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Chapter -3: Recording of Transactions-I
Questions for Practice
Short Answers
1. States the three fundamental steps in the accounting
process.
Ans) The three fundamental steps in the accounting process
are:
1. Identify the transaction from source documents, like purchase
orders, loan agreements, invoices, etc.
2. Record the transaction as a journal entry.
3. Post the entry in the individual accounts in ledgers.
2. Why is the evidence provided by source documents important to
accounting?
Ans) The evidence provided by the source document is important
in the following manners:
1. It provides evidence that a transaction has actually
occurred.
2. It provides important and relevant information about date,
amount, parties involved and other details of a particular
transaction.
3. It acts as a proof in the court of law.
4. It helps in verifying transactions during the auditing
process.
3. Should a transaction be first recorded in a journal or
ledger? Why?
Ans) A transaction will be first recorded in a journal. The word
journal has been derived from the French word "Jour" Jour means
day. So, journal means daily.
Transactions are recorded daily in journal and hence it has
named so. As soon as a transaction takes place its debit and credit
aspects are analyzed and first of all
recorded chronologically (in the order of their occurrence) in
journal with its short description. Thus we see that the most
important function of journal is to show the
relationship between the two accounts connected with a
transaction. This facilitates writing of ledger. Since transactions
are first of all recorded in journal, so it is
called book of original entry or prime entry or primary entry or
preliminary entry, or first entry.
4. Are debits or credits listed first in journal entries? Are
debits or credits indented?
Ans) As per the rule of double entry system, there are two
columns of Amount in the journal format namely Debit Amount and
Credit Amount. The way of
recording in a journal is quite different from normal recording.
Journal entry is recorded in journal format in which the Debit
Amount column is listed before the
Credit Amount column.
Credits are indented. Indentation is leaving a space before
writing any word. Journal entry has its own jargon. While
journalising, in the Particulars column of
journal format, debited account is written first and credited
account is in the next line leaving some space, which is
indentation.
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5. Why are some accounting systems called double accounting
systems?
Ans) Some accounting system records two effects of an accounting
entry. The two effects of an accounting entry are known as Debit
(Dr) and Credit (Cr). Debit is
the portion of transaction that accounts for the increase in
assets and expenses, and the decrease in liabilities, equity and
income. Credit is the portion of
transaction that accounts for the increase in income,
liabilities and equity, and the decrease in assets and expenses.
The classification of debit and credit effects is
structured in such a way that for each debit there is a
corresponding credit and vice versa. Hence, every transaction will
have 'dual' effects (i.e. debit effects and
credit effects). Thus, these accounting systems are known as
double accounting systems.
6. Give a specimen of an account.
Dr. Sam A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2006 April 30
To Sales
6,000
2006 April 30
By balance c/d
6,000
7. Why are the rules of debit and credit same for both liability
and capital?
Ans) Every business acquires funds from internal as well as from
external sources. According to the business entity concept, the
amount borrowed from the
external sources together with the internal sources like,
capital invested by the proprietor, is termed as liability to the
business. Business entity concept treats
business and business owner separately. Capital of the owner is
treated as liability to the business because the business has to
repay the amount of capital to the
owner, in case of closure of the business. As liability incurred
is credited, in the same way, fresh capital introduced and net
profit increases the owners capital, and
so, capital is credited. On the other hand, if liability is
paid, it reduces liability, and so, it is debited. Similarly,
drawings from capital and net loss reduce the capital,
and so, capital is debited. Thus the rules of debit and credit
are same for both liability and capital.
8. What is the purpose of posting J.F numbers that are entered
in the journal at the time entries are posted to the accounts.
Ans) J.F refers to journal folio number. Folio, as in its
literal meanings also, means a sequence of number of words for the
purposes of dividing a book into
meaningful parts or just for reference.
The purpose of journals folio number is used to mention the
reference or address of ledger in which the journal entry has been
posted, thus giving an easy
access and also easily understanding whether all the entries has
been posted in the relevant accounts or not. If a particular
journal entry does not have a cross-
reference to the concerned ledger then it might mean that it has
not been posted yet to the ledgers.
9. What entry (debit or credit) would you make to: (a) increase
revenue (b) decrease in expense, (c) record drawings (d) record the
fresh
capital introduced by the owner.
Ans) (a) Credit. (b)Credit. (c)Debit. (d)Credit.
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10. If a transaction has the effect of decreasing an asset, is
the decrease recorded as a debit or as a credit? If the transaction
has the effect
of decreasing a liability, is the decrease recorded as a debit
or as a credit?
Ans. If a transaction has the effect of decreasing an asset, the
decrease is recorded as a credit. If a transaction has the effect
of
decreasing a liability, the decrease is recorded as a debit.
Long Answers
1. Describe the events recorded in accounting systems and the
importance of source documents in those systems?
Ans)The events recorded in accounting systems have to be
economic events. It means that events should be expressed into
financial terms by using monetary
unit .Any event that cannot be expressed in monetary units, it
is not considered for recording in accounting books. Further such
economic events must be
supported by source document.
Source document is an accounting terms to describe the original
records that contain the details that substantiate the financial
transactions that are entered into
the internal accounting system of a business. Typical source
documents include sales invoices, cash receipts, cash register
slip, credit notes and deposit slip.
Source documents provide the documentary evidence of a business
deal or accounting event and are a critical part of an audit trail
that establishes the authenticity
and tracking history of an accounting system's financial
records.
So, source documents then are the essential inputs that provide
the details required by internal accounting systems. They also
assist in the internal control of the
resources of the business. Source documents ensure that there is
documentary evidence to support the purchase or sale of items of
value and the receipt and
payment of money. Source documents provide the evidence or proof
that a transaction has actually occurred which makes it difficult
for people to misappropriate
or steal cash or other resource items from the business. These
source documents are also required by both company and tax
auditors.
2. Describe how debits and credits are used to analyse
transactions.
Ans) Business activity is all about transactions. A transaction
is any event that has a financial impact on the business and can be
measured
Transactions provide objective information about the financial
impact on a company. Every transaction has two sides:
1. Debit
2. Credit
Following are rules of debit and credit use to analyse
transactions :
All accounts are divided into five categories for the purposes
of recording the transactions: (a) Asset (b) Liability (c) Capital
(d) Expenses/Losses, and (e)
Revenues/Gains.
Two fundamental rules are followed to analyse the changes in
these accounts:
(1) For recording changes in Assets/Expenses (Losses):
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(i) Increase in asset is debited, and decrease in asset is
credited.
(ii) Increase in expenses/losses is debited, and decrease in
expenses/ losses is credited.
(2) For recording changes in Liabilities and Capital/Revenues
(Gains):
(i) Increase in liabilities is credited and decrease in
liabilities is debited.
