Accounting Principles and Practices

This assignment delves into fundamental accounting principles. It explains the significance of double-entry bookkeeping using debits and credits for constructing a general ledger and preparing a trial balance sheet. The report highlights how these tools provide insights into a company's financial performance, including profit/loss, sales, and overall balance sheet status. Furthermore, it discusses various business structures like sole traders, partnerships, and limited companies, emphasizing the similarities and differences in their accounting practices. The importance of bank reconciliation is also covered, outlining its role in accurately tracking deposits, transactions, and withdrawals.

Financial Accounting
The specific branch of accounting which involves a process of recording, reporting and
summarizing the multiple the transaction result. Financial accounting is more based on
double entry system. Financial accounting provides aggregate and collective information for
the company. The data and information under financial accounting are historical in nature.
(Kenton, 2019)
Double Entry Bookkeeping System
The double entry bookkeeping system is the business transactions, amounts which must be
recorded in minimum of two accounts. It is used to satisfy the accounting equation:
Assets= Liabilities + Equity (Hayes, 2019)
Question:
Advertising company owned by Mr. Ashu Malla provides advertising consulting services.
During January 2012, the following events occurred:
Jan 1 Owner contribute $ 50000 and a new computer costing $20500 to start his business.
Jan 3 Office suppliers were purchased on account for $4000.
Jan 8 Company obtained 12% 5-year loan of $ 20000 from the bank.
Jan 13 Company paid the utility bills for $ 2750.
Jan 16 $ 3000 was paid in Accounts Payable from the purchase of office supplies on Jan 3.
Jan 18 Advertising services completed in January were billed to clients Mira’ Flowers at $
18300.
Jan 20 Advertising received $ 5500 from Mira’ Flowers, a client as payment on account.
Jan 25 Mr. Ashu Malla withdraw $ 6000 of cash for personal use.
Prepare Journal Entry, General Ledger Account and make a Trial Balance.

Solution:
Date Particulars Ref Amount (Dr.) Amount (Cr.)
Jan 1 Cash a/c
Computer a/c
To owner’s equity Mr. Ashu Malla
(Being business started with cash and
computer)
50000
20500
70500
Jan 3 Office Suppliers a/c
To Account Payable a/c
(Being office suppliers purchase on
credit)
4000
4000
Jan 8 Cash a/c
To Bank loan a/c
(Being bank loan obtained)
20000
20000
Jan 13 Utility Bills a/c
To Cash a/c
(Being utility bill paid)
2750
2750
Jan 16 Account Payable a/c
To Cash a/c
(Being paid partial account payable)
3000
3000
Jan 18 Account Receivable Mira’ Flower a/c
To Advertising service a/c
(Being bill paid to customer for
service earned)
18300
18300
Jan 20 Cash a/c
To Account Receivable Mira’
Flowers
(Being cash received from customer
billed previously)
5500
5500
Jan 25 Drawing a/c
To cash a/c
(Being cash withdraw by owner)
6000
6000
Total $ 130050 $ 130050

General Ledger
General ledger means the record of financial data with debit and credit account records
validated by a trial balance. It provides a record of each financial transaction which takes
place during the life of an operation. (Clarke, 2014)
Above transaction are recorded in General Ledger.
Dr. Cash Account Cr.
Date Particulars Amount
($)
Date Particulars Amount
($)
Jan 1 Owner’s Equity a/c 50000 Jan 13 Utility Bill a/c 2750
Jan 8 Bank Loan a/c 20000 Jan 16 Account Payable a/c 3000
Jan 20 Account Receivable a/c 5500 Jan 25 Drawing a/c 6000
By, Balance c/d 63750
Total 75500 Total 75500
Feb 1 To, Balance b/d 63750
Dr. Computer Account Cr.
Date Particulars Amount
($)
Date Particulars Amount
($)
Jan 1 Owner’s Equity a/c 20500
By, Balance c/d 20500
Total 20500 Total 20500
Feb 1 To, Balance b/d 20500
Dr. Owner’s Equity Account Cr.
Date Particulars Amount
($)
Date Particulars Amount
($)
Jan 1 Cash a/c 50000
Jan 1 Computer a/c 20500
To, Balance c/d 70500
Total 70500 Total 70500
Feb 1 By, Balance b/d 70500

