 Welcome back to the fourth session, so far we have done three sessions to take a very very brief recap. In the first session we have seen what is management accounting, then we started with discussion on what are the financial statements. We have also seen in the second session what is a balance sheet, we saw the format of balance sheet, then we continued in the third session on solving a few problems or few cases on the balance sheet. So, we have seen step by step if you give a series of transactions, how you can make balance sheet from those transactions. And in our last that is third session, we have started on profit and loss account. So, today we will continue from that, we will do a few problems on P and L account and we will also see some of the concepts on which these statements have been made. Once the concepts are understood, we will go more into technical aspects as to how the recording is actually done in the books of accounts. So, let us start with P and L account now. We have seen last time that profit and loss account is a statement which shows results of the entity. So, result is obviously the profit or loss. Now, to know the profit or loss, we need to know the income and expense. So, P and L account lists down all the incomes and expenses, the net result is here. This was the format we have seen, this is a brief format. So, your sales less cost of goods sold, you get gross profit. From that, you deduct expenses and taxes to get the net profit. After this, we had gone for the format as per the company law. Now, here little more elaboration exists. So, revenues are shown from the revenue, expenses are deducted, they have been categorized into different categories. The first one are known as manufacturing expenses. The second are admin and selling expenses. When you also deduct other expenses, then we have to deduct finance cost, we have to deduct depreciation and amortization expense. So, revenue minus total expenses gives me profit before exceptional and extraordinary items. I also reduce these items to get profit before tax. Now, you may have a question in mind as to what is this exceptional and extraordinary items. As the name suggests, these items do not happen regularly, they do not happen frequently. So, if they happen sometimes, it is better we show their effects separately, so that our regular P and L account is not affected. Can you think of some extraordinary item? For example, if there is a major fire in the factory of the company, so lot of goods are destroyed, even fixed assets are destroyed, company may have to spend extra money for getting the premises redone, operations are stopped for some days. So, this huge loss, I should not club with our regular profit and loss account, because I will not be able to compare my result with earlier results, if I unnecessarily club this loss with normal items. That is why it could be treated as an exceptional and or extraordinary item and it will be shown separately. Same way, now you all know that developed countries US and Europe, they are facing lot of recession. Suppose our company is doing a major export in Europe and we lost a very big order and we have also lost some of the customers. Now if this event is not going to recur and we have some way to protect it now in the next periods, but currently some losses have happened and we would not like to show them with our normal losses, then this could be treated as a extraordinary or exceptional item. Now if you go back to the format, we arrive at revenue minus expenses to get profit before exceptional and extraordinary item. From these separately exceptional and extraordinary items are reduced, we get profit before tax. Now from profit before tax, the taxes are reduced. Now you can see the taxes are also divided into current tax and deferred tax. Naturally the question which will come into your mind is, what is this deferred tax? Now the taxes which you pay for the current period is obviously current tax. So if I have 100 rupees and my tax rate is 30 percent, I have to pay tax of 30 rupees. That becomes my current tax. Now what is a deferred tax? Now what happens is, instead of paying taxes today, there are some tax provisions which allow me a tax benefit by which I reduce my tax, but that tax becomes payable in future. So actually my tax is not reduced, but it is deferred. So instead of paying now, I may have to pay after 5 years. Such taxes are known as deferred tax. Now I will not go into too much detail because right now we are not learning really taxation, but one example I would like to give, what happens is company is able to show depreciation and claim the benefit from tax purposes. Let us suppose I purchase a pollution control equipment. Now government allows 100 percent tax benefit on pollution control equipment. So suppose today I invest 1 crore in pollution control equipment, entire 1 crore I can reduce from my income for tax purposes and I reduce the tax, but that much of tax is added in the years to come. So currently my tax is going down, so my current tax will be reduced, but my deferred tax I will have to show. So what will happen is from profit before tax, both current and deferred tax are reduced and that gives me profit after tax, but here again instead of showing profit after tax, I call it profit from continued operation. Now the question which may arise in your mind is what is this continued operation? Now usually if your business is on, whatever activities you are doing is known as continued operation, but suppose you discontinue a part of the business or some factory or let us say some shop, then that is known as discontinued business. Now discontinued business you have to show the profits and losses from such business separately. So suppose one factory is closed, I have 4 more factories where my business is on, but one factory is closed, then the expenses of that closed factory I will show separately and that will be treated as losses from discontinued operation. So you can see the format, now if I reduce tax expense, I get profit or