Page 1


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, --------------------------------------

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Business and
Stud
Grad
Educational Publ
For free distribution

Accounting ies
e 11
lications Department

Page 4
අපි වෙමු එක ම එක නිවසෙහි වේ එක පාටගැති එක්
අප කය තුළ දුඹ
එබැවිනි. අපි වෙ එක ලෙස එහි දී ජීවත් වන අප ( සොඳින සිටිය :
සැමට ම මෙත් වෙළී සමගි දමි රන් මිණි මුතු ලෙ කිසි කල නොම
. . . . . . . . . . . .
. . . . . . . . .
ஒரு தாய் மக்க ஒன்றே நாம் வ நன்றே உடலில் ஒன்றே நம் கு
அதனால் சகே ஒன்றாய் வாழு நன்றாய் இவ் இ நலமே வாழ்தல்
யாவரும் அன்பு ஒற்றுமை சிறக் பொன்னும் மண யான்று மழியா
For free distribution mam
 
 

S S S S S S S S S S S S S S S S S S S S S S S S බවකගෙ දරුවෝ Nටෙසන0 5 රුධිරය වේ
වන0
2මු සොයුරු සොයුරියෝ වැඩෙන0 මෙම නිවසේ
යුතු වේ
කරුණා ගුණෙනී
8
ඉන0 ව එය ම ය. සැපතයා ) දිරනා
|- ආනන්ද සමරකෝන්:-
- - - - - - - - - - - - - - -
5ள் நாமாவோம் ாழும் இல்லம்
ஒடும் ருதி நிறம்
ாதரர் நாமாவோம் ம் வளரும் நாம் இல்லினிலே b வேண்டுமன்றோ
| கருணையுடன் க வாழ்ந்திடுதல் ரியும் முத்துமல்ல - அதுவே ச் செல்வமன்றோ.
ஆனந்த சமரக்கோன் கவிதையின் பெயர்ப்பு.
(iv)

Page 5
Forew
The mission of educationis to provi younger generation can grow up as citizens with confidence. The changes instituted i these objectives in mind come into effecti
21.
It is your duty to make the maximum so that you can hand it over to your sister grade 9 the following year.
The stateprovidesalthetextbooks f try. You must look after your books carefi they can be reused. Then, you can be prou national assets.
I also like to take this opportunity tot bers of the evaluation boards, the officers C ment and all others Who have contributed 1
Educational Publications Department, “Isurupaya” Battaramulla.
1805, 2009
For free distribution m
 

ord
de for the future and to ensure that the able to face the challenges of the future n the grade 11 school curriculum with In 2008; this textbook is a result of that
use of this textbook, handle it carefully or brother who will take your place in
or over 4,500,000 students in the counilly and handle them with care, so that d that you have added your mite to the
hank the Writers, the editors, the memfthe Educational Publications Departto the compilation of this book.
W.M.N.J. Pushpakumara Commissioner General of
Educational Publications

Page 6
Guidance and Supervision Mr. W.M.N.J. Pushpakumara - C Direction
Mrs. W. D.P. Nalika
Coordination Mrs.U.A.Nalini Senevirathna
Mr. I. Ranjith -
Board of Writers
Dr. Y. K. Weerakoon Banda -
MrS.U.A. Nalini Senevirathna -
Mr.S.A.D. SubaSinha -
Mrs. G.P. Thamare Nandani -
Mr.W.A. Dayarathna -
Mr. R.P. Gunaphala -
Mr. M. UN Sanus -
Mr. H.H.M. Buhari -
Mr. S. DeVendran -
Mr. S. Balachandran -
Mrs.N.S. Nanayakkara -
Mrs. Shiromi Samarakon -
Translating Assistance
Mr. Ai Nilantha
Editing
Dr.N.M.J. Na Varathna - Diagrams and Cover Page Mrs. Amitha Indirani - Proof Reading
Mr. PremaSiri Welli Vita Computer Assistance W.A. Chaturi Madushani Pradeepika
For free distribution m

Commisioner General of Educational Publications.
Additional Commissioner (Development). Educational Publications Department.
Assistant Commissioner Educational Publications Department.
Assistant Commissioner Educational Publications Department.
Senior lecturer, University of SriJayawardhanapura (President)
Assistant Commissioner Educational Publications Department.
Teacher, Dharmaraja college, Kandy.
I.S.A. (Commerce) Zonal Education Office Mathara
I.S.A., (Commerce) Zonal education Office Tangalle
I.S.A., (Commerce) Zonal education Office Tangalle
Director. (Retired), Ministry of Education Teacher, Mr/Nagalla Muslin M.M.V.Thulhiriya Teacher, Thamil Maha Vidyalaya, Passara
I.S.A., (Commerce) Zonal education Office Badulla
Senior lecturer, University of SriJayawardhanapura
Senior lecturer. (Retired), University of SriJayawardhanapura
Senior lecturer, University of Colombo
Art teacher, Kg / Mawa / Rivisanda M.v.
Director, (Retired), Ministry of Education

Page 7
National A
Sri Lanka Matha
Apa Sri Lanka Namo Namo N
Sundara siribarinee, Surandia
Dhanya dhanaya neka mal pali
Apa hata sapa sirri Setha sadana
Piliganu mana apabhakthi poc
Apa Sri Lanka Namo Namo N
Oba we apa vidya - Obamaya a
Oba weapa shakthi - Apahada
Oba apa aloke - Apage anuprar
Oba apajeevana we - Apamuk
Navajeewana demine, nithina
Gnana Veeryavadawamina rag
Ekamavakage daru kalabavina
Yamuyamu Veenopama
Prema vada samabheda durara Namo. Namo Matha
Apa Sri Lanka Namo Namo N
For free distribution m
 

nthem of Sri Lanka
(amo Namo Matha
thi Soba mana Lanka
aturu pirijayabhoomiya ramya ljeewanaye matha
ja Namo Namo Matha
IamO NamO Matha
pa sathya
thula bhakthi
ՈC
thiya oba we
apapubudukaran matha
gena yanu mana jaya bhoomi kara
da.
|amo Namo Matha
(iii)

Page 8
අපි වෙමු. එක ම එක නිවසෙහි දේ එක පාටගැති එක්
අප කය තුළ දුඹ
එබැවිනි. අපි වෙ එක ලෙස එහි : ජීවත් වන අප { සොඳින සිටිය :
සැමට ම මෙත් වෙළී සමගි දමි රන් මිණි මුතු දේ කිසි කල නොම
. . . . . . . . . .
ஒரு தாய் மக்க ஒன்றே நாம் வ நன்றே உடலிலி ஒன்றே நம் கு
அதனால் சகே ஒன்றாய் வாழு நன்றாய் இவ் { நலமே வாழ்தல்
யாவரும் அன்ட ஒற்றுமை சிறக் பொன்னும் மன ust 650 LD5urt
LLLLLL LL LLLLLLLLLL S

е е се е е මවකගෙ දරුවෝ - }වෙසන0 ක රුධිරය වේ
වන0
වමු සොයුරු සොයුරියෝ වැඩෙන0 මෙම නිවෙස්
යුතු වේ
කරුණා ගුණෙනී
୫
නො ව එය ම ය. සැපතයා 9 දීරනා
- ආනන්ද සමරකෝන්:-
- - - - - - - - - - - - - - - - - - -
கள் நாமாவோம் ாழும் இல்லம் b ஒடும் ருதி நிறம்
ாதரர் நாமாவோம் ம் வளரும் நாம் இல்லினிலே b வேண்டுமன்றோ
பு கருணையுடன் க வாழ்ந்திடுதல் னியும் முத்துமல்ல - அதுவே ச் செல்வமன்றோ.
ஆனந்த சமரக்கோன் கவிதையின் பெயர்ப்பு.
(iv)

Page 9
4. Adjustments for
Financial Statem
5 Preparation of F
Statements
7 Financial Requir
and Investment
For free distribution
 
 

NTS.
oks of a Business 01
The
48
'counting 65
ents 92
inancial 111
Prganisations 133
’ements 146
Opportunities
(vii)

Page 10
De;
Read this improve y
your res. Over this b
or sister
cla
The Government has spent
presented
For free distribution m
(
 
 
 
 
 
 
 

ar Children
book carefully and our knowledge. It is Jonsibility to hand ook to your brother promoted to your SS next year.
Rs 295 for this book which is
to you free.
viii)

Page 11
rime Entry B
This chapter discusses the
1.1 Preparation of three column cas 1.2 Preparation of petty cash book. 1.3 Maintaining records on credit pu
Purchases journal Returns outwards journ: 14 Maintaining records on credit sa Sales journal Returns inwards journal
1.5 Maintaining the general journal.
SS For free dist
 
 

ooks of a Business
following themes.
hbook.
Irchases of trade items.
al
les Oftrade itemS.
ribution

Page 12
Let us keep record
Following is a part of a conversation r father.
SOn - Father, you seem to be thi
Father - No. . . . . . son, I was wond transactions in a systema transactions is also very h
SOn - Ah.... Is that the problem
systematic way.
Father ... We have recieved a lot of
are also sent with the goo details of the items which our customers return the go There may be some defec
Not only that son, if we ca suppliers before the due da money to me that should amount payabale by me. I to me as soon as possible
Son, can’t you make arrang I remember you learnt such
SOn - Of course father, I will he
propermanner.
If you read the above conversation care types of transactions in a business. They endsystematically, so that they can be un of equal nature by Summarising them yo transactions.
The transactions in abusiness have initia In this chapter, we will discuss such prin
2 SS For fres

s in Prime Entry Books.
Bgarding a business, between a son and his
nking about somethingtoday, aren't you?
ering how we can record our business tic manner. Now, our volume of gh.
'? Letus Write them down in books in a
hits for the items we purchased. Statements ds purchased under credit basis. I record the we sellon creditina separate book. Some of Ods purchased from us giving various reasons. tsin the goods which Isend,
in settle the outstanding amounts to our tethey will give a discount and if others owe be paid, they deduct some amount out of the should take steps to collect the amount due ... I too should thinkofa way for that.
ement to organise them in a systematic way?
things at School.
lp you to keep the accounting recordsina
'fully, you will realize that there are various should be recorded from the beginning to the derstood easily. If you record the transactions u can minimize the complexity of recording
lly have to be recorded in prime entry books. he entry books maintained by abusiness.
e distribution

Page 13
Introduction
There are various types of transactions in a basis. These transactions are connected W business. Due tothese transactions, operat to change daily and they are recorded in books in which the prime entries are recorde
Accordingly, the business will purchase it under credit basis. The items purchased on items sold on credit may be returned to the si under cash basis may take place. Prime ent transactions in a business.
If there are any transactions in abusiness W entry books, they are recorded in the "Gen.
Your attention is drawn
ter.
a Cash discount
a Memorandum column
- Three column cash book as Petty cash voucher
a Petty cash imprest system
as Reimbursement
- Analysis column
k Purchase invoice
as Trade discount
SS
For free dis
 

business under both cashbasis and credit ith the various operational activities of a onal results of the business are subjected the books using source documents. The lcan be identified as "Prime Entry Books."
ams for re-sale purpose and they are sold predit may be returned to the suppliers and bller Furthermore, both buying andseling ry books are used to record these types of
thich cannot be recorded in special prime eral Journal.”
on the following basic terms in this chap
- Purchases journal
Credit note - Returns outwards journal a Sales journal
Debit note
: Returns inwards journal
+ Journal Voucher
a General journal
Narration
SS 3 tribution

Page 14
la Preparation
In a business organization, there can be v have already studied that, we record only cash in Accounting. This was further disc
The prime entry book in which the cash r. as "Cash Book." Compared with oth functions. It functions as a ledger accou uses cash held in the business as well as th
business. The double column cash book by adding an additional column to the Sir the "Two Column Cash Book".
Now, let us study the Way of preparing a to the double column cashbook. Accordi
to record the values can be defined as "T
In addition to the cash and bank colun
column is maintained in a three column c
Discount
The amount deducted from the Value of a See two types of discount in accounting.
Trade discounts
Cash discounts
The amount deducted from the list price
Example : Assume, you saw the foll
“10% discount for ea
As per the notice, if you purchase a pair from the above shop, the discount to be
RS 1.000 x 10 100
4. S S For free

cee column cash book
'arious types of transactions. However, you I the transactions which can be measured in
russed in Grade 10.
2ceipts and payments are recorded is termed er prime entry books, cash book has two nt and as a prime entry book. The business he cash in the bank for the transactions of the is prepared to record the bank transactions gle column cash book and it is identified as
cash book, by adding an additional column ngly, the cash book which has three column three Column Cash Book'.
in in a two column cash book, a discount
ashbook.
transaction is known as a discount. We can They are,
ofan itemis the trade discount.
lowing notice in a shop on your Way home.
ch pair of shoes purchased'
of shoes of which the list price is Rs.1,000 deducted is,
RS 100
SS
distribution

Page 15
The Value of the transaction is limited to the deducted and the purpose of the trade disco the business. Trade discount is not recorded
If the debtors pay their outstandings before they are allowed a discount. In the same W period granted to settle the payable amou discounts are known as "cash discount". expedite the collection of cash from the rel actions with the business. Allowing and rec on pre-agreed conditions. There are two types of discounts.
*Discount Allowed - This is the discour
before the credit pe is an expense to th
Example: Ranga sold Rs.5,000 wort and Ranga informed Career period, a cash discount of before the credit periodgrar
Rs. 5,000 X 5 =
100
: Discounts Received. This is the discour
before the credit
is an income to th
Example: Kamalpurchased Rs.10.00 pany under credit basis. The
is settled before the credit p
If Kamal paid cash before
Company, the discount rect
Rs. 10,000 X 10. 100
Accordingly, cash paid by Kamal was
SLLS For free dist
 

value at which the trade discount was unt is to increase the sales volume of din the ledger accounts.
: the period granted to settle the amount, ay, if the creditors are settled before the nts, they also give us a discount. These The purpose of the cash discount is to evant parties who have done credit transeiving of discounts are taken place based
it granted to debtors in collecting money
'riod granted to them. Discount allowed he business.
h of goods under credit basis to Careem
m, if the amount is settled before the credit 5% can be granted. If Careem paid cash hted by Ranga, the discount allowed was,
= RS 250
ht granted to buyers when paying money,
)eriod by the creditor. Discount received he business.
0 worth of goods from Fernando & Compurchase invoice states that, if the amount
eriod, a cash discount of 10% is granted.
the credit period granted by Fernando &
eived by Kamal was,
= Rs. 1.000
(Rs. 10,000-Rs. 1.000) = Rs...9,000.
ribution

Page 16
Three column cash book is prepared inclu Now, we will study how to prepare a thr
example.
Example:
04.
07. 13. 14. 17.
20. 23.
24. 26. 27. 28. 29.
30.
O1
01. 01. 01. O1.
01. 01.
01. 01. 01. 01. 01.
01.
20XX
2OXX 20XX 2OXX 2OXX
20XX 2OXX
20XX 20XX 2OXX 20XX 2OXX
20XX
The cash and bank balan were Rs.12,500 and Rs. 1 were taken place duringt
Cash sales Rs. 7,000
Telephone bills paid by cl Rs. 1,800 was paid by Aj Purchase of goods issuin, Rs. 2,850 was paid to Ka from Rs. 3,000 Payment of electricity bill A cheque of Rs. 1,450 we amount was Rs. 1,500 an Payment of buildings rep; The cheque received fron Cash withdrawn from the Payments of salaries Rs. . Rs. 5,000 the balance of purchases by the business A cheque amounting to R domestic expenses.
Above transactions can be entered in at bank balances as at 31.01.20XX can be (
For free (

lding cash, bank and discount column. ee column cash book using the following
ce of Upeka's business as at 01.01.20XX 5,000 respectively. Following transactions he month of January 20XX.
heques Rs. 500 ith after deducing a discount of Rs.200. gacheque of Rs. 4,000. mal after deductingadiscount of RS. 150
SRS. 750. is received from Sanka whose outstanding ld balance was treated as a discount. airs Rs.2,000 n Sanka was deposited in the bank. a bank Rs. 2,500
4,000 Nuwan's accountarisen due to credit was settled subjected to a discount of 10%. ts. 500 was encashed by Upeka for her
three column cash book and the cash and calculated as follows.
SS listribution

Page 17
Upeka's Busine
Cash Book
Date Description ဖိint Cash | Bank || Da
2OXX 2O)
01.01 Balance b/f 12,500 15,000|07. 04.01 Sales 7,000 14. 13.01 || Ajith 200 1,800 17. 23.01 Sanka 50 1450 20. 26.01 Cash Con 145.024. 27.01 Bank Con 2,500
26.
27.
28.(
29.
30.(
31.(
250 25.250 16450 01.02 Balance b/f 9,7008,950
Posting the transactions in three colum
The transactions are recorded in the three co entry as it is used as a ledger account.
However, the discount columns maintained as apart of double entries. The discount column of the discount in a certain period. The total O to the discountallowed accountand the totalo
to the discount received account at the end
Now, letus study the double entries for the tra carried out by Upeka.
SS For free distr.

SS
te Description ဂိint Cash Bank
XX
01 Telephone 500
Ol Purchases 4,000 Ol Kamal 150 2,850
01 Electricity 75() 01 Building re- 2,000
pairs
01 Bank Con 1,450
01 Cash Con 2,500
Ol Salaries 4,000 01 || Nuwan 500 4,500
Ol Drawings 500 Ol Balance c/d 9,700 8,950
650 |25250||16450
In cash book to the ledger . 9
lumn cash book according to the double
S memorandum columns and they are not S are maintained only to identify the total fthe discountallowed column is debited
fthe discount received column is credited
of the period.
insactions identified in the above business
ibution

Page 18
04.
07.
13.
14.
17.
20.
23.
24.
01.
01.
O1.
Ol.
O1.
01.
O1.
01.
20XX
20XX
20XX
20XX
20XX
20XX
20XX
20XX
Cash sales Rs. 7,000
Cash book
Sales account
Telephone bills paid by Telephone bills a Bank account
Rs. 1,800 was paid by A.
Cash book
Discountallowe Ajith's account
Purchase of goods issui Purchases accol
Bank account
Rs. 2,850 was paid to K Kamal's accoun
Cash book
Discount receiv
Payment of electricity bi
Electricity bills Cash book
A cheques of Rs. 1450
amount Was Rs. 1,500 a
Cash book
Discount allowe
Sanka's account
Payment of building rep Building repairs
Cash book
For fres

Dr 7,000
Cr 7,000
cheque Rs.500 CCOunt Dr 500
Cr 500
jith after deducing a discount of Rs. 200
Dr 1,800 d Dr 200
Cr 2,000
ng a cheque of Rs. 4,000 Int Dr 4,000
Cr 4,000
amal after deducting a discount of Rs. 150
t Dr. 3,000 Cr 2,850 ed account Cr 150
|ISRS. 750
Dr 750
Cr 750
was received from Sanka whose Outstanding und balance Wastreated as adiscount.
Dr 1,450
d DT 50
t Cr 1,500
airs Rs. 2,000 aCCOUunt Dr 2,000 Cr 2,000
S S S S S S S 2 distribution

Page 19
26. 01. 20XX
27. O1. 20XX
28. O1. 20XX
29. Ο1, 20XX
30. O1. 20XX
The cheque received from S
Bank account
Cash book
Cash withdrawn from the b:
Cash book
Bank account
Payments of salaries Rs. 4.C
Salaries account
Cash book
Rs. 5,000 the balance of Nu purchases by the business W.
Nuwan's account
Cash book
Discount received
A cheque amounting to RS.
domestic expenses.
Drawings account
Bank account
Now, we will study how the above transact
Debit Sales Ac(
Date Description L. Amount D;
F RS.
O4
For free distr

Sanka was deposited in the bank.
Dr 1,450
Cr 1,450
ank RS. 2,500
Dr 2,500
Cr 2,500
OO
Dr 4,000
Cr 4,000
wan's accountarisen due to credit as settled subjected to a discount of 10%
Dr 5,000 Cr 4,500 Cr 500
500 was encashed by Upeka for her
Dr 500
Cr 500
ions are posted to the ledger accounts.
Ount Credit
atc Description L Amount
Ρ RS.
.01.XX Cash 7,000
SS 9 ibution

Page 20
Debit Telephone
Date || Description L Amoun
F RS.
07.01.XX Bank 500
Debit Ajith's Ac Date || Description L Amoun
Ε RS.
01.01.XX Balance b/f 2,000
Debit Purchases Date || Description L Amoun
F - RS.
14.01.XXI Bank 4,000
Debit Kamal's
Date Description L Amount
F RS.
17.01 XX|| Cash 2,850
Discount received 150
10 mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmum
For fre

Bills Account Credit
t Date Description L. Amount
F RS.
'count Credit
ti | Date Description L Amount
F RS.
13.01.xx Cash 1,800
Discount allowed 2OO
Account Credit t Date Description L Amount
F 1 Rs.
Account Credit
|| Date Description L Amount
F RS.
01.XX,01 Balance b/f 3,000
e distribution

Page 21
Debit Electricity Bi Date Description L. Amount I
F. Rs.
20.XX.01 Cash 750
Debit Sanka's Acc Date Description L. Amount I
F 1 Rs.
01.01.XX Balance b/f 1,500 2.
Debit Building Re Date Description L Amount
F 1 Rs.
24.01XX. Cash 2,000
Debit Staff Salarie
Date Description L Amount
F 1 Rs.
28.01 XX|| Cash 4,000
For free dist

lls Account Credit
Date Description L Amount
F RS.
Ount Credit Date Description L Amount
F RS.
3.01.XX Cash 1,450 50
Discount allowed
pairs Account Credit
Date Description L Amount
F 1 Rs.
is Account Credit
Date Description L Amount
F RS.
mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm 11
ribution

Page 22
Debit Nu Wa
Date Description L. Amount
F RS.
29.01.XX Cash 4,500
Discount received 5OO
Debit Drawi Date Description L. Amount
F RS.
30.01.XXI Bank account 500
Debit Discounts
Date Description L. Amount
F RS.
31.01.XX || Debtors 250
Debit Discounts
Date Description L. Amount
F RS.
0S SS SSS For free

h's Account Credit
Date Description L. Amount
F RS.
01.01.XX Balance b/f 5,000
ngs Account Credit
Date Description L Amount
F RS.
Allowed Account Credit
Date Description L. Amount
Ρ RS.
Received Account Credit
Date Description L. Amount
F RS.
31.01.XXICreditors 650
LLLS
distribution

Page 23
01 Activity ܘܬ
(i) Explain as to why discount allo
account and credited to the debt
(ii) Explain as to why discount rece
aCCOunt and debited to the Credi
02 Activity ܚܬ ܐ
Assume, following transactions have taken
Date Transactions
O1.03 Commenced the business inves
O303 Opened a bank current accoun
O8.03 Cash purchases of goods Rs.1
12.03 Telephone bills paid by cheque
15.03 Prasanna, a debtor of the busir
jected to a discount of 5%.
18.03 Cash sales Rs.4,500.
19.03 Payment of staff salaries Rs.6,
20.03 Rs.8,000 payable to Ajith was
22.03 The cheque received from Pras
23.03 Insurance paid by cheque Rs. 1.
You are required to
(i) Record the above transactions i
(ii) Prepare the ledger accounts.
(iii) Calculate the balance of cash in
SS For free distr
 

Wedi is debited to the discount allOWed
OrS aCCOunt.
ived is credited to the discount received
tOTS aCCOunt.
place in the business carried out by you.
sting cash Rs.50,000.
it depositing Rs. 20,000.
0,500.
Rs. 1.050.
less paid Rs. 15,000 by cheque sub
OOO.
settled subjected to a 10% discount.
anna was deposited in the bank. 000.
na cashbook.
hand and cash at bank as at 31.03.2OXX.
ibution

Page 24
1.2 Preparation of
volume of transactions which have Small record them in the main cash book and to in a proper manner. If these transactions very complex and difficult to control
Therefore, the business can maintain a prime entry books to record petty casht
The prime entry book that is maintaine with Small values can simply be identifi
The voucher is used to record the pett business is maintained by the petty cashi
Petty cash imprest syst
The petty cash imprest system is general business. Under this system, a certainam petty cashier to make the petty cash pa period, the main cash owner will reimbu
The value of the petty cash imprest (pett the business and the Volume of transacti
Reimbursement of pett
The petty cashier is required to provide payments made by him. He should hanc cash owner during the period to receive main cash owner. This process is knowr When reimbursing, the amount of money to the main cash book.
14 SS For fre
 

