Page 184 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes Illustration 9: On 1st Jan 2011, Mr. Ram took a loan from Bank of Rajasthan Ltd. of 10,000 @ 18%
per annum. Interest is payable half yearly and accounts of Ram are closed on 31st March every
year.
Pass Necessary journal entries to give its effect and prepare relevant ledger accounts and show
the item in the Balance sheet as on 31.03.2011.

Solution:
In the books of Ram
Journal Entry
Dr. Cr.
Date Particulars L.F. ( ) ( )
31.3.11 Interest A/c Dr. 450
To outstanding interest A/c 450
(Interest for 3 months due but not paid)

Ledger Accounts:
(1) Interest A/c

Dr. Cr.
Date Particulars J.F. ( ) Date Particulars J.F. ( )
31.3.11 To Interest 450 31.3.06 By P & L A/c 450
Outstanding A/c

(2) Interest outstanding A/c
Dr. Cr.
Date Particulars J.F. ( ) Date Particulars J.F. ( )
31.3.11 To Balance A/c 450 30.1.06 By Interest A/c 450

Balance sheet As on 31.3.11

Liabilities ( ) Assets ( )
Interest outstanding A/c 450

2. For Prepaid Expenses of the Business
Prepaid expenses are the expenses relating to the next trading period but paid during the
current period. In short, prepaid expenses are the expenses paid in advance. Insurance
premium, rent etc., are the examples of prepaid expenses.
Prepaid Expenses Account Dr.

To Relating Expenses Account
The prepaid expenses are disclosed in the assets side of the Balance Sheet and subtracted
from the relating expenses in the debit side of Profit & Loss Account.

Illustration 10: Mr. Ashish took a fire Insurance Policy on 1st Oct., 10 for 50,000 Insurance
Premium paid 5,000. Accounts are closed on 31st March, 11 Pass necessary journal entries to
give its effect and prepare relevant ledger A/c and show the item in the Balance Sheet as on 31st
March, 2011.

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