Introduction to Accounting

Need:
The main aim of a business is to earn profit, for earning profit a business man will either purchase the goods in one market at certain price and sell it in another market at higher price or will convert the raw materials into finished products and sell it to the different customers at a price which will give him some percentage of profit on cost of production. But this may not be true in all the cases. Sometimes it may happen that the goods purchased or produced may go out of fashion and may be unsaleable simply because of depression in the market or keen competition. He may be able to sell the goods either at a loss or at a very small margin of profit. However he will be anxious at the end of the year to find out whether his goods taken together have been sold at a profit or at a loss and what is the financial position on a particular date. More over in big business information is required for planning, control, evaluation of performance and decision making.

This information can be provided only when business transactions are recorded, classified and summarized properly. In order to achieve the above purposes it would be necessary to record business transactions according to well designed system. Accounting is the name given to such system. Accounting plays an important role in achieving this purpose because it records the business transactions in an orderly fashion to group and arranges them in the form of easily understandable financial statements.

Book Keeping:

Meaning: Book keeping is the process of recording

business transactions in appropriate books of accounts in a systematic manner so as to ensure the availability of financial information on any print of the business particularly about the profit or loss at the financial position of the business.

Definition:

R. N Carter defines book keeping is the science and art of correctly recording in books of accounts all those business transactions that results in the transfer of money or moneys worth.

Difference between Book Keeping and Accounting

Book Keeping
1 Book keeping is just the process of recording

Accounting
Accounting comprises the recording of

business transaction in books of accounts.

Book Keeping is the first stage of maintenance of books of accounts.

Book Keeping just maintains information about a business in the books of accounts. 4 Book keeping does not produce financial statements like P & L accounting and Balance sheet. 5 Book Keeping represents the art aspect of recording of business transactions. 6 The work of book keeping

business transaction in books of accounts, the preparation of financial statements and analysis and interpretation of the financial statements. Accounting is the second stage of maintenance of books of accounts. Accounting summarizes and analyses the information in the books of accounts. Accounting is mainly concerned with preparation of financial statements. Accounting represents the science aspect of business transactions. The work of accounting

is of routine and clerical in nature. 7 It is entrusted to junior staff of the Accounts department called Account Clerks.

is of technical and complicated in nature. It is entrusted to the senior staff of the Accounts department called Accountants.

Branches of Accounting:

Following are the main Branches

1) FINANCIAL ACCOUNTING: The main purpose of this branch of Accounting is to ascertain profit or loss during a specific period, to show financial position of the business on a particular date and to have control over the firms property. Such Accounting records are used to impart useful information to outsiders and to meet the legal requirements. Here Journal entry, ledgers, Subsidiary books. Trial Balance, Trading Account, P & L Account and Balance sheet are the main statements we are going to prepare.

2) COST ACCOUNTING: The main aim of cost Accounting is to cost relating to the various activities of the business and to have cost control. The cost Accounting is required to assemble and interpret cost data for the use of management in controlling current operations and in planning for the future.

Here, Cost sheet, Job cost sheet process costing, Standard costing, Transfer costing are the main statements which are going to be prepared.

3)

Management Accounting:

It

supplies

the

management significant information in order to assist the management to discharge its various functions such as planning control, evaluation of performance and decision making etc. Here Budget Preparation, Proposals, Ration Analysis are the main statements.

4)

Social

Responsibility

Accounting:

Social

Responsibility Accounting is accounting for the social responsibility for Business Enterprise. It is concerned with Accounting for the social costs incurred by an Enterprise and the social benefit created by it.

Social Responsibility involves the process of identifying, measuring and communicating the social effects of business decisions to permit judgments and decisions by the users of the accounting information.

5) Human Resource Accounting: Human Resource Accounting is accounting which seeks to identify quantity and report investments made in human resource of an organization, which are not accounted under the conventional Accounting process.

Meaning Accounting].

of

Accounting

[Financial

Accounting is identifying and measuring business transactions in terms of money, recording business transactions of financial character soon after their occurrence in a book or books of original entry. Classifying the entries found in the books or books of original entry into appropriate accounts in the ledger, the books of final entry periodically, summarizing or presenting at the end of the Accounting period the information found in the ledger accounts through financial statements, analyzing and interpreting the financial statements and communicating the results of the interpretation of the financial statements to the end user for making sound decisions.