Petty Cash Book
from small amounts to larger amounts. If the
values are very high, it is practically difficult to maintain the main cash book of the business are recorded in the main cash book, it will be the cash transactions in a systematic Way. "Petty Cash Book" which is one of the ransactions.
dby the business to record the transactions ed as the "Petty Cash Book".
y cash payments. The petty cash book in a
CT.
e
ly used to control petty cash transactions in a lount is granted by the main cash owner to the yments during the period. At the end of the Irse the amount spent by the petty cashier.
y cash float) mainly depends on the nature of ons done by the business.
cash imprest
petty cash Vouchers to prove the petty cash loverall the petty cash Vouchers to the main the amount which was spent by him from the
as petty cash imprest reimbursement.
is debited to the petty cash book and credited
SS e distribution

Page 25
Example:-
Petty cash imprest for the period Petty cash payments for the peri Petty cash balance with the petty Reimbursed amount by the main Petty cash imprest after reimbur
Preparation of Analysis Column
There can be various types of petty cash pay are classified under analysis column enter headings.
It is important to pay your attention to the foi ing the analysis column inapetty cashbook.
Enter the similar category of transac
Example : Stamp expenses, lett etc. can be analysed
If the petty cash payments cannotb are not similar category payments, S analysis column of "Sundry Expel
The payments made to organization
charges and acquisition of non-curr 来
Account" column.
Following is a format of a petty cash book.
Petty cas
Vo. Amount
- L. Receipts Date Description
SS For free dist
 

)d = 1,050 cashier = 450 cashier = 1,050 Sement F 1500
ments in a business. These transactions ing equal nature payments under each
lowing points in deciding and maintain
tions to the relevantanalysis columns.
er registration charges, telegram charges under the analysis column of Postage.
2 analysed to a separate heading as they uch expenses can be recorded under the
nses."
Sandpersons, carriage inwards, loading ent assets are recorded in the "Ledger
h book
Analysis column Ledger Ledger
mmmmmmmmmmmmmmmmmmmmmmmmmmmmm . 15 ribution

Page 26
Let us study the following example anc tained by an organization.
Example : Following is a summa Business during them
Date Vou. Description
No.
O1.02.2OXX Receipt of imprest 06.02.20XX01 Telegram charges O8.02.20XXI O2 Purchase of ribbon f 12.02.20XX 03 Salary advances to I 14.02.20XX 04 Purchase of stamps 18.02.20XX 05 Purchase of stationer 19.02.20XX| 06 Purchase of sugarar 20.02.20XX 07 Carriage inwards of 21.02.20XX 08 Purchase of cool dril
24.02.20XX 09 Purchase of flower v. 27.02.20XX || 10 || Letter registration ch Ο1.03.2OXX Reimbursement ofp.
Using above information, the petty cash pared as follows.
16
For free

identify how the petty cash book is main
y of petty cash transactions of Sagari's
Dnth of February 20xx.
Amount RS.
3,000
120
or the type Writer 140 Perera 1,000
184
у 218 ld tea leaves 103 goods 250 nks 18O
ase for the office 210 arges 90 etty cash imprest
book of Sagari's Business has been pre
SS
distribution

Page 27
Sagari's Busi
Petty Cash B
eceipt L. Date Description V. F. N.
2OXX 3,000 01.02 Cash (Imprest)
06.02 Telegrams O1 O8.02 Ribbon for the type writer 02 12.02 Salary advances (Perera) 03 14.02 Stamps O4 18.02 Stationery 05 19.02 Sugar and tea leaves O6 2002|Carringinwards O7 21.02 Cool drinks O8 24.02 Purchase a flower Vase O9 27.02 || Letter registration 1O
28.02 Balance c/d
3,000
505 28.02 Balance b/d 2,495 || 01.03 Cash (reimbursement)
The transactions recorded in the petty cash
shown below.
Debit Stationer
- - L. Amount
t Date || Description F. RS.
28.02.XX Petty cash 358
Postage Debit
Date Description L. Amount
RS.
28.02.xx Petty cash 394
For free dist

eSS
bok
ImOUnt
Analysis
tatio
ery
Postage
Enter.
Sundry
Ledger L. Acc. P.
120
140
1,000
184
218
103
250
18O
210
140
218
12O
184
90
103
18O
210
1,000
250
358
394
283
210
1,250
L.F.
L.F.
L.F.
L.F.
L.F.
1 book can be posted to the ledger as
y Account Credit Date Description Aဖူunt
Account -
Credit
Date || Description L. Amount
F. RS.
LSLSSS00 ribution

Page 28
Debit Entertainr
L. Amount Date || Description || F. RS.
28.02.XX, Petty cash 283
Debit Sundry E.
- - L. Amount D t Date || Description F RS.
28.02.xx Petty cash 210
Debit Salary Ad
L. Amount Date || Description F. RS.
12.02.xx Petty cash 1,000
Debit Carriage I Date || Description L. Amount
F. RS.
2002.XX, Petty cash 250
00SSL
For free

ment Account Credit
L. Amount Date || Description || F. RS.
Kpenses Account Credit
L. Amount Date || Description F. RS.
Vances Account Credit
L. Amount Date Description F. RS.
inwards Account Credit
L. Amount Date || Description F. RS.
SLLLS distribution

Page 29
Based on the information discussed on the identified the advantages of maintainingap
Some of the advantages are mentioned belc Minimizes the practical difficu Identifies the details of the pett Maintains petty cash transaction Controls petty cash transaction Reduces the duties of main cas
★
★
Activity 03
Assume that you are the petty cashier of Sa The petty cash imprest of the business is Rs
reimbursed at the beginning of every month.
Copy down the following table in your exer
Date Transactions
2OXX
03.01 - - - - - - - - - - - - - - - - - - - - - -
07.01 - - - - - - - - - - - - - - - - - - - - - -
11.01 - - - - - - - - - - - - - - - - - - - - - -
14.01 - - - - - - - - - - - - - - - - - - - - - -
16.01 - - - - - - - - - - - - - - - - - - - - - -
17.01 - - - - - - - - - - - - - - - - - - - - - -
19.01 - - - - - - - - - - - - - - - - - - - - - -
22.01 - - - - - - - - - - - - - - - - - - - - - -
25.01 - - - - - - - - - - - - - - - - - - - - - -
28.01 - - - - - - - - - - - - - - - - - - - - - -
Required:
(1) Write down the transaction headings of analysis colun (2) Prepare the petty cash boC (3) Post the petty cash transac
For free dis
 

betty cash book, you may have already etty cashbook.
W. ties in maintaining the main cash book y cash transactions
is efficiently
in an effective manner
nier
mpath's Business.
2,000 and petty cash payments are
cise book.
Analysis columns / Ledger Account
SS Postage SS Travelling SSSSSSSSSSS Sundry expenses SS Ledger Account SS Stationery SS Travelling SS Postage SS Ledger Account SSSSS Stationery SSSS SSSSSSS Sundry expenses
s with values that are suitable for each in and ledger accounts. kfor the month of January 20xx. tions to the general ledger.
SS 19 tribution

Page 30


Page 31
Invoice
Two participants namely buyer and seller invo shows the details of the transaction taken pl
The document issued by the seller to the the transaction can be defined as an Inv
An invoice can be defined from both buyer parties involve in the same transaction.
★ From the buyer's (the party who bol
"Purchases Invoice'.
★ From the seller's (the party who sol
'Sales Invoice'.
Accordingly, the purchases invoice is used a transactions in a purchases journal.
In abusiness organization where a large num the Goods Received Notes (GRNs) prepared from the supplier. In this situation, purchases and therefore, a separate column has to be record the GRNS numbers.
Using following example, We Will study what
Example : Following invoice has been on the Purchases Order sen
SS
For free dist
 

lve inapurchase transaction..The invoice ace between the buyer and the seller.
buyer including all the details of oice
S and Seller's point of view as those two
light the goods) point of view, it is called
d the goods) point of view it is called
is the source document in recording the
ber of credit purchase transactions occur, by the buyer based on the items received journal can be prepared using the GRNs maintained in the purchases journal to
tis included in an invoice.
prepared by Arunalu (Pvt) Limited, based tby Kandaiah Traders.
ibution

Page 32
Invoice Arunalu (Pvt) Lil NO. 5435 No. 90, Raja We
TP 081-2235116 Manager.
Kandaiah Traders,
Serial No. Description Quant
O1 Sugar 20 kgs O2 Dhal 18 kgs O3 Flour 35 kgs O4 Rice 50 kg
(102-Discount)
All the cheques should be written in favo Sales conditions: 5% 40 Net. 90
Sales conditions: 5 % 40 Net. 90
This means the net invoice value should amount is settled within 40 days, 5% dis ASimpleformat ofpurchasesjournalma
Purchases Jour
Date Supplier
(01) (02)
22
For free
 

mited >ediya, Katugastota
10.12.20XX
ity Unit Price Total Value (Rs)
S. RS. 55.00 1,100.00 5. RS.160.00 2,880.00 S. RS. 70.00 2,450.00 S. RS. 65.00 3,250.00 9,680.00
968. OO
8,712.00
ur of Arunalu (Pvt) Limited and crossed.
Jayanath Weerasuriya
Manager
be settled within 90 days and, if the relevant count is given by the seller. intained by an organization is given below.
nal
Value Ledger RS. Page
(O3) (04)
SS : distribution

Page 33
(1) The date as per the invoice.
(2) The name of the person or the organiza
(3) Net invoice value (after deducting the ti
(4) The ledger page number on which the S
maintained.
Now, letus study how the purchases journal example.
Example: Following purchases invoices
clerk of Ashani Book Shop.
Invoice Anandan Cor
NO : 131 No. 186, Mai
Matale.
Manager ----
Ashani Bookshop,
Medagame.
Serial Description Quantity NO.
O1 Ballpoint Pens 30 DOZel O2 CR Books 05 DOZel
(102-Discount)
SS For free dist

tion by which the goods were supplied.
rade discount)
upplier's personal account is
is prepared using the following
have been provided by the accounts
mpany in Street,
O5.01.2OXX
Unit Price Total Value
RS.
ni RS.145.00 4,350.00 ni Rs. 1,200.00 6,000.00 10,350.00
1,035.00
9,315.00
Anandan
Manager.
23
ribution

Page 34
Invoice Prasanna CC
NO : 567 No. 15, Wa
Akurana.
Manager,
Ashani Bookshop,
Medagame
Serial Description Quanti
No.
01 Mathematical Boxes 20 02 Ink bottles 10
Invoice Cader Stor
NO : 883 No. 764, D
Arangala.
Manager,
Ashani Bookshop,
Medagame.
Serial Description Quanti
No.
01 Drawing Books |10 Doz 02 || Single Rules Books || 12 Doz
(102 - Discount)
-—
00SSLLS For free

ompany |ttegama Road,
15.01.2OXX
ity Unit Price Total Value
(Rs...)
Rs.1.20.00 2,400.00
RS.45,00 450.00
2,850.00
Prasanna Silva
Manager.
CS igana Road,
25.01.20XX
ty Unit Price Total Value
(Rs...)
em RS.480.00 4,800.00 'en Rs.300.00 3,600.00
8,400.00
840.00
· || 7,560.00
Cader Gamage
Manager.
SS
distribution

Page 35
Based on the above invoices, the purchases Ashani Book Sho Purchases journal
Date Supplier 05.01.20XX. Anandan Company (In.No 15.01.20XX Prasanna Company (In.No. 25.01.20XX. Cader Stores (In. No.
31.01.20XX Debited to Purchases Acc
Posting the purchases journal to
The transactions recorded in the purchase posted to the ledger under the double entry
The net value mentioned in the invoice is cre account on the invoiced date. (As the credit recorded in the credit side of the creditor's a
The total of the purchases journal is debited month. (As purchase is an expense to the account.)
Study the following ledger accounts and ur been posted to the ledger.
Debit Anandan Com
D D - - L. Amount ate eScription F. RS.
SS For free dist

journal can be prepared as follows.
p
Total Value Rs. Ledger
Page
131) 9,315.00
567) 2,850.00
883) 7,560.00
:Ount 19,725.00
the ledger
Sjournal as a prime entry book can be System.
dited to the relevant supplier's (creditor's) ors are liabilities, increase in creditors is ccount).
to the purchases account at the end of the
business, it is debited to the purchases
lderstand how the purchases journal has
pany Credit
D D L. Amount ate eScription F. RS.
5.01.xx Purchases 9,315
Account
LSLSS 25 ribution

Page 36
Prasann:
Debit L. I Am
- unt Date Description F R
Debit Cader S1
- - Amount Date Description Ρ RS.
Debit Purchase L. Amount Date Description F. RS.
31.01.XXI Creditors Account 1972.
Activity 04
Following transactions have taken place required to identify the transactions whic
漩
26
Credit purchases 100 kgs of pot Acquisition of electronic balanc Cash purchases of 80 kgs of dh. Credit purchases of 03 calculato
Company.
Cash purchases of 10 dozens of Credit purchases of 100 packets
For free

a & Company Credit
- L. Amount
Date Description P. RS.
15.01.XXI Purchases Account 2,850
tOres Credit
D D - - L. Amount
ate escription F. RS.
2501.XXI Purchases Account 7,560
S Account Credit
Dat D inbti L. Amount
2a UIC escription F. RS.
5
ബ
in Anurasiri's wholesale business. You are
chare recorded in a Purchases Journal.
atoes each kg. at Rs.80 from Prasanna. e worth of Rs.10,000. al each kg. at Rs.120 rs each at Rs. 350 from Dinapala
salmontins each dozen at Rs.1.200
of Salt each at Rs.50 from Prasanna.
: distribution

Page 37
05 Activity ܘܠ
One of your friends has provided following in invoice. He requires your responses to follow
Date : 0 1.09.2OXX Value . Rs... 10.000.00 Sales conditions : 5%, 30 Net. 60
1. What is the last date on Which the inv 2. What is the Value of discount receive
20.09.20XX'?
Activity 06
Following creditpurchases details were prov 05.01.20XX Invoice No. 24 purchases 200 fruit drink bottles each . 250 milk bottles each at RS. Trade discount 10%. 20.01.20xx Invoice No.03 purchases
100 packets of sweets each 70 packets of biscuits each: Trade di SCOunt:5%.
Using above information, prepare the purcha month of January and post them to the ledger
Returns Outwards Journal (Purc.
Items purchased for re-sale purposes may be
sonable time period due to various reasons. Fo
to return the items purchased for re-sale purp * Receiptofitems which were not orde 3. Receipts of broken, damaged or expi 3. Changes of prices.
SS For free distril
 

formation extracted from a purchase ing questions.
oice value should be settled 2 d, if the invoice was settled on
ided by Sajani's Business s from Priyani's business at Rs.100
250
from Mohomed's Business at RS50 at RS60
ses journal of Sajani's Business forthe
hases Returns Journal)
: returned to the suppliers within a reallowings are few reasons for a business boses on credit basis. ared by the business.
reditems.
27 bution

Page 38
% Receipt of low quality items.
* Receipts of items after the orde The details of items returned by the but book.
The prime entry bookin which thei purchased on creditfor re-sale is th
Debit Note
The source document used to record th is the debit note.
Creditors in a business increase due to from them are returned, the liability will the liability account is debited and there NOfte."
You can identify the contents of a debit
Example: The debit note for the
Ajith Traders is givenb
Debit Note Nayanaj NO : 1020 No. 20, Ampara Manager, AjithTraders, Raja Mawatha,
Returning the purchased goods O
Serial Quantity Descrip No.
01 10 Salmon Ti O2 05 Milk Bottl
Amount debited to your
Products returned as they were expi
28 mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
FOr fr
 

ared period. siness should be recorded in a separate
Information on returned items that were e returns outwards journal.
e transactions in the returns outwards journal
} credit purchases and if the items purchased ldecrease. To show the decrease of a liability, fore, the Source document is known as "Debit
note by Studying the following example.
items returned by Nayanajith Company to elow.
ith Company Medagana
20XX.12.25
in 18.12.20XX under Invoice No. 1415.
tion Unit Price Total Value
RS. RS.
IS 13O 1,300.00 les 160 8OOOO
aCCOunt 2,100.00
Nayanajith Bandara
red. ------------------------
Manager.
SS ee distribution

Page 39
Following is a format of a returns outwardsj
Returns Outwa
Date Debit Note Supplier
No.
(O1) (02) (03)
(O1) Date which is mentioned in (O2) Pre-printed number in the d (03) Name of the supplier to wh (04) Net Value as it appears in th (05) Page number on which the l
maintained.
Now, letus study how the transactions are r using following example.
Example:
Reconsider the credit purcha We discussed under the purch the items returned to supplie
of Ashani Book Shop.
Debit
Date Note NO Supplier Items
08.01.20XX|| 236 || Anandan Ball Company CR ] (Les (Du
18.01.20xx 237 Prasanna Mat Company each pre
28.01.20xx| 238 || Cader Stores || Dra' Sing RS.3 (Les (Du
For free dist

Ournal. rds Journal
Total Value Ledger
RS. Page
(04) (05)
he debit note ebit note to be sent to the supplier. »m the goods are returned. e debit note.
2dger account of the relevant supplier is
2corded in the returns outwards journal
ises details of Ashani Book Shop which hases journal. Following information on 'rs was provided by the accounts clerk
; returned
point pens -30 dozens each at Rs. 145 BookS-02 dozens each at Rs.1.200 s: Trade discount 10%) 2 to a different brand)
hematical Instruments Box-08 Boxes 1 at Rs. 120 (Due to the change of the agreed price)
wing Books- 05 dozens each at Rs.480 tle Rule Books -03 dozens each at OO
S. Trade discount 10% eto low quality)
mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm : 29 ibution

Page 40
Following returns outwards journal has provided by Ashani Book Shop.
Ashani Bool
Returns Outwal Date Debit Sup)
Note NO
Ο8.01.2OXX 236 Anandan Com
18.01.2OXX 237 Prasanna Com 28.01.2OXX 238 Cader Stores
31.01.20XX. Credited to returns
Posting the returns outwards
The transactions recorded in the purch postedto the ledger under the doublee
The net value mentioned in the debit no (creditor’s) account on the debit note di in creditors is recorded in the debit side
The total of the returns outwards journa at the end of the month.
Study the following ledger accounts an returns journal has been posted to the le
Debit Anandan ( - - L. Amour | Date | Description F. Rs.
08.01 XX|| Returns outwards acc. || 3,465
0SS For fre

been prepared using above information
Shop "ds Journal
Total Value Ledger
blier
RS. Page
pany 3,465
pany 96.O
2,970
Outwards account 7,395
journal to the ledger
ases journal as a prime entry book can be ntry system.
te is debited to the relevant Supplier's ate. (As the creditors are liabilities, decrease ; of the creditor's account)
lis credited to the returns outwards account
dunderstand how the records of purchases 2dger.
Company Credit
it n L. Amount | Date || Description F. RS.
ܐܝ
05.01.XXI Purchases account 9,315
SS e distribution

Page 41
Debit Prasanna &
- - L Amount Date Description F. RS.
18.01.XXI Returns outwards 960 1
Debit Carder Stora
- - L. Amount Date Description F RS.
28.01.XXReturns outwards 2,970 2
Debit Returns OutW.
L. Amount
Date Description F. RS.
Activity 07
Following information was extracted from
Saranapala. O8.03.20XX. Returned to Kamal under D expiry date.
12 kgs ofgreengr
15 kgs ofdhaleac
28 032OXX Returned to Perera under
expiry date .
10 bottles of jam
10 tins of cheese :
He requires you to record the above inform prepare the ledger accounts.
SS For free dis

Company Credit
- - L Amount Date Description . Rs.
5.01.XXI Purchases account 2,850
S Credit
Amount
Date || Description RS.
501.XXI Purchases account 7,560
ards Account Credit
Amount
L. Date Description F. RS.
$1.01.XXI Creditors account 7,395
a letter sent by one of your friends called
Debit Note No. 680 due to exceed of
am each at Rs. 160 in at RS 270 Debit Note No. 681 due to exceed of
ach at RS. 210 ach at RS. 350 nation in a returns outwards journal and
31 tribution

Page 42
14 Maintaining ther
items
One of the main functions of abusiness Ol Various types of sales in a business.
Following is an example for Sales which c
Example: Below mentioned sales deta
carrying Out a canteen.
(1) Cash sales of Sweetmeats amoun (2) Credit sales of a type Writer Wort (3) Credit sales of 20 lunch packets (4) Cash sales of 25 cool drink bottl
If you study the above transactions, you w 3 are credit sales.
Sales Journal
The prime entry book in which the detai purchased for re-sale purposes are record
According to the above definition, you transactions are not recorded in the salesj
above, only the transaction number 3 is re
Although, the transaction number 2 has be had been purchased for re-sale.
The sales invoice is used to record the trar
A simple format of a sales journal maintair
00 SS For free C
 
 

cords on credit sales of "nde
ganization is selling goods. There may be
an be seen in a business entity.
ils were provided by Nuwan who is
ing to Rs. 2,000 h of Rs... 5.000 to Silva & Company each at Rs.200 to Janaka
es each at RS. 30
fill understand that the transactions, 2 and
ls of credit Sales of items which had been led is the sales journal.
can understand that all the credit Sales Ournal. Out of four transactions mentioned
corded in the sales journal.
en made on credit, it was not an item which
sactions in the sales journal.
led by an organization is given below.
SS istribution

Page 43
Sales Jour
Date
Invoice
No.
Customer
(O1)
(O2)
(03)
(01) The date as per the invoice (02) Number mentioned in the invoice is (03) The name of the person or the orga (04) Net value of the invoice (05) The ledger page number on whicht
maintained.
Now, we will study how the sales journal is pr
Example:
Following sales invoices havi of Chaturanga Sweet House
Invoice
No : 1003
Manager, Kamal Sweet House,
Serial Description Quantity
No.
O1
O2
Toffee Puhul Dosi
Chaturangas No. 120, Crc Gampaha.
Packet 40 Packet 08
For free distrib

al
Total
Ledger
Value Rs. Page
(04)
(05)
Sued to the customer
nization to whom the goods were sold
he customer's personal account is
epared using the following example.
e been provided by the accounts clerk for the month of February 20xx.
Sweet House )SS Street,
O9.02.20XX
Unit Price Total Value
RS.
RS.200.00 8,000 Rs.250.00 2,000 10,000
Sugath Silva
Manager.
SLS S S0
ution

Page 44
Invoice Chaturar
NO : 1004 No. 12C
Gampah
Manager, Anura Perera Company, Maharagama.
Serial Description Quant No.
O1 Thala Guli Packe O2 MarshmalloWS Packe
(10%-Discount)
Invoice Chaturar
NO : 1005 No. 120, Gampahi
Manager.
Kandan Grocery,
Batticaloa
Serial Description Quanti No. 1
O1 Jam (Bottles) O2 Cheese (Tins)
25
2O
(52-Discount)
Based on the above invoices, th
00SSL For fre

nga Sweet House ), Cross Street,
а.
ity Unit Price
t 30 RS. 400 t 20 RS. 300
nga Sweet House
Cross Street,
a.
ity Unit Price
RS 100.00
RS 285.00
18.02.20XX
Total Value
RS.
12,000
6,000
18,000 1,800 16,200
Sugath Silva
Manager.
25.02.2OXX
Total Value
RS.
2,500
5,700
8,200
410
7,790
Sugath Silva
Manager.
he sales journal can be prepared as follows.
:e distribution

Page 45
Chathuranga Sweet Sales Journal
Date
Invoice
No.
Cu
O9.02.2OXX 1003
Kamal Sweet
18.02.20XX 1004 Anura Perera
25.02.2OXX 1005 Kandan Groc
28.02.2OXX Credited to sa
Posting the sales journal to the ledger The transactions recorded in the sales journ the ledger under the double entry system.
兼
The net value mentioned in the invo (debtors) account on the invoice da debtors is recorded in the debit side
At the end of the relevant month, the ited to the sales account.(increasing
Study the following ledger accounts and un
posted to the ledger.
Debit Kamal Sweet H
L. Amount Pate || Description || F. || RS.
09.02.XX, Sales Account 10,000
Debit Anura Perera &
L. Amount Date Description F. Rs.
18.02.XX Sales Account 16,200
For free dist

thouse
Total Ledger
StOmer Value (Rs.) Page
House 10,000 Company 16,200 :ery 7,790
les account 33,990
all as a prime entry book can be posted to
ice is debited to the relevant customer's te. (As the debtors are assets, increase in
} of the debtor's account)
: total amount of the sales journal is cred
income is recorded in the credit side)
lderstand how the sales journal has been
Ouse Credit
L. Amount Date Description FRs.
Company Credit
L. Amount Date Description FRs.
LSLS S S 00
ribution