loss for the period from discontinued operation, from which I adjust my profit or losses from discontinued operation. So first I will get profit from continuing operation, then I will adjust the profit or loss from discontinued operation, I will also adjust the tax expenses of discontinued operation if any, that gives me profit from discontinued operation and that is a final profit or loss, so which is a total of continued operation plus discontinued operation. So this was a detailed format, I will just go back for your clarity. So we started from here, so this is a format as per schedule 6 of companies act. So you take first revenues, you reduce all the expenses, then you adjust for extraordinary exceptional items, you adjust for taxes, which gives me profit from continued operation, I also calculate profit or loss from discontinued operation and the total is profit or loss for the period, I hope you are getting it. Now let us try to understand what is meant by income, now as you can see in the slide this is a increase in the economic benefit during a particular accounting period in the form of either cash inflows or enhancement of asset or liabilities. Now what could be the example of the income, of course the simplest example is sales, if I sell my goods to the customer I will receive the income or if I am a service provider I provide service I receive income. Sometimes if I have given a loan or if I have put deposit in the bank, bank gives me interest that is also my income. So you can see examples, the prominent example is of course revenue, there are some gains. So sometimes if I sell my fixed asset, let us say if I sell land I make lot of profit that will be known as gains. Now let us go to the next item that is expenses, you know that profit is income minus expense, so what is an expense? This is a cost which I have borne, it is defined as decrease in the economic benefit during the accounting period in the form of outflow or depletion of asset or incurrence of a liability. So what will happen is if I hire an employee I will have to pay salary, so it is an outflow. Suppose I purchase the asset I do not have to pay the rent, but when I use the asset the value of asset falls that is also my expense. Sometimes what happens is let us say I use the electricity I do not pay the bill immediately, but the liability has happened in future I will have to pay the bill, so that is also my expense that is why it is defined as an outflow or depletion of asset or increase of liability all these three represent my expenses. Now what could be the examples I have given you two three can you think of any other example as you can see here when the wages become due in the ordinary course of business that is an expense. Sometimes losses may happen, so if I sell my fixed asset let us say I sell out my old computer naturally I will get very very minimal value, so there will be a loss on sale of asset that will also be recorded. So if you have understood now the basic of income and expense before going for some problems or cases let us understand a few concepts in accounting. The first concept is entity concept even before going for the concept what is meant by the concept these are the fundamental principles. Now the accounting is based on certain basic fundamental principles which are known as concepts. Now the first concept you can see here is entity concept, now entity concept of accounting states that business enterprise is a separate entity from the owner and business transactions are recorded in the books of business and the owners transactions are recorded in a personal books. So we do not mix up the personal transactions with the business transactions. Now why it is important because business affairs should be very very clearly shown from the personal affairs. Now because of this entity concept when owners put capital in the company or in the partnership firm it is shown as a liability in the books of the firm. Since the owners invest the capital it is also called as a risk capital and they get the claim on the profit from the enterprise. That is why the total of capital plus reserves is shown as a owner's fund on the liability side. If you remember our discussion in the balance sheet you might have still had a problem as to why our profit is shown as a liability. So what happens is profit is generated it is added to reserves and those reserves are to be paid to the owners. So we assume that owner is a separate entity, business is a separate entity that is nothing but an entity concept. Is it clear? Let us go to the next concept. Next concept is known as accrual basis of accounting. Now if you remember when we were discussing the transactions sometimes I have told you that we have sold goods on cash still we record the transaction today only. We do not wait till we receive the cash. Now why we do not wait? Because even if we have not yet received cash the transaction has actually happened and once it has happened it needs to be record. This conceptually is known as accrual basis of accounting. Now here the transactions are recorded as soon as they occur whether or not cash is actually received. Now accrual basis ensures that there is proper matching between revenue and cost of the enterprise during a particular period. Now how does it ensure? Can you think of any example? Now what happens is suppose I have purchased the goods today I will record it as a expense I have purchased I have paid I have also sold the goods but customer does not pay me cash immediately customer will pay me the cash next month. Should I record sale? If I do not record what will happen is I have recorded the expense because I have paid cash but I have not recorded an income because I am here to receive cash. So expenses and revenues of the same period are not matched. So I will not get correct picture of profit or loss of this month. This month I will show loss because lot of expenses but very little income. Next month this month's money will receive in the next month that time I will show a lot of profit because