NCERT Solutions for Class 11-commerce Accountancy Part I Chapter 3 - Recording of Transactions - I

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Chapter 3 - Recording of Transactions - I Exercise 87

Question SA 1

States the three fundamental steps in the accounting process.

Solution SA 1

The fundamental steps in the accounting process are:

  • Identifying and analysing the business transactions
  • Recording those transactions in journal
  • Classifying account individually and posting it in a ledger
  • Preparing and summarizing financial statement
  • Communicating it to the interested users

The pictorial representation of the same is given below:

 

 

Ncert Solutions Cbse Class 11-commerce Accountancy Part I Chapter - Recording Of Transactions I 

Question SA 2

Why is the evidence provided by source documents important to accounting?

Solution SA 2

Source document can be termed as an evidence providing document. The evidence provided by the source document is important because it:

  1. Provides relevant and detailed information of a particular transaction such as parties involved in the transaction, amount and date
  2. Verifies transactions during auditing
  3. Acts as a evidence in the court of law
  4. Summation of each account which culminates into financial statements 
Question SA 3

Should a transaction be first recorded in a journal or ledger? Why?

Solution SA 3

To make sound business decisions, it is very important to have an accounting system which generates complete and error-free financial records. Although a journal and ledger are parts of an accounting system, they both serve extremely important and different purpose. A journal records transactions permanently in one entry using the source document and is listed as per their occurrences. It comes under the double-entry system and is called the book of original entry. Once the transactions are recorded in the journal, they are then posted into the ledger so as to assign each transaction to individual accounts,

The process of recording the transactions in journal and then in ledger is presented in the below given flow chart.

 

 

Ncert Solutions Cbse Class 11-commerce Accountancy Part I Chapter - Recording Of Transactions I 

 

Question SA 4

Are debits or credits listed first in journal entries? Are debits or credits indented?

Solution SA 4

There are four columns for a journal entry; namely, Date, Particulars, L.F., Debit and Credit Amount. A journal entry format is as shown:

Date

Particulars

 

L.F.

Dr.

Rs.

Cr.

Rs. 

XXX

Vehicle A/c

Dr.

 

XXX

 

 

 To Cash A/c

 

 

 

XXX

 

(Being vehicle bought by the business)

 

 

 

 

 

The debit amount column always comes before/left to the credit amount column as a credit is a right-sided entry and debit is a left-sided entry. Credit accounts are indented and listed last. Indentation is leaving a space before writing any word. In the 'Particulars' column of journal format, debited account is written first and credited account is written on the next line leaving some space which is indentation.

Question SA 5

Why are some accounting systems called double accounting systems?

Solution SA 5

An accounting system is of two types, single entry accounting system and double entry accounting system. Majority of the business uses the double entry accounting system as it consists of dual effect i.e. two kinds of amount and accounts, debit and credit which affect each transaction.

Question SA 6

Give a specimen of an account.

Solution SA 6

_________ Account

Dr.

 

 

 

 

 

 

Cr.

Date

Particulars

J.F.

Amount (Rs.) 

Date

Particulars

J.F.

Amount (Rs.) 

 

 

 

 

 

 

 

 

 

Chapter 3 - Recording of Transactions - I Exercise 88

Question SA 7

Why are the rules of debit and credit same for both liability and capital?

Solution SA 7

Short term liabilities- Liabilities incurred with an intention to be paid or are payable within a year is termed as short-term liabilities. For example, short-term loans, outstanding wages, bills payable and bank overdraft creditors.

Capital- It refers to the amount invested in the form of cash or asset by the owner in a firm's business or organisation of his choice. It is a claim on the assets of the business and also it will be an obligation of the business towards the owner of the firm. On the balance sheet, the capital is shown on the liabilities side.

Business owners and business are treated differently. In case of closure, the business has to repay the owner, the capital amount, as the capital is treated as a liability to the business. An increase in liability is credited, the fresh capital introduced and its net profit increases the owner's capital; the capital along with the liability is increased. Similarly, if the liabilities are paid off, the liability is debited and withdrawals from the capital and its net loss decrease the capital; so capital along with liabilities is debited. Thus, the rules of debit and credit are same for both liability and capital. 

Question NUM 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/-

Rs.12,000

d. Bought furniture on credit

Rs.7,000

Solution NUM 1

S. No

Explanation

Assets =

Liabilities + Capital

 

 

Cash +

Stock +

Debtors+

Furniture

Creditors

+ Capital

a.

Increase in Cash

2,00,000

 

 

 

 

 

 

Increase in Capital

 

 

 

 

 

2,00,000

 

 

2,00,000

 

 

 

= NIL  +

2,00,000

b.

Increase in Stock

 

40,000

 

 

 

 

 

Decrease in Cash

(40,000)

 

 

 

 

 

 

 

1,60,000 +

40,000

 

 

= NIL +

2,00,000

c.

Increase in Debtors

 

 

12,000

 

 

 

 

Decrease in Stock

 

(10,000)

 

 

 

 

 

Profit

 

 

 

 

 

2,000

 

 

1,60,000 +

30,000 +

12,000

 

= NIL +

2,02,000

d.

Increase in Furniture

 

 

 

7,000

 

 

 

Increase in Creditors

 

 

 

 

7,000

 

 

 

1,60,000 +

30,000 +

12,000 +

7,000

= 7,000

+ 2,02,000

 

Question SA 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.

