COMMUNITY PHARMACY

By-
A.Soujanya
PharmD
Assistant professor
Dept of pharmacy practice
 DEFINITION
A community pharmacy is a health care
facility that emphasizes on providing
pharmaceutical services to a specific
community.
It is a dynamic and rapidly evolving practice
environment comprising of several different
practice settings that offer diverse services
as well as opportunities for the pharmacy
practitioner
RETAIL & WHOLE SALE DRUG STORES:
Drug stores are basically involved in
supplying all essential drugs and other
related substances to the consumers.
 Drug store can be a retail/wholesale drug store.
 A registered pharmacist who has a diploma or
degree in pharmacy who has an aptitude for
business and is financially sound and is willing to
invest money can open a drug
store(retail/wholesale).
The success of a drug store is heavily influenced
by the location, layout, design, professional
management & sound financial position.
ORGANIZATION AND STRUCTURE OF RETAIL
DRUG STORE:
Retail drug stores are considered as a sub-
organization of hospitals & are mainly involved
in:
Purchasing drugs from different sources like
wholesale drug stores etc.
Storage of purchased drugs
Selling & dispensing of the drugs
Maintenance of records for the drugs issued
Patient counselling
SELECTION OF SITE:
The drug store should be located at a site
that is convenient to the customers as well as
to the person who is starting it. Preferable
areas are densely populated locality, industrial
area, markets, areas adjoining hospitals, drug
stores, dispenseries & clinics. Drug stores can
be started in urban or rural areas.
1.In rural areas/small towns:
• In rural areas/small towns, co-operative &
national banks provide loans for procuring the
material & to start a new retail drug store.
• It is possible to open a drug store with less
investment due to lower rates of land, rents, cost
of living etc.
• The preferable sites are main market, near to
nursing homes, clinics etc.
• Another factor to be considered while opening a
retail drug store in rural areas is the financial
condition of the customers
• Since some of the customers wont be able to pay
in cash, the pharmacist must be willing to
provide credit facility to them.
2.In Urban areas/Big towns:
• Due to higher land rates, rents,wages and
cost of living , greater investment is required
to open a retail drug store.
• Preferable sites are densely populated areas,
near supermarkets, hospitals, clinics,
multispecialty hospitals, developing areas etc.
FACTORS INFLUENCING SELECTION OF
SITE:
1.Availability of finance:
This is a very essential factor as only a
financially sound pharmacist can establish a
drug store in an urban area where the
expenditure is quite high. However if the if the
2. Populated areas:
A densely populated area is preferred
because of increased demand.
3. Buying habits of customers:
This factor is also important since it
governs the sale of drugs. Expensive drugs
are bought by rich individuals who reside in
sparsely populated areas while poor people
residing in thickly populated areas cannot
afford those drugs.
4. Business locality:
Drug stores located in areas with
numerous business establishments is also
preferable since the no.of individuals visiting
Required due to high land prices and rents.
5. Hospitals:
The most suitable site for opening a retail
drug store is in areas adjoining the hospitals.
However, the drug store would be successful
only if the hospital or nursing home doesn’t
have a pharmacy of their own or if the prices
of drugs in the hospital pharmacy are high
comparatively.
6. Competitors:
An area which does not have any drug
store(no competitors) should be preferred. But
if the business potential is very high in an
area, then drug store can be opened even if a
no.of other drug stores are present.
7. Traffic flow:
Areas near traffic signals & crossroads are not
suitable for opening drug stores as these have
extreme traffic problem. A drug store located on the
side of the road which lead people to their homes
would be ideal since people generally prefer to buy
goods or medicine while returning home.
8. Ample parking space:
Parking space is a problem only in urban areas.
Another factor which governs the selection of a
suitable site is the availability of ample parking
space in front of drug store.
9. Practicing physicians:
An area where 2 or more good physicians practice
is also good as the pts are advised to purchased
prescribed medicines from the nearest drug store.
 TYPES OF RETAIL DRUG STORES:
1. Departmental drug stores:
These are large scale retail organizations that
are organized into several separate units or
departments. Every dept is considered as a
separate buying centre, related to a particular
line of products headed by the departmental
head who is responsible for the management,
promotion and sales of his own department. A
highly competent and knowledgeable
pharmacist is the departmental head who
provides customer services. Since these
departmental stores stock wide range of
products, they help to satisfy the customer
needs at one place and provide a hassle-free
Merits:
a)They offer wide variety of merchandise under
a single roof, that makes it easy for the
shoppers to fulfill their needs.
b)They are generally located in the busiest
parts of city and hence easily accessible.
c)They offer discounts, gifts on purchase, free
home delivery facilities etc to customers.
d)Good knowledgeable & competent sales
person increase customer satisfaction and
thereby sales.
e)As the sale is huge in these stores, per unit
selling cost decreases.
Demerits:
a)The capital required for the establishment of
departmental stores is very high.
b) It is difficult for the customers to contact the
owner of the store as the sales are operated
by employees.
c) Since the cost of maintanence of
departmental store is very high the articles
are charged at fairly higher rates.
d) Independent working of each department
makes it difficult to attain cooperation
between the departments.
e) Since the sales are dependent entirely upon
the sales force therefore any leniency on the
2. Multiple Shops/Retail Chain Stores:
Multiple shops are a group of stores opened by a single
business firm in different areas of the cities or different
parts of a country. Every store or branch deals with
similar line of goods. These stores are operated under
common ownership as a closely knit network. The
management at the head office controls all the
branches of the chain stores. Examples of multiple
stores include Himalaya, Hamdard, Dabur etc. The aim
of these stores is to provide better shopping facilities
to its customers. The chain stores of Apollo
pharmacies, Medplus pharmacies are located in
different localities. Highly experienced pharmacists are
employed who offer better customer services. The
popularity of these drug stores is determined by the
quality and skills of the salesmen, store appearance,
availability of all the desired distinct merchandise etc.
Merits:
1. The central office purchases the inventory in
bulk for all its chain of stores. Therefore, the cost
of product per unit reduces and all the stores sell
the same quality of goods at fixed price.
2. Stores are located in busy and commercial areas
of the city which makes them easily accessible.
3. Goods available are of standard quality that
helps in gaining the confidence of the customers.
4. The colour, design, layout and decoration of all
the chain stores is alike that makes it easy for the
customers to identify them.
5. Shortage of goods in one store, can be met by
transferring any surplus goods from its other
branches.
6. Since multiple stores indulge only in cash
transactions, therefore this helps to rule out
any kind of loss due to bad debts.
7. Uniform operation of all the chain stores
facilitates the head office to maintain
effective control and coordination between
the branches.
• Demerits:
1. Multiple stores do not provide any extra
services like free home delivery or credit
facilities to the customers.
2. Controlling all the stores from a single
head office is not an easy task.
3. All the stores in the chain have similar merchandise
and services which cannot be modified to suit the
needs of the local market.
4. As these stores deal with limited range of products,
they do not provide a wide variety of products to the
consumers.
5.The employees of all the stores have to be
uniformly trained in the aspects of maintaining cash
registers, stocking the shelves, controlling the
inventory, dealing with customers etc.
3. Mail Order Business:
In mail order business the manufacturers
communicate with the customers and offer their
products & services for sale through
catalogues,letters, brochures, pamphlets or through
e-mail or advertisement in the newspapers
The customers if satisfied with the products places an
order. The goods are then forwarded to the customers
through value payable post (VPP).
However, in this type of pharmaceutical retailing, the
primary customers are physicians. Only the mail orders
dealing with OTC products are forwarded to the common
public.
• Merits:
1. The start-up cost and running expenses of order
business is very low as it does not need a shop and
employees.
2. Orders may be placed any day, anytime almost
anywhere.
3. Detailed information of the product can be found.
4. Many employees are not hired, therefore expenditure on
employee salaries is very less.
5. Customers can directly contact the manufacturer as no
middlemen are involved.
6. As the payment is made in advance or
collected from post office in case of VPP, this
helps to rule out the possibility of bad debts.
• Demerits:
1. It is a very challenging job.
2. Consumers receives a number of promotional
mails that leaves them in a state of confusion.
3. Preparation and distribution of catalogs &
directing mails is time consuming & an
expensive process.
4. Customers cannot physically examine
products before purchasing.
5. Credit facilities are not available and this
business is restricted only to non-perishable
7. There are chances that the customer might get
cheated by a dishonest manufacturer.
8. No personal contact between the customer the
manufacturer.
DESIGN OF A RETAIL DRUG STORE:

Proper layout of a retail drug store makes it

efficient & convenient for the customers. Hence
layout design plays an important role in efficient
running of a drug store pharmacy.
Objectives:
• To attract maximum number of customers.
• To promote sale of drugs.
• To maintain minimum selling expenses.
• To fulfill the customer needs.
• To provide maximum space and surveillance.
• To control customer movements in the drug
store.
• To control the chances of theft and pilferage.
• To have ample space for stocking the drugs.
Ideal requirements:
•There should be flexible arrangement of drugs.
•The layout should protect the drugs from theft
and deterioration.
•It should provide maximum space for labour
movement and material handling.
•It should attract the customers.
•It should have proper security arrangements.
•It should provide a professional image to the drug
store.
• It should avoid overcrowding.
• It should provide customer satisfaction and
convenience.
• There should be separate entrance for
incoming goods.
• It should have maximum transport facilities.
Description:
1.According to Drugs and Cosmetics Act and
Rules 1945, the retail drug store must fulfill all
the minimum requirements as per Schedule N.
2.The minimum area to open a drug store is
90-100 sq.ft. An ideal drug store may have a
total area of 150 sq.ft.
3.Retail drug stores should be situated on the
4.Glazed tiles, marble and glass material
should be used to construct the outer front of
the retail drug store because they are very
attractive and easy to clean.
5.The walls of the drug store should be
constructed with cement and concrete, then
painted or plastered. The floor of the drug
store is constructed with mosaic tiles.
6.To enhance the efficiency of the drug store
and for easy identification of drugs, sufficient
lighting system must be provided. For this
purpose, tube lights and neon lights are used.
This also helps to create a cheerful atmosphere
and makes the window display more attractive.
7.Internal arrangements of drug store like racks, shelves,
cupboards and drawers are made up of wood or steel.
Basically, the shelves, racks and almirahs are used for
storing and displaying the medicines. The counter is
made up of wood and coated with white sunmica.
Furniture includes a working table, chairs for the staff
and customers. A suitable place is also provided for the
refrigerator.
8.Additionally, the drug store should also have adequate
office space, space for stocking drugs as well as for the
staff to take rest and lunch.
9.Fluorescent or neon lighting is used to illuminate the
name of the retail drug store and insignia + of the
pharmacy, which makes it very attractive. The
illumination must not glare.
Hence, a proper layout makes the drug store more
efficient and convenient.
LEGAL REQUIREMENTS OF RETAIL DRUG STORES:

1.Minimum academic qualification:

A pharmacist registered by the State Pharmacy
Council is eligible to start or establish a retail drug
store. State Pharmacy Council issues the certificate
of registration to an individual holding a diploma or
degree in pharmacy. The minimum academic
qualification required to establish a retail drug store
is diploma in pharmacy. A person who is not a
registered pharmacist but intends to establish a
retail drug store can appoint a registered
pharmacist.
2.Minimum space or area:
According to Drugs and Cosmetics Act and Rules
1945, the minimum space required to establish a
retail drug store is 100 sq.ft.
3. Arrangements of Retail Drug Store
Sufficient number of racks or shelves should be present to
store pharmaceutical preparations and drugs. A
refrigerator is required to store thermolabile drugs and
biological products like vitamins, vaccines, sera and
enzymatic preparations which require a storage
temperature of 2-8°C.
4.Requirements for Obtaining License Documents
To establish a retail drug store, license is needed to stock,
sell, display or distribute the drugs. For acquiring a new
license from drug administration, the following documents
are required,
(a) Application in duplicate on Form 19 of the Drugs and
Cosmetics Rules 1945, one each for biological and non-
biological drugs.
(b) Fee of ₹1500/- per copy to be deposited in any
Government bank or Government treasury for grant of
retail license.
(c) Attested Copies
(i) Attested copy of D.Pharm (Diploma in
pharmacy) certificate from any institution
recognized by the PCI.
(ii) Attested copy of registration certificate
issued by the State Pharmacy Council.
(iii) Attested copy of matriculation
certificate.
(iv) Attested copy of the written document
of registered pharmacist, if he is appointed
by the drug store proprietor on whole time
basis.
(d) Affidavit on a non-judicial stamp paper
attested by the First Class magistrate and
(e) A blue print or map of the retail
drug store attested by the proprietor or
the partners of the firm.
(f) Attested copy of the receipt of rent
(in case of rented premises) or an
affidavit if the person is the owner of
the premises.
(g) Attested copy of the partnership
deed copy (in case of partnership).
(h) Receipt of purchase of refrigerator.
The retail sale licence is valid up to 5
years after which it has to be renewed
before its expiry.
5.Documents required for renewal of
license:
(a) application in duplicate on form 19 of the
drugs and cosmetics rules,1945, one each
for biological & non-biological drugs
(b) Fee of rs.1500/- per copy to be deposited
in any govt bank or govt treasury for renewal
of retail license.
(c) Rs.500/- late fee for each licence per
month
(d) original license in case of 1st renewal &
latest renewal certificate incase of
subsequent renewals.
(e) affidavit by each partner on non-judicial
ORGANIZATION & STRUCTURE OF
WHOLESALE DRUG STORES:
Wholesale drug stores are considered as
a suborganization of a manufacturing
company and are mainly involved in,
1.Purchasing the drugs in bulk from the
manufacturer.
2.Storage of the purchased bulk drugs in
the warehouse.
3.Supply of drugs to the retailers
4.Maintenance of records for issued
drugs.
Wholesale drug stores contain packaged
They supply only small amounts of packaged bulk
drugs, raw drug material and chemicals to the
industries.
Employees of the wholesale drug store are
administrative executives, office employees,
warehouse employees, inventory employees and
salesmen.
Following are the requirements for the successful
running of a wholesale drug store,
1.Proper warehouse for storage of bulk drugs and
other items.
2.Maintenance of stock inventory for all purchased
items.
3.Proper office personnel to maintain records for
purchasing, selling, invoicing and warehousing of
drugs.
Types of Wholesale Drug Store:
Wholesale drug stores may be categorized as
follows:
1.Manufacturing Wholesale
A manufacturing wholesale drug store not
only manufactures goods but also sells them
to the retailers. The manufacturer may also
purchase goods from other manufacturers and
sell them to the retailers. In this way, these
wholesalers increase their turnover and
reduce the overhead expenses by eliminating
manufacturers.
2.Retail-Wholesale Drug Store
In a retail wholesale drug store, the goods are
3.Wholesale Proper/Pure Wholesale Drug
Store
A wholesaler proper, also known as a
distributor is purely concerned with buying the
products in large quantities and selling them to
the retailers. He is neither involved in
production nor retailing of the products.
Design of a Wholesale Drug Store:
Proper layout of a wholesale drug store makes
it efficient and convenient for the customers.
Hence layout plays an important role in the
efficient running of a Wholesale drug store.
Ideal requirements:
1.There should be flexible arrangement of
2.The layout of the wholesale drug store
should protect drugs from deterioration.
3.It should provide maximum space for labour,
employees movement and material handling.
4.It should have proper security arrangements.
5.It should provide a professional image to the
wholesale drug store.
6.There should be a proper entrance for
incoming goods.
7.There should be a proper warehouse for
purchased goods.
8.It should have proper transport facilities.
 DESCRIPTION
• According to Drugs and Cosmetics
Act and Rules 1945, a wholesale
drug store must fulfil all the
minimum requirements as per
Schedule N.
• The minimum area to open a
wholesale drug store is about 100
sq.ft.
• Other requirements are same as
that of retail drug store
Legal Requirements of a Wholesale Drug Store
1. Minimum Academic Qualification
To establish a wholesale drug store, adequate
experience in drug selling is an added
advantage for D.Pharm candidates. A
matriculation candidate can also establish a
drug store if he has been working in a
medical (or chemist) shop and has 4 years
experience in drug sale.
2. Minimum Space or Area
According to Drugs and Cosmetics Act and
Rules 1945, minimum space required to
establish a wholesale drug store is 100 sq.ft.
3. Arrangements of Wholesale Drug Store
Sufficient number of racks and shelves should be present
to store the drugs and other items. Refrigerator is
required to store thermolabile drugs and biological
products like vitamins, vaccines, sera, enzymatic
preparations etc., which are needed to be stored in
between 2-8°C.
4. All other requirements are similar to retail drug
store except for attested copies of certain additional
documents which are mentioned below.
(a) Attested copy of experience certificate stating a
minimum of 4 years experience in drug sales or
distribution after the matriculation (or) Attested copy of
experience certificate stating minimum of 1 year
experience in dealing with drugs after graduation (in any
discipline) from a recognized university.
(b) Affidavit of the qualified person if he is an employee
of the drug store.
 Dispensing of Proprietory Products
According to Drugs and Cosmetics Act, 1940 and Rules,
1945, proprietary drugs may be referred to,
In relation to Ayurvedic, Siddha or Unani systems of
medicine, all formulations containing only such
substances mentioned in the formulae described in the
prescribed books of Ayurvedic, Siddha or Unani systems
of medicine specified in First Schedule to the Act
excluding the medicines administered by parenteral
route.
In relation to any other systems of medicine including
allopathy, a drug that is a remedy or prescription
presented in a form ready for internal or external
administration of human beings or animals and which is
not included for the time being in the edition of the
Indian Pharmacopoeia or any other pharmacopoeia
prescribed by the Central Government in this behalf after
consulting with the Drugs Technical Advisory Board.
All proprietary medicines are controlled by
an individual or individuals either by
copyright, trade mark or by a patent.
Theoretically, proprietary medicines may be
divided into two classes wherein the first
class of drugs are referred to as patented
drugs which are sold directly to the public
whereas the second class of these drugs
are put up for and advertised only to the
medical practitioners. This class of drugs
are known as proprietaries.
General Standards for Dispensing:
As per Drugs and Cosmetics Act, 1940 and
Rules, 1945, dispensing of proprietary
medicines need to abide by the following
If a pharmaceutical product requires the
presence of several active ingredients, then
these should be selected by considering the
facts that these do not interact with each
other and they do not compromise the safety
and therapeutic efficacy of the final product.
Moreover, the selection should also consider
that when these ingredients are used in
combination they should enable in assaying
the individual ingredients without offering
any analytical difficulties. Additives used in
the products should be safe, should not
compromise the safety or therapeutic
efficacy of the active ingredients and when
used in their required amounts should not
1.Patent or proprietary medicines are required to comply
with all the general requirements relating to the dosage
form under which they fall, that have been mentioned in
the Indian Pharmacopoeia. If these medicines belong to a
category of dosage form that does not find a mention in
the Indian Pharmacopoeia but is present in any other
pharmacopoeia that has been prescribed for the purpose
of second Schedule to the Act, then these medicines are
required to comply with the general requirements that
have been prescribed for such dosage forms in this
pharmacopoeia. Without prejudice to the generality of the
preceding requirements, general requirements should
include compliance with consistency of colour, clarity,
stability, being devoid of any contamination with foreign
matter or fungal growth, tablets being free from defects
like chipping and capping, cracking of coating, mottled
appearance and other defects that can be identified when
these are visually inspected.
chipping- Breaking of
tablet edges
Capping- partial or complete separation of the
top or bottom crowns of a tablet from the main
body of the tablet
tablet- cracking of coating
Mottling- unequal distribution of color on a
tablet, with light or dark spots standing out on an
otherwise uniform surface
2.Without prejudice to the generality of the following
parameters, depending upon the category of dosage forms
to which the patent or proprietary medicines belong, these
are required to be compliant with the following
requirements.
(a) Tablets
Patent or proprietary medicines are required to be
compliant with all the requirements prescribed for tablets
in the Indian Pharmacopoeia. Their label should bear,
among others, details like nature of coating, permitted
colours that have been added, sugar coated or uncoated.
(b) Capsules
Patent or proprietary medicines in the capsules are