there is more revenue shown. So there is a inconsistency that is why it is very important that as soon as expense happens it should be recorded as soon as income accrues it should be recorded. Even if we do not receive cash or we do not pay cash we need to record and this happens because of the fundamental concept known as accrual basis of accounting. So accrual basis means that recognition of revenue and cost as they are earned or incurred and not as when the money is received. So as we have already discussed what happens is revenue many times is not received in cash or expenses are not paid in cash but they all need to be properly recorded. Now let us go to next concept that is known as matching concept. So matching concept tells us that whenever the expenses are recorded in a particular period the related revenue should also be recognized. Now matching concepts helps us in avoiding mistrating income or revenue or earning for a period and reporting of revenue of one period in the next period without reporting the cost. We have just now seen an example where we record purchases but if we record do not record sales there will be a misstatement there will be a understatement of profit. Can you think of any other example? Because you are a software company you have hired employees and you provide services. So what is happening is as you are providing services revenue is coming and it is getting recorded but salary is going to be paid in the next month. If I do not record salary this month there will be a big problem because I am already recording revenue but I am not recording expense. So even if the salary is not paid it needs to be recorded. So matching concept is a very simple concept it tells you that revenues and expenses should be matched in the same period. Let us go ahead because of matching concepts there is a basis or there is a concept of prepaid and outstanding expenses. So if the expense for the next period or the next month is paid now I will show it as a prepaid expense. Can you think of any example of a prepaid expense? Now the example of prepaid expense is if the insurance is paid in advance. So for next month's insurance premium I am paying now. So I will have to record it today itself and it will be shown as a prepaid expense. I will not record it as a expense for this month. I will record it as a prepaid expense and it will be transferred to the balance sheet. Same way if the expense is incurred like salary is incurred but not yet paid. Still I record it as current salary not yet paid. So it will be a liability in the books as outstanding salary. That is why in the balance sheet items like prepaid expense and outstanding liabilities do arise. Now let us go to the next concept that is known as realization concept. As you can see here any change in the value of an asset is to be recorded only when the business realizes it. When an asset is recorded at a cost of 15 lakhs and even though its current cost is 45 lakhs such change is not accounted unless there is a certainty that such change will materialize. Now when can such an example happen that I have purchased assets for 15 lakhs its current market price is 45 lakhs. I think it can particularly happen in case of land. If I have purchased land few years back now the land values has increased I purchased it for 15 lakhs current value is 45 lakhs. Should I show it in the balance sheet at 45 lakhs the answer is no. Because I am not dealing in the land I am not buying and selling and land. It was purchased at 15 I will continue to show it at 15. If I want to sell I get a customer and the transaction of sale is already agreed upon then I will show it at 45 lakhs. But otherwise in the normal course my assets will be continued to be shown at 15. Same way you can also think of other way round. Suppose I buy some computer for 30,000 after 2 months next model comes and new model the value of computer has gone down. So I purchased at 30 but its current price after 3 months is only 25. Should I show at 30 or at 25 the answer is I have to show at 30 because I have not decided to sell it at 25 I want to use it and it is still usable. So transaction will not be shown unless it is realized. Let us go to you can see in the slide. So we follow a more conservative path and we try to cover all possible losses but we do not cover any possible gain. Here it is we want to say that if we anticipate decrease in the value we count it but increase in the value we often ignore. Now let us understand one more format of PNL a little more detail than what brief format we show we saw earlier. So from sales we reduce operating expenses that gives me operating profit from operating profit I adjust for non operating income and expenses and we get profit before interest and tax. Now this is slightly different format from schedule 6 format which we have seen but it is not much different here we have tried to categorize into operating and non operating. Now what is a non operating expense or a income for example I am a dealer in stationary. So I do not deal in let us say furniture but suppose I sell off my old furniture and there is lot of loss should that loss be clubbed with my stationary business it should not be. That is why my sale and purchase or regular expenses of stationary will be shown as operating expenses whereas loss on sale of old furniture will may be shown as non operating expense. So you can see here sales minus operating expenses I get operating profit I adjust non operating incomes and expense to get profit before interest and tax. Now what is a non operating income can you think of an example same example if we continue I am a stationary dealer I have sold off old furniture that is an example of non operating expense the loss on sale of old furniture what could be a non operating income for me. Suppose some of my money I mean some of this business money I deposit in a bank and I interest I earn interest on it when it is a non operating income because as a stationary dealer interest earned is not from my day to day operating activities. So