Recording of Transaction - I

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Questions:

Generic 4

5 x 4 = 20

Describe how accounts are used to record information about the effects of transactions?

What are the various subsidiary books of accounts which may replace a journal to an extent? Explain in brief the transactions which are recorded in these books

Pass necessary Journal Entries in the books of Rohit Industries:
(i) Wages due but not paid Rs.1,000
(ii) Received Rs.600 from Mohan, which were written off as bad debts 2 years ago.
(iii) Shyamlal who owed us Rs.4,000 becomes insolvent and a final dividend of 40 paise in a rupee is received from his house.
(iv) Goods distributed as free sample Rs.3,000.

Journalise the following transactions:
(i) Goods destroyed by fire for Rs.4,500.
(ii) Paid Rs.1,500 in cash as wages on installation of machinery.
(iii) Issue a cheque in favour of M/s. Parmatma Saran & Sons on accounts of purchase of goods Rs.7,500.
(iv) Goods sold costing Rs.6,000 of M/s. Kalu sons at an invoice price of 10% above cost less 5% Trade Discount,

State the rules of debit and credit according to the nature of accounts.

Generic 6

5 x 6 = 30

Accounting equation remains intact under all circumstances. Justify the statement with the help of an example.

On the basis of the narrations, fill in the missing values:

Dale	Particulars		Amount Dr.(Rs)	Amount Cr.(Rs)
(i)	-	Dr	-
	-	Dr	-
	To ...			-
	(Being the bank draft of Rs.10,000 issued to Suman, bank charges Rs.100)
(ii)	-	Dr	10,000
	To ...			10,000
	(Being the cheque of Ranjan dishonoured)
(iii)	-	Dr	-
	To ...			-
	To ...
	(Being the purchase of goods of Rs.30,000; received cash discount @ 2%)
(iv)	-	Dr	-
	-	Dr		-
	To ....			-
	(Being the sale of goods of Rs.30,000 allowed cash discount@ 3%)
(v)	-	Dr	-
	To .....			-
	(Being the goods costing 15,000 lost in fire)
(vi)	-	Dr	-
	-	Dr	-
	To ...			10,000
	(Being the rent paid, 1/4th of the premises used for residence)
(vii)	-	Dr	-
	To ...			-
	To ...			-
	To ...			-
	(Being the machinery (cost Rs.2,00,000) recorded, adjusting advance Rs.20,000), old machine Rs.10,000 cost) and balance by payment by cheque)
(viii)	-	Dr	20,000
	To ....			20,000
	(Being a computer out of stock used for office purposes)
(ix)	-	Dr	-
	To .....			-
	(Being the computer (stock) costing Rs.15,000 taken for domestic use)
(x)	-	Dr	-
	-	Dr	-
	To ....			-
	To ....
	(Being the cash received against bad debt written off)

Journalise the following transactions:
(i) Bought goods for Rs.5,000 plus CGST and SGTS @ 6% each.
(ii) Sold goods to Mehtab for Rs.50,000, charged CGST and SGST @ 6% each.
(iii) Sold goods to Arpana for Rs.60,000 against cheque, charged IGST @ 12%
(iv) Computer purchased by Atul & Co., Delhi for office use from HP Ltd., Greater Noida (UP) for Rs.50,000 plus IGST @ 12%, payment made by cheque.
(v) Paid Telephone bill of Rs.5,000 plus CGST and SGST @ 6% each.
(vi) Goods that were purchased paying CGST and SGST @ 6% each costing Rs.1000 given as charity.

Prepare accounting equation on the basis of the following transactions:

		Rs
(i)	Ram started business with cash	50,000
(ii)	Purchased goods on credit	4,000
(iii)	Purchased goods for cash	1,000
(iv)	Purchase furniture for cash	500
(v)	Withdrawal for private use	700
(vi)	Paid rent	200
(vii)	Received interest	100
(viii)	Sold goods on credit (cost Rs.500)	700
(ix)	Paid to creditors	400
(x)	Paid salaries	200

10.