(ii) Increase in capital is credited and decrease in capital is
debited.
(iii) Increase in revenue/gain is credited and decrease in
revenue/gain is debited.
3.Describe how accounts are used to record information about the
effects of transactions?
Ans)Every transaction is recorded in the original book of entry
(journal) in order of their occurrence; however, if we want to know
that how
much we receive from our debtors or how much to pay to the
creditors, it is not possible to determine at a single movement.
Hence,
we prepare accounts to know the position of business activities
in the meantime.
Dr. Sam A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2006 April 30
To Sales Total
6,000
2006 April 30
By balance c/d Total
6,000
6,000
6,000
Step 1 Locate the account in ledger, i.e., Sams Account.
Step 2 Enter the date of transaction in the date column of the
debit side of Sams Account.
Step 3 In the Particulars column of the debit side of Sams
Account, the name of corresponding account is to be written, i.e.,
Sales.
Step 4 Enter the page number of the ledger in the Journal Folio
(J.F.) column of Sams Account.
Step 5 Enter the amount in the Amount column.
Step 6 Same steps are to be followed to post entries in the
credit side of Sams Account.
Step 7 After entering all the transactions for a particular
period, balance the account by totalling both sides and write the
difference in shorter side, as
Balance c/d.
Step 8 Total of account is to be written on either sides.
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4. What is a journal? Give a specimen of journal showing at
least five entries.
Ans) The word journal has been derived from the French word
"Jour" Jour means day. So, journal means daily. Transactions are
recorded daily in journal and
hence it has named so. As soon as a transaction takes place its
debit and credit aspects are analyzed and first of all recorded
chronologically (in the order of their
occurrence) in journal with its short description.
The first column in a journal is Date on which the transaction
took place. In the Particulars column, the account title to be
debited is written on the first line
beginning from the left hand corner and the word Dr. is written
at the end of the column. The account title to be credited is
written on the second line leaving
sufficient margin on the left side with a prefix To. Below the
account titles, a brief description of the transaction is given
which is called Narration. Having written
the Narration a line is drawn in the Particulars column, which
indicates the end of recording the specific journal entry. The
column relating to Ledger Folio records
the page number of the ledger book on which relevant account is
appears. This column is filled up at the time of posting and not at
the time of making journal
entry. The Debit amount column records the amount against the
account to be debited and similarly the Credit Amount column
records the amount against the
account to be credited.
Specimen of journal entries:
Transactions during April 2006 were:
Rs.
01 Goods sold to Manish 3,000
02 Purchased goods from Ramesh 8,000
03 Received cash from Rahul in full settlement 9,200
05 Cash received from Himanshu on account 4,000
06 paid to Ramesh by cheque 6,000.
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Journal
Date Particulars L.F Amount
Debit
Credit
April 2006 01 02 03 05 06
Manish Dr. To Sales A/C ( Being goods sold to Manish) Purchase
A/C Dr. To Ramesh (Being goods purchased from Ramesh) Cash A/C Dr.
Discount allowed A/C Dr. To Rahul (Being cash received from Rahul
in full settlement) Cash A/C Dr. To Himanshu (Being cash received
from Himanshu on account) Ramesh Dr. To Bank A/C (Being amount paid
to Ramesh by cheque) TOTAL
3,000
8,000
9,200 500
4,000
6,000
30,700
3,000
8,000
9,700
4,000
6,000
30,700
5. Differentiate between source documents and vouchers.
Basis of
Difference Source Documents Vouchers
Meaning It refers to the documents in writing, containing the
details of
events or transactions.
When source document is considered as evidence of an event
or
transaction, then it is called voucher.
Purpose It is used for preparing accounting vouchers. It is used
for analysing the transactions.
Recording It acts as a basis for preparing accounting voucher
that helps in
recording. It acts as a basis for recording transactions.
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Preparation It is prepared at the time when an event or a
transaction occurs. It can be prepared either when an event or a
transaction occurs,
or later on.
Legality/Validity It can be used as evidence in the court of
law. It can be used for assessing the authentication of
transactions.
Prepared By
It is prepared by the persons who are directly involved in
the
transactions, or who are authorised to prepare or approve
these
documents.
It is prepared by the authorised persons or by the
accountants.
Examples Cash memo, invoice, and pay-in-slip, etc. Cash memo,
invoice, pay-in-slip (if used as evidence), debit note,
credit note, cash vouchers, transfer vouchers, etc.
6. Accounting equation remains intact under all circumstances.
Justify the statement with the help of an example.
Ans) Accounting equation signifies that the assets of a business
are always equal to the total of its liabilities and capital
(owners equity). The equations is as
follows:
A = L + C
Where,
A = Assets
L = Liabilities
C = Capital
The above equation can also be presented in the following forms
as its derivatives to enable the determination of missing figures
of Capital(C) or Liabilities(L).
(i) A L = C
(ii) A C = L
Since, the accounting equation depicts the fundamental
relationship among the components of the balance sheet, it is also
called the Balance Sheet Equation.
As the name suggests, the balance sheet is a statement of
assets, liabilities and capital.
At any point of time resources of the business entity must be
equal to the claims of those who have financed these resources. The
proprietors and outsiders
provide the resources of the business.
For example,
Example 1.
1.Rohit started business with a capital of Rs. 5,00,000.
Analysis of transaction: From the accounting point of view, the
resources of this business entity is in the form of cash, i.e., Rs.
5,00,000. Sources of this business
entity is the contribution by Rohit (Proprietor) Rs. 5,00,000 as
Capital.
2. Opened a bank account in State Bank of India with an amount
of Rs. 4,80,000.
Analysis of transaction: This transaction increases the cash in
hand (assets) and decreases cash (asset) by Rs. 4,80,000.
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3. Bought furniture for Rs. 60,000 and cheque was issued on the
same day.
Analysis of transaction: This transaction increases furniture
(assets) and decreases bank (assets) by Rs. 60,000.
4. Bought plant and machinery for the business for Rs. 1,25,000
and an advance of Rs. 10,000 in cash is paid to M/s Ramjee Lal.
Analysis of transaction: This transaction increases plant and
machinery
(assets) by Rs. 1,25,000, decreases cash by Rs. 10,000 and
increases liabilities (M/s Ramjee lal as creditor)by Rs.
1,15,000.