Dr. Office Suppliers Account Cr.
Date Particulars Amount
($)
Date Particulars Amount
($)
Jan 3 Account Payable a/c 4000
By, Balance c/d 4000
Total 4000 Total 4000
Feb 1 To, Balance b/d 4000
Dr. Account Payable Account Cr.
Date Particulars Amount
($)
Date Particulars Amount
($)
Jan 16 Cash a/c 3000 Jan 3 Office Suppliers 4000
To, Balance c/d 1000
Total 4000 Total 4000
Feb 1 By, Balance b/d 1000
Dr. Advertising Service Account Cr.
Date Particulars Amount
($)
Date Particulars Amount
($)
Jan 18 Account Receivable a/c 18300
To, Balance c/d 18300
Total 18300 Total 18300
Feb 1 By, Balance b/d 18300
Dr. Bank Loan Account Cr.
Date Particulars Amount
($)
Date Particulars Amount
($)
Jan 8 Cash a/c 20000
To, Balance c/d 20000
Total 20000 Total 20000
Feb 1 By, Balance b/d 20000

Dr. Utility Bills Account Cr.
Date Particulars Amount
($)
Date Particulars Amount
($)
Jan 13 Cash a/c 2750
By, Balance c/d 2750
Total 2750 Total 2750
Feb 1 To, Balance b/d 2750
Dr. Account Receivable Account Cr.
Date Particulars Amount
($)
Date Particulars Amount
($)
Jan 18 Advertising Service a/c 18300 Jan 20 Cash a/c 5500
By, Balance c/d 12800
Total 18300 Total 18300
Feb 1 To, Balance b/d 12800
Dr. Drawing Account Cr.
Date Particulars Amount
($)
Date Particulars Amount
($)
Jan 25 Cash 6000
To, Balance c/d 6000
Total 6000 Total 6000
Feb 1 To, balance b/d 6000

Trial Balance
Trial balance is a summary of the business activities. Trial balance is a sheet recording all the
ledger balances which are categorized into debit and credit. It records the transaction and
summarize them into ledger and create a worksheet and classify the ledgers is a trial balance.
With the help of general ledger, trial balance is prepared below:
Trial Balance
S.N Particulars Ref Amount (Dr.) Amount (Cr.)
1 Cash a/c 63750
2 Computer a/c 20500
3 Owner’s Equity a/c 70500
4 Officer Suppliers a/c 4000
5 Account Payable a/c 1000
6 Advertising Service a/c 18300
7 Bank Loan a/c 20000
8 Utility Bills a/c 2750
9 Account Receivable a/c 12800
10 Drawing a/c 6000
Total 109800 109800

Sole Trading
Self-employed person who owns and runs their own business as an individual is known a sole
trading company. It is a simple form of business structure and is relatively easy and
inexpensive to start up. These kinds of business doesn’t have any legal identity. (Korchak,
2019)
Final Account of sole-traders company:
Question:
The following trial balance of Mr. Shyam prepare the trading account, profit and loss account
and balance sheet for the year ended 31st December 2015.
Trial Balance as on 31st December 2015
S.N. Particulars Re
f
Amount (Dr.) Amount (Cr.)
1 Capital a/c 325000
2 Purchase a/c 215000
3 Opening Stock a/c 55000
4 Sales a/c 485000
5 Freight Inward a/c 20000
6 Salaries a/c 105000
7 Trade Payables a/c 95000
8 Trade Receivable a/c 105000
9 Furniture a/c 175000
10 Administration Expenses a/c 75000
11 Sales Return a/c 6000
12 Purchase Return a/c 10000
13 Discounts a/c 9500 4500
14 Investment a/c 50000
15 Bad Debts a/c 2500
16 Cash in Hand a/c 93500
Total 915500 915500
Requirement:
a. Closing stock $ 90000.
b. Depreciation on Furniture @10%.