Page 46
Debit Kandan (
L. Amount Date Description F. Rs.
25.02.xx Sales Account 7,79.
Debit Sales AC
- - L. Date Description P. Anon
Activity 08
Following credit sales details were provid March 20XX.
Invoice No. 25 S 100 Skirts each 50 Trousers eac Trade di Scount :
14.03.2OXX Invoice No.26 S. 50 Shirts each a 30 Bed Sheet S ea Trade di SCOunt 1
Using above information, prepare the sa month of March and post them to the led
Returns inwards Journal (Sal Items sold may be returned by the custom to various reasons. These reasons Wereal journal.
The prime entry bookin which the infor On Credit is recorded can be identified as
36
For free
 
 

Grocery Credit
L Amount Date || Description F. RS.
O
:COunt Credit Date || Description 'Amount
F. RS.
28.02.XX|Debtors Account 33,990
led by Minoli's business for the month of
ales to Sanjula at RS500
at Rs. 200
5%.
ales to Sachiththra
RS. 800 ach at RS.300
O%.
les journal of Minoli's Business forthe
CI.
es Returns Journal) hers within a reasonable time period due ready discussed under returns outwards
nation on returned items that were sold the returns inwards journal.
SS
distribution

Page 47
Credit Note
The Source document used to record the tra nal is the credit note.
Debtors in a business increase due to cred turned, the debtors (assets) will decrease. T asset account is credited and therefore, the Note.
You can identify the contents of a credit not
Example: The Credit Note for the iten
by Janahitha & Company is Credit Note Dhawalagiri B NO .2615 No : 30, Tangal Dikwella
Manager, Janahitha Company, Hakmana Returning of goods purchased on 10. serial Quantity Descripti No.
O1 10 kgs Dried Fish Tu O2 10 kgs Dried Sprats
Deduct-Discount 5% Amount credited to your acco
Returned due to obsolecence of stocks
SS For free dist
 

nsactions inthe returns inwards jour
lit sales and if the items sold are reso show the decrease of an asset, the Source document is known as Credit
eby studying the following.
ns returned to Dhawalagiri Business
given below.
usiness le Road,
l. 15.12.2OXX
12.20XX under the Invoice No. 1236
on Unit price Total value
RS. RS. La 420 4,200
120 1,200
5,400
270
Dunt. 5,130
Madava éramage
SS00 ribution

Page 48
Following is a format of a returns inwards
Returns Inw:
Credit Note
Date
NO Custom
(O1) (O2) (03)
(O1) Date which was mentioned
(O2) Pre-printed number of the c.
(03) Name of the customer by W
(04) Net value as it appears in th
(05) Page number on which the li
maintained.
Now, let us study how the transactions ar using the following example.
Example :- Recollect the credit sales de was discussed under the Sales items returned by the custon
Credit
Customer Date Note NO.
10.02.20xx. 176 Kamal Sweet
House
22.02.20xx || 378 ||Anura Perera
Company
38
For free
 
 

journal.
ards Journal
Total Ledger eΙ' Value Rs. Page
(04) (05)
in the credit note.
redit note sent by the customer. hom the goods were returned. e credit note. edger account of the relevant customer is
e recorded in the returns inwards journal
tails of Chathuranga Sweet House which journal. Following information on the ners were provided by the Book-Keeper.
Returned goods
10 packets of Toffees at Rs.200 each. 03 packets ofpuhul Dosi – each packet at RS. 250 (Due to exceed of expiry date) 15 packets of Thalaguli – at Rs. 400 each 10 packets of Mashmellows – at Rs.300 each
(Less: 10% Trade Discount) Due To Receipts of exccesss items)
distribution

Page 49
27.02.20XX
567
Kandan Grocery || 0;
Following returns inwards journal has beenp
Chathuranga S Returns Inwar
Date Credit
NoteNo Custom 10.02.20XX 176 Kamal Sweet House 22.02.2OXXI 177 Anura Perera Compa
27.02.2OXXI 178 Kandan Grocery
28.02.20XX Debited to Return Inwa
Posting the returns inwards jour
The transactions recorded in the returns inw under double entry system.
The net value mentioned in the cred customer's (debtor's) account (To
credited.)
• The totalofthe returns inwards jour acCOunt.
Kamal SV
Debit
- - L. Amount Date Description F. RS. D
09.02.XX| Sales Account 10,000 10.(
For free distri

5 Jam bottles each at Rs. 100 ) Cheese tins each at Rs.285 Less: Trade discount 5%) Due to low quality)
Drepared using the above information. weet House
ds Journal
Total Ledger erS Value Rs. Page
2,750 any 8, 100
5,890
rds Account 16,740
hal to the ledger
ards journal can be posted to the ledger
it note is credited to the relevant show the decrease of an asset, it is
nal is debited to the returns inwards
Weet House
Credit L Amount Date Description F. RS.
)2.XXReturns Inwards 2,750
SLLSSS 00 Lbution

Page 50
Debit Anura Pere
- - L. Amount Date Description F. RS.
18.02.XX. Sales Account 16,20
Debit Kandan Gl
L. Amoun
Date Description F. RS.
25.02.XX. Sales Account 7.7
Debit Returns Inv
L. Amoun
Date Description F. RS.
28.02.XXI Debtors Account 16,74
Activity 09
Following returns inwards details were of December 20XX.
12. Dec. 20XX. Goods returned by M. 50 Tins Of Cann
20 bottles Of Vir
Trade diSCOunt (Due to receipts of item
Using above information, prepare there December and post them to the ledger.
40 SS For fre

era Company Credit
L. Amount Date || Description || F. RS.
O 22O2.XX Returns Inwards 8, 100
rocery Credit
t L. Amount
Date || Description || F. RS.
90. 27.02XX. Returns Inwards 5,890
Vards Account Credit
t L. Amount
Date || Description P. RS.
provided by Kithsiri's Business for the month
adura & Company under credit note No. 80 led fish each at Rs.50
legar, each at Rs.40 deducted. When the items were sold 10% s that were not ordered by the Business)
turns inwardjournal for the month of
e distribution

Page 51
Activity 10
Following details of the credit sales the month of March 20XX.
Date Customer InV
04.03.20XX Kamal 201
15.03.20xx Majeed 201
26.03.20XX. Kumudan 201:
Using the above information prepare the sale
O Following returns inwards details we
the month of March 20XX.
Date Customer Credit Not
O8.03.20xx Kamal 123
18.03.20xx Majeed 124
29.03.20XX. Kumudan 125
Using the above information, prepare the retu aCCOuntS.
Activity 11
1. 10 Sarees each at Rs. 900 and 20 shirts
Fashi On HOu.Se tO Janaka Fashi On HOuSe trade discount.
2. 02 sarees and 05 shirts were returned by
due to quality issues.
You are required to:
(O1) Prime entry books andledger acc
House to record the above trans (02) Prime entry books andledger acc House to record the above transa
For free distri
 
 

were provided by Perera's Business for
lice No. Amount (Rs) 5 8,520.00
7. 12,700.00
6,750.00
Sjournal.
reapplicable for Perera's Business for
No. Amount (Rs)
2,560.00 3,670.00 1987.00
Irns inwards journal andledger
each at Rs.800 were sold by Apsara 2 on 01.04.20xx deducting a 10%
Janaka Fashion House in 06.04, 20XX.
sounts maintained by Apsara Fashion ctions. sounts maintained by Janaka Fashion Ictions.

Page 52
彦 1.5 Maintaining
You have clearly understood how the tra
and how they are posted to the ledgerac
mentioned below for your attention.
Cash book Petty cash book Purchases journal Returns outwards journal Sales journal Returns inwards journal
There can be some transactions in abus special journals. Consider the following
(01) Purchase of a machine fror
Business.
(02) Credit sale of a typewriteru value of Rs. 15,000
The prime entry book used to record: in any of the other prime entry book
Following transactions are generally rec
Opening entries. Purchase offixed assets on cred Adjusting entries.
• Error correction entries Other entries (Closing entries, s
Following is a format of ageneral journ:
Genel
Voucher Date -
NO. Descrip
(O1) (O2) (03)
42
For fre

the General Journal
nsactions are recorded in the special journals 'counts. Those prime entry books have been
iness which cannot be recorded in the above examples.
m Amila Limited on credit for the use of the
ised by the business to Silva Company at a
all the transactions which are not recorded scan be identified as the general journal.
:orded in a general journal.
dit.
sale offixed assets on credit)
al
ral Journal
L. Debit Credit t1On F. RS. RS.
) (04) (05) (06)
- e distribution

Page 53
(O1) Date on which the journale
(O2) Voucher number applicable
(03) Ledger accounts applicablet about the entry.
(04) Ledger page numbers in Wh
(05) Monetary value of the debit
(06) Monetary value of the credi
The source document used to record the trar journal Voucher.
Narration
After recording the debit and credit entry, a given. This is generally known as a "narrati of each entry.
Now, letus study few entries to be recorded
The entries on assets, liabilities and capitalt or opening a new set of books are known as
Example: A new set of books were ope Following are the assets, liab 01.01.20XX.
Motor vehicles Land and buildings Debtors — Amal Stocks Creditors - Kamal Cash
Capital
The opening journal entry prepared using the
For free distr
 
 
 

ntry is recorded. to the journal entry. othejournal entry and abrief description
ich relevantaccountsaremaintained. entry. tentry.
brief description on the entry should be on' and it should be provided at the end
in a general journal.
Obe recorded in starting a new business
opening entries.
ned in Piyumi's Business on 01.01.20XX. bilities and capital accounts balances as at
RS. 100,000 50,000 10,000 58,000 15,000 23,000 226,000
2 above information is as follows.
鱗綠》 43 ibution

Page 54
Piyum
Genera
Date Voucher
NO: Description
2OXXO1 Ol Motor Vehicles account
Land and buildings accol Debtors — Amalʼs accou1 Stock account Cash book
Creditors — Kama Capital account (Recording of opening as: and capital)
The transactions recorded in the generalj
Debit Motor Vehic
L. Amount
Date Description F. RS.
01.01.XX, Balance b/f 100,00(
Debit Land and Bu L. | Amol Date Description F RS.
01.01.XX, Balance b/f 50,
Debit Amal
L. | Amol Date Description F. RS
OLOXX Balance b/f 10,
000S SSSSLSS For free

's Business
l Journal
Debit Credit
Dr 100,000 unt Dr 50,000 ht Dr 10,000 Dr 58,000 Dr 23,000 l's account 15,000 226,000 sets, liabilities 241,000 241,000
Ournal can be posted to the ledger as follows.
le Account Credit
L. Amount Date Description F. RS.
)
ilding Account Credit unt Ll Amount
Date Description F. Rs.
OOO
's A nt
CCOL Credit Lunt L. Amount
Date Description F. Rs.
OOO
鱗
distribution

Page 55
Debit Stocks Acc
L. Amount
Date || Description F. RS.
O101XX Balance b/f 58,000
Debit Cash Acco
L. Amount
Date || Description F RS.
01.01.XX Balance b/f 23,000
Debit Kamal's A
L. Amount
Date || Description F RS. I
O
Debit Capital Aca
L. Amount
Date || Description F. RS.
O1,
SS For free distr

Ount Credit
L. Amount Date || Description F. RS.
unt Credit
L. Amount Date || Description F. RS.
Account Credit
L. Amount Date || Description P. RS.
LO1.xX Balance b/f 15,000
Count Credit
L. Amount
Date || Description P. RS.
01.XX Balance b/f 226,000
ibution

Page 56
Purchase of fixed assets on credit
The items purchased on credit for long-te furniture and land and buildings are recc recorded in the ledger accounts. Example :- A typewriter was purcha on 01.02.20XX from Fern
The above transaction can be recorded in
Karunarathn Genera
Voucher
Date || N. Description
Ο1, Ο2.XX Typewriter account
Fernando & company
(Recording of purchase
from Fernando & Comp
The abovejournal entry has been posted
Debit Fernando & C
- - L. Amount Date Description F. RS.
Debit Typewrite
L. Date Description Amount
RS.
OlO2.XX. Fernando & Com. 15,50(
For free

rm use of the business Such as machineries, orded in the general journal before they are
sed on credit by Karunarathna & Company ando & Company amounting to Rs. 15.500.
n the general journal as shown below.
e & Company all journal
L. Debit Credit F. R.S. RS.
Dr 15,500
15,500 of a Typewriter any on credit)
to the generalledger as follows.
Dmpany Account Credit
L. Amount Date || Description F. RS.
01.02XX Typewriter account 15,500
*r ACCOunt Credit
L. Amount Date || Description F RS.
LLS
distribution

Page 57
Adjusting entries, error correction entries an coming chapters of this book.
Advantages of maintaining Prime Entry
Accounting process can be maintain The complexity of the ledger can ben The business transaction can be anal Accounting errors and omissions can Helps to prepare the financial statem
Activity 12
(a) Record following transactions in age (i) Opening a new set of bo
business.
Machineries Furniture Debtors - Ajith CreditorS - Amal Cash
(ii) Purchase of a motor Veh
a price of Rs. 150,000.
(iii) Purchase of a Motor veh of cash 250,000 and bal
(b) Post the journal entries to the ledger
13 Activity ܚܬ "س__
Prepare a booklet including the formats of documents of them.
SS For free distr

d closing entries will be discussed in the
Books ed up to date. minimized. yzed. be minimized.
entS.
neral journal. pks for the new accounting period of the
RS 25,000 10,600 20,500 15,000 26,000
cle on credit from Prasanna Limited at
icle worth of Rs.450,000 and payment ance was agreed to pay later.
aCCOUntS.
prime entry books and related source
47

Page 58
2 The Ledger and
Following themes are
| , - , . OSting transactions to
2.2 Balancing offledger a
2.3 Preparation of the tria
48
For free
 
 
 

the Trial Balance
discussed in this chapter.
otheledger.
distribution

Page 59
Introduction
The transactions which were recorded in pr are posted to the ledger accounts under the these accounts can be identified as the ledge As the changes of transactions are record summary of such transactions inaledger acco for a specific day, the trial balance is prepa transactions recordedunderthe double entri for the preparation of remaining accounting
Accordingly, the preparation of accounts and chapter.
Your attention is drawn ( chapter.
as Assets accounts Ali Ir
- Expenditure accounts 3: E.
- Liability accounts a B.
- Ledger T.
SS For free disti

me entry books using source documents ouble entry system. The collection of r. It includes various types of accounts. 2d in the ledger accounts we can see a unt. Using the balances of ledger accounts red to ensure the arithmetic accuracy of
system. The trial balance is very useful records in abusiness.
the trial balance Will be di SCuSSed in this
on the following basic terms in this
\COme aCCOUIntS
quity accounts
ancing offledger accounts
rial balance
LS 49 ibution

Page 60
2.1 Posting Transa
You have already studied that the sourc invoices, debit notes, credit notes) prov business. Based on these source docume letus study the next step of the accountin
After recording transactions in the prim. accounts according to double entry syste dual economic effect of a transaction. It in and it is recorded as debit and credit acc system. An account is an accepted format a certain period of time.
The place where all the accounts are inclu of accounts to record transactions in the kinds of accounts in the ledger.
These accounts can be classified as folloy
% ASSets accounts * Expenditure accounts * Liability accounts * Income accounts * Capital /Equity accounts
Income accounts
Expenditur
4്
Liability accounts
Capital account
Assets accounts
The way of
50 അ അ For free
 
 
 
 

tions to the Ledger . ܗ
e documents (such as receipts, Vouchers, ide us the information of transactions in a :nts, prime entry books are prepared. Now g proceSS.
2 entry books they should be entered in the m. The basis of the double entry system is a heans that each transaction has a dual effect ording to the principle of the double entry that summarizes the data of transactions of
dedis called the ledger. There are a number usiness and it is clear that there are various
WS.
e a CCOuntS Ledger
ܐܠܒܐ
forming the ledger
SS
distribution

Page 61
The resources that belong to abusiness can si in assets are recorded in "Assets Accounts.
Examples Building account
o Debtors account o Cash account Asset account has a "debit balance
Expenses should be incurred to generate the which the day to day expenses are recorded Expenditure account has a "debit balance.
Examples O Insurance account
o Salaries account
o Maintenance acco
The obligations for outside parties are known ties are recorded in liability accounts. Liabili
Examples o Creditors account o Bank loan accoun
Income Accounts
Income accounts are used to record the detail
various sources. Specially, the income gene
Services to the customers are recorded in thi
Examples o Sales Account
o Interest received a
o Rent received acc
o Discount received
Capital Accounts
The accounts which show the Values of the business can be identified as capital accounts
Capital account has a "credit' balance.
S S S S For free distr
 
 
 

mply be identified as assets. The changes
income of the business. The accounts in can be defined as expenditure accounts.
unt
as liabilities. The changes in such liability account has a "credit' balance.
t
s of income earned by the business from
rated from Selling goods and providing Saccount and it has a "credit balance.
CCOunt
Olunt
account
resources that belong to owners of the
51 bution

Page 62
Accordingly, you have already realized and the transactions recorded in prime double entry system.
Revise your knowledge on how the tra posted to the ledger.
2. As the cash book and petty cash effect is recorded in the ledger a in cash book and petty cash boc
3. The dual effect of transactions recorded in ledger accounts.
Let us study following example to revi which you have studied in Grade 10.
|Date l Transaction
01.0 lxx Introduction of capital Rs. 75,000
Purchase of office equipment worth Rs. 8,000 paying cash
04.01.xx
05.01.xx Payment of rent Rs. 1,500
07.01.XX Purchase of Rs, 24,000 goods unde
basis for re-sale.
12.01.XX Cash sales of goods Rs. 9,700'
14.01.XX Bank loan obtained Rs. 15,000
Cash
- - L. Amount Date || Description
FIRS.
01.01.20XX. Capital account 75,000 '?' Sales account 9,700
14.01.2OXX
Bank loan 15,000
a CCOunt
52 SS
For fre

that a ledger has various types of accounts. entry books are posted to the ledger under
sactions recorded in prime entry books are
book act as a ledger accounts, only one Ccounts out of the transactions recorded k.
ecorded in other prime entry books are
se your knowledge on double entry system
Debit account Credit account
Cash book Capital account
Of Office equipment Cash book
aCCOunt
Rent account Cash book
r cash Purchases account Cash book
Cash book Sales account
Cash book Bank loan account
Book
Date Description LAmount
RS.
04.01.20xx | Office equipment Ac. 8,000
05.01.20XX. Rent account 1,500
07.01.20XX Purchases account 24,000
SS 2 distribution

Page 63
Debit Capital Ac
L. Amount Date || Description F. RS. |Da
O1.O
Debit Office Equipment
L. Amount Date || Description F. RS. Dat
04.01.20XX. Cash 8,000
Debit Rent Account
- - L. Amount Date Description F. Rs. Dal
05.01.20XX. Cash 1,500
---
Debit Purchases Account
- - L. Amount Date Description F. Rs. Dat
07.01.20XX. Cash 24,000
Debit Bank Loan Account
L. Amount Date Description F. Rs. Dat
14.0)
For free distri

count Credit Amount te || Description . Rs.
1.20XX. Cash 75,000
Account Credit
Amount te Description RS.
Credit
- - . Amount te Description . Rs.
t Credit
- . Amount е Description . Rs.
Credit
. Amount C Description . RS.
1,20XX. Cash 15,OOO
SLSSLSLSSLSLSSLSSSSSS 00
ibution

Page 64
Debit Sales. A
L. Amount Date Description FRs.
22 Balancing 0 エ
After recording transactions in ledgerac of them should be calculated at the end This process is called balancing off the
Following three ledgeraccounts show fi
the month of March 20XX.
Debit Station
- - LAmount
Date Description FRs.
15.03.20XX. Cash 3,200
Debit Credit
L. Amount
Date Description F. Rs.
54
For fre

CCOunt Credit
Date - - L. Amount
Description F. Rs.
12.01.2OXX Cash 9,700
ff Ledger Accounts
counts, the balances of credit and debit sides of a certain period of time. edger accounts.
Vetransactions occurred in a business during
ery Account Credit
L AnnOUnt
Date Description F. Rs.
Drs Account Credit
L. Amount
Date Description F RS.
12.03.20XXI Purchases account 13,500
24.03.20XXPurchases account 9,200
S S S S S S S e distribution

Page 65
Debit Bank Loa
L. Amount D
Date Description F. Rs.
2003,20XX. Cash 2,000 O2.
Study how the above accounts have beenb
Debit Stationery
L. Amount Date Description F. Rs
15.03.20XX Cash 3,200
3,200
01.04.20xx. Balance b/f 3,200
Debit Creditors
L. Amount Date Description P. RS.
31.03.20XX Balance c/d 22,700
22,700
Debit Bank Loan
L. Amount Date Description Ε. R.S.
2003.2OXX Cash 2,000
31.03.20XX Balance C/d 23,000
25,000
Accordingly, understand how the ledgerac
transactions.
For free dist

Account Credit
ate - - L. Amount
Description F. R.S.
3.2OXX Oash 25,000
alanced as they are shown below.
Account Credit
Date D inpti LAmount
escription FRs.
31.03.20XX Balance c/d 3,200
3,200
Account Credit
Date - - L.Amount
Description
р F.R.S.
1203.20XXI Purchase A/C 13,500 20320 Purchase Asc 9,200
22,700
O1.04.20
XX Balance b/d 22,700
Account Credit Date Description L. Amount
р F. R.S.
02.03.20XX Cash 25,000
25,000 "Balance b/d 23,000
counts are balanced after recording the
SS
ibution
55

Page 66
ܚܬ Activity 01
Record the following transactions in the 20ΧΧ.01 3 1 .
05.01.20XX Introduction of 08.01.20XX Cash purchases 10.01.20XX Bank loans obta
15.01.20XX Cash Sales
20.01.20XX Cash purchases 30.01.20XX Paymentofsalar
O. 2.3 Tria Balan
A business prepares a statement includi end of certain accounting period. This S balances of assets and expenditure acco trial balance and the balances of income, the credit column of the trial balance.
If there are credit entries corresponding of the debit and credit column of the tr. emphasize that the trial balance is no
If the total of debit and credit column of there are no mathematical errorS in the ac
Now letus study how to prepare atrial
Following are the balances brought dow balancing the ledger accounts.
Purchases Sales Insurance Electricity Rates Furniture
56 SS For fres

ledger accounts and balance them as at
capital Rs 74,000 Rs 15.000
ned Rs 35,000 Rs 24,000 Rs 16,000
ies Rs. 5.000
ng all the balances ofledger accounts at the tatement is called as a "Trial Balance'. The unts are recorded in the debit column of the liabilities and equity accounts are recorded in
to the debit entries of the period, the total ial balance will be equal. It is important to t a ledger account. It is a statement only.
the trial balance are equal, it indicates that :counting System.
palance.
hby Sepala's Business as at 31.12.20XX after
RS. 25,000 110,000 4,000 3,000 1,000 45,000
S : distribution

Page 67
Discountallowed 3.0
DebtorS 15,0 Discount received 2.0 Bank loan 30,0 Bank loan interest 2.0 Commission received 6.0 Buildings 45,0 Lands 30,0 Creditors 25,0
The following trial balance has been prepare Sepala's Business as at 31.12.20xx
Sepalaʼs Bu
Trial Balance as at
Description
Purchases
Sales
Insurance
Electricity
Tax
Furniture
Discountallowed
Discount received
Bank loan
Bank loan interest Commission received
Buildings
Lands
Creditors
Debtors
-
For free distri

OO OO OO OO
OO OO OO OO
OO
dusing the above balances provided by
usiness
31.12.20XX
L. Debit P. RS.
25,000
4,000
3,000
1,000
45,000
3,000
2,000
45,000
30,000
15,000
173,000
bution
Credit
RS.
110,000
2,000
30,000
6,OOO
25,000
173,000
57

Page 68
Following merits can be obtaine
0.
The mathematical accuracy oft
Financial statements can be prej the ledger. (Trial balance is a Sul
The aggregate value of an item (
Total Va Total Va.
Eg ::-
Let us prepare a trial balance with ti
Following are the transactions e Lokuge who started the busines
09 January 10 January 14 January 15 January 19 January 22 January 24 January 25 January 27 January 29 January 30 January 31 January
Introduction ofc Purchase of offi Cash purchases Purchase of am Payment of insul Cash sales of go Bank loans obta Payment ofsalar Cash sales of go Payment ofbuild Cash purchases Cash drawings
Following cash book, ledger accounts an above transactions extracted from the Bl
58
For free
 

d by preparing a trial balance.
he accounting process can be ensured.
pared easily, as the trial balance summarizes mmarized statement of the ledger)
ran be identified quickly. lue ofdebtors lue ofcreditors
he transactions occurred in a business
xtracted from the books of Dayananda
S in January 20XX.
'apital Rs 125.000 ce equipment paying cash Rs 18,000 of goods Rs 45.000 otorbike paying Rs 50,000 rance charges Rs 1,500 ods Rs 30,000 ined Rs 40,000 ies Rs 8,000 ods Rs 24.000 ling rent Rs 3,500 of goods Rs 20,000
Rs 2,500
ld trial balance have been prepared using the usiness of Dayananda Lokuge.
隧。- : distribution