first I will calculate operating profit and I separately adjust non operating incomes and expenses. So you can see in the format that from operating profit I adjust non operating income and expense I get profit before interest and taxes. When I reduce interest I get profit before tax I reduce tax I get profit after tax. Now it is better if we show interest and taxes separately because I come to know exactly how much is my profit or loss from operations how much is my profit or loss from non operating items and interest which is a finance cost gets separately recorded and tax which is a out go to the government also gets separately recorded. So in this way in this detailed format you get profit from tax again you can use a variety of formats I have just shown you two three formats for your more clarity. Now let us see what is meant by operating profit you can see here that operating activities are defined as principal revenue producing activities of the enterprise. Now operating profit is a figure obtained after subtracting personal depreciation and other expenses from my normal business income. So this is a surplus generated from operations we have also seen this term profit before interest and tax. Now company irrespective of method of financing what it earns is known as profit before interest and tax sometimes we make a short form and we call it PBIT. Now this measure is very important and it is calculated to know the operating efficiency of the business usually if the company is to be taken over by somebody else they will look at PBIT of the company it is also known as earning before interest and tax. Now next is profit before tax. So this is the surplus where all expenses are deducted but taxes are yet to be deducted then we get profit after tax. So profit before tax minus tax is profit after tax this is a very important figure for the company because this is the final amount which is available to the owners. Now we say it is available to the appropriation because now owners can decide whether it is to be paid as dividend or whether it is to be retained in the company. Now if owners do not take the dividend or if they do not take back their money then the owners fund in the business goes on increasing. Now let us go to the exercise we have I think you are now fairly clear about the format and the structure of P and L let us go to one of the exercises. So as you can see here in Palmanabhan and company the following transactions have happened during year 9, 10 the goods costing rupees 1 lakh 40,000 were purchased. General expenses of 4,800 are purchased paid salaries of 25,500 paid to office staff. Now this is the info about sales. Now it sales on credit for 2 months total credit sales during the year are 1 lakh 40,000 the cost is 90 and the remaining goods were sold at cash to the retail trade for cash of rupees 6,90,000 printing and stationary expenses were 5000 and telephone 18,000. Now the salary for the month of April 2010 rupees 2000 was paid in advance to one of the employees. Palmanabhan also paid 50,000 towards bank of Baroda loan of fish 5000 is a interest component 3000 is paid as a tax. Now based on all these data we have to prepare P and L account. Let us take a review at all the transaction once again please look at the transactions carefully. So there is a purchase of 140, then general expenses salary is paid, there is a credit sale, there is a cash sale printing and stationary expenses are paid, advance salary is paid, loan installment is paid, interest is paid. Now let us look at P and L account. So here you can see profit and loss account for year ended 31st March. Your cash sales of 69,000 and credit sales of 1 lakh 40,000 I will take you back here you have information about sales. Now even if the amounts are I mean the sales is made on a credit for 2 months. So money will come only after 2 months still we are going to record the entire amount as sales today and there is also cash sale of rupees 69,000. So the first thing we have shown is cash sales and credit sales of 69 and 140 500 from that we reduce the cost of goods sold of 1 lakh 40,000. So we get operating profit of 69,500 then general expenses 4,800. If you remember they are paid for general expenses of 4,800 they are also paid for printing and stationary. So I am reducing general expenses of 4,800 I reduce stationary, I reduce printing, I also reduce telephone expenses. So I get profit before interest and tax I will just go back you can see these items printing, telephone etcetera they are all deducted. So I am getting profit before interest and tax. Now I have paid loan installment of 50,000 should I reduce it the answer is no. Because loan installment includes repayment of loan of 45,000 and interest of 5000 it is given that out of 50 only 5 is interest. So remaining 45 is repaying of my existing liability that is loan that is not my expense but interest of 5000 is my expense. So if you look at a format from PBIT of 16,200 I pay interest of 5000 I get PBT of 11,200 from which I reduce the tax of 3000 so I get net profit of 8,200. Now if you see I am not reducing advance salary paid to one of the employees rupees 2000. The reason is it is not salary of this month though it is paid in the month of March actually it relates to April. So I will not reduce it from my P and L now I will show in my asset side in my balancing. If you remember we have discussed matching concept. So because of matching concept I am not going to record this 2000 now. Let us go back to P and L again. So you have got cash sale, credit sale you get operating profit you reduce all the expenses we get profit before interest and tax reduce interest reduce tax so you get net profit after tax is it clear. Now if you have clearly understood what is P and L account I will like to go into somewhat more detail into recording of transactions. Of course we have seen just two examples of balance sheet and one example of P and L which is not enough. So I will request you to look at books or look at some other resources to get little more