In other words Accounting is the process of recording, classifying and summarizing of all business financial transactions in terms of money in a systematic manner

and communicating the financial transaction information to the required parties.

Definitions:
The American Institute of Certified Public Accounts has defined Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part at least of a financial character and interpreting the results there of. According to the American Accounting Association Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.

Characteristics of Accounting. 1)
It is the art of identifying and measuring the business transactions in terms of money.

2) It is the art of recording the [Journal] business transactions in a systematic manner. 3) It is the art of classifying business transactions that is ledger posting. 4) It is an art of summarizing the financial transactions that is Trial balance, Trading P & L Account, Balance sheet etc. 5) It is an art of analysis and interpretation of these transactions by various financial statement analysis techniques. 6) The result of such analysis must be communicated to the people who are to make decisions or judgments.

Process of Accounting [Accounting Cycle]

1) Identifying the Business transactions in terms of money. 2) Recording the Business transactions in the primary book [Journal]. 3) Classifying the Business transactions [similar kind of transaction]. Posting in Ledger. 4) Summarizing the Business Transaction. a) Trial Balance b) Trading Account c) P & L Account d) P & L Appropriation Account e) Balance sheet [Preparation of financial statement] 5) Analysis and Interpretation of financial statements.

a) Common size. b) Comparative. c) Trend. d) Ratio. e) Cash flow. f) Cash flow. g) Fund flow. h) Net Working Capital analysis.

6) Communicating the analysis of financial statements to interested parties. a)Owners. b) Creditors. c) Investors d) Employees f) Public g) Manager. h) Government. i) Research scholars.

Accounting Objectives/Importance/Functions/Advantages.
1) Maintenance of permanent records of Business transactions.

2) Ascertainment of profit and loss. 3) Ascertainment of the progress of the business. 4) Ascertainment of Financial position of the business by preparing financial statement. 5) Ascertainment of amounts due to business that may be a debtors, B/R, Loans given, advance given etc. 6) Ascertainment of amount due from business that may be creditors, B/P, Loss taken, Debentures, advance taken from customers etc. 7) Documentary Evidence. It will give you a written document for all the transactions.

8) Prevention of Errors and frauds. By Accounting you can protect records from errors and frauds. 9) Accounting will control all activities and properties of business. 10) Satisfaction of all the legal requirements for the tax purpose or for grants etc. 11) Provision of Information to external users. Convention of full Disclosure provides a provision of information to all users. 12) It provides a provision for comparative study, year to year, firm to firm.

Limitations of Accounting.
1) Records only monetary transactions: Non monetary transactions completely ignored, so full disclosure of information does not take place. 2) Effect of price level changes is not considered. It leads to imbalance in book value and market value. 3) Personal bias of the accountant effects the accounting statements. In Accounting we have alternatives so personal bias means wish of Accountants normally differs. 4) It will give you only the result in terms of profit, but profit is not the only criteria of performance. 5) Accounting like any other discipline had to follow certain principles which are contradictory in certain cases.

6) Wrong recordings of transactions may also lead to balancing accounts, so balancing of accounts is not a conclusive proof of accuracy. 7) Account fails to supply timely information to the owners and management as the summarized financial informative are presented only at the end of the year. 8) Accounting records are of historical or past events. So they are not of much use in the current or present situation. 9) In Accounting provisions only for losses {future Losses} but prospective profits are not taken into account. 10) Accounting figures may not manipulated as desired by the owners or by the management.

Basis of Accounting.

1) Cash Basis: Under the system, actual cash receipts and actual payments are recorded. Credit

transactions are not recorded at all until cash is actually received or paid. The Receipts and payments accounts prepared in case of non trading concerns such as charitable institution, a club, school, college etc and professional men like lawyers, doctors, chartered accountant etc. .. can be cited as best example of cash system. This system does not make a complete recorded financial transaction of trading period as it does not record outstanding transactions

like O/S expenses and O/S incomes. Its not a complete record and it will not give the actual position of concern.