Page 69
Cas
Date Description |LAmount || Date
FRs.
09.01.20XX. Capital account 125,000 10.01.20X
22.01.20XX Sales account 30,000 14.01.20X
- - - - 15.01.20X 24.01.20XX Bank loan 40,000
aCCOunt 19.01.20X
27.01.2OXX
Sales account 24,00025.01.20x
29.01.2OX
30.01.2OX
31.01.2OX
31.01.20X
219,000
01.02.20XX Balance b/f 70,500
Debit Capital A
L. Amount Date - - In Ouln
Description F. Rs.
31.01.20XX Balance c/d 125,000
125,000
Debit Office Equipm
Date Description L. Amount
RS.
10.01.20XX Cash Book 18,000.
18,000
01.02.20xx Balance b/f 18,000
For free distri

h Book
Description L.Amount
Ε. RS.
XOffice equipment account 18,000
XPurchases account 45,000
& Motor Vehicles account 50,000 X Insurance charges account 15OO
XSalaries account 8,000 XBuilding rent account 3,500
XPurchases account 20,000
& Drawings account 2,500
K Balance c/d 70,500
219,000
CCOunt Credit Date L.
Description Amount
F. Rs.
09.01.20XX Cash Book 125,000
125,000
01.02.20XX Balance b/f 125,000
ment Account Credit
Date - - L.
Description Amount
F. Rs.
18,000
議 59
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Page 70
Debit Motor Vehi
D L. Amount
ate Description F. Rs.
15.01.20XX Cash Book 50,0C
50,0
01.02.20XX Balance b/f 50,00
Debit Purchases
L. Amount Date - -
Description F. Rs.
14.01.20XX Cash Book 45,00
30.01.20XX Cash Book 20,00
65,0(
01.02.2OXX Balance b/f 65,00
Debit Insurance Cl
L. Amount Date Description F. Rs.
19.01.20XX Cash Book 1,500
1,500
01.02.20XX Balance b/f 1,500
Debit Sales. A
Dat L. Amount
3LC Description F. Rs.
31.01.20XX Balance c/d 54,0(
540
60 鳢、魔
For free

cles Account Credit
Date Description L. Amount
F. RS.
)031.01.20XX Balance c/d 50,000
)0 50,000
DO
Account Credit
Date
Description L. Amount
F. Rs.
O 31.01.20XX Balance c/d 65,000
OO
DO 65,000
OO
harges Account Credit Date D inbti Amount
escription RS.
31.01.20XX Balance c/d 1,500
1,500
Account Credit
Date Descripti L. Amount
escription
F. Rs.
O0 22.01.20XX Cash Book 30,000
27.01.20XX Cash Book 24,000
00 54,000
01.02.20XX Balance b/f 54,000
distribution

Page 71
Debit Bank Loan A Date Description ∆mount
31.01.20XX Balance c/d 40,000
''
Debit Salaries
Date Description ဖွံmount
25.01.20XX Cash Book 8,000
8,000
01.02.20XX Balance b/f 8,000
Debit Building Date Description ဖြုံး(mount
29.01.20XX Cash Book 3,500
3,500
01.02,20XX Balance b/f 3,500
Debit Drawin
Date Description ဖွံmount
31.01.20XX Cash Book 2,500
01.02.20XX Balance b/f 2,500
For free dist

count Credit | Date Description . Amount
. RS.
24.01.20XX Cash Book 40,000
40,000
01.02.20XX Balance b/f 40,000
Account Credit
Date
Description . Amount
. RS.
31.01.20XX Balance c/d 8,000
8,000
Rent Account Credit Date
Description . Amount
. Rs.
31.01.20XX Balance c/d 3,500
3.500
s Account Credit Date Description Amount
F. Rs.
|31.01.20XX Balance c/d 2,500
2,500
mmmmmmmmmmmmmmmmmmmmmmmmmmmmmm 61
ribution

Page 72
Dayananda LC Trial Balance as :
Description
Cash book Capital account Office equipment account Motor Vehicles account Purchases account Insurance charges account Sales account Bank loan account Salaries account Bulding rent account Drawings account
ܝܬ Activity 02
Assume, you started a business and foll business duringa certain monthofits op
* Investment of capital 2 Arising of liabilities A Payments for expenses : Receipts of income % Purchase of assets ; Settlement of liabilities A Decrease in capital Required:
Write down transactions with va mentioned above. *** Prepare the cash book and ledig
identified by you. A Balance the ledger accounts as a Prepare the trial balance based O
62
For fres

kuge's Business
at 31st. January 20xx.
L. Debit Credit Ε RS. RS
70,500
125,000 18,000
50,000
65,000
1,500
54,000
40,000 8,000
3,500
2,500
219,000 219,000
Owing types of transactions occurred in the erations.
lues, that can be classified under each areas
er accounts for the transactions
ut the last date of the month. in the closing balances.
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Page 73
03 Activity ܘܬ
Following are the transactions extracted fron the month of January 20XX.
01.01 Introductinofcapital 02.01 Cash purchases 04.01. Opened a bank current account 06.01. Obtained a bank loan 08:01 Purchase of goods issuing a cheque 10.01 Cash deposited in the bank 11.01 Cash purchases 13.01 Credit sales to Gunapala (Invoice 15.01 Credit sales to Karunapala (Invoice 20.01 Purchase of equipinent 23.01 Gunapala sent a cheque amounting F 26.01 Cheque sent by Gunapala was depo, 29.01 Payment of bank loan interest 30.01 Payment of bank loan instalment 31.01 Paveen Paid RS.3,000; discountsall
Required:
Using above transactions,
(a)(i) Prepare prime entry books.
(ii) Post the transactions to the ledger. (iii) Prepare the trial balance as at 31.0
(b) Classify the ledger accounts in the trial
(c) State whether there are creditor debitt
fied by you.
SS For free distri

in the books of Sirimal's Business during
RS.
45,000
12,000
15,000
75,000
13,000
20,000
16,000 No. 01) 10,000 No. 02) 7,000 20,000 Rs. 9.800 to settle his account sited in the bank
5OO
2,000 Wed to him Was Rs.200
1.20XX.
balance prepared by you.
balances in each Of the accountS classi
ibution

Page 74
ܚܬ Activity 04
Following is the trial balance prepared Business as at 31.12.20XX.
Description
Stock
Purchases
Sales
Drawings Discount allowed Discount received Miscellaneous income account Carriage outwards Creditors
Debtors
Capital
Equipment Furniture and fittings Rent expense Bank loan Bank loan interest Commission received Salaries
Required:
(i) Identify the errors in the above tria
(ii) Prepare the adjusted trial balance
(iii)"Drawings account is not an asset (
why it is recorded in the debit side
00S SS For fre
 

by a trainee accounts assistant of Sujeewa's
L. Debit Credit P. RS. RS.
25,000 65,000
95,000 4,000
4,000 3,000 16,000
18,000 17,000
15,000 50,000 25,000 35,000 5,000
25,000 1,000 2,000 11,000 208,000 208,000
balance.
as at 31.12.20XX.
or expenditure account". If so, state as to
of the trial balance.
e distribution

Page 75
3 Correction of A
This chapter discusses the
3.1 Necessity of recording trans 3.2 Reasons for accounting erro 3.3 Situations where accounting 3.4 Identification of accounting 35 Error's Which are not affecti 3.6 Errors which are affectingt 3.7 Preparing the trial balance a
SS For free distr
 

ccounting Errors
ཡོད།
following themes.
actions accurately
S.
CITOTS may OCCULT
CTOS. ng the agreement ofthe trial balance he agreement of the trial balance fter correcting errors.
65 ibution

Page 76
Introduction
There is a possibility of not recording all records. If there are any errors in record posting them to the ledger accounts and results of the period and the financial p Therefore, it is important to identify the ac early as possible. In this chapter, you will fied and how they are rectified.
Your attention is dra this chapter.
- Accounting errors 2ko Erro)
* Error of principles - Com
- Detecting errors le Susp
Non-detecting errors + Adju
66 - For free
 

the transactions correctly in the accounting ling transactions in the prime entry books preparing the trial balance, the operational osition for a certain date are not accurate 'counting errors occurred and rectify them as study how the accounting errors are ident
wn on the following basic terms in
rofommission
pensating errors
penSe a CCOunt
Isted trial balance
S
distribution

Page 77
Let us correct the
Pindiyas Silva who was a retailer did Setofaccounting records at the initial stage ( about the accounting records of his busines proving day by day. Accordingly, he employe the Advanced Level examination to maintai He was doing his job properly better than
Namalika, the daughter of Pindiyas merce is following a professional accounti illage for her vacation, she was taken to the C the accounting records of the business. Shev understood that there were some shortcoming
he accounting records were maintained in a
As an example: "The disposal proceeds of a had been credited to the Sales account.' Nam had been Over-cast due to the Over Statemen
Pindiyas Silva got confused due to this Statement of his //
daughter and said,
"Oh daughter.l, I have taken incorrect decisions, haven't I? I paid Rs. 5,000/= for each employee in addition to their January month's salary, as we had a good profit."
Namalika tried to convince her father mentioning that these types of errors may occur not only in this business but other entities too.
SS For free distri
 
 
 
 
 
 
 
 
 

ccounting errors
not pay his attention to maintain a proper if his business. However, he had to think s, when the business activities were imda boy in his village who just completed n the accounting records of the business. What was expected by Pindiyas Silva.
who just completed her degree in comng course. One day, when she came to ffice by Pindiyas with a view of showing vent through the accounting records and sin recording of transactions, eventhough systematic manner.
delivery Van disposed during the year, alika pointed outher father, "The profit it of sales.”
67 bution

Page 78
ട്ട് 3.1. Necessity of rec
The accounting system ofan o entity. The information provided by the parties to take Various types of decisions performances of the business. Therefor accurate information, the parties who many difficulties. Hence, it is very imp accounting system minimizing possible a
Various types of errors in differe recorded in the books. But, these errors process is monitored in a periodic basis
3 Abusiness may have various ty for business activities, controlli decisions on the above areas c.
recorded in the books.
2. The operational results (profits C
can be identified.
2: The value of assets, liabilities ar
date can be identified.
* The requirements of the vario counting information of the busi
Examples-o For submitting to the o For submitting to the o For submitting to sha
Therefore, it is very important to reco) accounts for the utilization of scarceres effectively. However, there is a posibilit
process.
ട്ട് 3.2 Reasons for ac
A large number ofdifferenttri difficult to maintain accounting record counting errors may occur under follov
68
For fre
 

Ording transactions accurately
ganization affects the other funtions of the accounting system is helpful for the internal and for the external parties to understand the e, if the accounting system does not provide are concerned on the business have to face ortant to pay more attention to maintain the |ccounting errors.
nt situations may occur when transactions are pan be identified and corrected, if accounting
pes of resources. Allocation of such resources ng and utilizing them are very important. The an be taken, if the transactions are properly
r losses) of aparticular period of the business
hdowners' equity of the business for a certain
us types of parties who are interested in acness can be fulfilled.
Department of Inland Revenue Registrar of Companies reholders
"d the transactions correctly in the books of ources owned by the business efficiently and y to occuraccounting errors in the accounting
ansactions occur in a business daily. It is very s correctly under this type of a situation. Acving instances.
'e distribution

Page 79
1. In maintaining accounting records
Examples:-o Lack of knowledge of the
(on double entry system) o Paying less attention. o Omission and missing. 2. Changing of transactions for frauds
The accounting process of an entity is entity. The information provided by the ac to take decisions the external parties cane tion provided by the accounting system. T entity generates false information, variou ingly, it is important to take actions to mini process as much as possible.
ട്ട് 3.3 Situations where acco
* When recording the transactions in
Examples: -o Apurchase invoice of Rs.
Purchases Journal. o Electricity bill payment of
cash book.
* When posting the transactions from
Examples:-0. The total of Returns Outw. to the Return Outwards ac o Purchase of stationery for
stationery account. * When balancing off of ledger accour
Study the following ledger account.
Debit Bank loan A
L. Amount Date || Description || F RS I
Cash 3,000
Balance c/d ★13000 15,000
- For free distrib

book-keeper on accounting process.
very useful for the other activities of the counting system helps the management valuate the business using the informaherefore, if the accounting process of an S types of problems may arise. Accordmize accounting errors in the accounting
unting errors may occur
Prime Entry Books
15,000 has not been recorded in the
Rs. 3,500 has not been recorded in the
Prime Entry Books to Ledger
ards Journal Rs. 6,500 has been posted countas Rs. 6,000 Rs. 2,900 has not been posted to
hts for a specific date
CCOunt Credit
L. Amount Date| Description F RS
Cash 15,000
15,000
Balance b/d ★| °"
അ 69 Dution

Page 80
  

Page 81
孪 Identification of ace
The total of debit and credit balances of a tr ances are not equal, it is clear that there are erro both balances are equal, there may be accol These errors can be classified as,
1. Errors, which are not affecting the ag 2. Errors, which are affecting the agree
Now, letus study the above errors separatel
3.5 Errors, which are na
the trial balance
These are also known as errors which are no these types of errors are in the ledger the to balance may be equal.
Following are errors, which are not affecting ever, they can be rectified using the generaljc
1.Omission of a transaction from the boo
If a transaction is entirely omitted from the tion), such errors can be identified as errors ol is omitted, the total of both sides of the trial b: rectified by recording the double entry (Debi the ledger.
Example:- "The electricity bill of Rs.1,0
recorded in the ledger.” The above error can be rectified using follow General Jou
Date viet Description
Electricity expences accc
Bank account
(Correction of electricityb
of Rs. 1600 omitted from
For free distri
 

albalance should be equal. If both balrs in the accounting system. Eventhough, Inting errors in the accounting process.
reement of the trial balance ment of the trial balance
y.
bt affecting the agree
revealed by the trial balance. Although Ital of debit and credit sides of the trial
the agreement of the trial balance. HowDurnal entries.
ks (Errors of Omission)
books (the double entry of the transacfomission. Eventhough, the transaction alance will be equal. These errors can be it and Credit entry) of the transaction in
500 paid by cheque has not been
ring journal entry. Irnal
L. Debit Credit
F RS. RS.
punt Dr 1,600
1,600
ill payment the books)
SS 71
bution

Page 82
2. Recording of an incorrect amount
The correct value of a transaction may b reasons. As the double entry has been m. sides of trial balance will be equal.
Example 1: Sales returns amounting recorded in the books as
AS both accounts have been under-State corrected with Rs.1,000
Gener
Date Voucher
Description No.
Sales returns account
Ramya Traders
(Correction of sales retu
recorded as Rs. 300)
Example 2: Discount allowed amol
books as Rs.5,500
As the amounts in both accounts have be should be reduced by Rs.500
Gener
Voucher
Description No. р
Date
Debtors account
Discount allowed ac
(Correction of discount: RS.5,000 recorded a
72
For free

of a transaction in both accounts
2 over-stated or under-stated due to Various ade using an equal amount, the total of both
to Rs. 1,300 by Ramya Tradres have been
RS300
d by Rs.1,000, relevant accounts should be
al Journal
Dr
Irns of Rs. 1,300
Debit Credit Rs... Rs. 1,000
1,000
Inting to Rs.5,000 has been recorded in the
en over-stated by Rs.500, relevant accounts
all Journal
L.
Dr
COunt allowed is Rs.5,500)
Debit Credit
| RS.
500
500
distribution

Page 83
3. Recording of the same transaction t
Example : Purchases returns of Rs.2.7
ledgertwice.
To rectify this error, half of the amountouto
be recorded in the opposite side of relevant:
General
VOucher - - Date NO. Descriptic
Purchases returns account
Creditors account
Correction of purchases ret
twice recorded in relevant
4. Errors of principles
Recording a transaction in a way which doe counting policies is called as an error of prin agreement of the trial balance as the transacti System.
Example : Purchase of office equipme
purchases account.
In this situation, furniture has been purchase should be debited to an asset account. Only ti re-sale are recorded in the purchases accoul
General
Date Voucher DeScr
NO.
Office equipment account
Purchases account (Correction of purchase o equipment amounting to F recorded in the purchases
S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S For free distr

wice in the ledger
00 to a creditor has been recorded in the
fwhich has been recorded twice should
acCOuntS.
Journal
)1 L. Debit Credit
F. | RS. RS
Dr 2,700
2,700 urns of Rs.2,700 accounts)
S not agree with generally accepted acciple. However, there is no effect to the on has been recorded under double entry
nt Rs 12,000 has been debited to
i for the use of the business. Therefore, it he goods purchased with the intention of ht.
Journal
- - L. Debit Credit iption F. | RS. RS.
Dr 12,000
12,000 foffice Rs.12,000 account)
鱗線 73 ibution

Page 84
Example : Motor vehicles repaire the motor vehicles accol
General Journ
Date Voucher Descrip
NO.
Motor vehicles repaire
Motor vehicles ac (Correction of repair recorded in the motor account)
5. Compensating Errors
An error in one ledger account may b accounts. As the totals of both sides oft be detected from the trial balance.
Example:- Credit sale of Rs. 3,000 account and credit sale Rs.3,000 in his account
In this situation, the debit side of Susil
and the debit side of Sameera's account fore, the error in Susil's account sets of totals of the trial balance will be equal.
Date Voucher . Descri
No.
Sameera's account
Susil's account
(Correction of error of
Sameera's accountanc Susil's account by Rs.2
74 錄
For free

Xpenses of Rs.3,500 has been recorded in unt.
al
tion L. Debit Credit F. RS. RS
Xpenses account Dr 3,500
COunt 3,500
expenses of Rs.3,500
vehicles
e set off by an error in another account or he trial balance is equal, these errors cannot
) to Susil was recorded as Rs.5,000 in his of Rs. 5,000 to Sameera was recorded as
's account has been over-stated by Rs.2,000 thas been under-stated by Rs.2,000. Therefthe error in Sameera's account. Hence, the
General Journal
ption L. Debit Credit F. Rs. Rs.
Dr 2,000
2,000
under-stated lover-stated 2,000)
SS
distribution

Page 85
Activity 01
Following statement was made by the grou
process ofan organization “Asthetotal ofboth
can prepare the financial statements correctly
Read the above statement carefully
Pay your attention to the wordprin
Evaluate the statement made by the proceSS.
Activity 02
Saranadasa is a whole Saler. Both sides of the at 31st January 20XX was equal. On Subsequ were detected.
1. A debit note of Rs.1,500 has bee 2 Purchase of stationery of Rs.2,70
accounts as Rs. 700 3. Motor vehicles repair expenses C
motor Vehicles account. 4. Credit sales of Rs.2,500 has been 5. Electricity expenses of Rs.2,700
expenses account. Required: General journal entries to rectify
W ா ܚܬ Activity 03
Following are few double entries used to rect
1. Electricity expenses account Sundry expenses account 2. Purchases account
Creditors account
— For free distrib
 

) who was involved in the accounting balances of the trialbalance is equal, we
ed inbold letters. group who completed the accounting
rial balance of his business prepared as ent examination, the following errors
in omitted from the books. VO has been recorded in rele Vant
if Rs.5000 has been recorded in the
recorded twice in relevant accounts. has been recorded in the Sundry
the above errors.
ify some accounting
Dr 350
Dr 13,000
75 ution

Page 86
3. Motor vehicles repair expenses acc
Motor vehicles account
4. Sales account
Debtors account
Required: Write the narrations fore
ട്ട് 3.6 Errors which are a
balance
You have already understood that the
equal, eventhough the accounting syst
errors, the total of debit and credit side are also known as "errors revealed by
Following steps can be used to rectifyth the trial balance.
兼 Identify the difference i
兼 As the reason for this di “Suspense Account” ir balance temporarily.
業 Identify the reasons for
業 Rectify the errors by w;
The balance of the Suspense Account rected in the ledger.
76
FOr fr

unt Dr 2,800
2,800
Dr 4,000
4,000
ich oftheabove entries.
ffecting the agreement of the trial
total of both sides of the trial balance may be Lem has errors. But, due to Some accounting of the trial balance do not agree. These errors the trial balance.”
he errors which are affecting the agreement of
in the trial balance.
fference is not sure (suspense), write the Word front of the difference and balance the trial
the difference.
ay ofdouble entries in the general journal.
should be Zero as Soon as the errors are cor
S S S S S S S S S S S S S S S ee distribution

Page 87
I entered all the transactions correctly in the relevant ac- - counts but Still the trial balance does not agree........
Where did I make the
mistake? D
P.
_垒
as, Bیم منموہن"TAA
Boo
--- oo ܦ
Na
Identify, how a Suspense account can be open
The trial balance as at 31st December 20XXo
has been balanced temporarily by writing sus of the trial balance.
Sudeera's B
Trial balance as a
Description
Cash book Purchases and sales Salaries
Equipment
Bank loan
Capital Sandry expenses Commission received Debtors and creditors Discount received Stock Returns outwards Suspense account (Difference)
SS For free distrib
 
 

-ീat_laഫ& 4 a } } > リエ*二|ー ہے۔ وہ ک;2||||||||||||||||||||-dعمالاصمع>4یمضعظPh ല3 - SC
** 10లం+| کہاں طویا عreے انضمحمد / 1 . شعبك له بعمقه طهطه دیہی و وہ ہی ع<مع سے 4 نئھیل !......ے یہی ܘܝܢ A ܥ1e a ܐܝܪܝܚa* \صہ سے ہے چوہ ܧܫܘܥܝܬܧr 3 ↓ܫܐܪ̄ ܫܪ. ! یتیجے eہ تھا شعبهه متمامگاه — lstمہ یہ ہے۔ ع b25 മേ
rra.
edusing the following example.
fSudeera's Business is given below. It pence accountin front of the difference
Business
t 31.12.20XX
L. Debit Credit F. RS. RS.
10,000 27,000 42,000
6,500 46,500
17,2OO 30,000 5,600
2,600 4,000 10,000 3,000 15,000
4,000 5,800
114,600 114,600
77
pution

Page 88
The difference of Rs.5,800 of the above in a Suspense Account to balance the tri ence of the trial balance in the generaljc
Genera
Date oucher Descri
No.
Suspense Accoun (Recording the diff
balance in a Suspens
In this situation, there is no double entry i in the general journal just to record the account. The difference of the trial bala follows.
Suspen
L. Amount Date Description F. Rs.
Activity 04
Atrial balance prepared by an organizat not tally. The business wants to balance
CSS.
Suspense Account
The account where the difference ofth accounting errors are corrected can be it
The Suspense account can also be use business. However, as soon as errors account should be zero.
78
For fre
 
 

trial balance has been temporarily recorded albalance. The way of recording the differurnal has been shown below.
l Journal
btion L. Debit Credit
P. RS. RS.
t 5,800 erence of the trial
se account)
in the general journal. An entry has been made difference of the trial balance in a suspense Ince can be entered in a suspense account as
Ise Account
Dat L.Amount
ate Description F. R.S.
Difference in the 5,800 trial balance
ion as at the end of the accounting period did its trialbalance temporarily. Advise the busi
SMMMSMSMS
e trial balance is recorded temporarily, until dentified as the "Suspense Account."
d to record the uncertain transactions of a
are corrected, the balance of the suspense
S S S S S S S S S S S S S S e distribution