Solution
Trading Account
For the year ended 31st December 2015
Particulars Amount ($) Particulars Amount ($)
To, Opening stock a/c
To, purchase a/c 215000
Less: Purchase return a/c
(6000)
To, Freight Inward a/c
To, Gross Profit a/c
55000
209000
20000
281000
By, sales a/c 485000
Less: Sales Return a/c
(10000)
By, Closing Stock a/c
475000
90000
565000 565000
Profit and Loss Account
For the year ended 31st December 2015
Particulars Amount
($)
Particulars Amount ($)
To, Salaries a/c
To, Administrative Expenses
a/c
To, Discount Allowed a/c
To, Bad Debts a/c
To, Depreciation a/c @10%
To, Net Profit a/c
105000
75000
9500
2500
17500
76000
By, Gross Profit b/d
By, Discount Received a/c
281000
4500
285500 285500

Balance Sheet
As at 31st December 2015
Liabilities Amount
($)
Assets Amount ($)
Capital a/c 325000
Add: Net Profit a/c 76000
Trade Payable a/c
401000
95000
Furniture a/c.
175000
Less: Depreciation a/c
@10% (7500)
Cash in Hand a/c
Closing stocks a/c
Trade Receivable a/c
Investment a/c
157500
93500
90000
105000
50000
496000 496000
Partnership Company
In partnership companies a formal arrangement is done between two or more parties to
manage and run a business and share its profit and loss equally. There are several types of
partnership company with different arrangement. There may be tax benefits to a partnership
compared to any other corporation. (M.KOPP, 2019)
Final Account of partnership company:
Question
Trial Balance of Mr. Arun and Barun is given below, now prepare Trading and Profit and
Loss Account for the year ended 31st December 2010 and Balance Sheet as on that Date.
Trial Balance
As on 31st December 2010
S.
N
Particulars Ref Amount(Dr.) Amount (Cr.)
Capital a/c's -Arun 60000

- Barun
Purchase a/c
Sales a/c
Sundry Debtors a/c
Sundry Creditors a/c
Commission
Bills Receivable a/c
Bills Payable a/c
Commission
Opening Stock a/c
Wages
Investment
Postage and Telegrams
Insurance
Plant And Machinery
Furniture
Cash in Hand
Carriage
Bad Debts
Prepaid Rent
Salaries
46700
28000
4600
5000
4600
18000
9900
13500
3600
1200
40700
18000
2500
3200
400
7000
10500
35000
85000
25000
1800
6000
1800
212800 212800
Requirements:
1. Closing stock is Rs. 31000.
2. Wages Rs. 1400, salaries Rs. 800 were outstanding expenses.
3. Depreciation of Plant and Machinery by 10%.
4. Rs. 500 is paid as an advance foe insurance.
5. Rs. 1500 bad debts needs to be provided.
6. Rs. 1200 is due and not received as commission.

Solution:
In the books of Arun and Barun
Trading & Profit and Loss A/c
For the year ended 31st December 2010
Particulars Amount
(Rs)
Amount
(Rs)
Particulars Amount
(Rs)
Amoun
t(Rs)
To, Opening Stock a/c
To, Purchase a/c
To, wages
Add: o/s wages
To, Carriage
To, Gross Profit c/d
9900
1400
18000
46700
11300
3200
36800
By, Sales a/c
By, Closing Stock
85000
31000
116000 116000
To, Salaries a/c
Add: o/s salaries
To, Commission
To, Postage and
Telegram
To, Insurance
Less: Advance
To, Bad Debts
Add: New Bad Debts
To, Depreciation
Plant and Machinery
To, Net Profit c/d
10500
800
1200
500
400
1500
11300
4600
3600
700
1900
4070
By, Gross Profit b/d
By, Commission
Add: Commission
due but not received
1800
1200
36800
3000