Prepare the accounting equation on the basis of the following transactions:
(i) Commenced business with cash Rs.50,000 and goods Rs.30,000
(ii) Paid Salary Rs.5,000
(iii) Purchased goods for cash Rs.10,000 and on credit Rs.20,000
(iv) Goods costing Rs.25,000 sold at profit of 20% on cost out of which Rs.10,000 received in cash.

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Answers Key:

Generic 4

5 x 4 = 20

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.
There are some steps to record transactions in accounts; it can be easily understood with the help of an example. Sold goods to Mr. A worth Rs.50,000 on 12th April and received payment Rs.40,000 on 25th April. The following journal entries will be recorded

Date	Particular		L.F	Amount Dr (Rs)	Amount Cr (Rs)
April 1	A	Dr	22	50,000
	To Sales		18		50,000
	(Being goods sold on credit to Mr.A)
Apr.25	Cash A/c	Dr	13	40,000
	To A		22		40,000
	(Being Cash received from Mr.A)

Step (i): Locate the account m ledger, t.e., Mr. A's Account.
Step (ii): Enter the date of transaction in the date column of the debit side of Mr. As Account.
Step (iii): In the 'Particulars' column of the debit side of Mr. A's Account, the name of corresponding account is to be written, i.e., 'Sales'.
Step (iv): Enter the page number of the ledger in the Journal Folio O.F.) column of Mr. A's Account.
Step (v): Enter the amount in the 'Amount' column.
Step (vi): " Same steps are to be followed to post entries in the credit side of Mr. A's Account.
Step (vii): After entering all the transactions for a particular period, balance the account by totaling both sides and write the difference in shorter side, as 'Balance c/d'.
Step (viii): Total of account is to be written on both sides.

Journal may be sub-divided into subsidiary books or Special Journals. Special journals are used for recording transactions of frequent nature. They are also known as "special purpose subsidiary books". These books are as follows
(i) Cash Book : It is used to record receipts and payments of cash and Bank.
(ii) Purchases Book : It is used to record credit purchases of goods.
(iii) Purchases Returns Book: It is used to record the returns of goods previously purchased.
(iv) Sales Book: It is used to record the credit sale of goods.
(v) Sales Returns Book: It is used to record the returns made by the customers previously sold.
(vi) Bills Receivable Book: It is used to record the receipts of promissory notes, hundies and bills receivables.
(vii) Bills Payable Book: It is used to record the issue of promissory notes or hundies or bills payable.
(viii) Journal Proper: It records those transactions which cannot be recorded in any of the subsidiary books mentioned above, e.g., opening entries, closing entries, adjustment entries, transfer entries, sale and purchase of fixed assets, on credit etc.

Journal Entries
Date	Particular		Amount Dr.(Rs)	Amount Cr.(Rs)
(i)	Wages A/c	Dr	1,000
	To Outstanding Wages A/c	Dr		1,000
	(Being labour wages due)
(ii)	Cash A/c	Dr	600
	To Bad Debt Recovered A/c			600
	(Being bad debt written off recovered)
(iii)	Cash A/c	Dr	1,600
	Bad Debt A/c	Dr	2,400
	To Shyamlal
	(Being amount received from insolvent Shyamlal's estate at 40paise per rupee)
(iv)	Sales Promotion A/c	Dr	3,000
	To Purchase A/c			3,000
	(Being goods distributed as free sample)

Journal Entries
Date	Particular		Amount Dr.(Rs)	Amount Cr.(Rs)
(i)	Loss by Fire A/c	Dr	4,500
	To Purchase A/c	Dr		4,500
	(Being goods destroyed by fire)
(ii)	Machinery A/c	Dr	1,500
	To cash A/c			1,500
	(Being wages paid for installation Machinery)
(iii)	Purchase A/c	Dr	7,500
	To Bank A/c			7,500
	(Being goods purchased by cheque)
(iv)	M/s Kalu Sons	Dr	6,270
	To Sales A/c			6,270
	(Being goods sold costing Rs.6,000 at on invoice price of 10% above cost less 5% trade discount)