2) Accrual Basis: Under this system all transactions relating to a period are recorded in the book of accounts. That is in addition to actual receipts and payments of cash income receivable and expenses payable are also recorded. This gives a complete picture of financial transactions of the business and it makes a record of all transactions relating to a period. This being based on a complete record of transactions for a particular period.

3) Mixed basis system:

Under this system both cash basis and accrual basis are followed, some records kept under cash basis where as others are kept under accrual basis.

Users of Accounting Information.

Accounting

Information

provides

meaningful

information about a business enterprise to those persons who are directly or indirectly interested or involved in the business. They are as follows

1) Owners: The owners of a business furnish capital to be used for the purpose of business. They are interested to know whether the business has earned a profit or loss during a particular period and also its financial position on a particular date. They want Account reports in order to have an appraisal of post performance and also for an assessment of future prospectus.

2) Creditors:

The creditor includes supplier of goods

and supplies. They are interested in the financial stability of the concern before making loans or granting credit. They look they credit worthiness of the business.

3) Investors: Investors look not only earning capacity of business but also its financial strength and solvency before deciding whether to subscribe or not for the shares of the company. They are interested in steady and good return on their capital.

4) Employees: Employees are interested in earning capacity of a concern as their salaries, bonus and pension schemes are dependent on this factor. They have a permanent stake in the business and in order to have an assurance of steady employment they are very much interested in the stability of the organization.

5) Government: Government is interested in Accounting statements and reports in order to see the

performance of a particular unit. Its cost structure and income in order to impose tax and sometimes for any grants.

6) Public: The public as consumers is interested in accounting statements in order to know whether control is exercised on production, selling and distribution expenses in order to reduce the price of goods they buy and also judge whether economic resources of the concern are being utilized for the benefit of common man or not.

7) Research scholars: Such persons are interested in Accounting Statements and reports in order to get data for proving their thesis on which they are

working and hence to complete their research project.

8) Managers: The managers for an enterprise need accounting information for planning, control,

evaluation of performance and decision making. Their main responsibility is to generate business to obtain maximum returns on capital without harming to the interest of the stake holder.

9) Long term Lenders: Like Debenture holders financial institutions and other long term lenders are

interested in accounting information. 10) Banks and other short term Lenders: Commercial Banks and other short term lenders are interested in information of the financial statement of business

while going for sanctioning loan and short term lenders like overdraft and cash credit. 11) Stock Exchanges: When any firm go for listing then the financials are required for stock exchanges. 12) Security and Investment analysis 13) Broker and financial intermediaries 14) Trade unions. 15) Press.

Classification of Accounts
There are 3 types of Accounts namely Personal Account, Real Account and Nominal Account. Accounts

which are opened to keep complete record of all the financial transactions of the business.

Account

Personal Impersonal Account 1) Natural personal Account. 2) Artificial personal Account 3) Representative personal Account.

Account

Real Account Nominal Account

1) Tangible Real Account 2) Intangible Real Account

1) Personal Account: These accounts record business dealings with person or firms.

a) Natural Personal Account: An account recording transactions with an individual human being is known as natural person. Ex: Ramas account, Vinods account. b) Artificial Personal Account: An account recording financial transactions with an artificial person created by law or grouped people is called Artificial Personal account. Ex: Bank account, Ramesh and Bro company Etc.

c) Representative Personal Account: An Account indirectly representing a person or persons is called representative personal account. Ex: Salary O/S Account, Interest and Standing Account, Prepaid Insurance Account. 2) Real Account: These are the Accounts of Assets a) Tangible Real account: Such type of accounts relates to an asset which can be touched, felt, seen, and measured. Ex Machinery account, Cash account, Stock account. b) Intangible Real account. Such types of accounts relates to assets which cannot be touched physically, but can be measured in value. Ex: Good will account, Patents accounts, Trademark account, Copyright account.

3) Nominal Account: These are the accounts deal with expenses, incomes, profit and gains. Ex: Salary, Wages, Interest, commission, Bad Debts, Interest receives, Dividend Received etc.