Arun
Barun
6815
6815
13630
39800 39800
Balance Sheet
As on 31st December 2010
Liabilities Amount
(Rs)
Amount
(Rs)
Assets Amount
(Rs)
Amount
(Rs)
Capital Accounts
Arun
Add: Net Profit
Barun a/c
Add: Net Profit
Sundry Creditors a/c
Bills Payable a/c
Outstanding
Expenses
Wages
Salaries
60000
6815
35000
6815
1400
800
66815
41815
25000
6000
2200
Plant and Machinery
a/c
Less: Depreciation
Furniture a/c
Investments a/c
Prepaid Rent a/c
Prepaid Insurance a/c
Commission
Receivable a/c
Bills Receivable a/c
Closing Stock
Sundry Debtors a/c
Less: New Bad Debts
Cash balance a/c
40700
4070
28000
1500
36630
18000
13500
7000
500
1200
5000
31000
26500
2500
141830 141830
Notes:
i. Depreciation = 10% *Rs 40070= Rs 4070
ii. Distribution of Net Profit
Arun = Rs 13630* ½ = Rs 6815
Barun = Rs 13630* ½ = Rs 6815

Limited Company
The business structure which has been incorporated at companies house as a legal person is
known as limited company. Limited company can enter into contracts in its own name and is
responsible for its own actions and liabilities too. These kinds of company’s owner are
protected by limited liabilities. It is most popular type of company for small to medium sized
companies.
Final Account of limited company:
Question:
Pem’s Ltd. Was registered with capital of Rs 600000 in equity share of Rs 10 each. The
following is its Trial Balance on 31st December 2006.
Particulars Ref Amount (Dr.) Amount (Cr.)
Cash a/c
Goodwill a/c
Purchase a/c
Bank a/c
Preliminary Expenses a/c
Share Capital a/c
12% Debentures a/c
P&L a/c (Cr.)
Calls-in-arrears a/c
Plant & Machinery a/c
Premises a/c
Sales a/c
Interim Dividend a/c
Stock (1/12/2005)
750
25000
185000
39900
5000
7500
330000
300000
39250
75000
400000
300000
26250
415000

Funiture & Fixtures a/c
Sundry Debtors a/c
Wages a/c
General Expenses a/c
Salaries a/c
Freight and Carriage a/c
Directors’ Fee a/c
Bad Debts a/c
Denture Interest Paid a/c
Bills Payable a/c
Sundry Creditors a/c
General Reserve a/c
Provision for Bad Debts
7200
87000
84865
6835
14500
13115
5725
2110
18000
37000
40000
25000
3500
1246750 1246750
Adjustments:
1. Depreciate Plant & Machinery by 15%.
2. Write off Rs 500 from preliminary expenses.
3. 6 months interest was provided on Debentures.
4. Leave bad and doubtful debts provision at 5% on sundry debtors.
5. Income tax was provided at 50%.
6. Stock on 31/12/2006 was Rs 95000
Solution
Pem’s Limited Company
Profit & Loss Account
For the year ended 31st December 2006
Amount (Rs) Amount
(Rs)
To, Opening stock
To, Purchase a/c
To, Wages a/c
To, Freight & Carriage a/c
To, Gross Profit c/d
75000
185000
84865
13115
152020
By, Sales a/c
By, Closing Stock
415000
95000

510000 510000
To, Salaries a/c
To, General Expenses a/c
To, Director’ Fees a/c
To, Bad Debts 2100
Add: New Provision for
Bad Debts 4350
Less: Existing Provision for
Bad Debts. 3500
To, Preliminary Expenses
To, Interest on
Debentures 1800
Add: Outstanding Debenture
Interest. 1800
300000 x 12% x 6/12
To, Depreciation on Plant &
Machinery
To, Provision for Income Tax
(36000 x 50%)
To, Net Profit c/d
14500
6835
5725
6460
2960
500
36000
49500
18000
18000
By, Gross Profit b/d 152020
152020 152020
Profit & Loss Appropriation Account
Amount
(Rs)
Amount
(Rs)
To, Interim Dividend
To, Dividend Tax(39250x10%)
To, Balance Carried Forward
to Balance Sheet
39250
3925
1075
By, Balance b/d
By, Net Profit b/d
26250
18000
44250 44250