Thus the following is the accounting equation table which shows
how that it remains intact under all circumstances:
Transaction 1:
Rohit started business with a capital Rs. 5,00,000
Transaction 2: Opened a bank account Rs. 4,80,000 New equation
Transaction 3: Bought furniture Rs. 60,000 New equation Transaction
4: Bought plant and machinery for Rs. 1,25,000 and an advance of
Rs. 10,000 in cash is paid New equation
Total
Assets(Rs.) = Liabilities(Rs.) + Capital (Rs.) Plant & Cash
+ Bank + Furniture + Machinery = Creditors + Capital
+5,00,000 + 0 + 0 + 0 = 0 + 5,00,000 (- 4,80,000) + 4,80,000 + 0
+ 0 = 0 + 0 20,000 + 4,80,000 + 0 + 0 = 0 + 5,00,000 0 + (- 60,000
) + 60,000 + 0 = 0 + 0 20,000 + 4,20,000 + 60,000 + 0 = 0 +
5,00,000 (-10,000) + 0 + 0 + 1,25,000 = 1,24,000 + 0 10,000 +
4,20,000 + 60,000 + 1,25,000 = 1,15,000 + 5,00,000 6,15,000 =
6,15,000
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Numerical Questions
Analysis of Transactions
1. Prepare accounting equation on the basis of the following
:
(a) Harsha started business with cash Rs.2,00,000
(b) Purchased goods from Naman for cash Rs. 40,000
(c) Sold goods to Bhanu costing Rs.10,000 for Rs. 12,000
(d) Bought furniture on credit Rs. 7,000
(Ans: Asset = cash Rs. 1,60,000 + Goods Rs. 30,000 + Debtors Rs.
12,000
+ Furniture Rs. 7,000 = Rs. 2,09,000; Liabilities = Creditors
Rs. 7,000 +
Capital Rs. 2,02,000 = Rs. 2,09,000)
Solution: Accounting Equation
Transaction 1: Harsha started business with cash Rs.2,00,000
Transaction 2: Purchased goods from Naman for cash Rs. 40,000 New
equation Transaction 3: Sold goods to Bhanu costing Rs.10,000 for
Rs. 12,000 New equation Transaction 4: Bought furniture on credit
Rs. 7,000 New equation
Total
Assets (Rs.) = Liabilities (Rs.) + Capital(Rs.) Stock Cash + of
Goods + Debtors + Furniture = Creditors + Capital
+2,00,000 + 0 + 0 + 0 = 0 + 2,00,000 (-40,000) + 40,000 + 0 + 0
= 0 + 0 1,60,000 + 40,000 + 0 + 0 = 0 + 2,00,000 0 + (- 10,000 ) +
12,000 + 0 = 0 + 2,000 1,60,000 + 30,000 + 12,000 + 0 = 0 +
2,02,000 0 + 0 + 0 + 7,000 = 7,000 + 0 1,60,000 + 30,000 + 12,000 +
7,000 = 7,000 + 2,02,000 2,09,000 = 2,09,000
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2. Prepare accounting equation from the following:
(a) Kunal started business with cash Rs.2,50000
(b) He purchased furniture for cash Rs. 35,000
(c) He paid commission Rs. 2,000
(d) He purchases goods on credit Rs. 40,000
(e) He sold goods (Costing Rs.20,000) for cash Rs. 26,000
(Ans: Asset = Cash Rs. 2,39,000 + Furniture Rs. 35,000 + Goods
Rs. 20,000 = Rs. 2,94,000; Liabilities = Creditors Rs. 40,000 +
Capital Rs. 2,54,000=
Rs. 2,94,000)
Solution: Accounting Equation
Transaction 1: Kunal started business with cash Rs.2,50,000
Transaction 2: purchased furniture for cash Rs. 35,000 New equation
Transaction 3: He paid commission Rs. 2,000 New equation
Transaction 4: He purchases goods on credit Rs. 40,000 New equation
Transaction 5: He sold goods (Costing Rs.20,000) for cash Rs.
26,000 New equation
Total
Assets Rs) = Liabilities (Rs.) + Capital( Rs.) Stock Cash + of
Goods + Furniture = Creditors + Capital
+2,50,000 + 0 + 0 = 0 + 2,50,000 (-35,000) + 0 + 35,000 = 0 + 0
2,15,000 + 0 + 35,000 = 0 + 2,50,000 (-2,000) + 0 + 0 = 0 + (-
2,000) 2,13,000 + 0 + 35,000 = 0 + 2,48,000 0 + 40,000 + 0 = 40,000
+ 0 2,13,000 + 40,000 + 35,000 = 40,000 + 2,48,000 26,000 +
(-20,000) + 0 = 0 + 6,000 2,39,000 + 20,000 + 35,000 = 40,000 +
2,54,000 2,94,000 = 2,94,000
3. Mohit has the following transactions, prepare accounting
equation:
(a) Business started with cash Rs. 1,75,000
(b) Purchased goods from Rohit Rs. 50,000
(c) Sales goods on credit to Manish (Costing Rs. 17,500) Rs.
20,000
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(d) Purchased furniture for office use Rs. 10,000
(e) Cash paid to Rohit in full settlement Rs. 48,500
(f) Cash received from Manish Rs. 20,000
(g) Rent paid Rs. 1,000
(h) Cash withdrew for personal use Rs. 3,000
(Ans: Cash Rs. 1,32,500 + Goods Rs. 32,500 + Furniture Rs.
10,000 = Rs. 1,75,000; Liabilities = Capital Rs. 1,75,000)
Solution: Accounting Equation
Transaction 1: Mohit started business with cash Rs. 1,75,000
Transaction 2: Purchased goods from Rohit Rs. 50,000 New equation
Transaction 3: Sales goods on credit to Manish (Costing Rs. 17,500)
Rs. 20,000 New equation Transaction 4: Purchased furniture for
office use Rs. 10,000 New equation Transaction 5: Cash paid to
Rohit in full settlement Rs. 48,500 New equation Transaction 6:
Cash received from Manish Rs. 20,000 New equation Transaction 7:
Rent paid Rs. 1,000 New equation
Assets (Rs.) = Liabilities (Rs.) + Capital(Rs.) Stock Cash + of
Goods + Debtors + Furniture = Creditors + Capital
+1,75,000 + 0 + 0 + 0 = 0 + 1,75,000 0 + 50,000 + 0 + 0 = 50,000
+ 0 1,75,000 + 50,000 + 0 + 0 = 50,000 + 1,75,000 0 + (- 17,500 ) +
20,000 + 0 = 0 + 2,500 1,75,000 + 32,500 + 20,000 + 0 = 50,000 +
1,77,500 (-10,000) + 0 + 0 + 10,000 = 0 + 0 1,65,000 + 32,500 +
20,000 + 10,000 = 50,000 + 1,77,500 (-48,500 ) + 0 + 0 + 0
=(-50,000) + 1,500 1,16,500 + 32,500 + 20,000 + 10,000 = 0 +
1,79,000 +20,000 + 0 + (-20,000) + 0 = 0 + 0 1,36,500 + 32,500 + 0
+ 10,000 = 0 + 1,79,000 (-1000 ) + 0 + 0 + 0 = 0 + (-1000) 1,35,500
+ 32,500 + 0 + 10,000 = 0 + 1,78,000
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Transaction 8: Cash withdrew for personal use Rs. 3,000 New
equation
Total
(-3,000) + 0 + 0 + 0 = 0 + (-3000) 1,32,500 + 32,500 + 0 +
10,000 = 0 + 1,75,000 1,75,000 = 1,75,000
4. Rohit has the following transactions :
(a) Commenced business with cash Rs.1,50,000
(b) Purchased machinery on credit Rs. 40,000
(c) Purchased goods for cash Rs. 20,000
(d) Purchased car for personal use Rs. 80,000
(e) Paid to creditors in full settlement Rs. 38,000
(f) Sold goods for cash costing Rs. 5,000 Rs. 4,500
(g) Paid rent Rs. 1,000
(h) Commission received in advance Rs. 2,000
Prepare the Accounting Equation to show the effect of the above
transactions on the assets, liabilities and capital.
