Class 11 Accountancy Chapter 3 Recording of Transaction –I
NCERT Notes for Class 11 Accountancy Chapter 3 Recording of Transaction –I, (Accountancy) exam are Students are taught thru NCERT books in some of state board and CBSE Schools. As the chapter involves an end, there is an exercise provided to assist students prepare for evaluation. Students need to clear up those exercises very well because the questions withinside the very last asked from those.
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NCERT Notes for Class 11 Accountancy Chapter 3 Recording of Transaction –I
Class 11 Accountancy Chapter 3 Recording of Transaction –I
Recording of Transaction –I
- Business transactions are usually evidenced by an appropriate document such as cash memo, invoice, sales bill, pay in slip, cheque, salary slip etc.
- a document which provides evidence of the transaction is called the source document or a voucher.
- All such documents are arranged in chronological order and are serially numbered and kept in a separate file.
- All recording in books of account is done on the basis of vouchers.
Preparation of accounting vouchers.
Accounting vouchers are classified as cash vouchers, debit vouchers, credit vouchers journal vouchers etc.
Cash voucher: Cash voucher is used for cash transactions i.e., cash receipts and cash payments.
Debit voucher : Debit voucher is used for recording cash payments
Credit voucher : Credit voucher is used for recording cash payments
Journal voucher: Journal voucher or transfer voucher is used to record non-cash transactions like credit purchase, depreciation etc.
Transaction voucher : A transaction with one debit and one credit is a simple transaction and the accounting voucher prepared for such transaction is known as transaction voucher.
Compound voucher: Voucher which records a transaction that involves multiple debits/ credits and one credit/debit is called compound voucher. It may be debit voucher or credit voucher.
Complex voucher : Transactions with multiple debits and multiple credits are called complex transaction and the accounting voucher prepared for such transaction is known as complex or journal voucher
Essential elements of a good voucher
- It is written on a good quality paper
- Name of the firm must be printed on the top
- The number of the voucher is to be in a serial order
- Name of the account to be debited or credited is mentioned
- Date of transaction is filled up against the date
- Debit and credit amount is to be written in figures against the amount
- Description of the transaction is to be given account wise.
Accounting equation
Accounting equation is a statement of equality between the debits and credits or assets and liabilities including capital.
Thus
Asset = equities
The properties owned by a business are called assets. Total claim against a business are called equities. Equity may be divided in to two. The claims of the outsiders and the claims of the owner. Thus
Asset = capital + Liabilities.
Capital = Asset- Liabilities
Liabilities = Assets – Capital
Assets- Capital – liabilities = Zero
A= C+ L
C = A- L
L = A- C
A- C- L= 0
The accounting equation is also called balance sheet equation as it gives the fundamental relationship among the components of a balance sheet i.e. asset, liabilities and capital.
Modern Rules of accounting (Classification of Accounts):
Rules of debit and credit
To record transaction in the books of account, firstly we should identify the transaction with respect to debit and credit. For this business transactions are divided in to five categories
- Asset
- Liabilities
- Capital
- Revenue/Income
- Expense
The rules for debit and credit in respect of various categories are;
|
Categories |
Debit |
Credit |
|
Asset |
Increase |
Decrease |
|
Expense |
increase |
Decrease |
|
Capital |
Decrease |
Increase |
|
Liabilities |
Decrease |
Increase |
|
Income |
Decrease |
Increase |
Golden Rules of Accounting (Traditional Approach):
To bring about uniformity and to account for the transactions correctly there are three Golden Rules of Accounting.
These rules form the very basis of passing journal entries which in turn form the basis of accounting and bookkeeping.
Types of accounts
To understand the Golden Rules of Accounting we must first understand the types of accounts.
There are three types of accounts:
- Real Account
- Personal Account
- Nominal Account
A Real Account is a general ledger account relating to Assets and Liabilities other than people accounts. These are accounts that don’t close at year end and are carried forward.
A Personal account is a General ledger account connected to all persons like individuals, firms and associations.
A Nominal account is a General ledger account pertaining to all income, expenses, losses and gains.
Recording of transaction
Accounting under double entry system is divided in to two stages
- Transactions are recorded in journal
- Items are posted from the journal to the ledger.
