Page 187 - DMGT104_FINANCIAL_ACCOUNTING

Unit 8: Financial Statements

Solution: Notes
In the books of Pankaj
Interest Received 20,000 × 15/100 = 3,000 for a year
Interest Actually due for 7 months =
7/12 × 3000 = 1,750
Received in advance 5/12 × 3,000 = 1,250
Journal Entries
Dr. Cr.
Date Particulars L.F. ( ) ( )
1.9.10 ABC (Hundies A/c) Dr. 20,000
To Cash A/c 20,000
(Hundies purchased)
1.9.10 Cash A/c Dr. 3,000
To Interest A/c 3,000
(Interest received for one year)
31.3.11 1,250
Interest A/c Dr.
1,250
To unaccrued/unearned Interest A/c
(Interest unearned for 5 months )

Ledger Accounts
(I) Interest A/c
Dr. Cr.
Date Particulars J.F. ( ) Date Particulars J.F. ( )
31.3.11 To Interest 1250 1.9.10 By cash A/c 3,000
Accrued A/c
31.3.11 To P & L A/c 1,750
3,000 3,000

(II) Interest Unaccrued A/c
Dr. Cr.
Date Particulars L.F. ( ) Date Particulars L.F. ( )
31.3.11 To Balance A/c 1250 31.3.11 By Interest A/c 1,250

Thus, we see that Interest A/c is transferred to Profit & Loss A/c as it is a nominal A/c whereas
interest unaccrued A/c is a personal A/c, is to be shown on the liabilities side of the Balance Sheet.
Balance Sheet of Mr. Pankaj
As on 31.3.2011

Liabilities ( ) Assets ( )
Interest unaccrued A/c 1,250

5. For the Depreciation on Assets
Depreciation refers to reduction in the value of fixed asset due to wear and tear, passage of
time, obsolescence, etc. Depreciation is generally charged as a percentage on the book
value of the asset for which the asset is used.
Depreciation Account Dr.
To Relating Assets Account
Depreciation is subtracted from the relating assets in the assets side of the Balance Sheet
and disclosed in the debit side of Trading and Profit & Loss Account.

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