(Ans: Assets = Cash Rs. 17,500 + Machine Rs. 40,000 + Goods Rs.
15,000 = Rs. 72,500; Liabilities = Commission Rs. 2,000 + Capital
Rs. 70,500
= Rs. 72,500)
Solution: Accounting Equation
Transaction 1: Rohit started business with cash Rs. 1,50,000
Transaction 2: Purchased machinery on credit Rs. 40,000 New
equation Transaction 3: Purchased goods for cash Rs. 20,000 New
equation Transaction 4: Purchased car for personal use Rs.
80,000
Assets (Rs.) = Liabilities (Rs.) + Capital(Rs.) Stock Advance
Cash + of Goods + Machinery = Creditors + Commission + Capital
+1,50,000 + 0 + 0 = 0 + 0 + 1,50,000 0 + 0 + 40,000 = 40,000 + 0
+ 0 1,50,000 + 0 + 40,000 = 40,000 + 0 + 1,50,000 (-20,000)+ 20,000
+ 0 = 0 + 0 + 0 1,30,000 + 20,000 + 40,000 = 40,000 + 0 + 1,50,000
(-80,000) + 0 + 0 = 0 + 0 + (- 80,000)
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New equation Transaction 5: Paid to creditors in full settlement
Rs. 38,000 New equation Transaction 6: Sold goods for cash costing
Rs. 5,000 Rs. 4,500 New equation Transaction 7: Paid rent Rs. 1,000
New equation Transaction 8: Commission received in advance Rs.
2,000 New equation
Total
50,000 + 20,000 + 40,000 = 40,000 + 0 + 70,000 (-38,000 ) + 0 +
0 = (-40,000) + 0 + 2,000 12,000 + 20,000 + 40,000 = 0 + 0 + 72,000
+4,500 + (-5,000) + 0 = 0 + 0 + (- 500) 16,500 + 15,000 + 40,000 =
0 + 0 + 71,500 (-1000 ) + 0 + 0 = 0 + 0 + (-1000) 15,500 + 15,000 +
40,000 = 0 + 0 + 70,500 2,000 + 0 + 0 = 0 + 2,000 + 0 17,500 +
15,000 + 40,000 = 0 + 2,000 + 70,500 72,500 = 72,500
5. Use accounting equation to show the effect of the following
transactions of M/s Royal Traders:
(a) Started business with cash Rs.1,20,000
(b) Purchased goods for cash Rs. 10,000
(c) Rent received Rs. 5,000
(d) Salary outstanding Rs. 2,000
(e) Prepaid Insurance Rs. 1,000
(f) Received interest Rs. 700
(g) Sold goods for cash (Costing Rs. 5,000) Rs. 7,000
(h) Goods destroyed by fire Rs. 500
(Ans: Assets = Cash Rs. 1,21,700 + Goods Rs. 4,500 + Prepaid
insurance Rs. 1,000; Liabilities = Outstanding salary Rs. 2,000 +
Capital Rs. 1,25,200)
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Solution: Accounting Equation
Transaction 1: M/s Royal Traders started business with cash Rs.
1,20,000 Transaction 2: Purchased goods for cash Rs. 10,000 New
equation Transaction 3: Rent received Rs. 5,000 New equation
Transaction 4: Salary outstanding Rs. 2,000 New equation
Transaction 5: Prepaid Insurance Rs. 1,000 New equation Transaction
6: Received interest Rs. 700 New equation Transaction 7: Sold goods
for cash (Costing Rs. 5,000) Rs. 7,000 New equation Transaction 8:
Goods destroyed by fire Rs. 500 New equation
Total
Assets (Rs.) = Liabilities (Rs.) + Capital(Rs.) Stock Prepaid
Outstanding Cash + of Goods + Insurance = Creditors + Salary +
Capital
+1,20,000 + 0 + 0 = 0 + 0 + 1,20,000 (-10,000) + 10,000 + 0 = 0
+ 0 + 0 1,10,000 + 10,000 + 0 = 0 + 0 + 1,20,000 5,000 + 0 + 0 = 0
+ 0 + 5,000 1,15,000 + 10,000 + 0 = 0 + 0 + 1,25,000 0 + 0 + 0 = 0
+ 2,000 + (-2,000) 1,15,000 + 10,000 + 0 = 0 + 2,000 + 1,23,000
(-1000) + 0 + 1,000 = 0 + 0 + 0 1,14,000 + 10,000 + 1,000 = 0 +
2,000 + 1,23,000 700 + 0 + 0 = 0 + 0 + 700 1,14,700 + 10,000 +
1,000 = 0 + 2,000 + 1,23,700 7000 + (-5,000) + 0 = 0 + 0 + 2,000
1,21,700 + 5,000 + 1,000 = 0 + 2,000 + 1,25,700 0 + (-500) + 0 = 0
+ 0 + (-500) 1,21,700 + 4,500 + 1,000 = 0 + 2,000 + 1, 25,200
1,27,200 = 1,27,200
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6. Show the accounting Equation on the basis of the following
transaction:
(a) Udit started business with:
(i) Cash Rs. 5,00,000
(ii) Goods Rs. 1,00,000
(b) Purchased building for cash Rs. 2, 00,000
(c) Purchased goods from Himani Rs. 50,000
(d) Sold goods to Ashu (Cost Rs. 25,000) Rs. 36, 000
(e) Paid insurance premium Rs. 3,000
(f) Rent outstanding Rs. 5,000
(g) Depreciation on building Rs. 8,000
(h) Cash withdrawn for personal use Rs. 20,000
(i) Rent received in advance Rs. 5,000
(j) Cash paid to himani on account Rs. 20,000 (k) Cash received
from Ashu Rs. 30,000
(Ans : Assets = Cash Rs. 2,92,000 + Goods Rs. 1,25,000 +
Building Rs. 1,92,000 + Debitors Rs. 6,000 = 6,15,000: Laibilities
= Creditors Rs. 30,000 + Outstanding
Rent Rs. 5,000 + Rent Rs. 5,000 + Capital Rs. 5,75,000 = Rs.