 Since Intern Dividend is related to current year so dividend tax should also be provided in
the current year.
Pem’s Limited Company
Balance Sheet
As on 31st December 2006
Liabilities Amount (Rs) Assets Amount
(Rs)
Share Capital:
Authorized:
60000 equity share of
Rs10each
Subscribed and called up
capital % paid up capital
40000 shares of Rs 10
each
400000
Less: Calls in arrears 7500
Reserves & Surpluses:
General Reserve
P & L a/c
Secured Loans:
12% Debentures
Outstanding Interest
On Debenture Unsecured Loan
600000
392500
25000
1075
300000
18000
Nill
Fixed Assets
Goodwill
Plant & machinery 330000
Less: Depreciation @ 15%
49500
Premises
Fixtures
Investment
Current Assets & Loans
and Advances:
Closing Stock
Sundry Debtors 87000
Less: Provision for Bad
Debts @ 5% 4350
Cash at Bank
Cash in hand
25000
280500
300000
7200
Nill
95000
82650
39900
750

Current Liabilities &
Provisions
a. Current Liabilities
Bills Payable
Sundry Creditors
b. Provisions:
Provision for income tax
Dividend tax payable
37000
40000
18000
3925
Miscellaneous Expenditure
Preliminary Expenses
5000
Less: Written off 500
4500
835500 835500
Bank Reconciliation
The process of matching the cash balance of a company’s balance sheet to the corresponding
amount on its bank statement. To ensure the company’s cash records are correct, bank
reconciliations are completed at regular interval. This reconciliation process helps to detect
fraud and any cash manipulations. (Kagan, 2019)
The process of bank reconciliation to prepare a number of bank reconciliation are explained
below:
Step 1 Adjusting the Balance per Bank
First step is to adjust the balance as per the bank. We will be adjusting our balance per the
statement of bank. Bank statement helps us to adjust our balance. The items that is necessary
for these steps are:
1. Deposits in Transit/ Outstanding Deposits: The amount which is received and recorded by
the company but are not yet recorded by the bank is known as deposits in transit.
2. Bank errors: The mistakes which are made by banks are known as bank error. It can be
recording of incorrect amount, entering the amount which does not belong to the
company account and many more.
Step 2 Adjusting the Balance as per Books
Bank reconciliation second step is to adjust the balance as per the company’s cash book. The
items that are involved in are as follow:
1. Not Sufficient Fund Cheque (NSF): The cheque which was not honored by the bank of
the company writing the cheque because of not having a sufficient balance.

2. Interest Earned: When a bank gives a company interest on its account balance it is known
as interest earned by the company.
Step 3 Comparing the Adjusted Balance
After adjusting the balance per book and balance per bank, we should always compare the
two adjusted amounts so that we can compare the adjusted balance. If the balance is not
adjusted, then we must repeat the process until the balance is correct.
Step 4 Preparing Journal Entries
Preparing Journal Entries helps to adjust the balance per books. Adjustments to increase the
cash balance require a journal entry that debits cash and credits another account.
Example of Bank Reconciliation
Question:
A bank statement of Mama Crafts Co. shows a balance of Rs 9395 on December 31st, 2005.
Balance as per cashbook is Rs 8984. Reconciled the following items:
Deposits in transit: 31st December deposits (Received by bank on Jan 1st)
Outstanding Cheques:
No. 35 Rs 800
No. 37 Rs 935
No. 40 Rs 500
Bank statements shows following information:
NSF Cheque from Z co. Rs 485.50
Bank Charge Rs 29.50
Interest paid by bank Rs 47
Prepare Bank Reconciliation Statement as on December 31st , 2005.
Solution:
Mama Crafts Co.
Bank Reconciliation Statement
As on 31st December 2005
Bank Amoun
t (Rs)
Amount
(Rs)
Books Amount
(Rs)
Amount
(Rs)
Balance 9395 Balance 8984