Golden Rule of Accounts

1) Personal Account: Debit the Receiver Credit the Giver 2) Real Account: Debit- What comes in Credit- What goes out 3) Nominal Account: Debit- Expenses and losses Credit-Incomes and gains

To make a correct record of the transactions must be analyzed.

Steps of analysis: 1) Which are the two accounts involved in the transactions to be recorded. 2) Whether the two accounts involved in the

transactions are Personal, Real or Nominal. 3) What rules of Debit and credit are applicable to the accounts involved. 4) Which account should be Debited or Credited.

Generally Accepted Accounting Principles [GAAP].

Accounting principles provide a general framework for determining what information if to be included are the

financial statements. Trading, P & L account, B/S, Cash flow statements and how this information is to be presented. They are uniform set of rules. When the term principle is used in accounting, it would mean a rule of action or a rule of conduct. Thus the essential feature of accounting principles is that they are flexible rather that rigid. Accounting principles are judged on the basis of their general acceptability. Hence they are popularly called Generally Accepted Accounting Principle.

Institutions that influence India [GAAP]

Many Institutions influence the development of accounting principles followed by the accountants is the preparation and presentation of financial statements in India. They are 1) Institute of Chartered Accountants of India[ICAI] 2) The department of company Affairs [DCA]

3) The Securities and Exchange Board of India[SEBI] 4) The Central Board of Direct Taxes[CBDT] 5) Reserve Bank of India[RBI] 6) Controller and Auditor of India[CAG]

Characteristics of GAAP.
1) The Primary Objective of Accounting Principles is to bring Uniformity in recording of Financial

Transactions. 2) GAAP have facilitated intra- firm comparison on logical basis. If the firm is following same accounting principles and finds huge difference in the profit, the management will find the cause of difference and take corrective actions. However if the difference is due

to changes in accounting practices, it might give misleading results. 3) Facilitates comparison among firms within industry as all following consistent principles and rules recording accounting information.

Accounting Principles.

A science is an organized body of knowledge consisting of general principles having universal application. Accounting is a science, it has some general principles having wide application. Definition: According to A. W. Johnson Accounting principles are the assumptions and rules of accounting the methods and procedures and accounting and the application of these rules, method and procedures to the actual practice of accounting. From the above definition its clear that accounting principles are generally decided rules, derived from the basic accounting concepts, which are followed by accountants widely in writing up the accounts and in preparing the financial statements of business concerns.

In short Accounting principles are rules of action or conduct which are adopted by accountants universally, while recording accounting transactions and preparing financial statements.

Characteristics of Accounting Principles.

1) Accounting principles are rules of action or conduct adopted by Accountants, while preparing financial statements. 2) They govern the development of accounting

techniques, which are specific rules to record specific transactions and events in an organization. 3) Accounting principles are manmade. Unlike the principles of Physics, Chemistry and other natural sciences. 4) They represent the best possible guidelines based on reasons and observations.

5) They have been developed by accountants to enhance the usefulness of accounting data in the ever changing society. 6) Accounting principles are influenced by business practices and customs, Government agencies and other business groups.

Classification of Accounting Principles.

Traditionally accounting principles have been classified as 1) Accounting Concepts 2) Accounting Conventions.

A) Accounting Concepts:

Accounting

Concepts

are

basic

accounting

assumptions or conditions upon which the science of accounting is based.

Benefits: 1) Accounting concepts guide the identification of transactions to be recorded or accounted. 2) They make accounting convey the same meaning to all the end users of accounting information as far as practicable. 3) They also help in bringing about uniformity in the practice of accounting.

Accounting Concepts are:

1) Money measurement Concept: According to this concept only those transactions which can be expressed and recorded in monetary terms are to be considered. Since money is a common unit of measurement. It becomes possible for the

organization to record the transactions and compare it with other firms. However, this concept suffers from one limitation that is ignorance of the 2) Separate Entity Concept: This concept specifies that an organization has an existence separated from the owner. In some cases the law does not distinguishes between the organization and the owners, for examplesole proprietorship. However the

assumption of separate entity prevails even in the cases where separate entity law is not required.