6,15,000)
Solution: Accounting Equation
Transaction 1: Udit started business with:
(i) Cash Rs. 5,00,000 (ii) Goods Rs. 1,00,000
Transaction 2: Purchased building for cash Rs. 2,00,000 New
equation Transaction 3: Purchased goods from Himani Rs. 50,000 New
equation Transaction 4: Sold goods to Ashu (Cost Rs. 25,000) Rs.
36, 000 New equation Transaction 5: Paid insurance premium Rs.
3,000 New equation
Assets (Rs.) = Liabilities (Rs.) + Capital(Rs.) Stock
Outstanding Advance Cash + of Goods + Debtors + Building =
Creditors + Rent + Rent Received + Capital
+5,00,000 + 1,00,000 + 0 + 0 = 0 + 0 + 0 + 6,00,000 (-2,00,000)
+ 0 + 0 + 2,00,000 = 0 + 0 + 0 + 0 3,00,000 + 1,00,000 + 0 +
2,00,000 = 0 + 0 + 0 + 6,00,000 0 + 50,000 + 0 + 0 = 50,000 + 0 + 0
+ 0 3,00,000 + 1,50,000 + 0 + 2,00,000 = 50,000 + 0 + 0 + 6,00,000
0 + (-25,000) + 36,000 + 0 = 0 + 0 + 0 + 11,000 3,00,000 + 1,25,000
+ 36,000 +2,00,000 = 50,000 + 0 + 0 + 6,11,000 (-3,000 ) + 0 + 0 +
0 = 0 + 0 + 0 + (-3,000) 2,97,000 + 1,25,000 + 36,000 +2,00,000 =
50,000 + 0 + 0 + 6,08,000
-
Transaction 6: Rent outstanding Rs. 5,000
New equation Transaction 7: Depreciation on building Rs. 8,000
New equation Transaction 8: Cash withdrew for personal use Rs.
20,000 New equation Transaction 9: Rent received in advance Rs.
5,000 New equation Transaction 10: Cash paid to Himani on account
Rs. 20,000
New equation Transaction 11:
Cash received from Ashu Rs. 30,000
New equation Total
0 + 0 + 0 + 0 = 0 + 5000 + 0 + (-5,000) 2,97,000 + 1,25,000 +
36,000 +2,00,000 = 50,000 + 5000 + 0 + 6,03,000 0 + 0 + 0 +(-8,000)
= 0 + 0 + 0 + (-8000) 2,97,000 + 1,25,000 + 36,000 +1,92,000 =
50,000 + 5000 + 0 + 5,95,000 (-20,000 ) + 0 + 0 + 0 = 0 + 0 + 0 +
(-20,000) 2,77,000 + 1,25,000 + 36,000 +1,92,000 = 50,000 + 5000 +
0 + 5,75,000 5,000 + 0 + 0 + 0 = 0 + 0 + 5,000 + 0 2,82,000 +
1,25,000 + 36,000 +1,92,000 = 50,000 + 5000 + 5,000 + 5,75,000
(-20,000 ) + 0 + 0 + 0 = (-20,000) + 0 + 0 + 0 2,62,000 + 1,25,000
+ 36,000 +1,92,000 = 30,000 + 5000 + 5,000 + 5,75,000 30,000 + 0 +
(-30,000) + 0 = 0 + 0 + 0 + 0 2,92,000 + 1,25,000 + 6,000 +1,92,000
= 30,000 + 5000 + 5,000 + 5,75,000 6,15,000 = 6,15,000
7. Show the effect of the following transactions on Assets,
Liabilities and Capital through accounting equation:
(a) Started business with cash Rs. 1,20,000
(b) Rent received Rs. 10,000
(c) Invested in shares Rs. 50,000
(d) Received dividend Rs. 5,000
(e) Purchase goods on credit from Ragani Rs. 35,000
(f) Paid cash for house hold Expenses Rs. 7,000
(g) Sold goods for cash (costing Rs.10,000) Rs. 14,000
(h) Cash paid to Ragani Rs. 35,000
-
(i) Deposited into bank Rs. 20,000
(Ans: Assets = Cash Rs. 37,000 + Shares Rs. 50,000 + Goods Rs.
25,000 + Bank Rs. 20,000 = Rs. 1,32,000; Liabilities = Capital Rs.
1,32,000)
Solution: Accounting Equation
Transaction 1: Started business with cash Rs.1,20,000
Transaction 2:
Rent received Rs. 10,000 New equation Transaction 3: Invested in
shares Rs. 50,000 New equation Transaction 4:
Received dividend Rs. 5,000 New equation Transaction 5: Purchase
goods on credit from Ragani Rs. 35,000 New equation Transaction 6:
Paid cash for household Expenses Rs. 7,000 New equation Transaction
7: Sold goods for cash (costing Rs.10,000) Rs. 14,000 New equation
Transaction 8: Cash paid to Ragani Rs. 35,000 New equation
Transaction 8: Deposited into bank Rs. 20,000
Assets (Rs.) = Liabilities (Rs.) + Capital(Rs.) Stock Cash +
Shares + of Goods + Bank = Creditors + Capital
+1,20,000 + 0 + 0 + 0 = 0 + 1,20,000 10,000 + 0 + 0 + 0 = 0 +
10,000 1,30,000 + 0 + 0 + 0 = 0 + 1,30,000 (-50,000) + 50,000 + 0 +
0 = 0 + 0 80,000 + 50,000 + 0 + 0 = 0 + 1,30,00 5,000 + 0 + 0 + 0 =
0 + 5,000 85,000 + 50,000 + 0 + 0 = 0 + 1,35,00 0 + 0 + 35,000 + 0
= 35,000 + 0 85,000 + 50,000 + 35,000 + 0 = 35,000 + 1,35,000
(-7,000) + 0 + 0 + 0 = 0 + (-7000) 78,000 + 50,000 + 35,000 + 0 =
35,000 + 1,28,000 14,000 + 0 + (-10,000) + 0 = 0 + 4,000 92,000 +
50,000 + 25,000 + 0 = 35,000 + 1,32,000 (-35,000) + 0 + 0 + 0 =
(-35,000) + 0 57,000 + 50,000 + 25,000 + 0 = 0 + 1,32,000 (-20,000)
+ 0 + 0 + 20,000 = 0 + 0
-
New equation
Total
37,000 + 50,000 + 5,000 + 20,000 = 0 + 1,32,000 1,32,000 =
1,32,000
8. Show the effect of following transaction on the accounting
equation:
(a) Manoj started business with
(i) Cash Rs. 2,30,000
(ii) Goods Rs. 1,00,000
(iii) Building Rs. 2,00,000
(b) He purchased goods for cash Rs. 50,000
(c) He sold goods(costing Rs.20,000) Rs. 35,000
(d) He purchased goods from Rahul Rs. 55,000
(e) He sold goods to Varun (Costing Rs. 52,000) Rs. 60,000
(f) He paid cash to Rahul in full settlement Rs. 53,000
(g) Salary paid by him Rs. 20,000
(h) Received cash from Varun in full settlement Rs. 59,000
(i) Rent outstanding Rs. 3,000
(j) Prepaid Insurance Rs. 2,000
(k) Commission received by him Rs. 13, 000
(l) Amount withdrawn by him for personal use Rs. 20,000
(m) Depreciation charge on building Rs. 10,000
(n) Fresh capital invested Rs. 50,000
(o) Purchased goods from Rakhi Rs.10,000
(Ans: Assets = Cash Rs. 2,42,000 + Goods Rs. 1,43,000 +Building
Rs.1,90,000 + Prepaid Insurance Rs. 2,000 = Rs. 5,77,000;
Liabilities = Outstanding Rent
Rs. 3,000 + Creditor Rs. 10,000 + Capital Rs. 5,64,000 = Rs.
