Vu Lesson 14
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Financial Accounting - I – MGT101
VU Lesson # 14
POSTING TO LEDGERS AND RECORDING OF STOCK We have demonstrated the carrying forward of balances in lecture-13. Another solved example is given below: Illustration Following is the Trial Balance of Rahil & Co. for the month ended January 31, 2002. Rahil & Co.. Trial Balance As on January 31, 2002 Title of Account Code Dr. Rs. Cash Account 01 30,000 Accrued expense Account 02 Bank Account 03 50,000 Loan Account 04 Furniture Account 05 20,000 Office Equipment 06 10,000 Debtors account 07 12,000 Creditors account 08 Sales account 09 Purchase account 10 18,000 Total 140,000
Cr. Rs. 10,000 100,000
10,000 20,000 140,000
During the month, following entries took place: No. 01 02 03 04 05 06 07 08 09 10 11 12
Date Feb 07 Feb 10 Feb 12 Feb 13 Feb 15 Feb 17 Feb 20 Feb 21 Feb 22 Feb 23 Feb 25 Feb 28
Particulars They purchased stationery worth of Rs. 3,000 They paid their first installment of loan Rs. 12,000 They received a cheque from a customer of Rs. 5,000 They paid a cheque of Rs. 8,000 to a creditor Purchased goods of Rs 6,000 & paid through cheque Accrued expenses of Rs. 5,000 are paid. They purchased furniture of Rs. 2,000 Sold goods for cash Rs.5,000 Purchased goods on credit Rs. 5,000 Office equipment of Rs. 5,000 is Purchased Staff salaries are paid by cheque Rs. 15,000 Utility expenses of Rs. 3,000 are accrued.
© Copyright Virtual University of Pakistan
108
Financial Accounting - I – MGT101 VU Ledger accounts of Rahil & Co. during the month will show following picture: Cash Account Account code # 1 Date Particulars Code Amount Date Particulars Code Amount # Rs. # Rs. (Dr.) (Cr.) 1-2-02 01 30,000 7-2-02 Stationery a/c 10 3,000 Balance c/f 21-2-02 Sold a/c 09 5,000 10-2-02 Loan a/c 04 12,000 17-2-02 Accrued 02 expenses 5,000 05 2,000 Furniture a/c 23-2-02 06 5,000 Office equipment 8,000 Balance c/d Total 35,000 Total 35,000 Date 17-2-02
Accrued Expenses Account Particulars Code Amount Date # Rs. (Dr.) Accrued 01 5,000 1-1-02 expenses Balance c/d Total
Date
12-2-02
10-2-02
Code Amount # Rs. (Cr.) 10,000 Balance c/f Expenses accrued 3,000
Total
Bank Account Account code # 3 Particulars Code Amount Date Particulars # Rs. (Dr.) 50,000 13-2-02 Paid to creditors Balance c/f Cheque 15-2-02 Purchases received 07 5,000 25-2-02 Salaries a/c Total
Date
8,000 13,000
Account code # 2 Particulars
55,000
Balance c/d Total
Loan Account Account code # 4 Particulars Code Amount Date Particulars # Rs. (Dr.) Installment 01 12,000 Balance c/f paid 88,000 Balance c/d Total 100,000 Total © Copyright Virtual University of Pakistan
13,000 Code Amount # Rs. (Cr.) 08 8,000 10 6,000 11 15,000 26,000 55,000 Code Amount # Rs. (Cr.) 100,000
100,000 109
Financial Accounting - I – MGT101 Date 10-2-02 20-2-02
VU
Furniture Account Account code # 5 Particulars Code Amount Date Particulars # Rs. (Dr.) 20,000 23-2-02 Balance c/f Furniture a/c 01 2,000 Balance c/d Total
Date
23-2-02
22,000 Total Office Equipment Account Account code # 6 Particulars Code Amount Date Particulars # Rs. (Dr.) 10,000 Balance c/f Office 01 5,000 Equipment a/c
Total Date
15,000
Particulars Balance c/f
Total Date 13-2-02
Debtors Account Code Amount # Rs. (Dr.) 12,000
12,000
Balance c/d Total Account code # 7 Date Particulars 12-2-02 Cheque received
Balance c/d Total
Creditors Account Account code # 8 Particulars Code Amount Date Particulars # Rs. (Dr.) Paid to 03 8,000 Balance c/f creditors 22-2-02 Purchases a/c
Code Amount # Rs. (Cr.) 22,000 22,000 Code Amount # Rs. (Cr.)
15,000 15,000 Code Amount # Rs. (Cr.) 03 5,000
7,000 12,000 Code Amount # Rs. (Cr.) 10,000 10 5,000
Balance c/d Total
7,000 15,000
Total
© Copyright Virtual University of Pakistan
15,000
110
Financial Accounting - I – MGT101 Sales AccountAccount code # 9 Date Particulars Code Amount Date Particulars # Rs. (Dr.) Balance c/f 21-2-02 Sales a/c 25,000 25,000
Balance c/d Total Date
Particulars
Purchases Account Account code # 10 Code Amount Date Particulars # Rs. (Dr.)
