Accounting mechanics
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1. Mr. Ajay started a business with Rs. 2 lacs capital. He deposited Rs. 10,000 in the bank and purchased furniture and fittings worth Rs. 25,000. 2. Mr. Ajay purchased goods worth Rs. 10,000 and Rs. 40,000 but sold goods for Rs. 8,000 and Rs. 50,000. He paid wages of Rs. 700 and Rs. 10,000 to Sam & Co. 3. Additional transactions included purchasing stationery items for Rs. 1,000. The accounting process of double-entry was followed to record each transaction with debits and credits assigned according to accounting rules.
Accounting mechanics
- 2. Identification of duel aspectIdentification of duel aspect How can a transaction have two aspects ?How can a transaction have two aspects ? 1.1. Mr. Lal started a small business withMr. Lal started a small business with Rs. 2 lakhs.Rs. 2 lakhs. Assets = LiabilityAssets = Liability Accounting ProcessAccounting Process Liability Assets Capital 2,00,000 Cash 200,000
- 3. 2. Mr. Lal took a loan from the bank2. Mr. Lal took a loan from the bank Rs.1 lacRs.1 lac Accounting ProcessAccounting Process Liability Assets Capital 2,00,000 Cash 3,00,000 Loan 1,00,000 -------- -------- 3,00,000 3,00,000 ======== ======== Owners equity + outsiders’ Claim = Assets
- 4. 3. Out of the available cash he purchased a3. Out of the available cash he purchased a Small Machine for Rs. 75,000Small Machine for Rs. 75,000 Accounting ProcessAccounting Process Liability Assets (source ) (application) Capital 2,00,000 Machine 75,000 Cash 2,25,000 Loan 1,00,000 -------- -------- 3,00,000 3,00,000 ======== ======== Owners equity + outsiders’ Claim = Assets Source = Application
- 5. 4. Mr. Lal bought furniture from M/s Lakdiwala on4. Mr. Lal bought furniture from M/s Lakdiwala on credit .credit . Assets ) (application) 2,00,000 Machine 75,000 1,00,000 Furniture 25,000 r 25,000 Cash 2,25,000 -------- -------- 3,25,000 3,25,000 ======== ======== Owners equity + outsiders’ Claim = Assets
- 6. 5. Mr. Lal Withdrew Rs. 10,000 from the business5. Mr. Lal Withdrew Rs. 10,000 from the business for his personal use.for his personal use. Assets ) (application) 2,00,000 Machine 75,000 1,00,000 Furniture 25,000 25,000 Cash 2,25,000 -------- -------- 3,25,000 3,25,000 ======== ======== Assets ) (application) 1,90,000 Machine 75,000 1,00,000 Furniture 25,000 r 25,000 Cash 2,15,000 -------- -------- 3,15,000 3,15,000 ======== ======== Owners equity + outsiders’ Claim = Assets
- 7. 6. Assume business entered a few sales and6. Assume business entered a few sales and purchase transactions on cash and made a profit ofpurchase transactions on cash and made a profit of Rs. 50,000/-Rs. 50,000/- Assets ) (application) 2,40,000 Machine 75,000 1,00,000 Furniture 25,000 r 25,000 Cash 2,65,000 -------- -------- 3,65,000 3,65,000 ======== ======== Owners equity + outsiders’ Claim = Assets
- 8. AccountingAccounting ProcessProcess Identification of duel aspectIdentification of duel aspect Source = ApplicationSource = Application Owners equity+ out side liability= AssetsOwners equity+ out side liability= Assets Total liability = total assetsTotal liability = total assets
- 9. Liability , Revenue & profitLiability , Revenue & profit Cr=sourceCr=source Dr= UseDr= Use Assets expenses & lossesAssets expenses & losses Dr = useDr = use Cr=sourceCr=source Accounting ProcessAccounting Process
- 10. Assigning meaning to the accountAssigning meaning to the account Debit ( debited )Debit ( debited ) Credit (credited)Credit (credited) Accounting ProcessAccounting Process Total Assets of the firm Increased & total liability of the firm decreased Total Assets of the firm decreased & total liability of the firm increased
- 11. Type of accountType of account Rule of Debit and CreditRule of Debit and Credit Recording of transactionsRecording of transactions Accounting ProcessAccounting Process
- 12. Financial accountingFinancial accounting Principle: double entry systemPrinciple: double entry system Cash transactions Cash book Credit transactions Journal Ledger Trial balance Balance sheetProfit and loss account
- 13. QuizQuiz --22
- 14. Write journal entries in the books ofWrite journal entries in the books of Mr. AjayMr. Ajay 1/1/071/1/07. He started business with Rs. 2 lacs. He started business with Rs. 2 lacs 2/1/072/1/07. Deposited Rs. 10,000 with bank to. Deposited Rs. 10,000 with bank to start an account with bank.start an account with bank. 3/1/073/1/07. Paid for furniture & fittings. Paid for furniture & fittings Rs.25000/-Rs.25000/-
- 15. 4/1/074/1/07 Purchased goods worth Rs. 10,000Purchased goods worth Rs. 10,000 5/1/07 Sold Goods worth Rs. 8,000/-5/1/07 Sold Goods worth Rs. 8,000/- 6/1/07 Purchased goods from Sam & co for6/1/07 Purchased goods from Sam & co for Rs. 40,000Rs. 40,000 7/1/07 Sold goods to Ramesh & company7/1/07 Sold goods to Ramesh & company Rs. 50,000/-Rs. 50,000/-
- 16. 8/1/078/1/07 Paid wages Rs. 700Paid wages Rs. 700 9/1/079/1/07 Paid Rs. 10000 to Sam & coPaid Rs. 10000 to Sam & co 10/1/0710/1/07 Purchased stationery item forPurchased stationery item for Rs. 1000Rs. 1000
Editor's Notes
- #9: Need to give eg increase and decrease in liability and assets