5,77,000)
Solution: Accounting Equation
Transaction 1:
Manoj started business with (i) Cash Rs. 2,30,000
(ii) Goods Rs. 1,00,000
Assets (Rs.) = Liabilities (Rs.) + Capital(Rs.) Stock Prepaid
Outstanding Cash + of Goods + Building + Debtors + Insurance =
Creditors + Rent + Capital
-
(iii) Building Rs. 2,00,000 Transaction 2:
He purchased goods for cash Rs. 50,000 New equation Transaction
3: He sold goods(costing Rs.20,000) Rs. 35,000 New equation
Transaction 4: He purchased goods from Rahul Rs. 55,000 New
equation Transaction 5: He sold goods to Varun (Costing Rs. 52,000)
Rs. 60,000 New equation Transaction 6: He paid cash to Rahul in
full settlement Rs. 53,000 New equation Transaction 7: Salary paid
by him Rs. 20,000 New equation Transaction 8: Received cash from
Varun in full settlement Rs. 59,000 New equation Transaction 9:
Rent outstanding Rs. 3,000 New equation Transaction 10: Prepaid
Insurance Rs. 2,000 New equation
+2,30,000 + 1,00,000 + 2,00,000 + 0 + 0 = 0 + 0 + 5,30,000
(-50,000) + 50,000 + 0 + 0 + 0 = 0 + 0 + 0 1,80,000 + 1,50,000 +
2,00,000 + 0 + 0 = 0 + 0 + 5,30,000 35,000 +(-20,000 ) + 0 + 0 + 0
= 0 + 0 + 15,000 2,15,000 + 1,30,000 + 2,00,000 + 0 + 0 = 0 + 0 +
5,45,000 0 + 55,000 + 0 + 0 + 0 = 55,000 + 0 + 0 2,15,000 +
1,85,000 + 2,00,000 + 0 + 0 = 55,000 + 0 + 5,45,000 0 + (-52,000)+
0 + 60,000 + 0 = 0 + 0 + 8,000 2,15,000 + 1,33,000 + 2,00,000 +
60,000 + 0 = 55,000 + 0 + 5,53,000 (-53,000) + 0 + 0 + 0 + 0 =
(-55,000) + 0 + 2,000 1,62,000 + 1,33,000 + 2,00,000 + 60,000 + 0 =
0 + 0 + 5,55,000 (-20,000) + 0 + 0 + 0 + 0 = 0 + 0 + (-20,000)
1,42,000 + 1,33,000 + 2,00,000 + 60,000 + 0 = 0 + 0 + 5,35,000
59,000 + 0 + 0 + (-60,000 ) + 0 = 0 + 0 + (-1,000) 2,01,000 +
1,33,000 + 2,00,000 + 0 + 0 = 0 + 0 + 5,34,000 0 + 0 + 0 + 0 + 0 =
0 + 3,000 + (-3,000) 2,01,000 + 1,33,000 + 2,00,000 + 0 + 0 = 0 +
3,000 + 5,31,000 -(2000) + 0 + 0 + 0 + 2,000 = 0 + 0 + 0 1,99,000 +
1,33,000 + 2,00,000 + 0 + 2,000 = 0 + 3,000 + 5,31,000
-
Transaction 11: Commission received by him Rs. 13, 000 New
equation Transaction 12: Amount withdrawn by him for personal use
Rs. 20,000 New equation Transaction 13: Depreciation charge on
building Rs. 10,000 New equation Transaction 14: Fresh capital
invested Rs. 50,000 New equation Transaction 13: Purchased goods
from Rakhi Rs. 10,000 New equation Total
13,000 + 0 + 0 + 0 + 0 = 0 + 0 + 13,000 2,12,000 + 1,33,000 +
2,00,000 + 0 + 2,000 = 0 + 3,000 + 5,44,000 (-20,000) + 0 + 0 + 0 +
0 = 0 + 0 + (-20,000) 1,92,000 + 1,33,000 + 2,00,000 + 0 + 2,000 =
0 + 3,000 + 5,24,000 0 + 0 + (-10,000) + 0 + 0 = 0 + 0 + (-10,000)
1,92,000 + 1,33,000 + 1,90,000 + 0 + 2,000 = 0 + 3,000 + 5,14,000
50,000 + 0 + 0 + 0 + 0 = 0 + 0 + 50,000 2,42,000 + 1,33,000 +
1,90,000 + 0 + 2,000 = 0 + 3,000 + 5,64,000 0 + 10,000 + 0 + 0 + 0
= 10,000 + 0 + 0 2,42,000 + 1,43,000 + 1,90,000 + 0 + 2,000 =
10,000 + 3,000 + 5,64,000 5,77,000 = 5,77,000
9. Transactions of M/s Vipin Traders are given below.
Show the effects on Assets, Liabilities and Capital with the
help of accounting Equation.
(a) Business started with cash Rs. 1,25,000
(b) Purchased goods for cash Rs. 50,000
(c) Purchase furniture from R.K. Furniture Rs. 10,000
(d) Sold goods to Parul Traders (Costing Rs. 7,000 vide Rs.9,000
bill no. 5674)
(e) Paid cartage Rs. 100
(f) Cash Paid to R.K. furniture in full settlement Rs. 9,700
(g) Cash sales (costing Rs.10,000) Rs. 12,000
(h) Rent received Rs. 4,000
(i) Cash withdrew for personal use Rs. 3,000
(Ans: Asset = cash Rs. 78,200 + Goods Rs. 33,000 + Furniture Rs.