Add:
Deposits in transit
Less:
Outstanding Cheque
No. 35
No. 37
No. 40
1365
800
935
500
1365
2235
Add:
Interest on Deposits
Less:
NSF cheque from Z
co.
Bank charge
47
485.50
29.50
47
515
Adjusted Balance 8525 Adjusted Balance 8525
In the book of Mama Crafts co.
Journal entries
Date Account Titles and Explanation PR Amount (Dr.) Amount (Cr.)
31st
December
2005
Cash a/c
To, Interest on Deposits a/c
(Being interest income recorded from
bank deposited)
Accounts Receivable (Z co. )
To, cash a/c
(Being NSF Cheque recorded from Z
co. )
Cash a/c
To, account receivable a/c
(Being record of receipt from
customer)
Miscellaneous Expenses a/c
To, cash a/c
(Being bank charge deduction
recorded)
47
485.50
125000
29.50
47
485.50
125000
29.50

Control Account
A control account is general ledger account which summarize and combines all the subsidiary
account for a specific type. Control account is helps to ensure that there is no errors or
mistakes in our records which are related to debtors and creditors. Control accounts can be
used for accounts payable, equipment and inventory. There are two kind of control account
which are purchase ledger control account and sales ledger control account. These accounts
are also known as Creditors for purchase ledger control account and Debtors for sales ledger
control account. (Wilkinson, 2013)
Example of Control account:
An organization have hundreds of consumers with current accounts receivable balances and
all the balances are recorded in separate accounts receivable subsidiary accounts. The total of
all the accounts is carried forward into the account receivable control account, which is
appears in the general ledger and the Final Account.
Suspense Account
Suspense account is general ledger account where transactions are recorded for temporary
until the time their actual nature can be confirmed. Suspense account is a holding account
found in the general ledger. It depends on the transaction in question if a suspense account is
an asset or liability. The transaction which are recorded in this account should be a suspense
and we can gather more information about these transactions so to move these accounts in
their correct account. We use a suspense account when we are not sure where to record

general ledger entries. For clearing out a suspense account, there is no standard amount of
time. Most businesses clear out their suspense accounts monthly or quarterly. (Cameron,
2017)
Example of suspense account:
Receive a partial payment of Rs 150 from consumer.
Open a suspense account. Credit Rs 50 to the suspense account and debit the cash account for
the same amount.
Account Debit Credit
Suspense a/c Rs 50
Cash Rs 50
After receiving the full payments from consumer debit Rs 50 to the suspense account and
credit accounts receivable for the same amount. It will close the suspense account and moves
the payment to the correct account.
Account Debit Credit
Suspense a/c Rs 50
Account Receivable Rs 50

Conclusion
This concludes that in the report, double entry in book-keeping method of debits and credits
are key to create a good general ledger which helps us to make trial balance sheet. Trial
Balance helps us with the final account of the company showing the profit, loss, sales and
trading and the entire balance sheet of the company. Single, partnered or limited companies
have all the different types of account with different transactions. Formats can be same, but
the transactions will vary. Bank reconciliation helps us with the methods and process of the
bank which will help us with easier understanding of the deposits, transactions and
withdrawals made via bank.

References
Hayes, A., 2019. Investopedia. [Online]
Available at: https://www.investopedia.com/terms/d/double-entry.asp
[Accessed 2 December 2019].
Clarke, D., 2014. Kashoo. [Online]
Available at: https://kashoo.com/blog/what-is-a-general-ledger
[Accessed 2 December 2019].
M.KOPP, C., 2019. Investopedia. [Online]
Available at: https://www.investopedia.com/terms/p/partnership.asp
[Accessed December 2019].
Korchak, J., 2019. inform direct. [Online]
Available at: https://www.informdirect.co.uk/business-management/what-is-a-sole-trader/
[Accessed 10 December 2019].
Kenton, W., 2019. Investopedia. [Online]
Available at: https://www.investopedia.com/terms/f/financialaccounting.asp
[Accessed 29 November 2019].