Accounting mechanics

AccountingAccounting ProcessProcess

Identification of duel aspectIdentification of duel aspect

How can a transaction have two How can a transaction have two aspects ?aspects ?

1.1. Mr. Lal started a small business with Mr. Lal started a small business with Rs. 2 lakhs. Rs. 2 lakhs.

Assets = Liability Assets = Liability

Accounting ProcessAccounting Process

Liability Assets

Capital 2,00,000 Cash 200,000

2. Mr. Lal took a loan from the bank 2. Mr. Lal took a loan from the bank Rs.1 Rs.1 laclac


Liability Assets

Capital 2,00,000 Cash 3,00,000Loan 1,00,000

-------- --------3,00,000 3,00,000======== ========

Owners equity + outsiders’ Claim = Assets

3. Out of the available cash he purchased a 3. Out of the available cash he purchased a Small Machine for Rs. 75,000Small Machine for Rs. 75,000


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======== ========


Source = Application

4. Mr. Lal bought furniture from M/s Lakdiwala on 4. Mr. Lal bought furniture from M/s Lakdiwala on credit . credit .


Capital 2,00,000 Machine 75,000Loan 1,00,000 Furniture 25,000 Creditor 25,000 Cash 2,25,000

-------- --------3,25,000 3,25,000======== ========


5. Mr. Lal Withdrew Rs. 10,000 from the business 5. Mr. Lal Withdrew Rs. 10,000 from the business for his personal use. for his personal use.



-------- --------3,25,000 3,25,000======== ========



-------- --------3,15,000 3,15,000======== ========


6. Assume business entered a few sales and 6. Assume business entered a few sales and purchase transactions on cash and made a profit of purchase transactions on cash and made a profit of Rs. 50,000/-Rs. 50,000/-



-------- --------3,65,000 3,65,000======== ========


AccountingAccounting ProcessProcess

Identification of duel aspectIdentification of duel aspect

Source = ApplicationSource = Application

Owners equity+ out side liability= Owners equity+ out side liability= AssetsAssets

Total liability = total assetsTotal liability = total assets

Liability , Revenue & profitLiability , Revenue & profit

Cr=source Cr=source Dr= UseDr= Use

Assets expenses & lossesAssets expenses & losses

Dr = use Dr = use Cr=sourceCr=source


Assigning meaning to the accountAssigning meaning to the account

Debit ( debited )Debit ( debited )

Credit (credited)Credit (credited)


Total Assets of the firm Increased &total liability of the firm decreased

Total Assets of the firm decreased &total liability of the firm increased

Type of account Type of account

Rule of Debit and Credit Rule of Debit and Credit

Recording of transactions Recording of transactions


Financial accountingFinancial accounting

Principle: double entry system Principle: double entry system

Cash transactions

Cash book

Credit transactions

Journal

Ledger

Trial balance

Balance sheet Profit and loss account

QuizQuiz - -22

Write journal entries in the books of Write 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 start an account with

bank.bank.

3/1/073/1/07. Paid for furniture & fittings . Paid for furniture & fittings Rs.25000/-Rs.25000/-

4/1/07 4/1/07 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 for 6/1/07 Purchased goods from Sam & co for Rs. 40,000Rs. 40,000

7/1/07 Sold goods to Ramesh & company 7/1/07 Sold goods to Ramesh & company Rs. 50,000/-Rs. 50,000/-

8/1/07 8/1/07 Paid wages Rs. 700 Paid wages Rs. 700

9/1/07 9/1/07 Paid Rs. 10000 to Sam & co Paid Rs. 10000 to Sam & co

10/1/0710/1/07 Purchased stationery item for Purchased stationery item for

Rs. 1000Rs. 1000

Business

Accounting mechanics