Business entity assumption is applicable to all types of business organization. For Ex: Mr. X invested Rs.50000 in the business. Rs. 50000 is an Asset for the business in the form of cash and also a liability in the form capital which the business has to repay to Mr. X. 3) Going concern Concept: This concept assumes that the organization will continue forever, that is it has an unlimited life. The owner may change but the organizations functions forever are the assumption. All the business

transactions are done by the enterprise with the assumption that it will continue forever. 4) Cost Concept: According to this concept an asset is recorded in the books of accounts at the price paid for its purchase and not its market value. For ex: 10

years ago land was purchased for Rs. 10 lakh and current market value is 15 lakhs it should be recorded in the books at 10 lakhs which is the book price or value. 5) Dual Aspect concept: Every business transactions always results in receiving of some benefit of some value and giving of some other benefit of equal value. For instance purchased

goods for cash here you will be receiving goods and same time for the same value you will be giving cash. This concept clearly indicates that always in each transaction there will be two aspects both the aspects need to be recorded. 6) Accounting Period Concept: According to this concept every origin shall be required to prepare its financial statements on periodic basis to report the

functioning and the state of business entity. This period can be either a calendar year or a financial year. This periodic evaluation facilitates comparison and helps the management in taking decisions and framing policies. 7) Realization Concept: This concept states that revenue should be recognized when it has been realized. When the transaction gives legal right to the receipt of money It shall be recorded in that particular year. For ex: A company manufactured car in 2007, sold it to Mr.X in 2008 for Rs 2 lakh but received to money in 2009. In this case the sale would be recorded in the year 2008, because this is the time when they acquire the legal right to the

receipt of money and when it is realized need to record the year 2009. 8) Accrual Concept: This concept stated that revenues and expenditures are recorded in the period when the revenues are recognized and expenditures are realized, irrespective of whether the cash is received or not and payments are made or not. For ex: The salary of the

employees is Rs.50000 for the year 2010 was not paid but the business for the same reason but it promised to pay them in 2011. Now this salary of Rs50000 shall be recorded as an outstanding expense for the year 2010, because it is the expenditure of that particular year whether paid or outstanding. 9) Matching concept: Income earned during a period can be determined by matching the revenues earned

during that period with the expenses that were incurred in the process of earning these revenues. The revenues and expenses shown in an income statement must belong to the accounting period for which the income is to be calculated or measured. All expenses incurred by the business entity during an accounting period should be matched with the revenue recognized during the same period by deducting the related expendes from the revenue recognized. 10) Objective Evidence Concept: This concept means that all accounting entries should be evidenced and supported by source documents such as invoices, vouchers etc. It is only when accounting entries are supported by

objectively determined evidences, which are subject to verification by Auditors, the accounting records will be accepted by various groups of people interested in accounting information with confidence.

B) Accounting Conventions: Accounting conventions are the customs or practices which have been in force for a long period and which guide the accountant while preparing financial

statements. In other words they are the customs usages or practices followed by accountants or a guide in the preparation of financial statements.

Benefits:

1) Conventions of Materiality: This convention states that only material information should be recorded in the books of accounts. For Ex: A company purchased furniture worth Rs.10000 of red colour. The

information regarded as material if it is financial in nature and it is likely to influence the decisions of stake holders, bankers, management etc. 2) Conventions of Consistency: According to this convention, same accounting procedures shall be followed year after year, since following consistent methods will help in drawing comparisons. For Ex: If the firm is evaluation inventory according to FIFO method, then it not switch to weighted averages or any other methods on the next period. A change in method may bring about considerable influence in the

income reported as well as in the inventory cost for the balance sheet. 3) Conventions of conservatism: According to principle of conservatism or prudence Anticipate no gains but provide for all losses and if in doubt write it off. This convention states that no organization should function with anticipated gains, rather only when the money is received the gain should be realized, but we can make a reserve or provisions for future anticipated expenses and losses. 4) Convention of full Disclosure: This convention suggests that all the financial Information should be fully disclosed. No material information should be concealed else it shall be considered to be a fraud.

Few Accounting basic terms.