required to comply with thegeneral requirements for the
same as prescribed in the indian Pharmacopoeia. However,
the capsule should not be distorted in shape, should not be
discoloured or bear any other physical defects such as
cracks, pinholes or leakage from the joints.
(c) Liquid Oral Dosage Forms
Upon shaking, both emulsions and suspensions
should form a uniform dispersion. Homogenous
solutions should be devoid of any sediment. Net
content or the volume of product in the
container should not be less than the volume
indicated on the label. The content of alcohol in
pharmaceutical products should be less than
90% and not more than 110% of the labelled
contents.
(d) Injections
Patent or proprietary medicines in the form of
injections are required to comply with the
requirements for injections as prescribed in the
Indian Pharmacopoeia.
(e) Ointments
Patent or proprietary medicines in the form of
ointments are required to comply with
requirements for ointments as prescribed in
the Indian Pharmacopoeia.
3.In patent or proprietary medicines, the
content of active ingredients excluding
enzymes, vitamins and antibiotics should not
be less than 90% and not more than 110% of
the labelled content.
However, only lower limit of 90% shall be
applicable to enzymes and vitamins. The
content of antibiotics in dry formulations would
be 90-130% of the labelled contents, while
their content in liquid formulations would be
Judicial limits for error for microbiological
assay of antibiotics can be determined based
on the design of the procedure involved in the
assay. Assay of active ingredients should be
done by methods that follows the same
principle and utilise the same organisms
prescribed by the latest edition of the Indian
Pharmacopoeia or should follow any other
method that has been approved by the
authority that grants licence to manufacture
these medicines.
4.When aspirin is present in a patent or
proprietary medicine, then free salicyclic acid
test should be performed and the limit of such
acid would be 0.75%. However the limit of the
5.The method and limits to be followed while
testing the patent or proprietary medicines
(under provisions of the Rule 121-A) should be
the one prescribed by the Indian
Pharmacopoeia. The medicines to be tested,
should be injected in a dose that is not less
than its human dose based on body weight of
60 kg human. Dose of the medicine selected
for the pyrogen test should be mentioned in
the protocol but it should not be greater than 5
times the dose given to humans based on body
weight of a 60 kg man.
6.Patent or proprietary medicines meant for
injection should be tested for freedom from
toxicity by following the procedure prescribed
MAINTANENCE OF RECORDS OF RETAIL &
WHOLESALE DRUG STORES:
Accounting Records in Drug Stores:
Introduction to Accountancy:
Accounting is called the language of business.
It is the common language used to
communicate financial information from one
person to another in the field of industry and
commerce.
Following are the various definitions of
accounting as given by some of the well
established accounting bodies.
1.American Institute of Certified Public
Accountant
"Accounting is the art of recording, classifying
and summarizing in significant manner and in
terms of money transactions and events which
are, in part, at least of financial character and
interpreting the results thereof".
2.American Accounting
Association(AAA),1966
"Accounting is the process of identifying,
measuring and communicating economic
information to permit informed judgements
and decisions by users of the information".
3.Accounting Principles Board(APB),1970
"The function of accounting is to provide
quantitative information, primarily of
financial nature, about economic entities,
that is needed to be useful in making
economic decisions".
Basic Principles of Accounting
Generally Accepted Accounting Principles
(GAAP) may be defined as those rules of
action or conduct which are derived from
experience and practice and when proved
useful, become accepted as principles of
accounting.
These accounting principles are divided into,
1.Accounting Concepts
These concepts are like foundation pillars on
which the structure of accounting is based.
(a) Accounting Entity Concept
A business is treated as a separate entity that is
distinct from its owners and all other economic
proprietors.
For example, in case of a proprietary concern,
though the legal entity of the business and its
proprietor is same, for the purpose of accounting,
they are to be treated as separate from each
other. This concept requires that for accounting
purposes, a distinction should be made between
(i) Personal transactions and business
transactions and
(ii) Transactions of one business entity and
those of another business entity.
The proprietor is regarded as a creditor to the
extent of the capital he contributed to the
business & the capital is considered as
business liability to the proprietor.
(b) Monetary Unit Concept:
This concept signifies that accounting
considers only those transactions that can be
expressed in monetary terms and a record of
only such transactions is maintained.
(c)Accounting Period Concept or Periodicity
Concept
According to this concept, the economic life of
an enterprise is split into 12 months period
which is known as accounting period, at the
end of which an income statement and
position statement are prepared to show the
performance and financial position. The
accounting period is usually one year.
(d)Going Concern Concept/Continuity Concept:
According to this concept, the enterprise is
normally viewed as an ongoing concern i.e.,
continuing in operation forever until the
business is stopped.
It is because of the ongoing concern
assumptions,that the assets are classified as
current assets and fixed assets, while the
liabilities are classified as short-term liabilities
and long-term liabilities.
(e)Revenue Recognition Concept
This concept is mainly concerned with the
recording of only those revenues or incomes of
an enterprise which have been realized
(amount collected) in cash. Revenue is the
gross inflow of cash receivables or other
considerations arising in the course of ordinary
activities of an enterprise from the sale of
goods or rendering of services.
(f) Historical Cost Concept:
According to this concept, an asset is recorded
in the accounting book at the price paid to
acquire it at the time of its acquisition and the
cost becomes the basis for the accounts
during the period of acquisition and
subsequent accounting periods.
Example: If a plot was bought by a trader for
rs.1,00,000/-, 5 years ago but its present
market value is ₹3,00,000/- then according to
cost concept the cost of asset in the
accounting book is taken as ₹1,00,000/-.
(g)Matching Concept
According to this concept, the profit in an
accounting period of say 1 year should be
matched (compared) with profit of the previous
year. This helps to determine whether the
business has progressed or suffered a downfall.
(h)Accrual Concept
According to this concept, all the revenues
earned and the expenses incurred during a
particular period (1 to 2 years) is recorded,
while preparing the financial statements.
The revenue which has been earned but has
not yet been received is termed as accrued
and receivable. Those expenses which have
been incurred but have not been paid yet are
termed as accrued and due. The financial
statements should include both these to help
in determining the earning capacity of the
business during the financial year.
2.Accounting Conventions
Accounting conventions are essentially
general decision rules which govern the
development of accounting techniques.
These conventions guide how the transactions
should be recorded and reported.
(a) Full disclosure:
According to this, the financial statements should
act as a means of conveying and not concealing.
The financial statements must disclose all the
relevant and reliable information which they
purport to represent, so that the information may
be useful for the users.
(b) Consistency
According to this, whatever accounting practices
or policies are followed in a year the same should
be followed from one accounting period to
another to achieve compatibility.
This enables easy comparison of accounts of
one year with the accounts of other financial
years.
(c) Conservatism
The convention of conservatism requires that
in a situation of uncertainty and doubt,
business transactions should be recorded in
such a manner, that the profits and assets are
not over stated. Moreover, no facts regarding
the business should be hid while making the
financial statements since this helps to
determine the true position of the business.
(d) Materiality :
This convention is basically an exception to the
Full Disclosure. According to this, relatively all
material facts or important facts, the
knowledge of which might influence the
decision of the users of the financial
statements, should be disclosed in the financial
statements.
Functions of Accounting
1. Recording is a basic function of accounting. It
is concerned with recording all the financial
transactions of a business in a systematic
manner.
2. Accounting is also concerned with preparing
final accounts such as balance sheet, trading
account & profit and loss account. This helps to
determine the financial position of the
company at the end of a particular period.
3. It provides important information which is
useful for the management in the development
of the business.
Recording of Business Transactions:
Book Keeping-
The first stage in the accounting process is
book keeping which is the recording of
business transactions in books of accounts.
Book keeping is defined as the science and art
of systematically and correctly recording all the
business transactions which involve the
transfer of money or money’s worth.
DIFFERENCE
BOOK KEEPINGB/W BOOK KEEPING &
ACCOUNTANCY
ACCOUNTANCY
It is an art and science of It is the science of
correctly recording all the examining,checking,summ
transactions in the books arizing and analyzing the
of original entry. recorded transactions.
The records maintained It provides required
are not meant for outside information to all the
parties. related outside parties
BOOK KEEPING ACCOUNTANCY
vouchers are prepared for records under book keeping
the records under book are the basis for accounting
keeping. information
records under book keeping results of business
donot give results of transactions are made
business transactions available.
financial position of the true financial position of
business is not revealed by the business can be
book keeping ascertained from
accounting records
it tallies and balances it is concerned with
various accounts in the preparation of trial balance
ledger & checking accuracy of
accounting
done by junior staff done by senior accountants
Double Entry Book Keeping System