Journal
Journal is the book of original entry in which transactions are recorded one after another in the order in which they occur. The first record of a transaction is made in this book. Journal is also called book of prime entry or book of original entry because all the transactions are entered in this book at the first instance before being entered in any other book. The source document is required to record transaction the journal.
Journalising
The recording of a transaction in the journal is called journalising.
Journal entry.
The record of a transaction in the journal is called journal entry.
Simple journal entry
Any entry recorded in the journal which contains only one debit and one credit is called simple journal entry.
Compound journal entry
When there are two or more transactions of similar nature occurring on the same day and the entry for the same have more than one credit or debit, it is called compound journal entry.
Format of journal
The first column in a journal is date on which the transaction took place. The second column is particular column and in the particular column, the account title to be debited is written on the first line beginning from the left hand corner and the word ‘Dr’ is written at the end of the column. The account title to be credited is written on the second line leaving sufficient margin on the left side with a prefix ‘To’. Below the account title a brief description of the transaction is given which is called narration. After writing the narration a line is drawn in the particular column. The third column is ledger folio and which records the page number of the ledger book on which relevant account is appeared. This column is filled up at the time of posting. The debit amount column represents the amount against the account to be debited and the credit amount column records the amount against the account to be credited. The number of transactions is very large and these are recorded in number of pages in the journal book. Hence, at the end of each page of the journal book the amount columns are totalled and carried forward (c/f) to the next page where such amounts are recorded as brought forward (b/f) balances.
Banking transactions
1.When cash deposited in the bank
Bank a/c Dr
To cash a/c
2. When cash withdrawn from bank for business purpose
Cash a/c Dr
To bank a/c
3. When cash withdrawn from bank for personal purpose
Drawings a/c Dr
To bank a/c
4. When a cheque is issued to a person
Person’s a/c Dr
To bank a/c
5. Goods purchased and payment made by cheque
Purchase a/c Dr
To bank a/c
6. Asset purchased and payment made by cheque
Asset a/c Dr
To bank a/c
7. When a person remitted directly into bank
Bank a/c Dr
To person a/c
8. Cheque received from a person and deposited on the same day
Bank a/c Dr
To person’s a/c
9. When cheque is received from a person and deposited on another day
When cheque received
Cash a/c Dr
To person’s a/c
10. When the cheque sent to bank for collection
Bank a/c Dr
To cash a/c
11. When cheque deposited returned dishonoured
Person’s a/c Dr
To bank a/c
12. When bank allows interest on deposit
Bank a/c Dr
To bank interest a/c
13. When bank charges against the deposit
Bank charges a/c Dr
To bank a/c
Ledger
It is a book where transactions of similar nature are grouped together in one place in the form of an account. Ledger is a book of secondary entry or final entry because transactions first entered in the journal are finally recorded in ledger. It is also called main book or the principal book of a business. A ledger is the collection of all the accounts debited or credited in the journal.
Format of ledger account
Name of the account
Dr Cr
|
Date |
Particular |
JF |
Amount |
Date |
Particular |
JF |
Amount |
|
|
|
|
|
|
|
|
|
The name of the firm is written at the top of the format as the title of the account. Write ‘Dr’ on the left hand side that means debit side and ‘Cr’ on the right hand side means credit side. Date of transaction is recorded in chronological order in the date column. In the debit side particular column record the item credited in the journal and in the credit side particular column record the item debited in the journal. Journal folio records the page number of the journal on which relevant transaction is recorded. The amount column records the amount in numerical figures.
Posting
The process of recording transaction in ledger is called posting. Posting means grouping of all the transactions in respect to a particular account at one place for meaningful conclusion.
Difference between journal and ledger
|
Journal |
Ledger |
|
Journal is the book of original entry |
Ledger is the book of final entry |
|
All transactions are recorded first in the journal |
All transactions are recorded finally in ledger |
|
Transactions are recorded in a chronological order |
Transactions are recorded in an analytical manner |
|
Source document form the basis for writing transaction in journal |
Entries in the journal form the basis for writing ledger |
|
Balancing is not done in Journal |
All ledger accounts are balanced |
|
The process of recording entries in journal is called journalising |
The process of recording entries in ledger is called posting |
|
There is no uniformity in the keeping of various books of journal |
There is a uniformity in the keeping of ledger |
Classification of Ledger Accounts:
Ail accounts in the ledger can be grouped into two broad categories viz.,
- Permanent Accounts and
- Temporary Accounts.