practice into balance sheet or P and L. You can also look at the web course which gives you some more examples. Now let us go to some transactional aspects wherein we will record the transactions. So we will start with module 3 which deals with recording financial transactions. We are going to look at some of the books of accounts as they are called. There are three books which we will see one is a journal then ledger and subsidiary books now journal. Now the transactions are first recorded in the book known as journal to show which accounts are effected. Recording of transactions in the journal is termed as journalizing the transactions entries are recorded chronologically to maintain the records in an orderly manner and journal entries are very important because they form basis of all further records. Now here we do not worry about the nature of transaction. So suppose first I make cash purchase then I make credit purchase then I make sale then I pay salary then again I make purchase then I say pay telephone bill then again I sell something. So I do not record all sales together or all purchase together. I just record all the transactions chronologically so that I do not miss a miss out anything and this chronological recording is known as journalizing the transactions. This is a base where first entry is made. Now from here I will transfer them to know what are my total sales I will transfer them to purchases to know the total purchase and so on. Now let us understand what how does the journal look like. So here you can see specimen of journal. So we record date we record particulars we record LF, LF is ledger folio then we record debit amount and we also record credit amount. All entries in the journal appear as follows. So we will try to see now actually how do you record. I know you are still not aware about what is LF. LF stands for ledger folio. Now from the journal the transactions are going to be transferred to something else which is known as ledger. Now first thing an entry we will try to take some entries and see how they are recorded on 11 2010 goods sold for cash rupees 5000, fifth 511 cash deposited in bank rupees 2000. Now only two transactions so that you understand the journal entry clearly. Now the cash account is debited by 5000 and sales account is created by 5000. Here goods are sold for cash. So what has happened is cash comes in my cash balance increases that is why I say cash account is debited and when I sell the goods sales is created. So my sale account is created. So my sales should increase by 5000. Now on 511 now cash a part of this cash is deposited in bank. So my bank balance increases my cash balance reduces. So it is known as bank account debit and cash account credit. So you can see here the transactions are recorded date wise. There is something known as ledger folio. Now from here from this journal the transaction is going to be transferred to some other book which is known as ledger. So I will write down the page number of that book in the journal that is known as ledger folio. Now let us understand what is a ledger. As I told you just now after recording the transaction in the journal the entries are classified and grouped and they are transferred to another book that is known as ledger. This is a format. So in the ledger you show date, particulars, JF is a journal folio from where this entry has come and the AMA. You can see here there are two sites known as debit and credit. So if the balance is increasing I will write on debit side, if the balance is decreasing I will write on credit side. This is of course I am telling you in brief. We are going to see a few transactions where you will recognize actually how the entries are recorded. Separate account is opened in the ledger book for different set of transactions. Basically we record the transaction on debit side which starts with 2 and on credit side we start with buy. To ascertain the balance in any account we take the total of debit and credit and the difference is known as balance of account. Now let us take a very small case, prepare the ledger account from the following details. Paying balances are given, cash is 1500, creditors 800, debtors 1200, capital is 1900. I hope now you remember what is cash, what is creditors, what is debtors and what is capital. So creditor refers to I have purchased the goods on credit, I have to pay back the supplier. Debtors means I have sold goods on credit, I have to recover from customer. So it is a customer balance and what is capital. So there are owners, they have put in money into business, they are the money which they have put in is known as capital. So these are the opening balances of the business, your cash, creditors, debtors and capital. Then take a look at transaction on 2nd April, purchase of goods of rupees 3000 on credit. 1st April, cash sales of 2400, 7th April, goods sold on credit 1250, 15th April cash paid 250 for expenses, 2 more transactions, 18th April cash received from debtors 1200 and 22nd April paid cash to creditors rupees 800. Let us look at the transactions once again. Now we are trying to make ledger. So entries are not going to be chronologically recorded, they are chronologically recorded in journal. In ledger we will classify the entry. So all purchases will be shown together, all sales will be shown together. So I am requesting you to have a view at all the entries. Then we will see how they are recorded in the ledger. So we will say in the books of Ram and company cash account. Now all transactions related to cash are recorded in the cash account. So if you remember there was a balance of 1500 in cash. I will just go back to make it more clear to you. So opening balances had cash of 1500. So in the cash account first we start with opening balance of 1500. Going back you can see on 4th April there was cash sale of 2400. So on 4th April we recorded 2 sales account 2400. I had told you that on debit side usually we start the entry by saying 2. So like this here it is 2 balance brought down and then 2 sales account 