BCOM 1st Year Accounting Transactions And All Entry Question Answer Notes

Format of Trial Balance Notes

S.No.	Name of ledger A/c particulars	L.F.	Total or Bal (Dr.)	Total or Bal. (Cr.)
1	2	3	4	5

Methods of Preparing Trial Balance Sheet Notes

There are three methods of preparing trial balance. Both of the Dr. and Cr. column w balance must be equal in all methods. The methods are:

1. Balance method,

2. Total method, 

3. Total and balance method. 

1. Balance method: Trial balance as its name itself point out is prepared with the balance of ledger account. Every ledger has to go to the debit and credit side. At the end of certain period, ledger A/S are balanced.

Excess of the total of the debit side of an account over its credit side is known as debit balance and written in the Dr. column of trial balance. In the same way, excess of credit side of an account over its debit side show credit balance and will be written at the credit side of the trial balance.

The total of the Dr. and Cr. side must be equal.

2. Total Method: According to this method, the total of the Dr. and Cr. side of every account is separately written in the Dr. and Cr. column of the trial balance. The total of both debit and credit must be equal and if it is not equal, there is definitely certain error which should be located and rectified.

3. Total and Balance Method: This method presents the balance and total material in the same trial balance. The amount column is divided between total and balance methods. Each method has further two columns of Dr. and Cr. side. The total of the debit and credit under such method must be equal.

Q.4. Explain the term ‘accounting cycle’. 

Or Explain the different steps involved in accounting process.

Accounting Cycle Notes

Accounting cycle refers to continuous process of accounting which goes on continuously in every accounting period. Accounting cycle involves the different stages of accounting. It includes the inter-related steps like Communicating identifying, recording, classifying, summarising, analysing and interpreting the business transactions of financial nature. In other words, accounting cycle is the step by step process undertaken by the accounts department of Analysing and Classifying an organisation in order to reveal the actual position of interpreting the organisation. Accounting cycle involves the following inter-related steps:

2. Recording the Transaction: After identifying he b are recorded in the journal and other subsidiary books such as purchase books such as purchase book, sales book, cash book with the help of invoices, receipts, cash-memos and other vouchers.

3. Classification of Transactions: After recording the transactions in an orderly manner, these ystematically classified under small groups, i.e. transactions of one nature are grouped at one his work is done in a book known as ‘Ledger’. Ledger is the most important book of a business enterprise.

4. Summarising the Transactions: To know the results of the business operation, it is necessary to summarise the transactions. It involves the preparation of following statements:

(a) Trial Balance, (b) Trading and Profit & Loss A/C, (c) Balance Sheet.

5. Analysing and Interpreting the Transactions: It is not only the purpose of accounting to luentify, record, classify and summarise the transaction, but it analyse and interpret the transactions lo draw useful conclusions. Comparison of past and present statements and reports, use of ratios and trends are important tools for this purpose.

6. Communicating the Transactions: After the accounting information is properly analysed and interpreted, it has to be communicated in a proper form and manner to the concerned people.

BCOM 1st Year Accounting Transactions And All Entry Question Answer Notes

Q.5. What do you mean by double entry system? Discuss its characteristics, merits, demerits and stages. 

Ans. Double Entry System Every business transaction has two fold aspects, i.e. debit and credit. A system of accounting in which both the aspects of each transaction are recorded as per prescribed rules is called double entry system. It does not mean that every transaction is recorded two times, but one aspect is recorded at one place and other aspect is recorded at other place, e.g. 500 are received from Mohan. This is a transaction. In this transaction, cash is received and Mohan is a payer of this cash, Thus, it has two aspects: (a) Receiving of cash and (b) Payment by Mohan. One of these aspects is debited and the other is credited according to certain prescribed rules.

On the basis of above, double entry system may be defined as, ‘A system of accounting in which out of the two aspects of a transaction, one aspect is debited and the other aspect is credited according to certain prescribed rules?

As per the above discussion, it thus leads to the conclusion that under double entry system of bookkeeping every business transaction has two fold effect on the business enterprise and the dual aspect of each transaction bring about changes in assets, liabilities and capital, in such a way that the debit and credit is affected which leads to the satisfaction of the accounting equation, i.e.

Assets = Liabilities + Capital 

Meaning of Debit and Credit All Entry’s

Debit: The word debit has been derived from the Latin word ‘Debere, meaning ‘to owe’. In fact, debit is a symbol of accounting which is used to make the rules of accounting clear and operative. 

Credit: The word credit has been derived from the Latin word ‘Credere’ meaning ‘to believe’. It is also usol n accounting which is used to make the rules of accornting clear and operative.

Characteristics of Double Entry System Notes

The characteristics of double entry system are as follows:

1 Where a transaction is entered into, two aspects are affected. Both of these aspects are recorded. If one aspect is recorded and other is omitted, then it is not justified. Thus, the first principle of double entry system is that both the aspects of a transaction are recorded, hence, it is treated as a characteristic of double entry. 

2. Both personal and impersonal aspects of a transaction are recorded in double entry system, it is possible that both the aspects of a tranaction may be personla or both may be impersonal or may be personal and the other may be impersonal.

3. In double entry system, one aspect is debited while other aspect is credited. It does not mean that any aspect may be debited and any aspect may be credited. There are certain rules for debiting and crediting various aspects of a transaction and credits and debits are made on the basis of these specified rules. 

4. Since, one aspect of each transaction is debited and other aspect is credited, therefore, total of all debits is always equal to the total of all credits. This helps in finding out arithmetical accuracy of accounting record. This is done by preparing trial balance. 

Merits and Demerits of Double Entry System

Merits: These are as follows:

(i) It maintains a complete record of all business transactions. Hence, it is a complete system. 

(ii) The profit earned or loss suffered during a period can be ascertained by preparing trading and profit and loss account.

(iii) The financial position of a firm can be ascertained at the end of each period through the preparation of balance sheet.

Demerits: The main demerit of this system is that it is difficult to apply the rule of debit and credit. Many transactions are such that in which out of the two aspects of a transaction in one aspect, one rule applies which in other aspect, other rule applies. Thus, it is not only difficult but teasing also to apply two different rules in the same transaction, if the transaction contains such two aspects which are governed by different rules, a minor mistake in it makes the accountancy record defective. In order to have command over the rules of double entry, proper familiarity to the subject, practical knowledge and training is necessary. 

Stages of Double Entry System

There are following five stages of double entry system of accounting:

1. First Stage: When the transaction takes place, it is recorded in a primary book called journal. When the business is a big one, subsidiary books of journal are kept. Thus, recording in journal or in its subsidiary book is the first stage of double entry system. It is also known as original record stage.

2. Second Stage: Records of journal or its subsidiary books are transferred in a classified form to another book which is called ledger. These classified groups are technically known as accounts. Posting in ledger and its maintenance is the second stage of double entry system. It is also known as classification stage.

3. Third Stage: Balance of each amount in ledger is found out and is transferred to a statement which is called ‘Trial Balance. Thus, preparation of trial balance is the third stage of double entry system of accounting.

4 Fourth Stage: From trial balance, final accounts are prepared. Final accounts include trading account, profit and loss account and balance sheet. In case of manufacturing concern, before trading account, manufacturing account is also prepared. Preparation of manufacturing acccount, trading account, profit and loss account and balance sheet is the fourth stage of double entry system of accounting.

5. Fifth Stage: After preparation of final account, analysis and interpretation of these accounts are made in order to have true and fair idea about earning capacity and financial position of the business. This is the fifth stage of accounting.