Page 89
It is important to understand, all the errors r rectified using the Suspense account. It means, corrects the erroris recorded in the suspense
Study the following errors and how they hav
01. Omission of one entry of a transactio
Example: Purchase of stationery of Rs.
cash book. Due to the above error (as the stationery acco the total of the debit side of the trial balanc Therefore, a balance of Rs.3500 can be see count. Once the erroris corrected, the debitb
ZCO.
General Jou Date VOucher Description
NO.
Stationery account
Suspense account
(Correction of non-recording expense of Rs.3.500 inthes account)
02. Recording of two different amounts a
Although correct amount of a transaction is cc rect amount may be recorded in the other acc entry are not equal, there will be a difference
Example: Purchase of furniture for Rs. the cash book and furniture
Due to the above error, there is a difference o balance.Therefore Rs.10,000 has to be deb account to balance the trial balance.
For free distrit

evealed by the trial balance should be one entry out of the double entry which aCCOunt.
e been rectified. in from the books
3,500 has been recorded only in the
punt has not been debited by Rs. 3,500) e has been under-stated by Rs.3,500. n in the debit side of the suspense acalance of the suspense account will be
rnal
L. Debit Credit
F. | RS RS.
Dr 3,500
3,500 gStationery tationery
Drrectly recorded in one account, incorsount. As the values of debit and credit in the trial balance.
15,000 has been correctly recorded in account has been debited as Rs.5000
f Rs.10,000 in the debit side of the trial ited to the debit side of the suspense
LSLSLSSLSLSSLSLSS S00T pution

Page 90
To rectify the above error, Suspense acc
General,
Date Voucher DeSc
NO
Furniture Account
Suspense Account
(Correction of furniture
less than the correct Va.
03. Recording of the double entry 量
Due to this type of an error, there cau recording the correct side of one accou account. Therefore, The trial balance sho rect am Ount. Example: Sales returns of Rs.300 returns and Kelum's acc
Accordingly,
0Rs.3,000 has not been c1 0Rs.3,000 has been debit
Due to above two errors, the credit sic Rs. 6,000.Therefore, the suspense acco side. These two errors can be corrected
Rs.3,000 should be credited to Kelum incorrectly debited to his account and account to record the correct entry.
Study the following correction entry.
Genera
Voucher
Date No.
Descripti
Suspense account
Kelum's account
(Correction of sales ret
incorrectly debited to K
00SSLLS For free

ount should be credited by Rs.10,000.
Journal
ription L. Debit Credit
F. R.S. RS.
Dr 10,000
10,000 : account recorded lue by Rs. 10.000)
the same side of both
n be two accounting errors. They are nonnt and recording the incorrect side of same )ws a difference of two times over the incor
0 by Kelum have been debited in both sales Olunt.
redited to Kelum's account. ed to his account.
le of his account has been under-stated by sunt has a balance of Rs. 6,000 in the credit using one journal entry.
's account to remove Rs.3,000 which was another Rs.3,000 has to be credited to his
all Journal
OI L. Debit Credit
F. | RS. RS.
Dr 6,000
6,000 urns of Rs.3,000 elum's account)
S S S S S S e distribution

Page 91
04. Errors in casting, balancing and
ledger accounts
Due to this kind oferrors, the total of both si
Example:
Rs.2,000 has been under-ca
As a result of the above error, the debit side Rs.2,000 and it is entered in the debit side (
GeneralJo
Date
VOucher No.
Description
Purchases account
Suspense account (Correction ofunder-cast pl
journal by Rs.2,000)
Example :
The total of Rs. 13,500 of or taken to the next page as Rs
Accordingly, the credit side of the trial balau Therefore, there is a credit balance of Rs.10
GeneralJo VOu.
Descriptio Date No. р
Suspense account
Creditors account
(Correction of Rs. 13,500c of creditors account, taken
page as Rs.3,500.)
For free distr

sferring of
des of the trial balance will not be equal.
st in totalling the purchases journal.
, of the trial balance is under-stated by fthe trial balance.
urnal
L. Debit Credit F. R.S. RS.
Dr. 2,000
2,000 urchases
he page of the creditors account has been 3.3,500.
nce has been under-stated by Rs.10.000. 1,000 in the suspense account.
urnal
L. Debit Credit F. | RS. RS. Dr 10,000
10,000
redit balance
to the next
SS 81
ibution

Page 92
05. Errors in the preparation of the t
The trial balance is treated as an impo There may be errors in the process of
• Not extractingabalance ofan 0. Extracting an incorrect value C 10 Extracting abalance to the inci
It is important to pay our attention to thi
only in extracting of balances to the trial accounts. Therefore, no entry is require there will be a difference in the trial bal accounting process.
Accordingly, a suspense account has bee balance. Hence, it is sufficient to cance correcting the error.
An entry is made only in the suspens the preparation of trial balance.
Example 1 : Rs. 18,000 the balance o extracted to the trial bala 0. Therefore,
No error has occuredin
The total of the debit Sid by Rs. 18,000 as non-rec trial balance.
Accordingly, Rs. 18,000 has been record To rectify the error,
No entry is required in the adv
0. It is sufficient to remove the d
crediting it.
0S SSLSLSS For free

rtant element in the accounting process. preparing the trial balance as shown below. account to the trial balance. fan account instead of correct Value. orrect side of the trial balance.
ese errors as well. These errors had occured balance. No error had occurred in the ledger i in the relevant ledger accounts. However, ance, if there are these types of errors in the
in opened to record the difference in the trial :l the suspense account from the ledger by
account to rectify the error occ.
fadvertising expenses account has not been
|ՈCC.
the advertising expenses account.
e of the trial balance has been under-stated :ording of Rs. 18,000 in the debit side of the
led in the debit side of the suspense account.
erticing expenses account.
ebited amount in the suspense account by
SS 2 distribution

Page 93
GeneralJo
Date N Descriptic
Suspense account (Cancellation of the amoun Suspense account due to no balance of advertising expe the trial balance) Example 2: The balance of interest recei
in the trial balance as Rs.7.
Due to the above error, the credit side of the Rs.500 and there is a difference of Rs.500 ir
This difference has been credited to the susp
« No errorhad occured in the intere error, it is sufficient to debit Rs.50
General Jol
Vou.
Date No.
Descrip
Suspense account
(Correction of interest recei Rs. 7,500 recorded in the tri as Rs. 7,000)
You were explained both the errors whic of the trial balance and errors which a trial balance. However, please note that errors which can be seen in the accour But, there may be errors in a business C and steps should be taken to rectify suc
For free distr

Lurnal
1. L. Debit Credit
F. Rs. RS.
18,000 recorded in the n-recording the Inse account in
ved account RS. 7.500 has been recorded OOO
2 trial balance has been under-stated by
the credit side of the trial balance.
enSe aCCOunt.
2st received account and to rectify the 10 to the suspense account.
urnal
L. Debit Credit
t
1On Ε RS. RS
Dr. 5OO
Ved of
albalance
hare not affecting the agreement 'e affecting the agreement of the , we discussed only the common ting process of an Organisation. ther than those discussed above h errors also.
bution

Page 94
Activity 05
"س__
Following errors were detected on the e) ness. Prepare the journal entries to rectify
1. A purchase invoice of R: The bank loan accountu
3. Sales returns Rs.1400h.
aCCOunt.
4. Motor vehicles repairex
motor Vehicles account.
5. Rs. 15,000 of furniture ac
trial balance.
Activity 06
The trial balance prepared as at 30th Jul tally. The difference of Rs.4,500 was cr examination of accounting records reveal
1. Returns in Wards of Rs.3
the debtors account.
2. Stationery purchases Rs.
3. Building rent payment R
4. Discount allowed Rs. 1.
balance.
5. Although interest receiv. the cash book, it has bee as Rs.2,000.
You are required to:
1. Journal entries to rectify 2. Suspense account
84
For free
 

amination of the books of Devaka's Busithe errors identified by the business.
4,000 has been omitted from the books. inder-cast by Rs.1,000. ave been recorded in the purchases returns
benses of Rs.3500 has been recorded in the
count balance has not been recorded in the
he 20xx by Chathurika's Business did not edited to a suspense account. Subsequent ed following errors.
,000 by a debtor has not been recorded in
500 has been recorded twice in the ledger. S.1250 has been debited to both accounts. 200 has not been recorded in the trial
ed Rs. 2,200 has been correctly recorded in
In recorded in the di SCOunt received account
above errors
distribution

Page 95
Activity 07
- ༄།
The trial balance prepared as at 31st Marc tally. The difference of the trial balance Rs. On subsequent examination, the following
1. Rs.800, sales returns by ad
debtors account.
2. Interest recevied Rs.3,300
account as Rs.3,000
3. Discountallowed RS.600 ha
aCCOunt.
4. Rs. 1,700 the balance of one has not been broughtforwa
You are required to:
1. The journal entries to rectif 2. Suspense account
" 3. 7 Preparation of Tri;
eOS
You have already studied errors revealed by revealed by the trial balance and how they c
Following example shows how the Suspense credit balance of the trial balance is equal, at
Example: The trial balance as at 30th,
is given below.
SS For free dist

h 20xx by Bandusiri's Business did not 3,400 was debited to a suspense account. irrors Were detected.
ebtor has been recorded only in the
as been recorded in the interest received
S been recorded in the disCOunt received
page of the advertising charges account rd to the next page.
y the above errors
al Balance after correcting the
the trial balance and errors which are not anbe rectified.
account gets cancelled and the debit and terrectifying the accounting errors.
June 20xx prepared by Lokuge Business
85 ribution

Page 96
Lokuge Trial Balance a
Name of the account
Purchases
Sales
Debtors Creditors Bank loans Office equipment Sundry income Electricity Salaries Motor vehicles Building rent Repair expenses Insurance Returns inwards Returns outwards Drawings Cash account Capital Suspense account
If you study the above trial balance, you c the total of debit balance by Rs. 2,300 a record that difference.
Now, letus study the reasons as to why su
Following errors have been subsequently ining its source documents, prime entry b
For free
 
 

's Business
s at 30th June 20xx
Debit Rs. Credit Rs.
48,000
75,000 6,500
7,000 14,000 24,000
6,000 3,000 14,000 224,000 13,000 3,700 4,000 2,400
3,600 1,500 13,800
250,000 2,300
357,900 357,900
an see the total of credit balances is less than nd a Suspense account has been opened to
lch difference has arisen in the trial balance.
identified by Lokuge Business, after exambooks, ledger accounts and the trial balance.
distribution

Page 97
1. A purchase invoice of Rs.3,500 has
2. Insurance payment of Rs.400 has b but no entry has been made in the in
3. Discount received Rs.2,900 has not
4. Rs. 1,500 paid for office equipment
equipment account.
5. Bank loan repayment of Rs.1,000h
6. Sales returns of Rs.150 have been C
7. Sundry income received Rs.6,500h
account as Rs. 6,000.
Study the above errors carefully,
There is a difference in the trial balance du difference in the trial balance due to some er
** The error (1) and (4) mentioned abov
balance.
3. Other errors identified in Lokuge's I
balance. Therefore, it is importantt. account gets cancelled, after correct
SS For free distr

been omitted from the books.
een correctly recorded in the cashbook, Surance a CCOunt.
been extracted to the trial balance.
repairs has been recorded in the office
as been recorded only in the cash book.
lebited to the debtors account.
as been recorded in Sundry income
e to some errors and there will not be a
TOTS.
ye do not affect the agreement of the trial
Business affect the agreement of the trial ) realize that the balance of the Suspense ing such accounting errors.
SLSLSLSLSLSLSLSLSLSLSLSLS S S S 0 bution

Page 98
Gener
Date
Voucher No.
Description
30.06.20XX
30.06.20XX
30.06.20XX
30.06.20XX
30.06.20XX
30.06.20XX
30.06.20xx
Purchases acco Creditors ac
(Correction of
Rs..3.500 omitt
Insurance acco
Suspense ac (Correction ofr insurance paym insurance accou
Suspense accou
(Correction ofnc discount receive trial balance)
Office equipmen
Office eq (Correction of re
equipment repai equipment accol
Bank loan accou Suspense acc (Correction of no bank loan repayn
account)
Suspense accC
Debtors acc (Correction of d returns to the del
account)
Suspense acco Sundry incor
(Correction of st under-stated by
88
FOr fré

al Journal
L.F.
Debit RS.
Credit
RS.
Lunt Dr.
Olunt purchase invoice of
ed from the books)
Junt Dr COunt on-recording ent of Rs.400 in the nt)
nt Dr
n-extracting daccount to the
it repairs account Dr uipment account 'cording r of Rs.1,500 in the int)
Int Dr
Olunt n-recording nents in the bank loan
unt Dr
Olunt ebited sales
)tOrS
Int Dr
neaCCOunt
Indry income account
Rs.500)
3,500
400
2,900
1,500
1,000
300
500
3,500
400
1,500
1,000
300
500
e distribution

Page 99
Try to understandabovejournal entries used to Business. Then, letus prepare the suspense of the suspense account gets cancelled from
Suspense Accou Date| Description L.F.Amount
RS.
Discount received 2,900 Debtors account 300 Sundry income account 500
3,700
Now, letus check whether the total of both S.
Lokuge's B Trial Balance as at
Name of the account
Purchases
Sales
Debtors Creditors Bank loans Office equipment Sundry income Electricity Salaries Motor vehicles Building rent Repair expenses Insurance Returns inwards Returns outwards Drawings Cash in hand Capital Discount received
SS For free distri

Directify the errors identified in Lokuge's account and study how the balance
the ledger.
Int
Date|Description LAmount
F. R.S.
Trial balance difference 2,300 Insurance account 400 Bank loan 1,000
3,700
ides of the trial balance is equal.
usiness 30th June 20XX
Debit RS. Credit RS.
51,500
75,000 6,200
10,500 13,000 22,500
6,500 3,000 14,000 224,000 13,000 5,200 4,400 2,400
3,600 1,500 13,800
250,000 2,900 361,500 361,500
89
bution

Page 100
Now you have clearly understood that, suspense account gets cancelled and tot balance are equal.
You can further improve your knowledge
Activity 08 The trial balance of Sajanie's Business as it was balanced temporarily by transferi
Sajal Trial Balance a
Name of the account
Stock as at 01.01.20XX Cash at bank Cash in hand
Capital
Purchaces
Sales
Wages Carrying inwards General expenses Commission received Furniture and equipment Advertising
Insurance Sales commission Postage and telephone bills Salaries Rent and rates Drawings Returns Outwards Discountallowed Motor vehicles Land and building Debtors
Creditors Suspense account
90 。 For free

after correcting the errors the balance of the als of both debit and creditsides of the trial
2 by doing the following activity.
sat 31st December 20xx did not balance and ng the difference to a suspense account.
ni's Business
is at 31th December 20XX
Debit Credit RS. RS.
25,000
60,000
10,500
240,000
155,000
328,750
10,000
11,000
5,000
1,000
15,000
3,500
8,500
4,500
8,750
57,500
2,500
12,000
8,000
7,000 100,000
60,000
50,000
30,000
2,000
607,750 607,750
LSLS
distribution

Page 101
Following errors and ommissions were subs
1.
2.
Sales invoice of Rs.3,000 has been on
Rs. 5,000 paid for wages has only be
Rs.3,000 paid for furniture and equip1 furniture and equipment asset account
Rs. 5,300 paid for insurance expense insurance expenses account.
Purchases invoice of Rs. 5,000 has be accountS.
The balance of packing charges acco the trial balance.
Credit purchases of Rs.10,800 has no aCCOunt.
Rs. 1,000 paid for taxes and rates has interchanging the two sides.
You are required to:
1. Journal entries to correct thea
2. Suspense account
3. The trial balance after correct
For free distri

equently found.
mitted from the books.
en recorded in the cash book.
ment repairs has been debited to the
s has been recorded as Rs. 3,500 in the
en recorded twice in the relevent
Junt RS.6,000 has not been recorded in
it been recorded in the creditors
been recorded in relevant accounts,
bove errors and Ommissions
ion of above errors
91
bution

Page 102


Page 103
Let us Prepare Adjustme Statemo
Kosala is a sole properitor. In his business However he records all income, expenses an lates profit by deducting cash expenses from to speak with one of his relatives who has as discussion Kosala realised that following fac ing profits.
* All income and expenses are not consi
* Only income and expenses that is relev
regarded in calculating profit.
%. The debt which cannot be recovered f
2 Expenses incurred on fixed assets have
You may have realized that there are many calculating profits for abusiness organisation
AS mentioned above there are entries that a profits and the financial position. Let us se StatementS.
SS For free distr

ints related to Financial
ent.
he does not maintian proper accounts. ld other transactions in a book. He calcucash income. Once he got an opportunity ound knowledge in accounting. After the tors have to be considered when calculat
dered in calculating profits.
Vantto thegivenaccounting periodis
rom customers has to be Written off.
2 to be written off annually.
factors which have to be considered in
l.
re necessary for accurate calculation of sehow they are entered in the financial
ibution

Page 104
Introduction
In an organization it is necessary to do: given period of time. It allows the rele decision making. It requires adjustingre and accrued expenses, prepayments a depreciation offixed assets. This chapte and to record them in the Journal and re
77 Your attention
in this chapter
- Capital Expenditure
* Revenue Expenditure
* Revenue
3. Accrued Income
- Accrued Expenses
94 SS For fre

accurate calculation of financial results for a }vant parties to get accurate results for their levant income and expenses, accrued income nd receipts in advance, doubtful debts and r discusses ways to identify these adjustments levant Ledger accounts.
is drawn on the following basic terms
- PrePayments : Receipt in Advance
a Bad Debts
Depreciation of Fixed Assets
a Straight line Depreciation Method
SS 'e distribution

Page 105
s 4.1 Nature of Income
There are many parties who are interested infin Systematic recording of financial transactio mainly interested in two aspects ofan organi. the organization for a given time period. Th organization.
To identify above, it is important to getan un expenditure of the organization.
Any business organization has to incurday-to These expenses are done to achieve again to th may accrue on the same accounting period Based on its nature the expenses can be cate
Expen
Capital expenditure
Capital Expenditure
An expense that results long term future bent refers to a time period more than one year. NC many future years.
Example-Apurchase of a motor
The above motor vehicle can be used in the expenses result fixed assets to the organizatic
SS For free distr

and Expenditure ݂ ݂
ancial activities of abusiness organization. ns are useful for these parties. They are zation. The first is the financial results of e second is the financial position of the
derstanding of the nature of income and
-day expenses in their business activities. he business. The gain from these expenses or in many future accounting periods. gorized into two main groups.
Revenue expenditure
2fits is a capital expenditure. Along term brmally these expenses result benefits for
vehicle to a textile retail store.
2 store for its business activities. These Dn. Observe the following figure.
H 95 ibution

Page 106
Figure 4. I: Fixed Ass
Revenue Expenditure
If benefits of an expense accrue for a sh diture. Short term refers to a time period of an organization are revenue expens organization.
Following are examples of revenue expe 3: Insurance premium, electricity, * Transport, advertising, sales con 2 Loan interest, Bank charges. Revenue
Revenue is the income earned by abus Services.
96
For fre
 
 

ets Of a TeXtie Real Store ݂ ݂
ort term they are referred as revenue expenless than one year. The day-to-day expenses es. There are many revenue expenses in an
onditure. telephone charges, rates missions
iness organization through selling goods or
e distribution

Page 107
.01 - Activity ܘܩ ܲ
Upamali bought a building for Rs.500,000 o She bought textile and made clothes for her cost of Rs. 100,000. Two employees were h year 20XX were 200,000. She spent Rs.300 clothes. When carrying outbusiness activities and Rs. 6,500 as insurance premium. She ea by selling the clothes made in her store.
Based on the above information calculate th
i. Capital expenditure
ii. Revenue expenditure
Let us observe how income and expenditur statements for an accounting period.
4.2 Adjusting Income an Accounting
All the transactions relevant for a given ac financial accounts. However some transacti period may not be entered in accounts at the made to include those items to accounts a adjustment entries are done through the G entries areas follows.
: Accrued expenses and accrued inco 3. Prepayments and receipts in advanc *ké Bad debts 3. Depreciation offixed assets
Accounting information is presented accor Further there are accounting concepts that concept is one of the main concepts of accol
Accrual Basis
According to accruals concept income and counting period but not yet received and paid cial results of abusiness organization.
SS For free distr
 
 

no1/01/20XX for her clothes retail store. store. She bought 4 sewing machinesata ired to the Store and their Salaries for the ,000 to buy material and thread to make she spent Rs. 10,500 as electricity charges rned revenue of Rs. 950,000 for the year
e are adjusted when preparing financial
di Expenditure Relevant for an
Period.
counting period have to be recorded in ons which are relevant to an accounting end of the accounting period. The entries re known as adjustment entries. These eneral Journal. Some of the adjustment
|ՈՈe
ding to accepted accounting principles. provide a basis for accounting. Accrual
unting.
| expenditure that are relevant to an acI must be considered in calculating finan
= 97 ibution

Page 108
They must be recorded in financial state must also be considered similarly.
Accrued Expenses
An expense which is relevant for anac accrued expense.
Example - 0. Sandamali rented at retail textile. The ann When preparingfina paid only Rs. 125,00
The journal entries andledger a is as follows.
Gener Date Voucher Descripti
No.
31.12XX Building rent
Accrued building rei (Recording of accrued
Debit Building Re L'Amount N.Rs.
01.01.XXCash 125, C 3112.XXAccrued building 25,0
rent A/c
Debit Accrued Build L Amount Date Description N RS.
98
 

'ments. Prepayments and receipts in advance
counting period but not yet paid is termed as
building on 01/01/20XX for Rs. 125,000 to ual rent of the building is Rs.150,000. accounts as at 31/12/20XX she had
0.
ccounts for recording accrued building rent
"al Journal On L. Debit Credit
F. R.S. RS.
Dr 25,000 ht 25,000
building rent)
nt Account Credit
LAmount Date || Description N RS.
DOO
DOO
ling Rent Account Credit
L.Amount Date || Description N|RS
31.12XXBuilding rent A/c 25,000
'e distribution

Page 109
According to the above example, building re. the building rent account. It is debited because period and it increases expenses for the peri
As accrued building rent is not yet paid it is accrued rent account.
Accrued income
Income which is relevant to an accou accrued income.
Example - Sandamali has deposited fixed deposition 01/01/20 December was not yet re. prepared for 31/12/20XX
The journal entries andledger accounts for ri
GeneralJo Date རིགས་པ་ཙམ་ Description
31.12.XX Accrued interest income A/
Interest income A/C (Recording ofaccrued intere
Debit Interest Income A
L'Amount Date Description F. RS. D
O1
31
Debit Accrued Interest Incon
LAmount Date Description F. Rs. D
31.12.XX Interest Income 3,200
1.
SS For free distr.
 

nt of Rs.25,000 not yet paid is debited to it is an expense relevant to the accounting Od.
a liability, therefore it is credited to the
nting period but not yet received is called
Rs. 240,000 in a 16% monthly interest |XX. Monthly interest for the month of ceived when the final accounts were
ecording accrued income is as follows. Durnal
L. Debit Credit N. 1 Rs. RS.
C Dr. 3,200
3,200 estincome)
ccount Credit
LAmount Yate Description F. Rs.
12XX Cash 35,200 .12XX Accrued interest 3,200
income
he Account Credit
L. Amount late Description F. Rs.
SMS 99 ibution

Page 110
According to the above example interest is credited to the interest income acco accounting period and it is an increase C
The accrued interest is considered as an increase of an asset.
Prepayments.
Business organizations may make pay paid for the accounting period. Therefor for this accounting period but for the fu
Example - Sandamali's Business
for the year 20XX. How the insurance premium.
recording prepayment C
Gener: Date Vouc. Descriptio
No.
31.12.XX Prepayment of insuran Insurance Premium A (Recording of prepaidi
Debit Insurance
- - LAmount Date Description F. Rs.
01.01.XX Cash 6,000
Debit Prepaid Insur
- - L.Amount Date Description F. Rs.
31.12.XX Insurance premium 4.(
A/C
1OO S S S S
For fre
 

income of Rs. 3,200 which is not yet received unt. It is credited because it belongs to the fincome.
asset because it is not yet received and it is an
ments which are more than the amount to be eif payments are made which are not relevant ture period they are known as prepayments.
has to pay an insurance premium of Rs.5,600 ever on 01/01/20xx she has paid Rs.6,000 as The journal entries and ledger accounts for finsurance premium is as follows.
al Journal
L. Debit Credit N. | RS. RS.
ce premium Dr 400 A/C 400 nsurance premium)
Premium Account Credit
LAmount Date || Description F. Rs.
31.12XX Prepaid insurance 4OO
premium A/C
ance Premium Account Credit
- - LAmount Date || Description F. Rs.
OO
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Page 111
According to the above example because oft paid is more than what is required to the time has to be removed from the expense accoun mium it has to be credited to the insurance p. double entry a temporary prepaid insurance debited with the prepayment. It is an assetac
Receipts in Advance.
An amount of income received for an organi, counting period. Therefore income which is 1 known as receipts in advance.
Example – Sandamali's Business has stal received Rs. 750,000 for cust Rs. 50,000 of this income is
The journal entries andledger accounts for rec
in advance is as follows.
General Jou
Date || You"o Description
No.
31.12XX Advertisement income accou
Advertisement income inadv (Recording of Advertisem
received for next year)
Debit Advertisem
L.Amount Date Description FRs. De
31.1.2.xx Advertisement 50,000 of
income inadvance
Debit Advertisement Inc( Date Description. L.Amount De
F.Rs
31.1
For free distrib

he prepayment the insurance premium Jeriod. Therefore the extra amount paid t. As it is a reduction of insurance pre
: premium account is opened and it is COunt.
zation can be relevant for the future aceceived for futureaccounting periodis
rted advertising services. They have Omer's advertisements on 01/03/20XX. or the next year.
2Ording advertisement income received
Lrnal
Le || Debit | Credit olio RS. RS.
nt Dr. 50,000 sance A/C 50,000 ent income
ent Income Account Credit
L.Amount te Description F.R.S.
3XX Cash 750,000
Ome in Advance A/C Credit
te || Description L.Amount
RS
2XXAdvertisement 50,000
Income A/C
S S S S 101
Dution