Transaction is defined as an external event that

brings about a change in the assets, liabilities or
capital i.e., it involves tansfer of money or
money's worth. Every business transaction
involves transfer and hence consists of both
receiving and giving aspects that go together.
The record of any business transaction is
incomplete unless both these aspects are
recorded. This recording of the giving and
receiving aspects is known as double entry and
the system of recording is called double entry
system. It is the only scientific system of book
keeping which is simple and has universal
applications.
Every transaction affects two accounts and
according to the double entry system, entries
should be made in both of them i.e., on the
debit side and the credit side. This is called
the principle of double entry. The fundamental
rule of double entry book keeping system is
debit the account which receives the benefit
and credit the account that gives the benefit.
General Principles
General principles involved in the double
entry system of book-keeping are as follows,
1.The receiver or debitor is debited with the
worth of goods whatever he receives.
2. The giver or creditor is credited with the
worth of goods whatever he gives.
3.According to this system, each account is
divided into two parts i.e.. (a) The debit side,
present on the left hand side and abbreviated
as Dr.
(b) The credit side, present on the right hand
side and abbreviated as Cr. Therefore, for every
debit there should be a credit and vice-versa.
Procedure:
Initially all the transactions are recorded in the
journal or subsidiary books. From these, all the
entries are then posted in the ledger. Finally,
all the accounts are balanced and the final
financial statements are prepared.
Merits:
1.Both the aspects of the transactions (giving
and receiving) can be recorded.
2.The assets and liabilities, income and
expenditure, sales and purchase etc., are
easily determined.
3.Enables in ascertaining the accuracy of
accounting books by using trial balance.
4.Helps to find out the net profit or net loss
incurred in the business.
5.Helps to compare the sales and purchase,
opening and closing stock etc., of the present
financial year with the previous ones.
6.Enables in locating the errors in the ledger.
Demerits:
1. Any transaction that has not been entered in
any book of entry remains undetected.
2.Wrong recording of an amount of any
business transaction cannot be discovered.
3.A compensating error cannot be detected.
Books of Accounts:
The books used in book keeping are known as
accounting books or books of accounts. They
are as follows,
1. Books of Original/Primary Entry
(a) Journal
It is called the book of original entry. It is a
record of all the business transactions that are
analyzed & recorded under the heads of debits
and credits.
(b) Subsidiary Books
These are also known as daily records. These
are of the following types,
(i) Cash Book:
It is a journal comprising of recordings of cash
and bank transactions. It is of different types.
1. Single column cash book
2. Two column cash book
3. Three column cash book
4. Petty cash book.
(ii) Purchases Book
It is a journal in which all the purchases of
goods are recorded.
(iii) Sales Book
It is a journal comprising the records of all the
sales of goods.
(iv) Purchase Returns Book
It is a journal in which all the transactions of
returns of goods by the retailers to the
wholesalers are recorded.
(v) Sales Returns Book
It is a journal in which all the particulars about
the return of goods by customers are recorded.
(vi) Bills Receivable Book
It consists of all the records of bills received.
(vii) Bills Payable Book
It consists of records of all the bills accepted.
2. Books of Final Entry:
a)Ledger
It is the chief book of accounts in which all the
business transactions are recorded under
headings like capital account, personal
account, furniture account, building account
etc.
b)Cash Book
It is a special journal which is used for
recording all cash receipts and cash payments.
Cash book is a book of original entry and a
ledger which records cash receipts on the
debit side and cash payments on the credit
side.
Therefore, cash book is both a journal & a
ledger. Since the cash transactions occur
everyday in an organization, it is necessary to
record these everyday in the cash book.
Moreover, to avoid any theft or error, the
balance of the cash book should be found out
at the end of the day and compared with the
cash in hand.
Types of Cash Books
1. Single-column Cash Book
This book of accounting consists of only one
column of amount. A central vertical line
divides the cash account into two sections,
both of which bear the same no.of columns.
The Abbreviation Dr. is written on the top left
hand corner below which all debit entries are
made, before each of which the word “To” is
written. Similarly, Cr. is written at right hand
top corner, below which the credit entries
preceded by the word 'By' is written.
 SINGLE COLUMN CASHBOOK
Dr.
DAT PARTICULA Cr.
L. AMOUNT(r DAT PARTICULA L. AMOUN
E RS F s) E RS F T(rs)

It is a general rule that the debit should be

always greater than the credit. Therefore, the
cash book always shows a debit balance. The
balance at the beginning of the period or the
cash in hand is not posted to any account but
is written in the debit side so as to balance
b/d where b/d is brought down. Single cash
book is used for recording only cash
transactions but not transactions related to
banking and discount.
2. Two-column Cash Book
In contrast to single-column cash book, two-
column cash book takes into account the
discount allowed and/or received in business
transactions. The format of the two-column
cashbook is similar to single column cash book
except for the addition of the two discount
columns wherein the discount allowed is
recorded on the credit side while discount
received is recorded on debit side.The
procedure of recording the transactions is
similar to single column cash book but the
discount column are totaled but not balanced.
 The balance of cash columns is also calculated
in a manner similar to that of single column
cash book.
DOUBLE COLUMN CASHBOOK
Dr.
Dat Particul L. discou Amou Dat Particul L. discou Amou
e ars F nt Cr. nt(rs) e ars F nt nt
(rs)
3.Three-column Cash Book
Three-column cash book contains three
columns and is the most commonly used cash
book. The three columns which are provided at
each side of the cash book are,
(a) Discount column - It is a nominal account
(b) Cash column - It is a real account
(c) Bank column - It is a personal account.
 THREE COLUMN CASHBOOK
Dr.
Cr.
Da Parti L. disco cas ban Dat Partic L. discou cas ban
te cular F unt h(r k e ulars F nt h(rs k
s s) )