10,000 Debtors Rs. 9,000= Rs. 1,30,200; Liabilities = Capital Rs.
1,30,200)
-
Solution: Accounting Equation
Transaction 1: Business started with cash Rs. 1,25,000
Transaction 2: Purchased goods for cash Rs. 50,000 New equation
Transaction 3: Purchase furniture from R.K. Furniture Rs. 10,000
New equation Transaction 4: Sold goods to Parul Traders (Costing
Rs. 7,000 for Rs.9,000) New equation Transaction 5: Paid cartage
Rs. 100 New equation Transaction 6: Cash Paid to R.K. furniture in
full settlement Rs. 9,700 New equation Transaction 7: Cash sales
(costing Rs.10,000) Rs. 12,000 New equation Transaction 8: Rent
received Rs. 4,000 New equation Transaction 9:
Cash withdrew for personal use Rs. 3,000
Assets (Rs.) = Liabilities (Rs.) + Capital(Rs.) Stock Cash + of
Goods + Debtors + Furniture = Creditors + Capital
+1,25,000 + 0 + 0 + 0 = 0 + 1,25,000 (-50,000) + 50,000 + 0 + 0
= 0 + 0 75,000 + 50,000 + 0 + 0 = 0 + 1,25,000 0 + 0 + 0 + 10,000 =
10,000 + 0 75,000 + 50,000 + 0 + 10,000 = 10,000 + 1,25,000 0 +
(-7000) + 9,000 + 0 = 0 + 2,000 75,000 + 43,000 + 9,000 + 10,000 =
10,000 + 1,27,000 (-100) + 0 + 0 + 0 = 0 + (-100) 74,900 + 43,000 +
9,000 + 10,000 = 10,000 + 1,26,900 (-9,700) + 0 + 0 + 0 = (-10,000)
+ 300 65,200 + 43,000 + 9,000 + 10,000 = 0 + 1,27,200 12,000 +
(-10,000) + 0 + 0 = 0 + 2,000 77,200 + 33,000 + 9,000 + 10,000 = 0
+ 1,29,200 4,000 + 0 + 0 + 0 = 0 + 4,000 81,200 + 33,000 + 9,000 +
10,000 = 0 + 1,33,200 (-3,000) + 0 + 0 + 0 = 0 + (-3,000)
-
New equation
Total
78,200 + 33,000 + 9,000 + 10,000 = 0 + 1,30,200 1,30,200 =
1,30,200
10. Bobby opened a consulting firm and completed these
transactions during November, 2005:
(a) Invested Rs. 4,00,000 cash and office equipment with Rs.
1,50,000 in a business called Bobbie Consulting.
(b) Purchased land and a small office building. The land was
worth Rs. 1,50,000 and the building worth Rs. 3, 50,000. The
purchase price was price was paid with
Rs. 2,00,000 cash and a long term note payable for Rs.
3,00,000.
(c) Purchased office supplies on credit for Rs. 12,000.
(d) Bobbie transferred title of motor car to the business. The
motor car was worth Rs. 90,000.
(e) Purchased for Rs. 30,000 additional office equipment on
credit.
(f) Paid Rs. 7,500 salary to the office manager.
(g) Provided services to a client and collected Rs. 30,000
(h) Paid Rs. 4,000 for the months utilities.
(i) Paid supplier created in transaction c.
(j) Purchase new office equipment by paying Rs. 93,000 cash and
trading in old equipment with a recorded cost of Rs. 7,000.
(k) Completed services of a client for Rs. 26,000. This amount
is to be paid within 30 days.
(l) Received Rs. 19,000 payment from the client created in
transaction k.
(m) Bobby withdrew Rs. 20,000 from the business.
Analyse the above stated transactions and open the following
T-accounts: Cash, client, office supplies, motor car, building,
land, long term payables,
capital, withdrawals, salary, expense and utilities expense.
Solution:
(a) Invested Rs. 4,00,000 cash and office equipment with Rs.
1,50,000 in a business called Bobbie Consulting.
Analysis of Transaction : The transaction increases cash and
office equipment on one hand and increases capital on the other
hand. Increases in assets are
debited and increases in capital is credited. Therefore record
the transaction with debit to cash, office equipment and credit to
Bobbie Consulting Capital.
Dr. Cash A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Capital(a) To Sales (g) To Client(l)
4,00,000 30,000 19,000
By Land (b) By Building (b) By Salary( f) By Utility (h) By
Creditor for Office Supplies (i) By Office Equipment (j) By Drawing
(m)
1,50,000 50,000 7,500 4,000 12,000 93,000
-
Dr. Office Equipment A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Capital(a) To Creditor for Office Equipment (e) To Cash (j)
To Disposal of Equipment (j) (purchase of new asset in
exchange)
1,50,000
30,000 93,000 7,000
2005 Nov.
By Disposal of Equipment (j) (transfer of old asset)
7,000
Dr. Capital A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
By Cash (a) By Office Equipment (a) By Motor Car (d)
4,00,000 1,50,000
90,000
(b) Purchased land and a small office building. The land was
worth Rs. 1,50,000 and the building worth Rs. 3, 50,000. The
purchase price was paid with
Rs. 2,00,000 cash and a long term note payable for Rs.
3,00,000.
Analysis of Transaction : The transaction increases land &
building on one hand , decreases cash and increases bills payable
on the other hand.
Increases in assets are debited , decrease in assets are
credited and increases in Bills Payables are also credited.
Therefore record the transaction
with debit to land & building and credit to cash & Bills
Payables.
Note : Till the end of the problem we will make only one given
account and use for all transactions.
Dr. Land A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Cash (b)
1,50,000
-
Dr. Building A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Cash (b) To Bills Payables (b)
50,000
3,00,000
Dr. Bills Payables A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov.
By Building (b)
3,00,000
(c) Purchased office supplies on credit for Rs. 12,000.
Analysis of Transaction : The transaction increases office
supplies on one hand and increases creditor for office supplies on
the other hand.
Increases in assets are debited and increases in liabilities are
credited. Therefore record the transaction with debit to office
supplies
and credit to creditor for office supplies.
Dr. Office Supplies A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Creditor for Office Supplies (c)
12,000
-
Dr. Creditor for Office Supplies A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Cash (i)
12,000
2005 Nov.
By Office Supplies (c)
12,000
(d) Bobbie transferred title of motor car to the business. The
motor car was worth Rs. 90,000.
Analysis of Transaction : The transaction increases motor car on
one hand and increases capital on the other hand. Increases in
assets are debited
and increases in capital is credited. Therefore record the
transaction with debit to Cash and credit to Capital.