Page 112
According to the above example, as th Vance, the Advertisement income accou relevant to the accounting period. The removed from the income account. It is C To show the relevant credit entry ane income inadvance account. It is a liabili
Activity: - 02
" است.
Akila carries out a printing business. Fol accounting periodending 31/12/20xx of
i Electricity expenses to be paid
ii. Part of her building is rented ou 2,600. When preparing final acc was Rs.25,000.
iii. The insurance premium for 20x
iv. She has received Rs.350,000 a. Rs.4,500 of this is for the nexty
Write down the journal entry forth accounted in the ledger account
《། ། 4.3 Adjusting Deb エン
An organization may sell on cash or cre debtors. Debtors are assets to the comp; credit it creates a large amount of debt track of theses debtors and the sums due been received are some of the concerns
Eventhough the organization has a gooi amount due from them may not be recei considered as an expense to the organiz the amount which is not collectable fro)
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Reasons for Bad Debts
Bad debts may arise due to death of
Mudalali. I have lost all my resources. I would not be able to pay your loan back even.
Accounting for Bad Debts
Due to bad debts the assets called deb considered as a loss. The relevant journal ent
Bad debts account Debtors account
As bad debts increase expenses it is debitedt reduce due to bad debts it is credited to the d debts should be made as an adjustment entry
Example - Gamindu is a debtor of Sanda account as at 31/12/20XX is R went bankrupt the money due debts.
The journal entries andledger accounts for re
SS For free distrib
 
 

a debtor and bankruptcy of debtors.
Another bad debt, ........... What a great Loss
tors decrease. Therefore bad debts are y is as follows.
Debit
Credit
Obad debt account. Further as debtors lebtors account. The write off of bad in the General journal.
mali's business. The balance of his s. 7.500. As Gamidu’s organisation
from him has to be written off as bad
cording bad debts are as follows.
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ution

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Gener
Vou. - - Date No. Descripti
31.12.XX Bad debts asc Gamindu A/C (Writing offmoney duefi debts)
Debit Bad D
L. LAmount Date Description F.Rs.
31.12.Xxl Gamindu 7,50
Debit Gamin(
L.Amount Date Description F.Rs.
31.12.XXBalance c/d 7,50
As bad debt is a loss it is deb debtors decrease due to bad debts it is
- Activity:-03
Mr. Thilakawardena sells goods both or he found that credit sales were Rs. 36.0
Amal is a debtor who has been determi 8,500 to the business. It was decided to
i. Show the journal entries and led
ii. What Would be the effect to the
104 അ~) FOr fre

al Journal
L. Debit Credit D1 F. | RS RS.
Dr 7,500
7,500 om Gamindulas bad
ebts Account Credit
L.Amount
Date || Description F.R.S.
O
du's Account Credit
L. Amount Date Description RS.
O 31.12XX Bad debts A/C 7,500
ited to the bad debt account. As the asset credited to the debtor account.
cash and credit. Going through his account 00 and cash sales were Rs. 74,000.
ned as bankrupt by the courts. He owes Rs.
Write it off as a bad debt.
ger entries for the above situation.
profit of the business?
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- 4.4 Updating Value 0.
Business organizations use many assets whe assets acquired for longtermand which are not offixed assets areas follows:
* Building * Machinery and equipment * Motor vehicles * Furniture and fittings * Office equipment.
The machinery and equipment in the above e. for ten years. In accounting the expense done written off as expenses throughout its life of is accounted as a capital expenditure is writter the life of the asset.
In accounting the above process is termed as for assets which have a life more than one depreciation of an asset.
Reasons for Depreciation.
Reduction in Value of an asset or depreciation The following two factors are important facto
I. Physical wear and tear
II. Asset being outdated
Physical wear and tear.
Examples for above are deterioration, wearing
Asset being outdated.
It is the result of new and efficient assets bein
Example — o The removal oftypewriters fr
computers.
For free distrib

'n carrying out business activities. The for sale are called fixed assets. Examples
xample may be used in the organisation on above machinery and equipmentis 0 years. In other words the asset which loffas revenue expenditure throughout
depreciation. Depreciation is required year. There can be many reasons for
ofanasset can be due to many reasons. irs of depreciation.
off, erosion and depletion due to usage.
g introduced to the market.
om offices dueto introduction of
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Deciding the Amount to be Depreci
The value that cannot be reco organization is the depreciable amount when deciding the annual amount to be
* Cost A Useful life a Salvage value
Cost - It is the addition
Useful life - The time period organization o
Salvage value - The amount to v
After considering the above factors th depreciated within the assets life. The d the Accounting Standards.
Methods of Depreciation
There are many methods to depreciate as is considered in this section.
Straight Line Method
In this method the depreciable v. throughout its useful life. Depreciable ve the salvage value from the total cost of can be calculated by dividing the deprec can be calculated as follows.
Depreciation per year=
Depreciable value of an asset = Tot
Therefore,
Depreciation per year=
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ited
Vered, when the asset is disposed from the of the asset. Following factors are considered depreciated from an asset.
of all costs incurred to own an asset.
which the asset is productive to the rthe units that can be produced by the asset.
which the asset can be sold after its useful life.
e Organization can decide the amount to be epreciation methods are discussed broadly in
sets. The StraightLine Method of depreciation
alue of the assetis Written offinequal amounts lue of the asset can be calculated by deducting the asset. The depreciation amount per year liable value from the useful life of the asset. It
=Total cost - Salvage value
Useful life of asset
all cost-Salvage value
Depreciable value of an asset Useful life of asset
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Example-An organization bought a machin useful life of the asset is 8 years. The straightline methodisused for deprec amount.
Annual depreciation = 300.00
- RS. 30.
Instraight line method the annual dep centage. This percentage shows how much tol asset for a year. The percentage can be calcula
Depreciation percentage - A
Therefore the percentage of depreciation forth
Depreciation percenta
Accounting for Depreciation
Each year the annual depreciation amount of cost of the asset as an expense. An expense acc being depreciated. It is termed as the depreci The double entry for it is as follows.
The relevant depreciation account
Provision for depreciation accoul
The relevant depreciation amount for the perio to the depreciation account. It is logical to credit the double entry. However when accounting: account is created. It is then credited with the (
S S S S S S S S S S S S S S S S S S For free distri

for Rs. 300,000 on 01/01/20xx. The estimated salvage value is 60,000. If iations what is the annual depreciation
0-60,000-240,000 8 8 000
reciation is normally quoted as aperpe depreciated as an expense from the ted as follows.
innual depreciation
Cost Χ 100
he above example is,
ge = 30,000
300,000 X 100 = 10%
an asset has to be written off from the pount is created in relation to the asset ation account for the particular asset.
Debit nt Credit
dis an expense. Therefore it is debited tithe relevant asset account to complete a separate Provision for Depreciation lepreciation amount.
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The journal andledger entries for the depr
areas follows.
General Jou
Date Vou. Descriptic
NO.
31.12.XX Machine Depreciation
Provision for machine (Recording annual machi
As above the Provision for depreciation: end of the useful life of the asset.
Debit Machines
- - L.Amount Date Description F.R.S.
01.01XXCash 300,00
Debit Machine Depreci
LAmount Date Description FRs.
31.12.XX Provision for 30,000
machine depreciation
Debit Provision for Machi
L.Amount Date Description FRs.
108
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eciation of the machine in the above example
urnal
) L. Debit Credit
F. RS. RS.
Dr 30,000 depreciation 30,000 ne depreciation)
account has to be credited each year until the
Account Credit
- - LAmount Date || Description F. Rs.
O
iation Account Credit
L. Amount Date || Description F. Rs.
)
he Depreciation Account Credit
L. Amount Date || Description F.R.S.
31.12XX Machine 30,000
Depreciation A/C
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04 - :Activity ܚܬ
To start manufacturing cement bricks Moh 150,000. The useful life of it is 16 years. The
Mohammed expects answers to following i. Why is depreciation considered asar
ii. What does asset cost, useful life and
iii. What are the reaSOinS for reduction in
He is planning to use straight line depreciat Therefore,
a. Calculate the depreciation amount pe
b. Prepare the journal andledger entries
20χΧ.
SS For free distri

ammed purchased a machine for Rs. estimated salvage value is Rs.30,000.
problems. annual expense?
salvage value mean?
value of the machine?
on method to depreciate the machine.
TVCaI.
to account for depreciation for the year
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05 - Activity ܚܬ
Sadeeptha is carrying out a retail store.
business organization.
1. Fixed assets as at 01/01 20XX.
Land and building (cost) Furniture and equipment (cost) Motor vehicles (cost)
2. He has rented a building to carr
is RS.2.000. RS. 16.000 has be.
3. He paid Rs. 24,000 as advertis
Rs.12,000 from it for the next
4. Ajith owed Rs.5,000 to the org Written off as bad debt.
5. Sadeepthauses the vehicle oft purchases. The income receive for the next year.
6. The land and building, furnitur depreciated on straightlineba.
You are required to,
i. Prepare the general journal she
2OXX. ii. Prepare the relevant ledger acc
110
FOr fr

Following are some information of his
Rs.250,000 Rs... 80.000 Rs... 100.000
youthis business activities. The monthly rent enpaid as annual rent for the building.
sement expenses on 1 June 20xx.
ycar.
anization. As he has died the amount is to be
he business to transport the customer's 2d through this is Rs.24,000. Rs.4,000 of it is
eandeduipment andmotor vehicles are sisat 10%,5% and 20% respectively.
wing the adjustment entries as at 31/12/
OuntS.
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5 Preparation of Fi
This chapter discusses
5. 1 Calculation of operating resu
: Trading Account
: Profit and LOSSA
5.2 Identifying the financial posi
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nancial Statements
the following themes.
lts of abusiness organization
CCOunt
ion of abusiness organization
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ibution

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Let us Prepare F
Sahan Abenayake is a business
Own. A conversation he had with One of
mate, Namal Jayasinghe, is an Accountal
Sahan–
Namal -
Sahan –
Namal
Sahan –
Namal -
Hello! Mr. Namal. It is a plea
Hello. You are abusinessman progressing?
It is not yet one year for my b, After Sometime I took a loan
Your business seems stable. I
business?
Yes, to some extent. I also col information about cash receip your opinion on these matters
Yes. It is important that you col Then you have to record them least once a year.
We must always try to make our
Sahan -
Namal -
profit for the amount we inves the business at a good financia
Isn't it costly andtime consum
Yes itis. However isn't it impor
to make it successful? Proper
bank loans, to pay taxes and t
From reading the above conversation iti records are important to a business orga statements are prepared for an organizat
112
For free

inancial Statements
man who has succeeded in business in his
his Schoolmates is as follows. The School
it by profession.
Sure to meet you.
now, aren't you? How is your business
usiness. I started it with my OWT) ΠΟΠΟΥ of Rs. 200,000 from the bank.
Do you record the transactions of your
lect invoices, follios, vouchers and other }ts and payments. I would like to know
lectinvoices, folios, and vouchers separately. 1. It is necessary to prepare final accounts at
business Successful. We must maximize tin the organization. It is good to maintain lstrength.
ing to maintain accounts.
tant to know the position of your organization maintenance of accounts is important toget
o make future plans for the organization.
Sclear that maintaining proper financial nization. Letus observe how financial ion.
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Introduction
At the end of any activity it is necessary tose to make future activities successful. It can f parties to make their own decisions.
Therefore in profit oriented organizations it losses for a given time period. Furtherit mus information about the financial position of the
Your attention is drawn on
in this chapter.
Sales income
- Trading account
Profit and Loss account
Expenditure
Balance Sheet
as Liabilities
SS For free distri

eif it has been successful or not. It helps rther provide information to interested
is necessary to calculate the profits or be helpful to extract actual and truthful organization.
the following basic terms
Cost of Sales
Gross Profit
Income
Net Profit
ASSets
e Ownership
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இ 5.1 Calculating Op
جمصر
The interested parties of any organisatio of accounting. It is the final accounts of are most important among them.
* Trading and Profit and Loss acc : Balance Sheet
Trading profit and loss accoun tional results for the accounting period shown in two steps. They are,
A Trading profits gross profit * Net profit/loss
Trading Account
Organisations which are involved in se
account to calculate the gross profit. Iti
* Sales income
* Cost of sales
Sales Income
Total sales include Sales on cash and ci may be returned back to the organisati from the sales of the organisation. Th organisation.
Example - Cash Sales
Credit Sales
LeSS — GOOdis returne
Net Sales
114 SS For fre
 
 
 
 

'rating Results of a Business Organisation
nare more concerned about the final product he company. Following two final statements
Olunt
t is used to calculate the profit or the opera. The profit calculated in this manner can be
illing goods and Services prepare the trading includes two main aspects.
edit sales. Some of the goods sold on credit Dn. Goods returned as such will be deducted is allows the calculation of net sales to the
RS.
145,000
68,000
213,000
d 3,000
210,000
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Cost of Sales
Followingitems are considered when calcul
3: Opening stocks
* Carriage inwards
* Closing stocks
The closing stocks of one period becometh period.
Example - The accounting period starts The opening stock as at 01/ the closing stock of Rs.800 which starts business activit But in other organisations wil becomes a part of cost (
The opening stock will not be sufficientforsal the organisations have to purchase new stoc as cash purchases while goods purchased on Some of these credit purchases may have purchase returns will be deducted from the to amount calculated is called the net purchase
Example-Cash Purchases
Credit Purchases
Less - Purchase retul
Net Purchases
When purchases are considered all the expel to be considered. There will be a cost of tran is termed as carriage inwards. Loading fees included in the cost of sales.
S S S S S S S S S S S S S S S S S S S For free dist

ating the cost of sales.
崇 Custom duty
来 Purchases
崇 Purchases returns
2 opening stocks for the next accounting
on 01/01/20XX and ends on 31/12/20XX. 01/20XX is Rs. 8000/=. It is the same as 0/= as at 31/12/20XX. An organisation tes new will not have an opening stock. hen the opening stocks are sold it pf sales for that accounting period.
2s foragiven accounting period. Therefore kS. Goods purchased on cashare known credit will be termed as credit purchases. to be returned from time to time. Such talpurchases ofthe organisation. The net
S.
78,000
46,000
124,000
"IS 4,000
120,000
nses that directly relate to purchases have sporting goods to the organisation which have to be paid. All such expenses will be
115
ribution

Page 126
The opening stocks, purchases and relat cost of goods to be sold. But it is not the closing stocks have to be deducted from stock of the cost of goods to be sold att the closing stocks.
Calculating Cost of Sales
Example - Following information
Stock as at 01.01.20XX Carriage inwards is Rs.
Remaining stock at 01.01.20XX
Add-Purchases
Carriageinwards
Cost of goods to be sold
Less - Closing stock 31.12.20XX.
Cost of sales
Let us consider the calculation of gross income and cost of sales. In other Words Sales income of the organisation.
Sales
Less - Cost of sales
Gross Profit
Trading account is used to calculate the the trading account. If there are any sale Cost of sales is in the debit side of the ti lated first the opening stocks, purchases cost of goods to be sold. Then by deduct to be sold the cost of sales is calculated.
116
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2d expenses of purchases are included in the 'ost of sales. To calculate the cost of sales the the cost of goods to be sold. The remaining he end of the accounting period is known as
elatestoabusiness organisation. Remaining is Rs. 13,000. Purchases Rs. 120,000. 7,000 and the closing stock is Rs. 15,000.
13,000
120,000
1,000
140,000
15,000
125,000
profit. It is calculated by considering sales the cost of sales has to be deducted from the
210,000
125,000
85.000
gross profit. The sales income is credited to S returns it is deducted from the sales figure. ading account. When cost of sales is calcuand cost of purchasing is added to show the ng the closing Stocks from the cost of goods
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By balancing the trading account we arri organisation. Based on following data, letus format.
Example-Following information relates to
Sales
Purchases
Purchases returns
Sales returns
Carriage inwards
Stocks as at 01/01/20XX
Stocks as at 31/12/20XX
Kosala"s Bu
Trading Account for they
RS. RS.
Stocks as at 01/01/20xx 8,000 Purchases 295,000 Less: Purchase returns 5,000 290,000
Carriage inwards 11,000
301,000
Cost of goods to be sold 309,000
Less: Stocks as at 31/12/20XX (12,000 Cost of sales 297, OOC Gross Profit c/d 263,000 56000
SS For free distri

e at gross profit or gross loss of the prepare a trading account in horizontal
Kosala's Business.
RS 567,000 295,000
5,000
7,000
11,000
8,000
12,000
Isiness
ear ended 31/12/20xx
RS.
Sales 567,000 Less: Sales returns 7,000
560,000
)
) )
)
560,000
Gross Profit b/f 263,000
SS 117
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Sales returns are not shown in the del as a deduction from sales. It allows sh account. Similarly the purchase retu trading account. It is shown as a di purchases clearly. The closing stocks It is shown as a deduction from the c of sales is clearly shown in the debit
The adjustment entries made as above a cost of goods to be sold and cost of sale
The gross profit of the trading account is of the organisation.
Activity - 01
Following information are extracted fro information, prepare the trading accoun 20XX.
Stocks as at 01/01/20XX
Purchases
Sales
Purchase returns
Sales returns
Carriage inwards
Consider the following information as we
Ending stocks as at 31/12/20XX was Rs
118 അ~അ FOr fre

it side of the trading account. It is shown lowing the net sales clearly in the trading rns are not shown at the credit side of the eduction of purchases. It shows the net are not credited to the trading account. st of goods to be sold. Therefore the cost side of the trading account.
llows the clear presentation of concepts like s in the trading account.
then transferred to the profit and loss account
m Sanduni's recordbooks. Based On the tand calculatethe gross profitas at 31/12/
30,000
325,000
475,000
10,000
5,000
90,000
21,000
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Profit and Loss Account
After calculating the gross profit or loss, then calculated through the Profit and Loss accour
The Profit and Loss account (P&L) is prepa income and expenditure for the accountingp account. The transfers are made according to
The main items included in the P&L account us consider the income and revenue expenses
Income included in the Profit and Loss A
There are two types of income included in the
Tradingincome
3. Nontrading income.
Trading income is the income earned throughm
Example - If it is a trading organisation;
commissions received etc.are
Nontrading income is the income received thro activity.
Example - Investment income, rent inco fixed assets etc.
The trading and non trading income shown ab income of the organisation.
The revenue expenditure included in the P& in calculating the cost of sales in the trading ac of the organisation. These expenses incurred i & Laccount under the following categories.
SS
For free distri

et profit or loss has to be calculated. It is
ht.
red similar to the trading account. The eriod of time is considered in the P&L
the accrual concept.
tare income and revenue expenses. Let
.
e Profit and Loss account.
ain business activities of the organisation.
grOSS profit, discount received, trading income.
ugh sources other than the main business
me, interestincome, profit on sale of
Iove are included in the total operational
Laccount are the expenses not included 'count. They are left in the Trial Balance in business activities are debited to the P
They are,
119
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Page 130
Organization and administration Selling and distribution expenses
Financ and other expenses.
Organization expenses are exp Rent paid, electricity expenses, rates, bui are examples.
Administration expenses are ir expenses, administrative salaries, po: depreciation are examples for administr.
Expenses incurred on Sales and
distribution expenses. Advertising, Sales given, bad debts are examples for Selling
Expenses incurred on behalf of financial expenses. Bank loan interest examples for financial expenses.
There may be expenses that dor are termed as other expenses. Loss on loss due to fire and donations are exam
By preparing the trading accou financial Statements. In practice both tre are prepared together. For study purpos Based on the following example the prof It is prepared in a horizontal format.
Example - The accounting 31/12/20XX. Acc
are as follows.
Gross profit
Discount received
Commission received
120
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expenses
S
enses incurred to maintain the organisation. lding maintenance, building depreciation etc.
hcurred for administrative activities. Office stage and telephone expenses, machinery ation expenses.
transport of goods are termed as selling and commission, Salaries of salesmen, discounts gand distribution expenses.
fund of the organisation are accounted under , bank over draft interest, bank charges are
notfallinto any of the above categories. They damaged goods, loss on money distortions, ples of other expenses.
nt the gross profit or loss is accounted in the ading account and the profit and loss account es Wepreparethe trading account Separately. it and loss account will be prepared separately.
year for Kosal's Business ends on count balances after preparing trading account
221,000
6,000
3,500
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Building rent and rates
Insurance premium
Advertising expenses
Bank charges
Investment income
Profit on sale of machinery
Administrative Salaries
Printing and stationery expenses
Discounts allowed
Salesmen salaries
Bad debts
Motor vehicles annual depreciation Building annual depreciation Money distortion loses
Bank loan interest
Bank over draft interest
The Profit and Loss account of Kosala's Bu
information. It is as follows.
SS For free distr

20,000
5,000
17,800
2,000
4,500
13,200
48,000
2,500
3,200
35,000
6,200
8,000
7,500
9,000
7,000
3,400
siness can be prepared using the above
mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm - 121 ibution

Page 132
Kosala
Profit and Loss account
Establishment and Administration expenses
Building rent and rates
Insurance premiums
Administration salaries
Printing and stationery expenses
Building annual depreciation
RS.
20,000
5,000
48,000
2,500
7,500
Selling and distribution expenses
Advertising expenses
Discount allowed
Salesmen salaries
Bad debts
Motor vehicles annual depreciation
17,800
3,200
35,000
6,200
8,000
Financial and other expenses.
Bank loan interest
Bank over draft interest
Money distortion loses
Bank charges
7,000
3,400
9,000
2,000
Net profit transferred to the capital account
s
It is clear that the net profit is transfer
through the General Journal.
122
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's Business
for the year ended 31/12/20xx
GroSS Profit B/F 221,000
Discount received 6,000
Commission received 3,500
Investment income 4,500 Profit on sale of 13,200 27, 200 machinery
83,000
70,200
21,400
174,600
73,600
48,200 248,200
red to the capital account. It is transferred
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Page 134
Following information was not included
1. Accrued loan interest 1,000
Accrued insurance 2,000
2. Prepaid advertisement expense
3. Dividend to be received 12.00
4. A building of the organization Monthly rentis Rs.2,000.
Based on the above information pr calculate the net profit.
1952 Identifying the Fin
Differentinterestedparties ofan organis ofthe company. Financialposition ist particular date. HoW much assets area" financed by owners equity or by loans; interested person.
The Balance Sheet prepared for aparticul equation. The accounting equation is as
Capital + L.
Therefore the Balance Sheet shows th date ofan organisation. It is the financia statement but not an account. The ba information to the interested parties to ma
When the Trading and Profit and Lo expenditure accounts in the ledger are The asset, ownership and liability accou accounts are transferred to the Balance: Profit and Loss account prepared in this
For fre

linthe accounts.
as 1,000
has been rented out from 01/06/
epare the profit and loss accou
nancial Position of the Organisation
ation are concerned about the financial position he total amount of assets and liabilities for a vailable, What type of assets are they, are they are some of the questions that may arise to an
ardate shows the information of the accounting follows,
iabilities = Assets
eassets, ownership and liabilities to a certin alposition of the organisation. It is therefore a lance sheet prepared as above provides the
ke their economic decisions of the organisation.
ISS account is prepared all the income and transferred to the above financial statement. nts are still in the ledger. The balances of those Sheet. The Balance sheet and the Trading and smannershows a relationship.
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The relationship is that the net profit or loss ca and Loss account is transferred to the capital
: If it is a net profit it is added to the cal
: If it is a net loss it is deducted from th
In Grade 10 you learned the main items of the E and liabilities. It is important to revise the mai
Letus prepare a Balance Sheet from the items
Example - Tharaka's Business accountir Following balances are as at
Motor vehicles
Land
Buildings
Debtors
Closing stocks
Investments 10%
Creditors
Bank over draft
Capital as at 01/01/20xx Furniture and Equipment
Prepaid insurance premium
Bank Loan 15%
Mortgage Loan
Investment income receivables
Rent received in advance
Cashbalance
Net Profit
SS For free distri

lculated through the Trading and Profit account at the Balance Sheet.
pital
e capital.
Balance Sheet namely assets, ownership n items of the Balance Sheet.
given in the following example.
ng year ends at 31/12/20XX. the above date.
450,000
425,000
300,000
35,000
28,000
50,000
58,000
10,000
650,000
30,000
5,000
200,000
150,000
3,000
4,000
32,000
192,000
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Page 136
Drawings
Building-Provision for depreciation
Motor Vehicle - Provision for deprecia
Furniture and Equipment-Provision fo
Accrued electricity
Based on above information the Bala
20XX is as follows.
Thara
Balance She
RS. RS
Capital
Balance as at 01/01/20XX. 650,000
Add — Net Profit 192,000
842,000 Less - Drawings 16,000
826,
Non Current Liabilities
Bank Loan 15% 200,000 Mortgage loan 150,000
350,
Current Liabilities
Creditors 58,000 Rent received in ad. acc. 4,000 Accrued Electricity 2,000
10,000 Bank Over draft 74,
1,250,
126
 