The following steps are to be considered while

posting the transactions in the three-column
cash book
1.When amount is received in cash, then it is
recorded in the cash column of the debit side
and if any discount has been allowed in the
transaction, then it is recorded in the discount
column of the debit side.
2. Those payments that have been made in cash
are recorded in the cash column of the credit side
and if any discount is given then it is recorded in
the discount column of the credit side.
3. When the cash that has been received is sent
to the bank for deposition, then the amount is
debited in the bank column of debit side while
credited in the cash column of credit side. In
cases when the cash has been withdrawn from
the bank for office use, then the amount is
debited in the cash column of debit side while
credited in the bank column of creditv side. Such
type of entries are termed as contra entries and
these are recorded as C in the ledger folio (L.F.)
column of both sides.
4.When the payment by the customer has been
done by means of a cheque, then the amount is
entered in the bank column of debit side. In
cases when the cheque has been received but
was deposited in the bank on a later date, then
it is presumed that it is kept in the cash box
and is treated as cash.
5.When the cheque is endorsed to an
individual, then its entry would resemble as
that made for cash payment.
6.when crossed cheque is received, then the
amount is debited in the bank column in the
debit side.
When bearer or some other cheque is received, then
the amount is recorded in the cash column in the
debit side.
7. When any commission or service charges are
charged by the bank with prior intimation, then this
amount should be recorded in the cash column of
credit side. When the bank doesnot give any due
intimation regarding such charges, then the amount
is recorded in the bank column of the credit side.
4.Petty Cash Book
Business organizations have to deal with numerous
small payments which could includes stationery,
transport charges, printer refilling etc., whose
recording in the cash book could be very difficult.
Therefore, a petty cash book is maintained in
which the receipts and payments of such
innumerable small transactions are recorded. The
person termed as petty cashier handles the cash
which is known as petty cash or imprest money.
The petty cashier generally works on imprest
system. According to this system, a fixed amount
of money is given to the petty cashier, who makes
small payments from it. When most of the petty
cash has been spent, the petty cashier is again
reimbursed the total amount spent by the head
cashier. Therefore, the petty cashier always has
imprest money. The reimburesement is on weekly,
fortnightly or monthly basis depending upon the
frequency of payments made.
Merits:
1.Petty cash book saves time and labour as
small payments need not be recorded in the
cash book or ledger.
2.It is simple to record the transactions in the
petty cash book.
3.It is usually devoid of any mistakes because
it is checked by the head cashier at regular
intervals.
4.Since it is necessary that all the vouchers are
to be attached, the chances of any fraud can
be ruled out.
Journal
Journal is a book in which transactions
are recorded in the order in which they
occur i.e., the transactions are recorded
in chronological order. It is called the
book of "prime entry/original entry",
because all the business transactions are
entered into it. An entry made into the
journal is called as journal entry and the
process of recording is called
journalizing.
Format
DAT PARTICULA L.F DEBIT CREDIT
E RS (RS) (RS)

1.Date Column: This column records the

complete date on which the transaction was
made.
2.Particulars Column: This column records the
two aspects of transaction. First, it records the
accounts to be debited & then the accounts to
be credited. It also records the narration(a brief
explanation about the transactions).
3. L.F. (Ledger Folio) Column: This column
records the ledger page number containing
relevant accounts
4.Debit Column: This column records the
amount to be debited.
5.Credit Column: This column records the
amount to be credited.
Ledger
Ledger is a book of final entry i.e., after the
transactions have been recorded in a journal,
they are then transferred into their respective
accounts in the ledger. This method of transfer
is termed as posting.
Therefore, ledger is a permanent record of all
business transactions. All ledgers consist of
several separate sections termed as accounts.
Alphabetical index of accounts is provided at
the beginning of the ledger which helps in
their easy location. Each of the ledger page is
termed as folio and is numbered.
Format
Name
date particula J.F Amouof date
the account
particul J.F Amoun
rs nt(rs) ars t(rs
Dr.
Cr.
Similar to cash book, ledger account contains a
debit side and a credit side. The debit entries
preceded by word ‘To’ are made in the debit side
while the credit entries preceded by the word 'By'
are entered in the credit side. Each side of ledger
account contains the following four columns.
1. Date Column: In this, the date on which the
transaction has occurred is recorded.
2. Particular Column: This includes the particulars
relating to the transaction.
3. Journal Folio Column: In this the page number
of the journal or other books of original entry are
recorded.
4. Amount Column: Contains the amount involved
in the transaction.
Procedure of Posting:
The posting of journal entries in the ledgers
involves the following steps.
1. The first step is to enter the date of the
transaction in the date column, on either of the
relevant side.
2. In the particulars column, the name of the
account is written which has to be either
debited or credited.
3. In the L.F. column, page number of the journal
or other books of original entry is written.
Simultaneously, the page of the ledger on which
the particular account is mentioned is entered in
the journal.
4. In the amount column on the relevant side,
the amount is entered.
The net balance of each account is determined
either on fortnightly or monthly basis. The
process of balancing of accounts is known as
casting.
Merits of Ledger:
1.A ledger provides complete information
about all accounts in one book.
2.It helps to ascertain the main items of
revenue, expenses and know what are the
assets and liabilities and their value
3. It facilitates in the preparation of final
accounts.
4. It helps the management to determine the
amount due to its creditors or the amount
due by its debtors.
5. The ledger gives all the information
pertaining to a particular account at one
place.
6. The alphabetical index provided at the
beginning of the index helps in easy location
of the accounts.
 Difference between Journal and Ledger
JOURNAL LEDGER
It is a book of original entry it is a book of final entry
the transactions in the All the transactions
journal are recorded as and pertaining to account are
when they are made i.e it recorded as they have
is a chronological record been made i.e it is an
analytical record.
entries are recorded in the entries are made in the
journal and the process is ledger and the process is
called journalizing called posting
JOURNAL LEDGER
the accounts are not All the accounts are
balanced balanced
the transactions are initially The trial balance is drawn
recorded in the books of from the ledger from
original entry(journal) & which the financial
then posted in ledger statements are prepared.
format of the journal In the ledger, both the
consists of one particulars debit side & the credit
column & 2 amount side contain equal no.of
columns one for debit & columns
other for credit
Ledger posting and balancing
1.purchased goods for cash
Dr. Purchase A/C
particula L.Cr.
Amount particul L.F Amount(rs)
rs F (rs) ars
To cash 25,000 By 25,000
A/C 25,000 balance 25,000
c/d
25,000

To
balance
b/d
 Dr. cash A/C
Cr.
particular L.F Amoun particulars L. Amount(
s t(rs) F rs)
To balance 25,000 By purchase 25,000
c/d 25,000 A/C 25,000

25,000
To balance
b/d
2. Sold goods on credit
Dr. Sales A/C
Cr.Amount( particul L. Amount(rs)
particula L.
rs F rs) ars F
To 50,000 By 50,000
balance 50,000 prakash 50,000
c/d
50,000
To
balance
b/d
 Dr. Prakash A/C
Cr.
particular L.F Amoun particulars L. Amount(
s t(rs) F rs)
To sales 50,000 By balance 50,000
50,000 c/d 50,000

50,000
To balance
b/d
3. Took loan from Mr.X
Dr. Cash A/C
particula Cr.
L. Amount( particular L. Amount(r
rs F rs) s F s)
To Mr.X 90,000 By balance 90,000
(Loan) 90,000 c/d 90,000