15-2-02
Balance c/f Purchases a/c
03
18,000 6,000
22-2-02
Purchases a/c
07
5,000
Total Date 25-2-02
Particulars Salaries a/c
03
25-2-02
Stationery a/c Total
Date 28-2-02
Balance c/d Total
Stationery Account Account code # 12 Code Amount Date Particulars # Rs. (Dr.) 01
3,000
Total
02
25,000 Code Amount # Rs. (Cr.)
29,000 29,000 Code Amount # Rs. (Cr.) 15,000 15,000 Code Amount # Rs. (Cr.)
3,000 3,000 3,000
Balance c/d Total
Utility Expenses Account Account code # 13 Particulars Code Amount Date Particulars # Rs. (Dr.) Accrued utility exp
Code Amount # Rs. (Cr.) 20,000 01 5,000
15,000 15,000
Particulars
Balance c/d
29,000 Total Salaries Account Account code # 11 Code Amount Date Particulars # Rs. (Dr.)
Total Date
Total
VU
3,000
Balance c/d
3,000
Total
© Copyright Virtual University of Pakistan
Code Amount # Rs. (Cr.) 3,000 3,000 111
Financial Accounting - I – MGT101 The Trial Balance at the end of the month is as follows:
VU
Rahil & Co.. Trial Balance As on January 31, 2002 Title of Account Code Dr. Rs.
Cr. Rs.
Cash Account
01
Accrued expense Account
02
Bank Account
03
Loan Account
04
Furniture Account
05
22,000
Office Equipment
06
15,000
Debtors account
07
7,000
Creditors account
08
7,000
Sales account
09
25,000
Purchase account
10
29,000
Salaries Account
11
15,000
Stationery Account
12
3,000
Utility Expenses Account
13
3,000
Total
8,000 8,000 26,000 88,000
128,000
128,000
Difference between expenses & Purchases • If business purchases items for its own use (items that are not meant to be resold) such items are charged to expense account. • If business purchases items for resale purposes, such items are charged to purchases account. Stock Stock is the quantity of unutilized or unsold goods lying with the organization. Stock is termed as “the value of goods available to the business that are ready for sale”. For accounting purposes, stock is of two types: 1. In trading concern, Stock consists of goods that are purchased for the purpose of resale, but not sold in that accounting period. Trading concern is that organization, which purchases items for resale purposes. 2. In manufacturing concern, (an organization that converts raw material into finished product by putting it in a process) stock consists of: o Raw material o Work in process o Finished goods © Copyright Virtual University of Pakistan
112
Financial Accounting - I – MGT101 Raw Material
VU
Raw material is the basic part of an item, which is processed to make a complete item. Work in Process In manufacturing concern, raw material is put into process to convert it into finished goods. At the end of the year, some part of raw material remains under process. It is neither in shape of raw material nor in shape of finished goods. Such items are taken in stock as work in process. Finished Goods Finished goods contain items that are ready for sale, but could not be sold at the end of accounting period. Recording of Stock Account • • •
Stock Account is Debited with the Value of the Goods Purchased Stock account is credited with the Purchase Price of the Goods Sold / Issued for Production. Stock Account shows the cost / purchase value of unsold goods.
In manufacturing concern, entries for stock are: For Purchase of Stock Debit: Stock Account Credit: Cash/Supplier /Creditors Account When the stock is purchased, stock account gets the benefit, so it is debited & cash or supplier account provides the benefit, so it is credited. For Payment to Creditors Debit: ` Credit:
Supplier / Creditors account Cash account
For Consumption of goods Debit: Credit:
Cost of goods sold Stock Account
Cost of goods sold Cost of goods sold is different in both forms of organizations: • In trading concern, cost of goods sold is the value of goods unsold (goods stands for the items purchased for resale purpose) • In manufacturing concern, cost of goods sold is the value of raw material consumed plus any other manufacturing cost. e.g., salaries of labor cost of machinery etc. © Copyright Virtual University of Pakistan
113
Financial Accounting - I – MGT101 Stock and cost of goods sold in manufacturing concern Raw Material Stock
VU
Other Costs Accounts
Work in Process Account
Finished Goods Account
Cost of Goods Sold Account In manufacturing concern, Raw material stock is put into process. For accounting purposes, all value of stock and other manufacturing costs are charged to work in process account. When the process is completed and the goods are prepared, all the value of work in process is charged to finished goods account. The business sells finished goods for the whole accounting year. At the end of the year, goods that are unsold are deducted from cost of goods sold account.
