Accounts of Private Individuals

Most of the private individuals never keep their accounts to record earned income or expenditure incurred by them. It is advisable for everyone to maintain an account to know what he has earned during a particular period, what he spent, and what was his saving out of that income. It is helpful to track the record of income and expenditure. It also helps to increase the income (as need arises) and control on the expenditure.

Maintenance of Accounts by Private Individuals

Private individual should keep his books on cash basis system, ignoring accrued system in different heads like insurance premium paid, medical insurance, school fees, taxes, household expenses, medical expenses, clothing, salary received, bank interest, income from mutual fund, rent received, and other income received.

For all these, one should keep a cash book, which can be summarized on monthly basis as per the abstract of cash Book given below −

Abstract Cash Book

In case of professional individual, one more column can be added in the cash book to show professional transaction and personal transaction separately. In addition to above, an individual may keep a register to maintain the record for his assets including car, building, investments, etc.

Maintenance of Accounts by Professionals

A cash basis of accounting is the most suitable system for any professional including doctor, accountant, or solicitor instead of a mercantile system to fulfill the following purposes −

• To ascertain the professional income earned by him correctly for a specific accounting period, and also to calculate the net professional income after deducting the related expenses from the professional income.

• To correctly record all items of income and expenditure.

Following records should be maintained by a professional −

Cash Book

All receipts and payments should be recorded in a cash book, and a memorandum book should be maintained to keep record of credit transactions. The credit transactions will be scored off at the time of actually cash receipt or at the time of payment made and should be entered in the cash book.

A cash book can be summarized under various heads on monthly, quarterly, half yearly, or annual basis as per the suitability and requirements.

Stock Register

Two separate stock registers should be maintained, one for resale items and other to keep record of the items of personal use. Resale items may be medicine, surgical items, the stationery items, electrical items, computers, and any other items or asset.

Receipt and Expenditure Account

A receipt and expenditure account is similar to a profit and loss account; therefore, it is prepared by the professionals to know the professional income and expenditure for a specific period. Outstanding incomes are ignored to prepare it, but outstanding expenses are included in it. Therefore, it is known as Receipt & Expenditure account instead of Receipt & Payment account. It means, incomes are recorded on a cash basis and expenditure on an accrual basis.

Maintenance of Accounts by Doctors

Doctors usually maintain a register that may also be known as diary or note book in which all the particulars of the patients including charges, fees, physical conditions of patient, etc. are recorded. After grouping, the extracted entries of diary are recorded in the cash book under different heads of income. Similarly, expenses are also recorded under various heads.

In case, where the number of doctors is two or more than two and they run their clinic in the partnership, income may be recorded in the cash book under various heads (Doctor Wise), similar to a petty cash book pattern. Similarly, the expenses relating to each doctor may be recorded under various heads of the expenses.

Thus, cash book, stock register, memorandum book, Receipt and expenditure account, and Balance sheet are prepared by the doctors.

Illustration

Dr. Ortho starts his medical practice on 1st January 2013 and introduced a capital of Rs. 300,000/. Receipt and payment account as on 31-12-2013.

• Outstanding salary Rs. 50,000
• Medical equipment was purchased on 01-04-2013
• Depreciation on Equipment is Rs. 15%

Solution −

Receipt & Expenditure Account of Dr. Ortho

For the year ended 31-12-2013

Dr. Ortho

Balance Sheet

As on 31-12-2013

Maintenance of Accounts of Educational Institutions

Most of the educational institutions are registered under Indian Society Registration Act, 1860. The core purpose of formation of the educational institutions is to educate people at large and not to earn profit.

Generally, following financial transactions are being incurred by the educational institutions −

Separate collection register should be maintained to record these collections from the above mention sources. Separate ledger for students should also be maintained for each student to record the fees — due, received, and outstanding if any.

Normally, all accounting records are maintained on the basis of financial year i.e. from 1^st April to 31^st March in most of the educational institutions. Educational institutions maintain income and expenditure account to keep the records of surplus or deficiency and also to prepare a Balance sheet to know the financial position of the institution.

Consolidation of Accounts of various Educational Institutions

Consolidation of accounts is done step by step, where various institutions are run under one society.

The given example is an illustration of the simplified procedures −

Consolidation of Fees

Institute wise consolidation will be done as hereunder −

Illustration

Trial Balance of the Brilliant education society as on 31st March, 2013 is given as here under, please prepare an Income and Expenditure Account and a Balance sheet on that date −

Additional Information

• Salary for one month is outstanding.

• Outstanding Auditorium is Rs, 50,000/- and Rs. 25,000 received in advance.

• Depreciation is to be provided at 5% on building, 10% on Furniture & Fixture, and 15% on vehicles.

Solution

In the Books of Brilliant Education Society

Income & Expenditure Account

For the Year ended 31^st March, 2013

Balance Sheet

As on 31-03-2013

Maintenance of Accounts of Student Hostels

Hostels are run by most of the educational institutions to provide boarding facility to the students, coming from remote places, for their education. Hostels are usually run on no profit basis. Government also grants some fund to these hostels to provide cheaper living space to the students.

Like any other non-profit organization, hostels also have accountants who record and maintain their financial transactions as −

• Receipt & Payment Account
• Income & Expenditure Account
• Balance Sheet

Following are the common lists of incomes and expenditures incurred by Hostels −

Illustration

From the given information and Trial Balance, please prepare an Income & Expenditure account and Balance sheet of Divya Jyoti hostels (for the girls) for the year ending 31-03-2014 −

Additional Information

• Depreciation to be provided @ 5% on Building, Furniture, & Fixture; and 15% on heater and Fans.

• Closing stock: Food Rs. 22,500, Fuel Rs. 7,500, Drinks Rs. 4,500, and sundries Rs. 3,000.

Solution −

In the Books of Divya Jyoti Hostels

Income & Expenditure Account

For the Year ended 31^st March, 2014

Balance Sheet

As on 31-03-2014

Maintenance of Accounts of Hospitals

Being a non-profit organization, hospitals also maintain Receipt & Payment accounts, Income & Expenditure account, and Balance Sheet.

An illustration of the income and expenditure of a hospital is shown below −

Illustration

A charitable hospital and pharmacy are run by Rehmat Ali trust; following are the balances as extracted from its books for the year ended 31-03-2014 −

Additional Information

• Depreciation to be provided @ 5% on Building; 10% on Furniture; 15% on Equipment; and 30% on Ambulance.

• Closing stock of medicine at pharmacy Rs. 120,000

• 15% of the fees received from patients to be paid to specialist doctors.

• Supply of medicines from pharmacy to the hospital Rs. 180,000 for which no adjustment has been made in the books of accounts.

Solution −

In the Books of Rehmat Ali Trust

Income & Expenditure Account of the Pharmacy

For the Year ended 31^st March, 2014

Income & Expenditure Account of the Hospital

For the Year ended 31^st March, 2014

Income & Expenditure Account of Trust

For the Year ended 31^st March, 2014

Statement of Affairs of Rehmat Ali Trust

As on 31-03-2014