To 90,000
balance
c/d
 Dr. Mr.X A/C
Cr.
particular L.F Amoun particulars L. Amount(
s t(rs) F rs)
To balance 90,000 By Cash A/c 90,000
c/d 90,000 90,000

90,000
To balance
b/d
Trial Balance
The statement containing the debit and credit
balances of various accounts taken from a
ledger as on a particular date is termed as trial
balance. In other words, it is a statement
containing various ledger balances (both debit
and credit) as on a particular date. It is a
statement prepared in a tabular form. It has
three columns one for particulars, one for
debit balances and other for credit balances.
Closing balances i.e., balances at the end of
the period as shown by ledger accounts are
also shown in the statement. Trial balance is
not an account, rather it is only a statement of
balances.
The various accounts that should appear under
the debit or credit are mentioned below.
1. Debit Balance
(a) Personal Accounts
(i) Sundry debtors (total amount which is to be
received from the debtors)
(ii) Bank balance
(iii) Prepaid expenses
(iv) Loan or any advance given
(v) Drawings account.
(b) Real Accounts
(i) Accounts relating to goods such as opening
stock purchases A/c and return inwards.
(ii) Assets such as land and building, plant and
machinery, furniture and investments etc.
(c) Nominal Accounts
Expenses and losses which may include
insurance, salaries, rent, taxes, advertising etc.
2.Credit Balance
(a) Personal Accounts
(i) Sundry creditors (total amount which is to
be given to the creditors)
(ii) Bank overdraft
(iii) Mortgage loan or other loan taken
(iv) Capital account
(v) Outstanding expenses.
(b) Real Accounts
Accounts pertaining to goods such as sales
A/c, return outwards A/c.
(c) Nominal Accounts
Income and gains received such as interest,
rent, commission, discount etc. It also
includes provision for doubtful debts, general
reserve, bad debts etc.
Preparation of Trial Balance
There are two methods for the preparation of
trial balance, the balance method and the
total method.
Balance Method
Balance method involves the totalling of the accounts
on the both debit and credit side of the ledger to
obtain debit and credit balances. Debit and credit
balances are recorded on the debit and credit side of
the trial balance respectively.
Total Method
In this method, every ledger account is considered
whose total of the debit side is written in debit column
of trial balance and credit total in the credit column.
The accounts in both debit and credit columns are
added to obtain the grand total. If the grand total of
both credit and debit side tallies, then it indicates
arithmetical accuracy of original books of entry.
Importance
A trial balance is a very vital aspect in
financial statements. It is usually prepared
for the following reasons.
1.To Check the Arithmetical Accuracy of
Entries
A well posted trial balance facilitates in
checking the arithmetical accuracy of
accounting entries made. If the two sides
(debit and credit) of a trial balance tally with
each other, it indicates arithmetical accuracy.
A tallied trial balance also fulfills the dual
aspect concept (for every debit, there must
be an equivalent credit) of account.
However, when the total of debit and credit
balances of a trial balance are not equal, then it
indicates some errors in the accounts which are
to be rectified before preparing the final
accounts.
2.To help in the preparation of Financial
Statement
A trial balance forms the basis for analysing the
financial position of a concern/firm as it acts as
a base for preparing financial statements such
as balance sheet and income statement. Since
trial balance is a summarized form of all
transactions of a particular period, it will be
impossible to prepare the financial statements
and ascertain the firm's financial position
3.To Judge the Position of an Account
As trial balance summarizes all the ledger
balances, a glance as it ascertains the
position of a particular account as on a
particular date. With all these advantages,
a trial balance plays a prominent role in
ascertaining the financial position of the
firm as on a particular date and to take
necessary decisions.
4.To Locate the Errors
An error is said to occur when the trial
balance does not tally.
This requires rechecking the totals of debit and
credit balances of trial balance, rechecking the
items of the trial balance with the ledger,
rechecking the totals of the ledger accounts and
balancing them. However, if the trial balance
does get balanced, it does not indicate that the
ledger accounts are error-free, since the trial
balance does not reveal the following errors,
(a) A wrong entry made into the ledger
(b) An entry being omitted from the ledger
(c) Posting a transaction in wrong column
(d) Posting of a correct amount in the wrong
column.
These errors can be avoided by practising
extreme care during the posting of
transactions.
Merits
1.It can be prepared on any date provided
accounts are balanced.
2.It is a consolidated list of all ledger
balances at the end of a period at one place.
3. It is a method of verifying the arithmetical
accuracy of entries made in the ledger.
4.It is very useful in the preparation of final
accounts.
 Financial Statements
• Trial balance is used to prepare financial
statements which indicate the financial position
of an organization as well as the profit gained or
loss incurred in the business. Basically, the
financial statement comprises of,
(a) Profit and Loss Account: Income statement.
(b) Balance Sheet: A statement which gives the
current financial position of the firm.
Both the statements together are also known as
final accounts and help to determine the present
status of investment in the business and the
results achieved at the end of the financial year
or in a particular period of time.
Merits
1.These statements enable the management to
undertake necessary actions to improve the business
in the future.
2. The creditors of the business can decide about
either extending, maintaining or restricting the flow of
their credit to the business.
3. The shareholders of the company can judge the
future prospects of their investment, based on which
they can decide to sell or continue with their shares in
the firm.
4. Since the financial statements indicate the current
financial position of the firm, their employees can
determine whether the firm would agree for their
demands to high wages, bonus etc., or not.
Limitations
1. The financial statements are not true
indicators of financial position or
profit/loss.
2. Since most of the items in financial
statements are governed by personal
judgement, their quality would depend
upon the competence of their
preparators.
3.Only those facts which can be
expressed in monetary terms can be
expressed in financial statements.
Trading Account
It is an account which shows the results of
buying and selling of goods and/or services
during an accounting period. It is prepared to
determine the gross profit or loss during an
accounting period.
1.Trading Account is Debited with the
Following Items
(a) Opening stock i.e., closing stock at the end of
previous accounting period which has been
brought forward in the current accounting period.
(b) Purchases refer to those goods which have
been bought for resale. From the purchases, the
following are deducted.
(i) Purchases returns of return outwards (i.e.,
goods returned to suppliers)
(ii) Goods withdrawn by the proprietor for his
personal use.
(iii) Goods distributed as free samples.
(iv) Goods given as charity.
(c) Direct expenses refer to all those expenses
which have been incurred from the stage of
purchase till the stage of making the goods in
saleable conditions. Such expenses include
following, freight inward(purchasing cost),
import duty & octroi(tax), carriage
inward(shipping/transport/handling costs),
wages & expenses relating to production.
2.Trading Account is Credited with the Following
Items:
(a) Sales refer to the sales of those goods which have
been bought for resale. Sales returns or returns inward
(i.e., goods returned by customers) is deducted from the
amount of total sales.
(b) Closing stock i.e., stock of unsold goods at the end of
the current accounting period.
Preparation
Preparation of a trading account requires the transfer of
balance of accounts of all the concerned items to the
trading account. The entries required for such transfer
are called "closing entries" since such entries will close
the accounts of all the concerned items. Trading account
is closed by transferring its balance to the profit and
loss account
Profit and Loss Account
The profit and loss account is one of the
financial statements that shows the net results
of the business operations during an accounting
period. It is prepared to ascertain the net profit
earned or loss incurred by the business entity
as a result of business operations during an
accounting period. It helps in comparing the net
income of the current year with previous years
so that any deviations from the desired income
can be determined. By examining the factors
responsible for such deviations the desired
financial goals of the firm can be achieved.
All the indirect revenue expenses and losses
(i.e., other than those shown on the debit side
of the trading account) are shown on the debit
side of the profit and loss account. Whereas all
indirect revenue incomes (i.e., other than
those shown on the credit side of the trading
account) are shown on the credit side of the
profit and loss account.
Preparation of Profit and Loss Account
Prior to the actual preparation of profit and
loss account, it is necessary to be well versed
with the items that are to be placed under the
debit side or credit side.
1.Debit Balances
Salaries to employees, rent paid, postage and telegram
expenses, commission paid, printing and stationery
(bills, registers, files, hand bills, office stationery etc.,),
advertisements, repair charges, bad debts (i.e
irrecoverable debts), loss due to fire, theft etc.
2.Credit Balances
Gross profit, interest earned, rent received, commission
received, profit on sale of assets etc. Trading account
gives the gross profit or gross loss. Gross profit is
recorded on the credit side while the gross loss is
recorded on the debit side. The other entries are
recorded on the relevant side of the profit and loss
account. The entries made on both debit and credit
sides are added to obtain the grand total.
If the grand total on the credit side is greater
than the total on debit side, then it retu mery of
which is added t indicates Net Profit, the amount
I to the capital and recorded under the debit side
as To Net Profit: In case when the grand total on
debit (c) side is greater than the credit side, then
it indicates Net Loss. This amount tis subtracted
from the capital and recorded under the credit
side as By Net Loss.
Balance Sheet:
Balance sheet is another financial statement
which helps to determine the financial position
of the business on the last date of the financial
year under review.
This financial statement has been so named
because it is prepared on a sheet of ledger
folio.
A typical balance sheet has the following
characteristics.
1.It is prepared at a particular point of time
and not for a particular period.
2.It is a summary of balance of those ledger
accounts which have not been closed by
transfer to trading and Profit and loss
accounts.
3.It gives information about the nature and
value of assets and liabilities of the company
at a given date.
Preparation of a Balance Sheet
Normally, the right hand side of a balance
sheet is called the 'Assets' side and the left
hand side is called the Liabilities' side. The
various items which are shown on the assets
side and liabilities side are as follows:
1.Items to be Shown on the Assets Side
The debit balance of those ledger accounts
which have not been closed till the preparation
of the Trading and profit and Loss Accounts are
shown on the assets side of the balance Sheet.
Assets refer to tangible objects or intangible
rights owned by an enterprise and carrying
probable future benefits. Usually, the following
items are included in the assets.
a)Fixed Assets
Fixed assets refer to those assets which are
held for the purpose of providing or producing
goods or services and those which are not held
for resale in the normal course of business.
Fixed assets may be classified as follows,
(i) Tangible fixed assets refer to those fixed
assets which can be seen and touched.
E.gs: Land and building, plant and machinery,
furniture and fixtures, motor vehicles, etc.
(ii) Intangible fixed assets refer to those fixed
assets which cannot be seen and touched.
E.gs: Goodwill, patent, trademarks etc.
(b) Investments
Investments represent an expenditure on
assets to earn interest, dividend, income or
other benefits.
E.gs: Shares, debentures, bonds etc.
(c) Current Assets
Current assets are those capital account which are
held in the form of cash, stock, debit bills etc.
2.Items to be Shown on the liabilities Side
Credit balances of those ledger accounts which
have not been closed till the preparation of the
Trading and Profit and Loss Accounts are shown on
the 'Liabilities' side of the Balance Sheet.
(a) Liabilities
Liabilities refer to the financial obligations of an
enterprise other than owners funds. They are as
follows,
(i) Long-term Liabilities
Long-term liabilities refer to those liabilities which
mature for payment after one year or more and do
not require sale of any asset for their payment.
E.gs: Loan from a financial institution, debentures,
mortgage etc.
(ii) Current Liabilities
Current liabilities refer to those liabilities that are
expected to be cleared within a relatively short
period (i.e., normally a period not more than 12
months from the date of balance sheet). These are
usually paid out of current assets.
E.gs: Salaries, wages, rent bills payable,trade
creditors,
outstanding expenses, bank overdraft,
installments of loan and deposits payable within
12 months from the date of balance sheet.
b)Capital
Capital is the excess of assets over external
liabilities. It refers to the amount invested in an
enterprise by the owner. It is increased by profit
and decreased by losses and drawings.
c)Drawings
These represent the money or goods which are
withdrawn from the business by the proprietor
for his personal use. This amount is deducted
from the capital account.
Other Records in Drug Stores