© Copyright Virtual University of Pakistan
114
VU Lesson # 14
POSTING TO LEDGERS AND RECORDING OF STOCK We have demonstrated the carrying forward of balances in lecture-13. Another solved example is given below: Illustration Following is the Trial Balance of Rahil & Co. for the month ended January 31, 2002. Rahil & Co.. Trial Balance As on January 31, 2002 Title of Account Code Dr. Rs. Cash Account 01 30,000 Accrued expense Account 02 Bank Account 03 50,000 Loan Account 04 Furniture Account 05 20,000 Office Equipment 06 10,000 Debtors account 07 12,000 Creditors account 08 Sales account 09 Purchase account 10 18,000 Total 140,000
Cr. Rs. 10,000 100,000
10,000 20,000 140,000
During the month, following entries took place: No. 01 02 03 04 05 06 07 08 09 10 11 12
Date Feb 07 Feb 10 Feb 12 Feb 13 Feb 15 Feb 17 Feb 20 Feb 21 Feb 22 Feb 23 Feb 25 Feb 28
Particulars They purchased stationery worth of Rs. 3,000 They paid their first installment of loan Rs. 12,000 They received a cheque from a customer of Rs. 5,000 They paid a cheque of Rs. 8,000 to a creditor Purchased goods of Rs 6,000 & paid through cheque Accrued expenses of Rs. 5,000 are paid. They purchased furniture of Rs. 2,000 Sold goods for cash Rs.5,000 Purchased goods on credit Rs. 5,000 Office equipment of Rs. 5,000 is Purchased Staff salaries are paid by cheque Rs. 15,000 Utility expenses of Rs. 3,000 are accrued.
© Copyright Virtual University of Pakistan
108
Financial Accounting - I – MGT101 VU Ledger accounts of Rahil & Co. during the month will show following picture: Cash Account Account code # 1 Date Particulars Code Amount Date Particulars Code Amount # Rs. # Rs. (Dr.) (Cr.) 1-2-02 01 30,000 7-2-02 Stationery a/c 10 3,000 Balance c/f 21-2-02 Sold a/c 09 5,000 10-2-02 Loan a/c 04 12,000 17-2-02 Accrued 02 expenses 5,000 05 2,000 Furniture a/c 23-2-02 06 5,000 Office equipment 8,000 Balance c/d Total 35,000 Total 35,000 Date 17-2-02
Accrued Expenses Account Particulars Code Amount Date # Rs. (Dr.) Accrued 01 5,000 1-1-02 expenses Balance c/d Total
Date
12-2-02
10-2-02
Code Amount # Rs. (Cr.) 10,000 Balance c/f Expenses accrued 3,000
Total
Bank Account Account code # 3 Particulars Code Amount Date Particulars # Rs. (Dr.) 50,000 13-2-02 Paid to creditors Balance c/f Cheque 15-2-02 Purchases received 07 5,000 25-2-02 Salaries a/c Total
Date
8,000 13,000
Account code # 2 Particulars
55,000
Balance c/d Total
Loan Account Account code # 4 Particulars Code Amount Date Particulars # Rs. (Dr.) Installment 01 12,000 Balance c/f paid 88,000 Balance c/d Total 100,000 Total © Copyright Virtual University of Pakistan
13,000 Code Amount # Rs. (Cr.) 08 8,000 10 6,000 11 15,000 26,000 55,000 Code Amount # Rs. (Cr.) 100,000
100,000 109
Financial Accounting - I – MGT101 Date 10-2-02 20-2-02
VU
Furniture Account Account code # 5 Particulars Code Amount Date Particulars # Rs. (Dr.) 20,000 23-2-02 Balance c/f Furniture a/c 01 2,000 Balance c/d Total
Date
23-2-02
22,000 Total Office Equipment Account Account code # 6 Particulars Code Amount Date Particulars # Rs. (Dr.) 10,000 Balance c/f Office 01 5,000 Equipment a/c
Total Date
15,000
Particulars Balance c/f
Total Date 13-2-02
Debtors Account Code Amount # Rs. (Dr.) 12,000
12,000
Balance c/d Total Account code # 7 Date Particulars 12-2-02 Cheque received
Balance c/d Total
Creditors Account Account code # 8 Particulars Code Amount Date Particulars # Rs. (Dr.) Paid to 03 8,000 Balance c/f creditors 22-2-02 Purchases a/c
Code Amount # Rs. (Cr.) 22,000 22,000 Code Amount # Rs. (Cr.)
15,000 15,000 Code Amount # Rs. (Cr.) 03 5,000
7,000 12,000 Code Amount # Rs. (Cr.) 10,000 10 5,000
Balance c/d Total
7,000 15,000
Total
© Copyright Virtual University of Pakistan
15,000
110
Financial Accounting - I – MGT101 Sales AccountAccount code # 9 Date Particulars Code Amount Date Particulars # Rs. (Dr.) Balance c/f 21-2-02 Sales a/c 25,000 25,000
Balance c/d Total Date
Particulars
Purchases Account Account code # 10 Code Amount Date Particulars # Rs. (Dr.)