Dr. Motor Car A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Capital (d)
90,000
(e) Purchased for Rs. 30,000 additional office equipment on
credit.
Analysis of Transaction : The transaction increases office
equipment on one hand and increases creditor for office equipment
on the other hand.
Increases in assets are debited and increases in liabilities are
credited. Therefore record the transaction with debit to office
equipment
and credit to creditor for office equipment.
Dr. Creditor for Office Equipment A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov.
By Office Equipment (e)
30,000
-
(f) Paid Rs. 7,500 salary to the office manager.
Analysis of transaction : The payment of salary is an expense
which decreases capital thus, are recorded as debits.
Credit Cash to record decrease in assets.
Dr. Salary A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Cash (f)
7,500
.
(g) Provided services to a client and collected Rs. 30,000
Analysis of transaction : Debit Cash to record increase in
assets.
The payment from client on providing service is an income which
increases capital thus, are recorded as credit.
Dr. Sales A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov.
By Cash (g) By Client (k)
30,000 26,000
(h) Paid Rs. 4,000 for the months utilities.
Analysis of transaction : The payment for utilities is an
expense which decreases capital thus, are recorded as debits.
Credit cash to record decrease in assets.
Dr. Utilities A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Cash (h)
4,000
-
(i) Paid supplier created in transaction c.
Analysis of transaction : The payment to supplier creditors
decreases liabilities capital thus, are recorded as debits. Credit
cash to record decrease in assets.
(j) Purchase new office equipment by paying Rs. 93,000 cash and
trading in old equipment with a recorded cost of Rs. 7,000.
Analysis of Transaction : The transaction increases office
equipment on one hand and decreases cash and old office equipment
on the other hand.
Increases in assets are debited and decreases in assets are
credited. Therefore record the transaction with debit & credit
to office equipment,
disposal of equipment and credit cash .
Dr. Disposal of Equipment A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Office Equipment (j) (Balance of old equipment brought
forward)
7,000
2005 Nov.
By Office Equipment (j) (Amount transferred to purchase the new
equipment in exchange of old equipment)
7,000
(k) Completed services of a client for Rs. 26,000. This amount
is to be paid within 30 days.
Analysis of transaction : This transaction increases sales
(Revenue) and increases assets (client as debtors). Increases in
assets are debited and
increases in revenue are credited. Therefore record the entry
with credit to Sales account and debit to client account.
Dr. Client A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Sales (k)
26,000
2005 Nov.
By Cash (l)
19,000
(l) Received Rs. 19,000 payment from the client created in
transaction k
Analysis of transaction : This transaction increase assets(
cash) on the one hand and decreases assets( client as debtors) on
the other hand.
Increase in assets is debited whereas decrease in assets is
credited. Therefore record the entry with debit to cash account and
credit to client account.
-
(m) Bobby withdrew Rs. 20,000 from the business.
Analysis of transaction : This transaction decreases Capital ,
hence debit drawing account. Credit cash to record decrease in
assets.
Dr. Drawing A/C Cr.
Date Particulars J.F. Amount
Date Particulars J.F. Amount
2005 Nov
To Cash (m)
20,000
2005 Nov.
19,000
11. Journalise the following transactions in the books of
Himanshu:
2005 Rs.
Dec.01 Business started with cash 75,000
Dec.07 Purchased goods for cash 10,000
Dec.09 Sold goods to Swati 5,000
Dec.12 Purchased furniture 3,000
Dec.18 Cash received from Swati In full settlement 4,000
Dec.25 Paid rent 1,000
Dec.30 Paid salary 1,500
-
Solution
Journal
Date Particulars L.F Amount
Debit
Credit
2005 Dec.01 Dec.07 Dec.09 Dec.12 Dec.18 Dec.25 Dec.25
Cash A/C Dr. To Capital A/C (Being Business started with
cash)
Purchase A/C Dr. To Cash A/C (Being goods purchased) Swati Dr.
To Sales A/C (Being goods sold for cash) Furniture A/C Dr. Cash A/C
(Being furniture purchased) Cash A/C Dr. Discount Allowed A/C Dr.
To Swati (Being Cash received from Swati in full settlement &
discount allowed) Rent A/C Dr. To Cash (Being rent paid) Salary A/
C Dr. To Cash (Being salary paid) TOTAL
75,000
10,000
5,000
3,000
4,000 1,000
1,000
1,500
100,500
75,000
10,000
5,000
3,000
5,000
1,000
1,500
100,500
-
12. Enter the following Transactions in the Journal of Mudit
:
2006 Rs.
Jan.01 Commenced business with cash 1,75,000
Jan.01 Building 1,00,000
Jan.02 Goods purchased for cash 75,000
Jan.03 Sold goods to Ramesh 30,000
Jan.04 Paid wages 500
Jan.06 Sold goods for cash 10,000
Jan.10 Paid for trade expenses 700
Jan.12 Cash received from Ramesh 29,500
Discount allowed 500
Jan.14 Goods purchased for Sudhir 27,000
Jan.18 Cartage paid 1,000
Jan.20 Drew cash for personal use 5,000
Jan.22 Goods use for house hold 2,000
Jan.25 Cash paid to Sudhir 26,700
Discount received 300
Solution
Journal
Date Particulars L.F Amount
Debit
Credit
2006 Jan.01 Jan.02 Jan.03 Jan.04
Cash A/C Dr. Building A/C Dr. To Capital A/C (Being Business
Started With Cash & Building ) Purchases A/C Dr. To Cash A/C
(Being Goods Purchased) Ramesh Dr. To Sales A/C (Being Good Sold To
Ramesh On Credit) Wages A/C Dr.
1,75,000 1,00,000
75,000
30,000
500
2,75,000
75,000
30,000
-
Jan.06 Jan.10 Jan 12 Jan.14 Jan.18 Jan.20 Jan.22 Jan.25
To Cash A/C (Being Wages Paid) Cash A/C Dr. To Sales A/C (Being
Goods Sold For Cash) Trade Expenses A/C Dr. To Cash A/C (Being
trade expenses paid) Cash A/C Dr. Discount Allowed A/C Dr. To
Ramesh (Being cash paid by Ramesh in full settlement of his
account) Purchases A/C Dr. To Sudhir (Being goods purchased on
credit from Sudhir) Cartage A/C Dr. To Cash A/C (Being cartage
purchased) Drawing A/C Dr. To Cash ( Being cash withdrawn by owner
for personal use) Drawings A/C Dr. To Purchases (Being goods
withdrawn by owner for personal use) Sudhir Dr To Discount Received
A/C To Cash A/C (Being cash paid to Sudhir & received a
discount ) Total
10,000
700
29,500 500
27,000
1,000
5,000
2