Apart from accounting records, the other

records that need to be maintained in retail or
wholesale drug stores are as follows,
1. Property Rights and Records
Every organization needs to maintain details
of profits yielded in previous years. Based on
these details, a proprieter would be in a
position to assess tangible assets, equity,
value of an original stock and stock on hand,
value of plant and machinery. The basic
purpose of maintaining records is to acquire
ownership rights.
2. Narcotic Drug Record
These records are kept very secure and
contain details of the storage, purchases, sales
and distribution of narcotic drugs.
3.Insurance Record
These records are essentially kept for
emergency situations, so that the insurance
company can compare them with their own
records when any uncertainity occurs.
4. Income and Sales Tax Record
Since tax has to be calculated on sales and
income.
These details enable the tax officers like
chartered accountants to calculate tax on
income and sales and file the returns.
5. Employment Record
Details of employees like their designation, pay
roll has to be maintained which helps the
inspector to monitor as and when required.
6. Prescription Record
Under Schedule X, the purchases and sale
details of items like benzodiazepines,
barbiturates, narcotics etc need to be
maintained.
Even under schedule C, purchase & sale of
poisonous goods need to be stored. Drug
investigator monitors these records and they
must be maintained for previous 5 years.
7. Shop Act License Record
Shop owners acquires FDA license from their
local FDA offices after the approval of
municipal corporation office. These licenses
has to be affixed on the wall of their shops.
The following problems rises when records are
not maintained properly.
(a) Higher amount of insurance expenses have
to be paid
(b) Losses could incur in the form of discounts
(c) Fraudulent activities could increase
(d) Amount of taxes to be paid can be more
(e) Illegal employees could not be identified.
8. Annual Stock Taking (Inventory)
At the end of every year, the stock left over
has to be carried forward to next year. To
calculate the closing stock, the store need to
be closed for 2 days. The value of stock which
was purchased 2 years back has to be
decreased to 50% and sold as soon as possible
by offering discounts. All these details help the
firm when balance sheet is prepared.
Annual Stock Taking Inventory
Dat Inventory Shelf
e: sheet No: :
S.N Na qt rat tot Expir name Code
o me y e al y of No.
of cos suppli
pro t ers
duc
t