2400. Now tell me which is the next cash transaction. On 15th April cash of rupees 250 as paid as expenses. So you can see here on 15th April in the cash account we have said buy expenses account 250. So what it means is 250 is paid as expense. So my cash balance reduces by 250. So you can see here we have recorded transactions of 4th and 15th. Now any other cash transaction here 18th April cash received from debtor 1200. So cash balance is going to increase. That is why on debit side I have written 18th April 2 debtors account 1200. Now the last entry 22nd April paid cash to craters 800. Now the cash balance will reduce by 800. That is why on credit side we have said 22nd April buy creditors account. I hope now you are clear with all the entries. So now you can see that from the transactions all transactions related to cash were classified and they were recorded in what is known as cash account. Now since all transactions are over on 30th April I will make the balance. So if I take the total on debit side it is 5100 my expenses are 250 and 800 which I will reduce. So I get the balance of 4050 and it is shown as buy balance carried down. Next month at the beginning on 1st May I will say 2 balance brought down 4050. Have you understood what is a leisure account? Now this is not only for cash we are going to make leisure accounts for all the items. So if you look back at these transactions there are opening balances and various transactions using them we have to make various accounts. If you look at opening balances we had cash, craters, debtors, capital. So we will try to make all these accounts. Now I trust you have understood cash account on similar lines there are other accounts. Now let us look at purchase account. If you remember there was only one purchase entry on 2nd April two craters account which is 3000 I will carry that balance. For sales there were two entries there was one cash sale there was one credit sale. So buy cash for 2400 buy debtor 1250 this is how the sales account will look like. Let us go back and have a look at transactions once again. So you can see here there was one credit purchase and one cash sale one credit sale. All this was recorded into a cash account purchase account and also sales account. I hope you are getting me. Now along with this there are other accounts which are affected they are debtors account and also the craters account. So you can see in debtors account balance was 1200 there was a credit sale on 7th April. So two sale 1250 on the credit side on 18th April we have got buy cash sale 1200 and based on these three transactions the total on debit side was 2450. So I have arrived this was the position I have arrived at a balance of 1250 and that balance will be carried on 1st May as two balance brought down 1250. Now creditors account there were two entries there was a credit purchase of 3000 and cash of 800 is paid. So there is a balance of 3000 that will be carried to next month. Have you understood the account making now? I know we are going little bit in hurry. I do not want to show you very much in detail how do you make the account. But just to have an idea as to how does the journal look like and how does the ledger look like we are doing this exercise. Now let us look at expense account 250 of expense is paid. So two cash 250 capital account no entry throughout the period opening balance of 1900 same balance we will carry as a balance carried down and it will go to next month again as a opening balance brought down 1900. Is it fine? I understood now ledger. Now to take a brief recap we have looked at journal which is a book of original entry. So as soon as the entry happens serially in a chronological order I write all the entries in the journal. From the journal I classify the entries and transfer them to respective accounts known as ledger. Now this practice is little bit cumbersome. Nowadays of course computers are used nobody is actually writing in the book journal ledger. So what is done is certain transactions which repeatedly happen I make some specialized books which are known as subsidiary book. So for example sales, sales will happen 100 times in one day. So instead of recording every time in the journal and ledger I make a separate book known as sales book purchase I will make a separate book known as purchase book. Like this some separate books are known those books are known as subsidiary books. So you can see here so in case of large business organization instead of journalizing which is a laborious job we will make specialized books known as subsidiary books. Now subsidiary book is a book of original entry generally maintained by a large organization where different type of transactions happen. So we have subsidiary books like this we have a cash book to record cash bank and discount transactions. We have purchase book which will record purchase related transactions on credit. Sales book which will again record the transactions of credit sale. As sales we do not record here because they are already recorded in the cash book. Then purchase return book to record the return of goods, sale return book to record the return of sale sold items from the customers back to us. Sometimes you also have a bill receivable book to record the receipt of promissory notes or hoondies. Then bills payable book where we may record the issue of promissory notes or hoondies. There is one more book known as journal proper. Now many of the transactions are already recorded in these books cash purchase sales but what transactions do not get recorded in those books get recorded in a separate book or a journal which is known as journal proper. So in this session now we have done initially we have talked about a few cases of PNL account and tried to understand PNL and in the latter part we have tried to see recording of transactions. So how the transactions are recorded in journal in leisure and in the subsidiary books. So thank you so much. Next session we will go into further more details into recording of transactions. So we will stop here.