Following are the rules of Debit and Credit according. to the nature of accounts
(i) Asset account: An asset is anything of value owned by an enterprise. Tangible things, intangible rights owned by an enterprise, and claims against other persons are included in assets. Rules of debit and credit are: Debit the increase in asset, Credit the decrease in asset.
(ii) Liability account: Liabilities are the obligations of debits which the firm owes to outsiders. Rules of debit and credit are: Debit the decrease, Credit the increase.
(iii) Capital account: Capital is the amount invested by the owner in the business. Rules of debit and credit are: Debit the decrease, Credit the increase.
(iv) Income account: Incomes are the earnings or gains of the business in the ordinary course of business. The rules are : Debit the decrease, Credit the increase.
(v) Expense account: Expense is the cost of the use of things or services for the purpose of generating revenues. The rules of debit and credit are: Debit the increase, Credit the decrease

Generic 6

5 x 6 = 30

Accounting equation approach states the equality of debits and credits. It signifies that the total of assets of a business are always equal to the total of liabilities and capital (owner's equity). When this relation is shown in the equation form, it is known as "Accounting equation'. Thus
A=L+C
Where,
A = Assets
L = Liabilities
C = Capital
The above equation can also be written in the following ways
A-L= C
A-C = Land
A-C-L = zero
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 business entity must be equal to the claims of those who have financed these resources. The propnetor and outsiders provide the resources of the business. The claim of the proprietor is called capital and that of the outsider is known as liabilities.Each element of the equation is the part of balance sheet, which states the financial position of the business on a particular date. When we analyse the transactions, we actually try to know that how balance sheet of a business entity gets affected.
Asset side of the balance sheet is the list of assets which the business entity owns and the liability side of the balance sheet is the list of owner's claim and outsider's claim i.e., what the business entity owes. The equality of the asset side and the liability side of the balance sheet is an undesirable fact and this justifies the name of accounting equation as balance sheet equation also.
For example, Rohit started business with a capital at Rs.5,00,000from 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.5,00,000as capital.

Dale	Particulars		Amount Dr.(Rs)	Amount Cr.(Rs)
(i)	Suman	Dr	10,000
	Bank Charges A/c	Dr	100
	To Bank A/c			10,100
	(Being the bank draft of Rs.10,000 issued to Suman, bank charges Rs.100)
(ii)	Ranjan	Dr	10,000
	To Bank A/c			10,000
	(Being the cheque of Ranjan dishonoured)
(iii)	Purchases A/c	Dr	30,000
	To Cash A/c			29,400
	To Cash Discount Received A/c			600
	(Being the purchase of goods of Rs.30,000; received cash discount @ 2%)
(iv)	Cash A/c	Dr	29,100
	Cash Discount Allowed A/c	Dr	900
	To Sales A/c			30,000
	(Being the sale of goods of Rs.30,000 allowed cash discount@ 3%)
(v)	Loss by Fire A/c	Dr	15,000
	To Purchases A/c			15,000
	(Being the goods costing 15,000 lost in fire)
(vi)	Rent A/c	Dr	7,500
	Drawings A/c	Dr	2,500
	To Bank A/c			10,000
	(Being the rent paid, 1/4th of the premises used for residence)
(vii)	Machinery A/c (New)	Dr	2,00,000
	To Advance for Machinery A/c			20,000
	To Machinery A/c (Old)			10,000
	To Bank A/c			1,70,000
	(Being the machinery (cost Rs.2,00,000) recorded, adjusting advance Rs.20,000), old machine Rs.10,000 cost) and balance by payment by cheque)
(viii)	Computer	Dr	20,000
	To Purchases			20,000
	(Being a computer out of stock used for office purposes)
(ix)	Drawings A/c	Dr	15,000
	To Purchases A/c			15,000
	(Being the computer (stock) costing Rs.15,000 taken for domestic use)
(x)	Salaries A/c	Dr	40,000
	Rent A/c	Dr	15,000
	To Salary Outstanding			40,000
	To Rent Outstanding			15,000
	(Being the cash received against bad debt written off)

