?
Everything or system is moving with rules which makes thing

better to perform functioning. In the system of accounting, the
rules of transaction are described under accounting equation as
to assets=liabilities + owners’ Equity which increase or decrease
the five principle of accounts; assets, liabilities, proprietorships,
revenue and expenses with equal value of increase or
decreases to one account to one account, one account to more
account.
The rules of transactions are described here;
Assets Increase Debit Decreases Credit
Liabilities Decreases Debit Increases Credit
Proprietorship Decreases Debit Increases Credit
Revenue Decreases Debit Increases Credit
Expenses Increases Debit Decreases Credit
313
The rules of transaction affect the equation as;

- Assets are acquired by Assets cash and asset
affects to asset.
- Liabilities acquired by asset cash from others
and asset affects to liabilities.
- Proprietorship or capital come from
investment and investment affects asset and
capital.
- Revenues come from asset cash and asset
affects income to capital.
- Expenses pay by asset cash and asset affects
income to capital.
QUESTION/ANSWER
314
Q&A 21
Explain connection between manufacturing, trading and

services businesses?
Manufacturing is the process of making goods or products from
raw materials acquired locally or from abroad. This process
involves land, building, plant and machineries, laborers and
complete system of administration and sell to traders on cash
or credit. This type of business is concern with trading business.
In trading business, traders acquire goods or commodities on
cash or on credit from manufacturer and sell to wholesaler,
retailer or end user. Trading business is concern with
manufacturing business.
No capital involves in services business but efforts or skill
works to earn. Service business involves in manufacturing and
trading. A man employed to work, technician repairs
machineries, and a worker involves in manufacturing, a man to
sell products, a consultant or legal advisor gives advice are
providing services.
If to see then manufacturing, trading and services business
involves each other in whole system as;
315
Manufacturing business produces products, sells goods to

traders and acquired man power from services business for
manufacturing process.
Trading business sells goods to customer, goods comes from
manufacturing and selling requires man power by services
business.
Service business provides technical support or manpower to
manufacturing and trading business to work.
Therefore, it may be said that manufacturing, trading and
services are connection with each other in every respect.
QUESTION/ANSWER
Q&A 22
316
Explain the roll in business of an accountant and the quality of

good accountant?
The word accountant is derived from account and to write it is

called accountant or writer of accounts moves accounting cycle
and may say him the driver of accounting cycle, the accounting
cycle starts from source document enables accountant to keep
records of all transactions crystallizes and makes legal accounts
to post closing enables accountant to recycle the next
accounting process and so on.
The accountant may equip with logical knowledge created itself
cracks hard nuts enables accountant to overcome the problems
in writing books of accounts, making financial statements and
satisfying management in taking decisions may come before
him during accountancy besides education of accounts
manually or computerized.
The quality of good accountant requires honesty, this is the first

of his being accountant, and to prove honesty he must have all
317
records, evidence and balances up to date physically facilitate

auditors to check and make reports as the older said the honest
is the best policy, faithfulness is the part of faith restricts him to
perform bad and do good with collogue, management, parties
and all relating to his circle and to all matters of finances and
may say faithfulness is the second pillar or condition of his
being accountant. The third condition of his being accountant is
secrecy which does not allow accountant to show facts and
figures of accounts to others inside or outside which saves from
many difficulties, quarrels and causes.
The last and four conditions of his being accountant is to love
his profession, prepares true accounts having evidence, resist
to de shape or de figure statements of accounts.
The accountant, the driver of accounting cycle, is the pillar of
business and the base of his profession stands on four pillars;
honest, faithfulness, secrecy, love to profession.
QUESTION/ANSWER
318
Q&A 23
FILL IN THE BLANKS
- Account is the language of _________________and book

keeping is defined to record_______________.
- Business means __________ under classification of

______types of business
i________ii_________iii______________.
- The main types of business organization are

a_____________b___________c___________d__________
____.
- Any exchange of value is called_______________ and sub

divided into ________transaction and
_____________transaction.
- The posting of business transaction in book is

called____________.
- Business entity means ________________.
- ALPRE is the short form of

_________________________________________.
- <THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>
319
- Assets are ______________ and investment

_______________.
- __________ asset covers accounting period and ______

assets are longer than one year.
- Tangible assets are ________and intangible ___________.
- Prepaid expenses are __________assets.
- Liability means the claim of supplier under head

account___________.
- There are two types of equities

i______________ii______________.
- Drawing is a __________asset.
- Credit sale is recorded under head account

_______________.
- <THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

320
-
- Expenses are mainly divided into two categories
i__________________ii______________.
- Assets = liabilities + proprietorship is accounting

_______________.
- Cash increases__________ and

decreases________________.
- Capital increases______________
decreases_________________.
- Account payable increases_______________

decreases__________.
- Account Receivable is ________________.
Expense increases_____________decreases_______.
A sale is _____________ and increases ___________.
Accounting cycle starts from____________________ and end

on______________.

321
Volume – I
WRITTEN BY:
SYED AQEEL RAZA
YEAR 2015
THE END
322

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1

THE SYSTEM OF ACCOUNTING

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

Fra Luca Bartolomeo de Pacioli (1445–1517) was an Italian

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

First and foremost, I want thank to Almighty Allah who attached

The object of writing this book “The System of Accounting” is to

This book is primarily written for the use of beginners of this

At last in short, I shall say that this is my a little contribution

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

I am in great pleasure of presenting my Book “The

I hope my a little struggle for this noble cause will

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

Copy right of this book goes to writer and not

The name of book “The System of Accounting”,

BUSINESS 3 Fixed Assets 27

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

information in a significant manner in terms of

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

presentation in shape of money or money’s worth

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

Business means profit in term of money or money’s

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

The term of business “service” describes work that

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

The term of business “trading” describes the

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

The term of business “manufacturing” describes the

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

There is need of an organization for operating of different nature of business and

Actually in business, the sense of organization is a business unit operated by one

The main types of business organization are;

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

A partnership in business occurs when two or more

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]>

JOINT STOCK COAMPANIES

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]

<THE SYSTEM OF ACCOUNTING < VOLIUM 1< SYED AQEEL RAZA<[email protected]

A multinational firm is one which owns controls and

<SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>

STATE CORPORATION/NATIONALISED INDUSTIRES

The State Corporation or nationalized industries are

<SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>

A franchise is a right sold by one persons or firm called a franchisor. It is another

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>

There are mainly three types of accounts.

Accounts related to persons or organizations are called personal account.

The nominal accounts represent losses, incomes, gains.

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>

Any exchange of values is called “transaction “or

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>

The transaction involves exchange of cash on the spot on receipt or

- Purchase of Merchandise, Land, Building, Furniture etc. on cash.

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>

- Purchase of Merchandise, Land, Building,

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>

<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>