16,000
15,000
tion 90,000
r depreciation 3,000
2,000
nce Sheet of Tharaka's Business as at 31/12/
ka's Business
et as at 31/12/20XX
Non Current Assets Cost AccumuNet
Depreci.Amount
Land 425,000 - 425,000 Building 300,000 15,000285,000
Motor Vehicles 450,000 90,000 360,000 Furniture and Equip 30,000 3,000 27,000 1,205,000 108,000 1,097,000
OOO
Investments 10% 50,000 OOO
Current Assets
Closing stock 28,000
Debtors 35,000
Pre paid insurance 5,000
I 3,000 000 Investment income to be rece
Cash in hand 32,000 103,000
OOO 1,250,
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Activity - 03
The bookkeeperofAnomas business organi balances aSat 3 1/12/20XX
Capital
Net profit
Buildings
Building-Provision for depreciation
Drawings
Mortgage loan
Ending stocks
Investment 10%
Creditors
Debtors
Investment income to be received
Building rent received in advance
Cashbalance
Accrued electricity
Bank O/D
Machinery Machinery - Provision for depreciation
Furniture
Bank loan 15%
Based on the above information prepare the
When the Balance sheet is prepared correctly the organisation are equal to its total assets.
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zation has forwarded the following
250,000
126,000
400,000
60,000
6,000
80,000
18,000
80,000
27,000 25,000
8,000
5,000
29,000
3,000 15,000
140,000
42,000
22,000
120,000
Balance sheet as at 31/
the total of capital and the liabilities in
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Page 138
We have discussed the preparation of T the Balance Sheet separately. When fina financial year the accounts are as follow
* Trading, Profit and LOSS accour
* Balance Sheet.
When preparing the above financial stat to be adjusted with the adjustment entries entries.
Example- The accounting period
The trial balance as att Description
Closing stocks as at 01/01/20xx
Purchases
Sales
Furniture and Equipment
Furniture and E. – Provision for depreciation Carriage inwards
Bank loan 12%
Loan interest paid Debtors
Creditors
Sales returned
Salaries-Salesman
Rates and Insurance
Capital Discount allowed
Discount received
Cash Balance Land and Building
Additional information is as follows.
1. Stocks as at 31/12/20xx. Rs. 14. 2. Furniture and equipment is dep
128 m For fre

rading account, Profit and LOSS account and ancial statements are prepared for aparticular
'S,
lt
ements the balances in the trial balance have s. The following example includes adjustment
ends on 31/12/20XX for Pivithuru Traders.
that date is as follows.
Debit Credit RS. RS.
2,000
195,000
368,000
60,000
(01/01/20xx) 18,000
1,500
50,000
4,000
42,000
41,000
8,000
25,000
12,000
250,000
4,500
9,000
182,OOO
200,000
736,000 736,000
,000
reciated at 10% on straightline basis.
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3. Prepaid salaries for salesman Rs.1,0
4. Pivithuru has taken Rs.4,000 worth
not recorded.
5. The loan interest is accrued.
6. Carriage inwards has to be paid Rs.
Preparation of Trading, Profit and Loss and
Pivithuru T Trading, Profit and Loss account
RS. RS.
Stocks as at 01/01/20XX 2,000
Purchases 195,000 Less: Drawings goods 4,000 191,000 Carriage inwards 35.00 194.50 Cost of goods to be sold 196,50
Less: Stocks as at 31/12/20XX 14,000
Cost of sales 18250 Gross Profit 177.50 360,00
Organization and Administration expenses
Rates and Insurance 12,000 Furniture and Equipment dep. 6,000
18,00
Selling and distribution expen. Salesmen salaries 24,000 Discounts given 4,500
28,50 Financial and other expenses.
Bank loan interest 6,000 6,000 52.50 Netprofit transferred to capital account 134,00
186,5C
For free dist

OO
of goods for his personal use, but it is
2,000.
Balance Sheet is as follows.
raders
For the year ended 31/12/20xx
RS. . RS. Sales 368,000 Less: Sales returns 8.00
360,000
0. O
)
O
O O 360,000 Gross Profit B/F 177,500 Discount received 9,000
O
O
O
) O
0. 186,500
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Pivith Balance Sheet
Capital (01/01/20xx.) 250,000 Add — Net Profit 134,000 384,000
LeSS - Drawings 4,000
380,000
Non rrent Liabilities
Bank Loan 12 % 50,000
Current Liabilities
Creditors 41,000 Accrued bank loan interest 2,000 Accrued carrige inwards 2,000
45,000
475,000
Activity - 04
In Sahan's business the accounting peri at that date is as follows.
Description
Ending stocks as at 31/12/20XX
Distribution vehicle at cost Purchases
Sales
Investment 10% Advertising expenses Insurance premium Motor vehicle -provision for deprecia Carriage inwards
Debtors
Creditors
Bank loan 15%
Cash in hand and bank Capital
For free
 

uru Traders t as at 31/12/20XX
Accumu. Net
Non Current Assets Cost Deprecial Amount
RS. RS. RS.
Land & Building 200,000 200,000
Furniture and Equip 60,000 24,000 36,000
260,000 24,000 236,000
Current Assets
Closing stock 14,000 Pre paid salaries 1,000
Debtors 42,000
Cash in hand 182,000
239,000 475,000
odends on 31/12/20xx. The trial balance
Di ai
3,000 600,000 340,000
725,000
50,000
12,000
- 6,000 t1On 01/01/20xx 90,000
2,OOO
45,000
82,000
120,000
259,000
300,000 1317,000 1317,000
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Information not yet adjusted as at 31/12/20,
1. Ending stocks as at 31/12/20XX Rs.
Investment income is accrued forth
Depreciate motor vehicles 5% at co
Prepaid advertisement expenses RS
Write off Rs. 3,000 as bad debts frc
6. Bank loan has been taken on 01/04,
You are required to prepare,
1. The profit and loss account for
2. The balance sheet as at 31/12/2
Activity - 05
Sandun is a businessman. In his organizatio
calculating gross profit is as follows.
/
Description
Deb:
Gross profit Ending stocks as at 20XX/12/31
Debtors
Creditors
Administrative salaries
Salaries of salesmen
Investment 10%
Bank loan 15%
Rates and Insurance
Discounts allowed
Discounts received
Bad debts
Distribution Motor vehicle
Buildings
For free dist

KX is,
12,000
Cycar
St
2,000
om the debtors
(20XX. Interest has not yet been
the year ended 31/12/20xx.
OXX.
n the trial balance as at 31/12/20
bit Credit
RS.
240,000
25,000
42,000
38,000
18,000
32,OOO
120,000
200,000
16,000
4,000
7,000
3,000
450,000
400,000 )
ribution

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Motor vehicle - Provision for depreciation (01/01
Building - Provision for depreciation (01/01/20x
Capital
Cash in hand and bank
| Bank loan interest
Additional information is as follows,
1. Investment has been acquired or
for the period.
2. Accrued expenses as at 31/12/2
Administration salaries 6,000
Rates 1,000
3. Prepaid salesmen salaries is 2,0(
4. Abad debt of 2,000 is to be dec
5. The fixed assets are depreciated
Motor Vehicles 10%
Building 5%
You are required to prepare,
i. Journal entries for the adjustmen
ii. The Profit and LOSS account for
iii. Balance Sheet as at 31/12/20XX
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20xx) 45,000
x) 40,000 600,000
45,000
15,000
1,170,000 1,170,000
01/04/20XX. Investment income is accrued
OXX
DO
lucted from debtors.
on straightline basis. The percentages are,
tS
the year ended 31/12/20xx.
distribution

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6 Not for Profit C
This chapter discusses the
6.1 Introduction of Not for Profi
6.2 Members Fees as a Main SC
6.3 Accounts for Not for Profit
* Receiptand Paymer
: Income and Expend
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Drganisations
following themes.
torganisations.
urce of Income Organisations nt ACCOunt
liture Account
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Page 144
Let us prepare Acc Organ
The past students of Sandapanagala Co They were planning to form a past pup asSociation Were to............
Develop the physical assets ofth Help outstanding student ofthe S Help students with economic diff
:
Improve sports activities.
Samantha who had held many po selected as the Secretary of the associat from the gathering. However, Sampath. Accountant by profession, Were propos
Therefore it was decided to hold a ballo nominated. At that time Dr.Sampath got
"I thank you for proposing my name ast back the memory lane to my school da class up to our Ordinary Level Examin Association. Wickrema was the Treasure our association were very popular. We a trade fairs, concerts etc. All the activities teacher used to praise Wickrema for his he is the best person to be the Treasurer of my name. But I wish to withdraw my nan Treasurer.'
By reading the above paragraphs it is cle records of its financial activities. This ch Not for Profit Organisations.
134
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Dunts for "Not for Profit
isations"
llege met at the school in a Friday evening. ils'association. The main objectives ofthe
le School chool, financially and educationally iculties
sitions in School associations in the past, was ion. Other office bearers were also selected , a Doctor by profession, and Wickrema, an ed as the Treasurer of the association.
t to select the treasurer from the two names up and delivered the following speech.
the Treasurer of this association. It takes me ys. Both Wickrema and I were in the same ation. We were members of the Commerce ‘r of the Association. Those days activities of lways tried to increase funds for it. We held were recorded by Wickrema. The commerce hard Work. Now he is an Accountant. I think our ASSociation. I thank again for proposing he so that we do not need a ballot to select the
arthat any association needs to keep proper
apter discusses how accounts are prepared in
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Introduction
ASSociations which are established for differer profit. Their objective is the welfare of the soc many ways and disburse them in many avenues are not necessarily involved in the managem activities of the association have to be record well as otherinterested parties. By reading thi understanding about "Not for Profit Organizatic
Your attention is drawn on in this chapter.
Membership Fees 事
- Lifetime Membership fees 来源
- Income and Expenditure account
as Deficits
-—
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thuman needs and wants do not pursue ety. These associations collect funds in The members who join the associations ent of finance. Therefore the financial ed properly for the use of members as Schapter you will be able to get a clear ins" and how their accounts are recorded
the following basic terms
Receipts and Payment Account
Surplus
Accumulated Fund
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6.1 Introduction of
At present most of the businesS organi However, there are some organisations wh rather than profits. Therefore organisation and not for profit organisations.
The objectives ofNot for Profit Organi
* Development and welfare
A Development of links wit
Think about different Societies/Associ
Buddhist Association, Commerce AS: Association are some examples for dil
objective oftheses associations are mem among members.
Further, Funeral Welfare Associations, T seen in your community are not for profit is not to earn profits they may sometime
Examples:- - Collection of m
掌 Operating cante
掌 Collecting mon{
掌 Receiving dona
掌 Donating mone
According to the above exampl different types of earning and expendit have to be aware of these monetary tra has to be carried out for these transactic
13 6
For fre
 

Not for Profit Organisations
sations carry out their activities for profits. nich carryouttheiractivitiesforotherobjectives ns can be categorised as forprofit organisations
sations are,
of their members
th the Society
ations of your School.
sociation, Muslim Majlis, Tamil Literature fferent societies and associations. The main hbers' welfare and development of interaction
rade unions, Religious associations you have Organisations. Eventhough their main objective S engage in different economic activities.
embership fees
ՇՇՈՏ
2ythrough sale offlags.organizing concerts etc.
tions from people and organisations
y to its members inspecial situations.
es it is clear that these associations engage in ure of money. Members of these associations insactions. Therefore an accounting process
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Activity 1.
List down welfare associations in you
their activities.
i. Examine the different Sources C
i Propose how you can improve
2. i. Collectinformation of differer
Preparealist ofwelfare activit
i Prepare a report on the import and presentitin the morning a
A blood donating campa a Welfare association
Members' Fees 6.2 21 ܓ
The main Source of income of Not for Profit (
membership fees of their members. The amoun is decided at the members' meetings. The fee ha
SS
For free distrib
 
 
 
 

community. Prepare a report of
funds of theses associations/Societies.
funds for these associations/Societies.
tasSociations/Societies in your School. ies of these aSSOciatiOnS/SOCiietieS.
ance of School associations/Societies ssembly as a speech.
ign organised by
as a Main Source of Income.
Organisations are money collected as tofmembership fee and collection of it as to be paid monthly or annually to the
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Page 148
treasurer of the association. A receipt Some associations allow their memb lifetime membership.
Calculating Membership Fees
Membership fees have to be calculat
(Membership fee income = Number Example - Number of members in Sal fee per memberis Rs. 200/=,
GAnnual membership feeline
You are already aware of the Accrual received or not the membership fee considered as an income.
Consider the following example.
Number of members joined the S. membership fee per member is Rs. 1.
The annual membership fee income f
Money rec
645 XRS.
Rs... 96,75
Activity - 02
The number of members who joined is 150. The annual membership fee pe had not paid membership fees at the
Calculate membership fees re
Calculate the total membersh
138
For
 

should be collected for the payment of the fee. ers to pay a lifetime membership fee to get the
ed for the period the accounts are prepared.
of members x membership fee per member
magi Associationare 130. Annual membership
me 130 x RS, 200.00-2600000 D
concept. According to the concept, though it is relevant for the accounting period has to be
amanala Oya Association are 655. Annual 50.00. 10 members have not yet paid.
or the year 20XX is,
2ived Money not yet received
150 + 10 XRs.150
O + Rs. 1,500 Rs. 98.250
he Eksath Sports Association for the year 20xx. r memberis Rs.200. Number of members whi end of the year were 12.
ceived for the year 20XX.
p fees relevant for the year 20xx.
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Accounts of Not for Profit Organisations
There are two main accounts prepared by the 1. Receipts and Payments Account.
2. Income and Expenditure Account
In addition to the above, the Balance Sheet is pr of the association.
Receipts and Payments Account
The account that shows all money re. period, of not for profit organisations is know This is an asset account. Therefore the mor payments are credited to the account. This acco in the cash book each item is accounted dail Receipt and Payment Account the figures show of each receipt and payment.
Consider the following example.
The summarised receipts and payments of "Sa 20XX areas follows.
Ο1.01.2OXX Cash Balance
Membership Fees receiv Receipts from Musical S Donations received Sale of old newspapers Purchase of newspaper Expenses of Musical Sh Maintenance of the Spor Purchase of sports good Electricity expenses Stationery expenses Monetary donations for
Based on the above information the Receipts can be prepared as follows.
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se associations. They are,
epared to calculate the financial position
ceipts and payments for an accounting
nas the Receipt and Payment Account. ley received is debited and monetary untis similar to the cash book. However y, separately and as it happens. In the the summarised (accumulated) amount
thmini” Sports Association for the year
RS. 4,350
Ved 35,000
Show 46,000
25,000
900
'S 4,000
OW 34,500 ts ground 5,600 ls 20,000
6OO
4OO
sportsmen 20,000
and Payments Account for year 20XX
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Receipts a
For the year Amou
Date Description RS o/o Balance b/f 4.3. Membership Fees 35,0t From Musical Show 46,0. Donations received 25,0 Sale of old newspapers 90
111.2:
01/01 Balance b/f 2615
Activity - 3
Following information relates to Minik January 20xx. As presented by its trea
Number of members: 200
Monthly membership fees
Purchase of02 pens
Purchase of O2 exercise books
Purchase of a flower pot
Purchase of stationery for child
Binding of magazines Sale of magazines
Money to be received by sale C
Nagoda Vidyayathanaya
President of the Association Mr. Kadee for the magazine using his money. Jeev
not paid membership fees at 31 Januar as at 31/01/20XX.
140
FOr fr
 
 

ld Payments account
ended 31/12/20XX "| Date Description Amount
RS. 50 Newspapers 4,000 DO To the musical show 34,500 OO Maintenance of the ground 5,600 OO Purchase of sports goods 20,000 O Electricity expenses 6OO Stationery expenses 400 Donations for sportsmen 20,000 31/12 Balance c/d 26,150
50 111,250
eta Children’s Association for the month of surer Supuni
RS. 10
RS. 50
RS. 120
RS. 70 ren’s magazine RS. 400
RS. 300
Rs. 1,100 fmagazines to
RS. 300
r has purchased 2 inkbottles worth of Rs. 220 Vantha, Hakeem, Sukendra, Sinal, Colvin had y. Prepare the Receipts and Payments account
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4 - Ativity ܚܬ
The treasurer of Pera Maga Sports Club has money in a diary as follows. Based on the recor
account of the Sports Club for the first three
According to the treasurer the cashin handa
SuTS 1 -/ܫܘPaid rew+ à /ܐ ܐ .
A membership feel col
一佐一* 2es. 1 1 ' ' ' *: - 2 | 11 Φίατίες, - 666]4 a | Ilo Puchel a hal 7.) | ' le administra :ே 190/-
At thenbership fees easy'/', 'for pre; /ി
| /οι herbership fees 75/- a terh) a .
دو / ظ ع وPaper علمPen ماہ2|[' 111 =Be7 (per அகவு
Income and Expenditure Account
The account prepared by Not for Profit Orgar activities in a certain period of time is calledth similar to the Profit and LOSs account of For F we use to prepare the Profit and Loss acco Income and Expenditure account.
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recorded the receipt and payment of dings prepare the receipts and payments months of the year 20XX.
Sat 1st January 20XX is Rs. 9,250.
al ría reaf el 2H+ * Pencessor Antwersary Joe|- PIT membership 1876% 'h o9 *ム。 | elny než prer 25o|- the Perbership fees പീ}- ]*? o:9 () (, 23ം/-
2/2é electricité BLIL (2e
"|fe 1്]-
#000|- /lo ? Voroy atome 7o« Il mesma bership fees 7. A
h് ഔ и соие 29591 -
hisations to calculate the results of their e Income and Expenditure account. It is 'rofit organisations. Therefore the rules unt have to be used in preparing the
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Page 152
The final balance of this account is terr income over expenditure is the surplu. deficit. The surplus or the deficit is tran
In Not for Profit Organisations the exce. the accumulated fund. If there are defici fund shows the financial strength of the
Innot for profit organisations the income differ according to the main objectives
Example - Funeral Welfare Associatio
Past Pupils' Association
Sports Associations
Consider the following example
The treasurer of"Daham Maga” Buc information for the year ended 31/12/20
Membership fees receiv Monetary donations rec Refreshments
For Buddhist activities Electricity bill Purchase of newspaper Sale of newspapers Donations made
With the following informationletus pri 1. Membership fees to be received 2. Electricity bill to be paid as at 3
142
For fre

ned as the surplus or the deficit. The excess ;: the excess expenditure over income is the sferred to the accumulated fund.
is income over its expenditure are gathered to ts the fund Will be reduced. The accumulated association.
sources are similar. Howevertheir expenditures hey try to achieve.
ns - Expenditure on funerals
- Expenditure on development of the
School
- Expenditure on improvement of sport
activities
ldhist Association has forwarded following )XX.
Ved 5,600
ceived 9,000
6,000
4,500
1,200
S 2,000
160
2,000
2pare the Income and Expenditure account. 1 for the accounting period Rs. 2,100 1/12/2OXX RS. 300
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Debit Income and Expenditur
Refreshments 6,000
Buddhist activities 4,500
Electricity bill 1,500 Purchase of newspapers 2,000 Donations made 2,000
Excess credited to accumulated fund 860
16,860
Activity - 5
Following is the receipts and payments accoun
year ended 31/12/20XX.
Debit Receipt and Paymen Balance as at 01/01/20XX 19,800| Col
Membership fees 24,200 Pul
Concert income 16,000 || Ann
Monetary donations 4,000 | Buil
GrO
Spo
Elec
Tele
Pur 64,000 Pa) Balance b/d 14,750
Prepare the Income and Exper association for the year ended
2. If the accumulated fund is Rs.
will change at 31/12/20xx.
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2 account. Credit
Membership fees received 7,700
Monetary donations 9,000
Sale of newspapers 160
I6,86Ս
of Sarana sports association for the
tAccount Credit
Incert expenses 11,250
"chase of newspapers 2,000
ual scholarships 10,000
lding rent 4,000
und maintenance 3,000
rts instructor salaries 12,000
stricity bill 700
'phone bill 1,300
chase of sports equipment 5,000
ance c/d 14,750 64,000
diture accountforthe Sarana Sports
3 1/12/2OXX. 12,700 as at 01/01/20xx, show how it
ution

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Activity - 6
The Secretary of Nilwala Readers Ass information relevant to the year 20XX.
Number of members 200.
The annual membership fee is Rs.100. as at 31/12/20xx is Rs.1,500.
Following transactions occurred durin Cash receipts
Readers fines
Anniversary income
Cash payments
Employee salaries
Electricity
Water bills
Lightbulbs
As at 01/01/20XX Cash
Building AS at 31/12/20XX Cash
Building
ASSume that you are the Treasurer oft information prepare the following acco
i. Receipts and payments accour
i Income and expenditure accou
144
FOr fr
 
 

ociation has forwarded the following
The annual membership fees not yet received
gthe year.
RS. 530
4,800
15,000
3,200
600
3,100
500
20,000 2,430
8,000
he Association. Based on the above unts as at 31/12/20XX.
t
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ee distribution

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Activity - 7
i. Prepare a list of services a welfares
people.
ii. Write briefly how the above service
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L_1_et_ | ociety can do for the wellbeing of the
scan be implemented.
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7 Financial Req and Investment
This chapter discusses the
7.1 Financial requirements 7.2 Sources of finance
7.3 Evaluation of financial 7.4 Selection of financialso 7.5 Evaluation of investime 7.6. Different types of retur 7.7 Factors that should be
146
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uirements
Opportunities
following themes.
of business organizations
SOUCES
UCOS
it decisions
onsidered in selecting investment types
distribution

Page 157
Let us take suitable disicions, by in
The following conversation was extracted fro
Today, on “Hasini with Dilini” programı Muthukumarana. Mr. Muthukumarana is a
pany in Sri Lanka.
Hasini
Mr. Banu
Dilini
Mr. Bhanu
Hasini
Mr. Bhanu
Hasini
Mr. Bhanu
Dilimi
Mr.Bhanu
Good morning Mr. N welcome you for the
Good morning
I Would like to thank As an introduction to We can observe the b theories even at Ourh
Absolutely yes. Eve organization what is financial requiremen in Various investment Could you please ex
People can meet thei SOurces Such as frOn) employment, rentor from Various instituti
Does everyone spen
Although people spe observe Similarities i.
What are these simil
We can classify thes The first category ist
For free distri