On the basis of traditional classification, permanent accounts include real accounts and personal accounts while temporary accounts include nominal accounts i.e. losses, expenses, incomes and gains. Similarly, on the basis of modern approach (Equation based approach) permanent accounts include assets, liabilities and capital. Temporary accounts include revenue and expenses. All permanent accounts are balanced and carried forward to the next accounting period. The temporary accounts are closed at the end of the accounting period by transferring them to the trading and profit and loss account.
Balancing of account
Balancing is the process of ascertaining the difference between the two sides of an account. If the debit side total exceeds the credit side total the difference is called debit balance and if the credit side total exceeds the debit side total the difference is called credit balance. If both sides are equal there is no balance on the account which is said to be ‘in balance’. Liabilities account and capital account always shows a credit balance and asset account shows a debit balance.
Accounting Entries under Goods and Services Tax
GST Computation
Output GST means GST on sales and input GST means GST on expenses and
purchases. If output GST is more than input GST it is GST payable if input GST is more than output GST it is balance GST credit. In GST payable we need to pay challan to pay tax but in GST credit no need to pay challan to pay tax it is added to next month input.
List Ledger Accounts To Be Maintained Under GST
Under GST The trader has to maintain the following accounts (apart from accounts like purchase, sales, stock)
- Output CGST a/c / CGST Payable A/c (Tax on Intra-State Outward Supplies)
- Input CGST a/c / CGST Input Credit A/c (Input Tax on Intra-State Inward Supplies)
- Output SGST a/c / SGST Payable A/c (Tax on Intra-State Outward Supplies)
- Input SGST a/c / SGST Input Credit A/c (Input Tax on Intra-State Inward Supplies)
- Output IGST a/c / IGST Payable A/c (Tax on Inter-State Outward Supplies
- Input IGST a/c / IGST Input Credit A/c (Tax on Inter-State Inward Supplies)
- Electronic Cash Ledger (Electronic Cash Ledger is the online account maintained on Government GST portal to pay GST in cash/bank.)
Journal Entries Under GST
- Purchase Transactions (Input Supplies of Goods or Services)
A. Intra-State Purchase
Purchase A/c ………………Dr.
Input CGST A/c ……………Dr.
Input SGST A/c ……… …Dr.
To Creditors
A/c B. Inter-State Purchase
Purchase A/c ………………Dr.
Input IGST A/c ……………Dr.
To Creditors A/c
2. Sale Transactions (Outward Supplies of Goods and Services)
A. Intra-State Supplies
Debtors A/c ………………Dr.
To Sales A/c
To Output CGST A/c
To Output SGST A/c
B. Inter-State Supplies
Debtors A/c ………………Dr.
To Sales A/c
To Output IGST A/c
3. Set Off of Input tax Credit Against Output Tax Liability of GST
A. Set off against CGST output
Out put CGST A/c ………………Dr.
To Input CGST A/c
To Input IGST A/c (if available)
To Electronic Cash ledger A/c( if any balance)
B. Set off against SGST output
Out put SGST A/c ………………Dr.
To Input SGST A/c
To Input IGST A/c (if available)
To Electronic Cash ledger A/c( if any balance)
C. Set off against IGST output
Out put IGST A/c ………………Dr.
To Input IGST A/c
To Input CGST A/c (if available)
To Input SGST A/c (if available)
To Electronic Cash ledger A/c( if any balance)
Input tax Credit
ITC is the heart and soul of GST. The term ‘Input’ means any goods other than capital goods used or intended to be used in the course business. And the taxes paid on such inward supply of inputs, capital and services are called input taxes. These may include Integrated GST, Central GST, State GST or Union GST. Therefore, ITC means deducting the tax paid on inputs from the tax payable on the final output. This means a recipient of inputs or input services, can deduct the amount of tax paid on inputs or input services against the tax on output.
Output Tax Liability
Output Tax Liability means the tax payable on the final output to the govt.
Under the GST law, the set-off of input credit is allowed in the following order:-
GST Set Off Chart
Input Credit Order of Set Off of Input Credit against Output Liability
CGST First towards CGST Balance towards IGST
SGST First towards SGST Balance towards IGST
IGST First Towards IGST, Secondly Towards CGST, Balance Towards SGST
Please note that CGST and SGST cannot be set off against one another.