1) Business Transactions: Any exchange of money or moneys worth as goods and services between two parties is called business transaction. It may relate to purchase and sale of goods, receipts and payments of cash and rendering of service by one party to another. 2) Debtors {Its an asset}: Debtors is a person who due to business for goods. Only when credit sales taken place, the person who is going to receive goods on credit basis from the business, then the person is called Debtor. 3) Creditors {Its an liability}: Creditor is a person, who supply the goods on credit to the business when credit purchase taken place, the person who is going

to supply goods on credit basis to the business then the person is a creditor to the business. 4) Capital: Amount invested by the owner into the business, the amount of investment is a capital. Technically Capital=Total Asset-Total Outsiders Liabilities. 5) Goods: This includes all articles, commodities or merchandise in which the business deals. Ex: Cloth would be goods for a dealer of cloth; furniture would be goods for a dealer in furniture. 6) Assets: Any physical thing or right owned that has money value is an asset. In other words an Asset is that expenditure which results in acquiring of some property or benefit of a lasting nature. 7) Income: It is the favorable change in owners capital which results from business operation. In other word

Income is an inflow of assets which results in an increase in owners capital. 8) Expenditure: Expenditure takes place when an Asset acquired. For Ex: Machinery purchased- it is a non recurring expense. 9) Expenses: Spent Amount for the service is an expense. Ex: salary paid, Rent paid. It is recurring in nature. 10) Drawings: Any amount or goods withdrawn by the owner of a business for his personal use is called Drawings. 11) Loss: Expenses are incurred for no benefit to the concern. Ex: Bad Debts, goods Destroyed by fire. 12) Voucher: Any written document in support of business transactions is called voucher. 13) Turnover: It is simply a sales volume

14) Net worth: It means Assets outside Liabilities, profit increase the Net worth and loss reduces the Net worth.

Accounting Equation problems

I) Show the Accounting Equation on the basis of the

following transactions.
1) Mohan commenced business with Rs.70000. 2) Withdrawn for Private use Rs.1700. 3) Purchased Goods on credit Rs.14000. 4) Purchased Goods for cash Rs.10000. 5) Paid Wages Rs.300. 6) Paid To creditors Rs.10000. 7) Sold goods on Credit Rs.15000 8) Sold goods for cash Rs.4000{ Cost price Rs.3000}

9) Purchased Furniture for cash Rs.500. 10) 11) 12) 13) Outstanding salary paid Rs .500. Paid rent in advance Rs.400. Depreciation on furniture Rs.20. Received from Customers on account. Rs.5000.

II) Show the Accounting Equation on the basis of the

following transactions.
1) Mr. Y started a Business with cash Rs.90000. 2) Purchased goods on credit Rs.50000 3) Purchased furniture for cash Rs.10000. 4) Sold goods costing Rs.20000 on credit for Rs.42000 5) Sold goods costing Rs.20000 for Rs.40000 6) Bought Goods worth Rs.20000[ Rs 15000 paid in cash and the balance on credit] 7) Drawn For personal use Rs.5000. 8) Paid For rent Rs.1000. 9) Paid for Salaries Rs.3000.

10) Paid for Creditors Rs.40000. 11) Received from Debtors Rs.12000

III) Analyse each one of the following transactions into

accounting equations and give the summary of actions that result after all the transactions.
1) Rama commences business with Rs.3000 cash, Rs.2000 in inventory and Rs.2000 in furniture. 2) He opens a current account with bank of India and deposits Rs.2500. 3) Purchased goods worth Rs.5000 on credit. 4) Sells goods costing Rs. 2000 for Rs 2500 on credit 5) Makes a Payment of Rs500 by the way of office Expenses. 6) Pays Rs 2000 to the trade Creditors 7) Appoints a cashier who pays Rs.5000 as Deposit 8) Fixed Deposit is opened for Rs 5000 with bank of India.