15-2-02
Balance c/f Purchases a/c
03
18,000 6,000
22-2-02
Purchases a/c
07
5,000
Total Date 25-2-02
Particulars Salaries a/c
03
25-2-02
Stationery a/c Total
Date 28-2-02
Balance c/d Total
Stationery Account Account code # 12 Code Amount Date Particulars # Rs. (Dr.) 01
3,000
Total
02
25,000 Code Amount # Rs. (Cr.)
29,000 29,000 Code Amount # Rs. (Cr.) 15,000 15,000 Code Amount # Rs. (Cr.)
3,000 3,000 3,000
Balance c/d Total
Utility Expenses Account Account code # 13 Particulars Code Amount Date Particulars # Rs. (Dr.) Accrued utility exp
Code Amount # Rs. (Cr.) 20,000 01 5,000
15,000 15,000
Particulars
Balance c/d
29,000 Total Salaries Account Account code # 11 Code Amount Date Particulars # Rs. (Dr.)
Total Date
Total
VU
3,000
Balance c/d
3,000
Total
© Copyright Virtual University of Pakistan
Code Amount # Rs. (Cr.) 3,000 3,000 111
Financial Accounting - I – MGT101 The Trial Balance at the end of the month is as follows:
VU
Rahil & Co.. Trial Balance As on January 31, 2002 Title of Account Code Dr. Rs.
Cr. Rs.
Cash Account
01
Accrued expense Account
02
Bank Account
03
Loan Account
04
Furniture Account
05
22,000
Office Equipment
06
15,000
Debtors account
07
7,000
Creditors account
08
7,000
Sales account
09
25,000
Purchase account
10
29,000
Salaries Account
11
15,000
Stationery Account
12
3,000
Utility Expenses Account
13
3,000
Total
8,000 8,000 26,000 88,000
128,000
128,000
Difference between expenses & Purchases • If business purchases items for its own use (items that are not meant to be resold) such items are charged to expense account. • If business purchases items for resale purposes, such items are charged to purchases account. Stock Stock is the quantity of unutilized or unsold goods lying with the organization. Stock is termed as “the value of goods available to the business that are ready for sale”. For accounting purposes, stock is of two types: 1. In trading concern, Stock consists of goods that are purchased for the purpose of resale, but not sold in that accounting period. Trading concern is that organization, which purchases items for resale purposes. 2. In manufacturing concern, (an organization that converts raw material into finished product by putting it in a process) stock consists of: o Raw material o Work in process o Finished goods © Copyright Virtual University of Pakistan
112
Financial Accounting - I – MGT101 Raw Material
VU
Raw material is the basic part of an item, which is processed to make a complete item. Work in Process In manufacturing concern, raw material is put into process to convert it into finished goods. At the end of the year, some part of raw material remains under process. It is neither in shape of raw material nor in shape of finished goods. Such items are taken in stock as work in process. Finished Goods Finished goods contain items that are ready for sale, but could not be sold at the end of accounting period. Recording of Stock Account • • •
Stock Account is Debited with the Value of the Goods Purchased Stock account is credited with the Purchase Price of the Goods Sold / Issued for Production. Stock Account shows the cost / purchase value of unsold goods.
In manufacturing concern, entries for stock are: For Purchase of Stock Debit: Stock Account Credit: Cash/Supplier /Creditors Account When the stock is purchased, stock account gets the benefit, so it is debited & cash or supplier account provides the benefit, so it is credited. For Payment to Creditors Debit: ` Credit:
Supplier / Creditors account Cash account
For Consumption of goods Debit: Credit:
Cost of goods sold Stock Account
Cost of goods sold Cost of goods sold is different in both forms of organizations: • In trading concern, cost of goods sold is the value of goods unsold (goods stands for the items purchased for resale purpose) • In manufacturing concern, cost of goods sold is the value of raw material consumed plus any other manufacturing cost. e.g., salaries of labor cost of machinery etc. © Copyright Virtual University of Pakistan
113
Financial Accounting - I – MGT101 Stock and cost of goods sold in manufacturing concern Raw Material Stock
VU
Other Costs Accounts
Work in Process Account
Finished Goods Account
Cost of Goods Sold Account In manufacturing concern, Raw material stock is put into process. For accounting purposes, all value of stock and other manufacturing costs are charged to work in process account. When the process is completed and the goods are prepared, all the value of work in process is charged to finished goods account. The business sells finished goods for the whole accounting year. At the end of the year, goods that are unsold are deducted from cost of goods sold account.
© Copyright Virtual University of Pakistan
114
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