User Rating:  / 0

PoorBest 

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.	Cr. Rs.
Cash Account	01	30,000
Accrued expense Account	02		10,000
Bank Account	03	50,000
Loan Account	04		100,000
Furniture Account	05	20,000
Office Equipment	06	10,000
Debtors account	07	12,000
Creditors account	08		10,000
Sales account	09		20,000
Purchase account	10	18,000
Total		140,000	140,000

During the month, following entries took place:

No.	Date	Particulars
01	Feb 07	They purchased stationery worth of Rs. 3,000
01	Feb 10	They paid their first installment of loan Rs. 12,000
03	Feb 12	They received a cheque from a customer of Rs. 5,000
04	Feb 13	They paid a cheque of Rs. 8,000 to a creditor
05	Feb 15	Purchased goods of Rs 6,000 & paid through cheque
06	Feb 17	Accrued expenses of Rs. 5,000 are paid.
07	Feb 20	They purchased furniture of Rs. 2,000
08	Feb 21	Sold goods for cash Rs.5,000
09	Feb 22	Purchased goods on credit Rs. 5,000
10	Feb 23	Office equipment of Rs. 5,000 is Purchased
11	Feb 25	Staff salaries are paid by cheque Rs. 15,000
12	Feb 28	Utility expenses of Rs. 3,000 are accrued.

Ledger accounts of Rahil & Co. during the month will show following picture:

Cash Account Account code # 1
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
1-2-02 21-2-02	Balance c/f Sold a/c	01 09	30,000 5,000	7-2-02 10-2-02 17-2-02 23-2-02	Stationery a/c Loan a/c Accrued expenses Furniture a/c Office equipment Balance c/d	10 04 02 05 06	3,000 12,000 5,000 2,000 5,000 8,000
	Total		35,000		Total		35,000

 

Accrued Expenses Account Account code # 2
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
17-2-02	Accrued expenses Balance c/d	01	5,000 8,000	1-1-02	Balance c/f Expenses accrued		10,000 3,000
	Total		13,000		Total		13,000

 

Bank Account Account code # 3
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
12-2-02	Balance c/f Cheque received	07	50,000 5,000	13-2-02 15-2-02 25-2-02	Paid to creditors Purchases Salaries a/c Balance c/d	08 10 11	8,000 6,000 15,000 26,000
	Total		55,000		Total		55,000

 

Loan Account Account code # 4
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
10-2-02	Installment paid Balance c/d	01	12,000 88,000	13-2-02 15-2-02 25-2-02	Balance c/f		100,000
	Total		100,000		Total		100,000

 

Furniture Account Account code # 5
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
10-2-02 20-2-02	Balance c/f Furniture a/c	01	20,000 2,000	23-2-02	Balance c/d		22,000
	Total		22,000		Total		22,000

 

Office Equipment Account Account code # 6
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
23-2-02	Balance c/f Office Equipment a/c	01	10,000 5,000	23-2-02	Balance c/d		15,000
	Total		15,000		Total		15,000

 

Debtors Account Account code # 7
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
	Balance c/f		12,000	12-2-02	Cheque received Balance c/d	03	5,000 7,000
	Total		12,000		Total		12,000

 

Creditors Account Account code # 8
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
13-2-02	Paid to creditors Balance c/d	03	8,000 7,000	22-2-02	Balance c/f Purchases a/c	10	10,000 5,000
	Total		15,000		Total		15,000

 

Sales Account Account code # 9
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
	Balance c/d		25,000	21-2-02	Balance c/f Sales a/c	01	20,000 5,000
	Total		25,000		Total		25,000

 

Purchases Account Account code # 10
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
15-2-02 22-2-02	Balance c/f Purchases a/c Purchases a/c	03 07	18,000 6,000 5,000		Balance c/d		29,000
	Total		29,000		Total		29,000

 

Salaries Account Account code # 11
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
25-2-02	25-2-02 Salaries a/c	03	15,000		Balance c/d		15,000
	Total		15,000		Total		15,000

 

Stationery Account Account code # 12
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
25-2-02	Stationery a/c	01	3,000		Balance c/d		3,000
	Total		3,000		Total		3,000

 

Utility Expenses Account Account code # 13
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
28-2-02	Accrued utility expenses	02	3,000		Balance c/d		3,000
	Total		3,000		Total		3,000

The Trial Balance at the end of the month is as follows:

Rahil & Co.
Trial Balance As on January 31, 2002
Title of Account	Code	Dr. Rs.	Cr. Rs.
Cash Account	01	8,000
Accrued expense Account	02		8,000
Bank Account	03	26,000
Loan Account	04		88,000
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		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 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

Raw Material
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: ` Supplier / Creditors account
Credit: Cash account

For Consumption of goods

Debit: Cost of goods sold
Credit: 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.

Stock and cost of goods sold in manufacturing concern

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.

 

Related Content: MGT101 - VU Lectures, Handouts, PPT Slides, Assignments, Quizzes, Papers & Books of Financial Accounting

• < Prev
• Next >