IV) Mr. Sharma commenced Business as on 1st April 2011 with a capital of Rs 1, 50,000. During the year the following transactions took place, show the accounting equation. 1) Table and chairs Rs.20000 2) Purchased Goods form Mahesh on credit Rs. 25000 3) Sold Goods costing Rs10000 to Liza for cash of Rs .14000 4) Additional Capital Introduced Rs .20000 5) Commission received in advance Rs .2000 6) Paid to creditors [Mahesh] Rs .22500 in full settlement 7) Sold Goods costing Rs.15000 for Rs .18000 Out of which Rs .5000 received in cash. 8) Depreciation on furniture provided @10%.

V) Narayan Started a business enterprise article the accounting equation for the following Transactions.

1) Commenced Business with Cash Rs.50000

2) Purchased goods for Cash Rs.50000 3) Sold Goods for Cash Rs .40000 costing Rs. 30000 4) Salary paid Rs.500 5) Salary outstanding Rs.100 6) Bought Furniture Rs.5000 on credit 7) Bought Refrigerator for personal use Rs.5000 8) Purchased computer for cash Rs.20000 9) Cash Withdrawn for personal use Rs.10000

VI) Show the Effect of the following transactions on the Accounting Equations

1) Rita started business with cash Rs.50000 2) Purchased goods on credit Rs.4000 3) Purchased Goods for cash Rs.1000 4) Purchased Furniture for cash Rs500 5) Drawings Rs.700

6) Paid Rent Rs.200 7) Received interest Rs.100 8) Sold Goods on Credit[cost Rs.500] Rs.700 9) Paid to Creditors Rs.400 10) Paid SalariesRs.200

VII) Write Accounting Equation on the basis of the following Transactions.

1) Manu Started business with Cash Rs.5,00,000 2) Purchased a Building on cash from Sohan by raising a loan from SBI Rs.10,00,000 3) Paid Interest on loan Rs .20000 and installments of Rs.2,00,000 4) Purchased goods from Sohan on credit Rs.1,00,000 5) Goods Returned to Sohan costing Rs.20000 6) Sold goods worth Rs.50000 [costing Rs.40000] on credit to Ram.

7) Took Goods of Rs.10000 from business for Personal use. 8) Accrued Interest Rs.5000 9) Commission Received in AdvanceRs.20000 10) Cash Received from Ram Rs.10000

VIII) Give Accounting Equations for the following transactions of Hitesh for the year 2008.
1) Started Business with cash Rs.18000 2) Paid Rent in advance Rs.400 3) Purchased Goods for Cash Rs.5000 and on credit Rs.2000 4) Sold Goods for Cash Rs.4000 [Costing Rs.2400] 5) Rent paid Rs1000 and rent outstanding Rs.200 6) Bought Motorcycle for personal use Rs.8000 7) Purchased Equipment for cash Rs.500 8) Paid to Creditors Rs.600

9) Depreciation on Equipment Rs.25 10) Business Expenses Rs.400.

IX) Ram starts a real account estate agency business

with a cash investment of Rs.70000. The following business transactions have been recorded.
1) Paid 3 months advance rent for office accommodation Rs.4200 2) Bought Office Car Rs.42000 3) Purchased Office furniture Rs.14000 4) Bought office type writer from standard supply for Rs.6000 5) Sold Extra office furniture at cost to Amar for Rs.2000. Amar paid Rs.1200 in cash and accepted a bill for balance. 6) Amar paid the amount of the bill at maturity and Ram Paid Half the amount he owned to Standard Supply Company.

7) Collected Rs.12000 as commission 8) Paid Telephone bill Rs.300. Work out the effect of the fore going transaction on the equity of Ram through accounting equation.

X)

Arvind

had

the

following

transactions.

Use

accounting equation to show their effect on his asset, liabilities and Capital.

1) Bought Rs.45000 in cash to start a business 2) Purchased securities for cash Rs.22500 3) Purchased an office building for Rs.45000 giving Rs.15000 in cash and the balance through loan/ 4) Sold Securities Costing Rs.3000 for Rs4500 5) Purchased on old car for Rs.8400 cash 6) Received cash for rent Rs.10800 7) Paid Cash Rs.1500 for lain and Rs.900 for interest. 8) Paid Cash for office building expenses Rs.900

9) Received cash for dividend on securities Rs.600.