Date	Particulars		Amount Dr (Rs)	Amount Cr (Rs)
(i)	Cash A/c	Dr	5,000
	Input CGST A/c	Dr	300
	Input SGST A/c	Dr	300	5,600
	To Cash A/c
	(Being goods purchased for cash, paid CCST and SCST @ 6% each)
(ii)	Mehtab	Dr	56,000
	To Sales A/c			50,000
	To Output CGST A/c			3,000
	To Output SGST A/c			3,000
	(Being goods sold to Mehtab, charged CCST and SCST @ 6% each)
(iii)	Bank A/c	Dr	67,200
	To Sales A/c			60,000
	To Output IGST A/c			7,200
	(Being the goods sold to Arpana, charged ICST@ 12%)
(iv)	Computr A/c	Dr	50,000
	Input IGST A/c	Dr	6,000
	To Bank A/c			56,000
	(Being Computer purchased, paid ICST)
(v)	Telephone Expenses A/c	Dr	5,000
	Input CGST A/c	Dr	300
	Input SGST A/c	Dr	300
	To Cash/Bank A/c			5,600
	(Being Telephone bill paid along with CCST and SCST)
(vi)	Charity A/c	Dr	1,120
	To Purchases A/c			1,000
	To Input CGST A/c			60
	To Input SGST A/c			60
	(Being goods given as donation)

Accounting Equation: Assets = Liabilities + Capital

No.	Transactions	Assets (Rs)	=	Liabilities(Rs)	+	Capital(Rs)
(i)	Ram started with Cash Rs.50,000	50,000	=	0	+	50,000
(ii)	Purchase goods on credit for Rs.4,000	(+) 4,000	=	4,000	+	0
	New Equation	54,000	=	4,000	+	50,000
(iii)	Purchase goods for cash Rs.1,000	(+) 1,000
		(-) 1,000	=	0	+	0
	New Equation	54,000	=	4,000	+	50,000
(iv)	Purchase furniture for cash for Rs.500	(+) 500
		(-) 5,00	=	0	+	0
	New Equation	54,000	=	4,000	+	50,000
(v)	Withdraw cash for private use Rs700	(-) 700	=	0	+	(-) 700
	New Equation	53,300	=	4,000	+	49,300
(vi)	Paid for rent Rs.200	(-) 200	=	0	+	(-) 200
	New Equation	53,100	=	4,000	+	49,100
(vii)	Received interest Rs.100	(+)100	=	0	+	(+) 100
	New Equation	53,200	=	4,000	+	49,200
(viii)	Sold goods costing Rs.500 for Rs.700 on credit	(+) 700	=	0	+	(+) 200
	New Equation	53,400	=	4,000	+	49,400
(ix)	Paid for salaries Rs.200	(-) 200	=	0	+	(-) 200
	New Equation	52,800	=	3,600	+	49,200

10.

No	Transactions	Assets(Rs)	=	Liabilities(Rs) + Capital(Rs)
(i)	Started with cash	50,000	=	+ 50,000
	Started with goods	(+) 30,000	=	+ (+)30,000
	New Equation	80,000	=	+ 80,000
(ii)	Paid for Salary	(-) 5,000	=	+ (-) 5,000
	New Equation	75,000	=	+ 75,000
(iii)	Purchases goods for cash	(+) 10,000)	=	+0
		(-) 10,000	=	+0
	New Equation	75,000	=	+ 75,000
(iii)	Purchases goods on Credit	(+) 20,000	=	(+) 20,000 + 0
	New Equation	95,000	=	20,000+75,000
(iv)	Sold Goods	(+ 30,000		(+ 5,000)
		(-25,000)
	New Equation	100,000	=	20,000+80,000
(iv)	Cash Received on Sales	(+ 10,000)
		(-10,000)
	New Equation	100,000	=	20,000+80,000