Vestigating the capital market.
matelevision programme.
me, you will be meeting Mr. Bhanu inance manager of a well-known com
Muthukumarana. We Would like to
pТОgТamПС.
you for participating in the programme. Our di SCuSSiOn, I WOuld like to knOW that asic features of financial management
ousehold levels. Do you agree with me?
in in a household Orin a business happening is that we have to fund our tS from Various Sources and invest them
S. blain it further?
financial requirements from various their salaries and wages from leasing from properties, personal loans On SetC.
dimoney in the same manner?
ind money on different items, we can in their expenditure patterns.
arities in the expenditure patterns?
e patterns under two broad categories. he expenditures on day-to-day activities
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Page 158
such as expendi are also calledre
Hasini What is the othe
Mr. Bhanu : Sometimes Wes periodoftime su machines etc. El not very frequer time.
According to the above conversation you and the sources of finance. By readingth differenttypes offinancial requirementsf business organizations and they use varic
148 S S S S S S For free

tures on food items, medicines etc. These 'curring expenditures.
r category?
spend on items that can be used for a long Ich as refrigerators, televisions, washing xpenses on these kinds of equipment are it since we can use them over a period of
may understand the requirements of finance lis chapter you will understand that there are or different individuals as well as for different }us methods in financing these requirements.
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INTRODUCTION
Each individual has to spend money on diff order to finance these requirements, they he funds. Funds will be reinvested in the busine types of investments externally. These types investors as well as to the country as a whol enttypes of investments available will be di
Your attention is d terms in this chapte
- Longterm financial requirements - Short term financial requirements - Ordinary shares - Preference shares 来 as Formal investments 来 as Savings deposits
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erent types of goods and services. In lve to use different types of sources of ss itselfor may be invested in different
of investments are beneficial to the e. Different sources of finance, differscussed in this chapter.
Irawn on the following basic
2.
Time/Fixed deposits
Share market
Capital gains
Bonus shares
Rights issues Risks and Returns of investments
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彦 7.1 Financial requir
At present, people have complex needs study the Various market conditions ar available. Selection of sources of finance should be carefully decided. In this secti requirements ofan Organization.
II.
III.
Initial capital requirements
It is required to buy assets and in new business.Therefore, funds are of a company, properties, equipt
Business expansion requiren Funds are also required for busi require opening of new departm to investin more equipment, fur
Acquisition of other business Funds may also be require in final as a strategic move. For exampl carpentry Workshop. This will he Sales outlet etc.
In addition to the above mentioned basi importantrole.
崇
To carry out day-to-day activ eg: . For purchasing stocks
* For Sundry expenses
* To face unexpected incidents
150
eg: * Getting unexpected or
3: Bad debts
。》
FOr fre

ements of business organizations
and wants. In this context, it is important to ld identify different business opportunities for an organization and invest them profitably on. We will identify various types of financial
ncur certain expenditures when starting up a requiredito financeinitial capital requirements ment, furniture, buildings etc.
1entS ness expansion activities. The company may lents or branches for which the company has niture, buildings etc.
eS ncing acquisition of another operating business le, a furniture shop owner may acquire a
lp him in Supplying materials, opening another
c needs, following requirements too playan
ities
ders
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It is clearthat a business organization may fir in carrying out its business operations. Ontl of investment objectives also. Accordingly, th can be discussed under two main categorie
Financial requirements to meet long ter Long term financial requirements ar nature such as acquisition of lands, longterm financial requirements.
Financial requirements to meet short te Short term financial requirements are out day-to-day activities such as payi travelling charges, electricity, taxes,
The above financial requirements may vary fi On its nature of business and size of the orga short term financial requirements for a groce for long term financial requirements fora co
Sources of finan
Various financial requirements of anc of finance. Accordingly,
I. Longterm investments should be fi
II. Short term investments should be
Therefore, it signifies that there is a relation and the term of the sources of financing.
Identifying the optimal source of financ organizati
Thereare differentforms ofbusiness organi organizations etc. Whilst some organization financing, other organizations may find it di higher the access to different sources of finan organization.
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ld different types of financial requirements he other hand, there can be different types efinancial requirements of an organization S based on time.
minvestment opportu
eto investinassets which are longterm in buildings, properties etc. These are called
investment op · · · to meet financial requirements of carrying ng Salaries and Wages, insurance premium, , settling trade debts etc.
om organization to organization depending nization. For example, there can be more }ry shop whilst there can be more demand instruction company.
rganizationarefunded by different sources
nanced by long term sources. financed by short term sources.
lship between the term of the investment
ing according to the nature of the
O
zations such as private companies, public ls have access to wide range of sources of ifficult to finance their requirements. The |cing the higher the growth potential of the
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152
Sole proprietorship
Savings of the proprietor, poolec relations are the key sources off funds are interest free funding. S loans, banking loans and Overdre
Partnerships The main Source offinancing is the The capital invested by different the partnership. In addition toth borrow funds from its partners.) andother financialsystemandob that partnerships have comparati than sole proprietorships.
Limited liability companies/L
Listed companies have access to
otherforms of business organiza
- Issue Shares : Issue debentures :: Obtain mortgaged loans 2. Obtain Bank loans 2. Obtain loans from nonb 3. Enter into leasing and H
Co-operative societies
Membership fees paidb Source of funding of the ( fees, they have the acces Government grants.
Public enterprises
The businesses are maint. local authorities and othe enterprise category. The is the Government grant enterprises have beenper its requirements.
അ
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lmoney from family members and close inancing of a sole proprietor. Most of these sole proprietor has the access to the personal aft facilities too.
2 capitalinvested by partners of the partnership. partners is agreed at the time of formation of e capital invested, the partnership can also Partnerships also have the access to banking tain loans. Thus you will be able to understand Vely more ability to find Source of financing
listed companies
a wide range of sources of funding than tions. They can
anking corporative sector ire purchase contracts etc
y the members of the Society are the main co-operative Societies. In addition to member SS to banking loans, corporate loans and
ained by the Government, provincial councils, er Governmentinstitutions fallinto public main Source of financing of public enterprise S. In addition to this, certain local public mitted to issue shares to the public and finance
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Activity 1
Assume that you are planning to start a furn
operations,
I. Identify the resources you need to con II.Explain how you wouldplan to fund til
彦 7.3 EValuation Of fir
As discussed, the business organizations can fir Various Sources of financing. Each of these sourc selecting as the source of financing.
Bank loans
Bank loans area formal type of source certainterms and conditions on the bo loans can be obtained comparatively atl interestrates from different borrowerScC ofthe business and other factors that t certain instances, the bank will grant lo economic priorities of the country. Acc areliable source of financing.
Selling properties/renting out/pawning
Abusiness organization can use its own If there are excess or unutilized assets, lease them out and fund the requiremel theorganization to meetthe financial req easily since the company uses Some ex
Personal loans
This is one of the informal methods Offi subject to higher interestrates, the abil documentation equirements and with r comparatively an attractive method off
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ture shop and in order to commence
mence the busineSS nese requirements.
lance their financial requirements from :es should be carefully evaluated before
is of funding. The bank may impose
rrower to safeguard its position. Bank ow rates. The bank will charge different )nsidering their financial stability, nature he bank may consideras important. In lans onless conditions considering the 'Ordingly, bank loans are considered as
Droperties to fund different requirements. the company can sell them out or rent/ nts. This method of financing enables uirements at low costand comparatively isting assets.
nancing. Although personal loans are ity to obtain loans with less Oguarantors, these loans are inancing.
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Issuing shares
Sharesare issued by the limite capital. The capital of the com will be given the ownership O shares. Shares issued by a com Such as Ordinary shares and p
Ordinary shares
Ordinary shares are issued wi percentage. Dividends will be of the company. Ordinary sha share capital)
Preference shares
Preference shares are issueds
percentage.
As a source offinancing, the issue ofo) the issuer.
3. The ability to raise more ful Limited liability comp for share issues and th
* Long term nature of the cal Share capital can bere is paid out at last.
3. No interest is paid:
Interest is not paid for Although dividendisp of the company. Ther Other loans.
3: Enhances the transparency It is legally required top companies as at stipul the financial informati to audit, the investora higher than other.com
154. 鷺‧
For f

2d companies as the main source of receiving pany will be divided into number of units and f the company to the persons who purchase the pany can be classified into two broad categories reference shares.
thout specifying aparticular dividend pay out declared based on the annual operational profit recapital is a form of longterm capital. (equity
pecifying the dividend pay out
rdinary shares will give the following benefits to
nds: anies can invite the general public to subscribe ereby raise higher amount of capital.
pital: stained until the liquidation of the company as it
capital raised by issuing ordinary shares. aid, it is subject to the operational performances efore, there is no committed cost of capitalas
of business operations: ublish financial information of the limited liability ated period of time by different statutes. Since onis published periodically and they are subject Wareness of these companies is comparatively panies.
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Accordingly, by evaluating different financial appropriate and economical source of financ
彦 7.4 Selection of financis
In selecting the best method of finar factors should be considered. It is importantt priate Source of financing to improve the pre key financial aspects of the company.
1. The nature of the requirement 2. Collateral requirements 3. Terms and conditions imposed
on the borrower 4. Flexibilities in obtaining the facility 5. Ability to repay
I. The nature of the requiremen It is required to identify the exac key factor to be considered is the other words, short term financial term means whilst longterm finar term meanS.
II. Collateral requirements
It is required to produce securitie from banking and other privates Securities are lands, buildings an to produce acceptable Securities requirements.
III. Terms and conditions impose Lending institutions will impose operations of the business. Some the borrower to cease the use of loan if the borrower defaults inp addition to this, the lending insti or delays in meeting these requir
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Sources, it is possible to identify the most ing for the company.
|cing for an organization, the following O select the most economical and approfitability, leverage conditions and other
6. Costs of funding 7. The nature of the business
Organization 8. Tenor of the facility 9. The nature of the business
activities
t trequirement that is to be financed. The : tenor of the financial requirement. In requirements should be financed by short lcial requirements are financed from long
s/collateral in obtaining loans specially ector institutions. Generally, the most of dother types offixed assets. The ability will enhance the ability to meet financial
d on the borrower different terms and conditions on the -times, the lending institution can order the mortgaged property and recover the laying interest and/or capital on time. In ution can charge a penal rate on defaults enmentS.
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V.
V.
VIII,
VIII,
156
Flexibilities in obtaining ti The documentation requiren to go through in obtaining th considered. In this process, guarantees etc. The time take institution to another.
Ability to repay
It is required to be vigilantal flow of the company. Theref that are funded by the borrow and interestrepayments ont problems to the organization
Costs of funding Various costs have to be incu final repayment. Few of thes advertising, legal fees, stam| the borrower has to meet capi on time depending on the typ to analyze the costs and bene requirement.
The nature of the business All the funding sources aren Organizations. For example, raise fundsby iSSuing ordina Organization should always fund its financial requirement unauthorized sources of finan
Tenor of the facility
Certain funding should be rep allow the borrower to repay the tenor of the loan, the high The burden of repaying with the business activities of theorg position. However, when de interest movements in thema positions, future cashflow req a shortertenor must be evalu
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he facility lents and the processes that the borrower has e loan is also an important factor to be t is required to produce various documents, 2nforthese activities varies from one lending
out the movements and patterns of the cash re, the income earned on Operating activities yed funds should be adequate to meet capital ime. Failure to do so will cause numerous
irred from initial stage of fundraising to the se Costs are Costs on documentations, p charges and etc. In addition to these costs, tal, interest/dividendrepayments periodically es of the borrowing. Therefore, it is essential fits of the funding a particular financial
| organization Otaccessible to all the types of business a Sole proprietor and apartnership cannot ry shares to the public. Therefore, an Select the bestand the authorized Sourcesto SWithoutgoing for easily accessible
cing.
aid within one year whilst some other funding hem in over a longterm period. The shorter her the value of the installments to be paid. in a shorter period of time should not affect !anization, Specially resultinginatight liquidity ciding an appropriate tenor for the loan, the Irket, the ability to expose into tight liquidity uirements and other benefits in paying during lated.
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ΙΧ. The nature of the busin It is essential to understanc carries out so that it highli factors in selecting an opt Source of funds available appropriate for a wholesa their nature of the busines
Accordingly, the optimum source of fund after careful evaluation of the various fac much comfortable profitability and liquidit
Activity 2
O CC 2, a fale foi a imite for otherforms of business organizati
Activity 3
eda companifesprefertor er res anding Commenton
Activity 4
You are required to prepare an article totl the topic, factors that should be conside
S S S S S S S S S S S S S S S S S S For free di
 
 
 
 

|ess activities the nature of the business that the company ghts the cashflow patterns and the other mal Source Offinance. Forexample, the for a grocery shop owner may not be e dealer mainly due to the differences in
S.
ing for the organization should be selected tors affecting the decision. This provides y conditions for the organization.
diability companyare more thanthat ins. Comment on the above Statement.
aise capital by issuing shares more than he above Statement.
he commerce magazine of your school on red when selecting a source of financing.
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彦 7.5 Evaluation ■f
Organizations have to carry out their busines environment. At the same time, the opportuni and wide. Placing excessfunds available wi instruments with the intention of earning inc mode of classifying the investments is the ten can be categorized as follows consideringt
: Short term investments 3. Longterm investments
Short term investments are the investment period. Other investments that have a ma categorized as long term investments.
Another method of classifying investments is investments can be categorized considering
%. Formal investments : Informal investments
In the following sections, we will be focusi ments. This does not mean that informality investors. Investment methods that do notha as informal methods of investments. Inves places expecting higher interestrates are f ments. The absence of legal acceptance and factors to be considered before deciding in mentS.
In contrast, the formal methods of investm acceptable legal basis and are effectively mc body. At present, investors tend to make investments due to following reasons.
Acceptable legal basis
Low risk of defaulting the Low risk of defaulting the Other non-financial benefit
:
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different investment essions
sactivities in a very dynamic and complex ties available for investments are numerous h individuals and organizations in various ome can be defined as an investment. One Drofthe investment. Therefore, investments he tenor to maturity.
turity period of more than one year are
the legal form of investments. Accordingly, its legal formas follows.
ng more on the formal methods of investpes of investments are not popularamong Vean acceptable legal basis can be grouped sting in Seettu, deposits made at different ew examples of informal types of investthe potential risk of defaulting are the key investing in informal methods of invest
ents are carried out by Organizations with Initored by another Government regulatory 2 investments in the formal methods of
capital deposited interest due
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istribution
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Varoius avenu
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es of investment
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Now let us pay our attention to a few
2 Open a deposit account. 3. Purchase assets. % Purchase of shares Deposits
Deposits are accepted by the bank in the Central Bank of Sri Lanka. This is Small scale investors. Financial institutior products with numerous other benefitsbu of these deposit products are as follows.
i. Savings Deposits ii. Time/Fixed Deposits iii. Certificates of Deposit
Savings are made With the intent money as and when required. This is a very investor due to following reasons.
3. It is comparatively easy to open a a Deposits can be made at any time Convenient physical arrangements
Example Post offices
e School Co-opera e Co-operative RuI Commercial Bank o Non banking othe iv. Ability to withdraw funds anytime
Time/Fixed Deposits
A fixed amount will be invested called a fixed deposit. If the fixed deposit agreedinterest might not be paid. Interes the fixed depositin frequencies such as mc maybe withdrawn fully at the maturity to rates Will Vary according to the tenor an benefits can be enjoyed in investing infix
160
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ypes of formal investment.
sand other financial institutions registered a very popular form of investment among is have introduced various types of deposit ilt into deposits to attract depositors. Some
ion of earning an interest and to withdraw feasible form of investment to any scale of
Savings account during the working hours. s made by the financial institutions
tive Societies and other School banks al Banks
KS
rfinancial institutions
at a fixed rate over a fixed term and this is
is withdrawn before the maturity date, the E may be withdrawn before the maturity of nthly, quarterly, biannually and annually or gether with the capital amount. The interest d the value of the deposit. The following 2d deposits.
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崇 Receiving the interestat the er 来 A higher interest than savings 来源 The longer the tenor of the dep
Certificate of Deposits (CDs)
یو
Certificate of deposits can be financial institution. CDs will also earr CDs are generally one year. In addition to depositors on drawings.
Activity 5
If there is a savingsbankin your scho
business activities of that bank and ans i. The types of deposits you can The minimum deposit amount Rates of interest given for diff The steps that you have to foll The methods available in WithC The other types of benefits gi increases.
ܔ
FOr fr
 

ld of the term at the agreed rate will be paid on fixed deposits osit, the higher the interestrate on the deposit
made over a fixed term at a bank or at another la higher interest than savings and the tenor of to the interest, various other gifts will be given
histočnitra bank Sri Laíka alinštitution Whicha
ol, study with your friends the operations and werthe following questions.
make at the bank Ethat is required to open a deposit. erent types of deposits
ow in making a deposit
irawing funds vento depositors when the deposited amount
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Acquisition of properties
With the interestrates declining environmer investin properties as a method of investmen value of money, the demand for properties i follows.
* Fixed assets i: Movable assets Fixed assets
Fixed assets are the assets that cannot be phy method of investment, there is a higher tende lands. This is mainly due to scarcity of landa economic life. Therefore, high capital gains a
In addition to this, investments in building are: However, the economic lifetime of buildings nature.
Another investment option available is to inv assets are the assets which are not fixed to a nature. Investment on gold jewellery is anothe following reasons.
a. The increasing price movement patte The ability to sell/pawn them any tim
In addition to gold jewellery, investments ar diamonds, gems and other antique assets.
Purchase of shares
Investing in shares of companies is one of the trading activities take place at a stock excha initial public offer made by companies and fr Stock exchange.
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ht, individuals and institutions prefer to t. Since there is a downward trend in the Sincreasing. Assets can be grouped as
Sically moved from place to place. As a incy to acquirefixed assets, specially in is a resource and its unlimited use of re expected by investing inlands.
also an attractive method of investments. is limited and it is a depreciable asset in
festin moveable properties. Moveable fixed asset and physically moveable in rattractive method of investment due to
In he and to convert into cash
'e also made in precious stones such as
2 formal methods of investment. These nge. Investors can buy shares from an om the secondary market, which is the
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The secondary market operations in S. Exchange and sharesofall the listed con are registered in the Colombo Stock Ex The Colombo Stock Exchange manages and the Securities and Exchange Comm of the Colombo Stock Exchange.
A company can issue two types of shar
Ordinary shares 3. Preference shares .
As an investment method, ordinary shar shares are more attractive than other typ as the owners of the company and the C features attached to the ordinary shares
Ordinary shares
Ordinary shares are issued by the limited identified in ordinary shares.
% Dividend payments:
Dividends are paid out C of the management. Di earning net profits but company earns higherr
žig Ownership and mana Limited companies a company directors ar company. Therefore, participate in decision I
Voting rights: Ordinary shareholders a of the company and they on their number of shar
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ri Lanka are handled by the Colombo Stock npanies are traded here. The companies which (change are also called the listed companies. all the trading activities of the stock exchange ission of Sri Lanka regulates all the activities
CS.
eshave a liquid market and therefore Ordinary es of shares. Ordinary shareholders are treated 'apital is called the owners’ equity due to the
di companies and the following features can be
fthe net profit of the company at the discretion vidends are not paid out at the periods of not will be paid at a higher percentage when the profits.
gement: re managed by the board of directors. The e appointed from the shareholders of the the shareholders have the opportunity to making process of the company.
reable to attend the different types of meetings enjoy the Voting rights at Such meetings based seholding.
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Investment Portfolios
Instead of investing only in one type of asset of assets as a basket of investments. This is C the investoran opportunity to diversify his deposits in banks and other financial institutio Investing in a portfolio Will reduce the vari instruments and ensures stable level of incon
Unit Trusts
Unit trusts are trusts buildup by the funds rec will purchase units from the trust. Since unit other types of investments, even Small scale ir trusts are managed by expert professionals in high returns can be expected at comparativel
彦 7.6. Different types
The various types of returns that can be earned are discussed below.
Returns from deposit products
The investors can enjoy the following typeso
products.
拳 Interest :- Income that is earned Banks and other fina depositors based on
Safety :- The ability to receiv thereonis animporta and/or interestis ver and other authorized
拳 Other benefits:- Banks and other fina gifts and benefits for
Example :Gifts offe covers, all a loanet
164 SS For free dist

pategory, investors can investin number alled a portfolio of investment. It gives nvestments. A portfolio may comprise ns, shares and other types of investments. ous risks inherent to different types of he over the period of time.
eived from its unit holders. Unit holders rices are comparatively affordable than vestors can investin unit trusts. The unit the Various investment fields. Therefore, y low risks.
of returns from invest
di from investing in differentinvestments
freturns/benefits by investing in deposit
i by depositing funds is called interest. incial institutions pay attractive rates to the term and the amount deposited.
2 money so deposited and the interest int factor. The risk of defaulting capital y low if the deposit is placed at banks financial institutions.
ancial institutions offer various types of its deposit holders.
red on lottery drawings, free insurance bility keep as collateral when obtaining
C.
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Returns from acquiring assets/propertie
Investing in assets/properties will provid
3. Capital gains:
It is possible to earn capital gains by the purchase price. For example it is 50,000/-by selling a property purch
3. Other types of incomes:
It is possible to earn rent and/or lease purchased. At the same time, it is pos
property.
3. Other benefits:
Assets/properties are Well accepted a other parties.
Returns from ordinary shares
By investing in ordinary shares, the follo
a Dividends:
Dividends are paid out of profit of the of the company, the dividend pay ( dividends are paid during a financially higher the net profit of the company,th
3. Capital gains:
Capital gains can be earned by selli
purchase price. Example : An investor has purc at Rs. 12/- and Soldt On this transaction
3 Bonus shares:
Bonus shares are free shares giver company, based upon the number of Though monetary contribution is no the shares.
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following returns to the investors.
alling properties at a higher price than possible to earn a capital gain of Rs. sedat Rs. 800,000/- for Rs. 850,000/-
incomes by using assets/properties sible to use the natural resources in the
s collateral when obtaining loans from
wing returns/benefits can begained.
: company. At the end of a financial year ut ratio Will be declared. Sometimes, earand are called interim dividends. The e higher the dividend pay outpercentage.
ng the shares at a higher price than the
hased 800 ordinary shares of a company nem at Rs. 16/- The capitalgain earned s Rs. 3,200. (Rs. 16 - Rs. 12) x 800
to existing ordinary shareholders in a hares that the shareholder already owns. done for this, rights can begained for all
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3. Rights issues
As an option, a company cang With the issued rights, existings number of new shares from the time. Ability to buy the shares share market is the benefit that
3. Other benefits:
Ordinary shares can also be col the same time, the ordinary shal and they can be appointed as a also enjoy discounts when purc the company.
Factors that
An investor should consider a number of this case, more attention should begiver
Return
The term return refers to the ratio ( on an investment relative to the money gained or lost may be re. net income/loss. The money in principal or the cost of the inve compensate the risks absorbed b not consider investing in Such as
Risk
The uncertainty where the inves will result in not receiving the ca
The relationship between risk and re
For fre
 

) for a rights issue to raise additional capital. areholders have the privilege to buy aspecified Ompany at a specified price within a specified or a lower price than the price in the existing an begained in Such instances.
ateralized as a security in obtaining loans. At eholder becomes the owners of the company member of the Board of directors. They may hasing goods and Services as shareholders of
should be considered in seen an investment type
factors in selecting a method of financing. In to risks and returns of the investment.
)fmoney gained or lost (realized or unrealized)
amount of money invested. The amount of erred to as interest, profit/loss, gain/loss, or vested may be termed as the assets, capital, tment. If the return on investment does not investing in Such instrument, companies do SetS.
ments made by an individual ora company ital and/or the returns on investment.
urn can be summarized as follows.
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Return () high f (3) low
As shown in the above table, the higher ther to absorb. Accordingly, the factors that aff carefully analyzed. However, the risk attituc investor due to following reasons.
Investor's competencies in makingi Risk appetite of investor
Financial and non financial objectivi Economic, social and political enviro Entrepreneurial skills of the investor
As discussed throughout the chapter, it is e. investment decision and should always in institutions. At the same time, it is vital be company that you have already invested a political environment that affect the investm
Activity 6
Prepare an article on the topic of "The ri investments expecting higher returns' and p
Activity.7
ܓܠ
Investing in investment portfolios reducesth returns from various types of investments.' I
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Risk high (3) low (9)
eturn, the higher the risk that the investor acting an investment decision should be le ofinvestoris different from investorto
nvestment decision
es of the investor onment affecting the investments
ssential to study the factors affecting the vest only with the properly regularized aware of the business directions of the ind be alert on the economic, social and 2ntS.
sk of investing in informal methods of resentitin the school morning assembly.
le riskofinvestments whilstenhancing the Discuss :
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Ée Activity 8
The high levelofinvestment opportunities Discuss the above statement by producin
e Activity 9
You are required to discuss with your tea of the school on the following topic. "The short term and longterm investment
168
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enables a country to attain economic growth." gfactors supporting the statement.
cher and prepare an article to the wallpaper
opportunities available in Sri Lanka'
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This book is a gift from the Gover country. Please use it carefully so tha and sisters in the coming years.
Name of the School:
Year Name of the student who is
using the book
2010
2011
2012
2013
2014

nment to the young generation of our it it could be passed on to your brothers
Signature of the class teacher
Class

Page 180
ව්‍යාපාර හා ගිණුම්කරණ రెవిరివిరియా (g
 

B.) 11 2010/E1.11318/12,000