Solution SA 8

J.F. (Journal Folio) number is the journal's page number on which the transaction was recorded originally. The J.F. number is entered in the ledger at the time of posting entries into their respective accounts and not at the time of recording the transactions. It acts as a tracker to the original record. 

The purpose of entering J.F. number in the ledger is because of the below given benefits:

  1. It helps in locating the original transaction records in the journal. In other words, J.F. number helps to locate the position of the related journal entry and subsidiary book in the journal book.
  2. J.F. number in accounts ensures that recording in the books of original entry has been posted or not.
Question NUM 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

Solution NUM 2

S. No

Explanation

Assets

= Liabilities + Capital

 

 

Cash  +

Furniture  +

Stock

 Creditors

+ Capital

a.

Increase in cash

2,50,000

 

 

 

 

 

Increase in Capital

 

 

 

 

2,50,000

 

 

2,50,000

 

 

= NIL +

2,50,000

b.

Increase in Furniture

 

 35,000

 

 

 

 

Decrease in Cash

(35,000)

 

 

 

 

 

 

2,15,000 +

35,000

 

=  NIL +

2,50,000

c.

Decrease in Capital (Expense)

 

 

 

 

(2,000)

 

Decrease in Cash

(2000)

 

 

 

 

 

 

2,13,000 +

35,000

 

=  NIL +

2,48,000

d.

Increase in Stock

 

 

40,000

 

 

 

Increase in Creditors

 

 

 

40,000

 

 

 

2,13,000 +

35,000

+ 40,000

=  40,000 +

2,48,000

e.

Increase in Cash

26,000

 

 

 

 

 

Decrease in Stock

 

 

(20,000)

 

 

 

Increase in Capital (Profit)

 

 

 

 

6,000

 

 

2,39,000 +

35,000

+ 20,000

= 40,000 +

2,54,000

 

Question SA 9

What entry (debit or credit) would you make to: (i) increase revenue (ii) decrease in expense, (iii) record drawings (iv) record the fresh capital introduced by the owner.

Solution SA 9
  1. Increase in revenue

    Increase in revenue is credited as it increases the capital. Capital has credit balance and if capital increases, then it is credited.

  2. Decrease in expense

    Decrease in expense is credited as all expenses have debit balance. If expense decreases, then it is credited.

     

  3. Record drawings

    Capital has credit balance; if the capital increases, then it is credited. If capital decreases, then it is debited. Drawings are debited as they decrease the capital.

     

  4. Record of fresh capital introduced by the owner- credit

    Capital has credit balance, if capital increases, then it is credited. The introduction of fresh capital increases the balance of capital, and so, it is credited.

Question SA 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?

Solution SA 10

Assets have debit balance which when decreased is considered credited. Thus, a decrease is recorded as a credit, if the transaction has a decreasing effect on the asset.

For example, sale of books results in decrease in books (asset); so, the sale of books will be credited.

Liabilities have credit balance which is credited if the liability increase and is debited with a decrease in liability. Thus, a decrease is recorded as a debit if the transaction has a decreasing effect on the liability.

For example, payment to the creditors results in a decrease in the creditors (liability); so, the creditors account will be debited.

Question LA 1

Describe the events recorded in accounting systems and the importance of source documents in those systems.

Solution LA 1

Irrespective whether a business is small or big, there would be n-amount of financial transactions which would take place. A human mind cannot grasp this much amount of information. So in such instances, the source documents come in handy. A source document always enables verifiability and acts as evidence in court. They ensure that transactions recorded in the books are free from personal biases.

Source document in accounting is important because of the below given reasons.

  1. Systematic track of records
  2. Detect and prevent frauds and errors
  3. Alternative memory box
  4. Verifying the transaction during the auditing process
  5. Evidence in the count of law

 

Scenarios which are supported by source document are

  1. Return of goods purchased on credit worth Rs. 500, supported by debit note
  2. Deposits into bank worth Rs. 1000, supported by pay-in slips
  3. Purchase of goods worth Rs. 1000 on credit, supported by purchase invoice/bill
  4. Cash sales worth Rs. 2,000, supported by cash memo

 

The books of accounts only record events expressed in monetary terms and not the non-monetary events. For example, promotion of an employee is not recorded in the book but the salary increment is recorded at the time when salary is paid or due. 

Question LA 2

Describe how debits and credits are used to analyse transactions.

Solution LA 2

An accounting system is of two types, single entry accounting system and double entry accounting system. Majority of the business use the double entry accounting system as it consists of dual aspect. Double entry system is a complete system of recording transaction in the books of accounts. Each transaction reveals two aspects, receiving aspect or incoming aspect or expenses/loss aspect known as debit aspect and giving aspect or outgoing aspect or income/gain aspect known as credit aspect. The dual aspect can be better understood by the help of an example; bought goods worth Rs.1000 on cash. This transaction affects two accounts with the same amount simultaneously. As goods are brought in exchange of cash, the cash balances in the business reduce by Rs.1000 i.e. the cash account is credited. Simultaneously, the amount of goods increases by Rs.1000, so purchase account will be debited.

Debit and credit depend on the nature of accounts involved; such as assets, expenses, income, liabilities and capital. There are five types of accounts.

 

  1. Assets- This increases the profit earning capacity of the business over a long-term across various accounting periods. Examples of fixed assets are furniture, machinery, land, plant and buildings.

    For example, machinery purchased and payment is made by cheque. The journal entry is

    Machinery A/c  Dr.

    To Bank A/c

     Here, machinery and bank balance, both are assets to the firm. As machinery is purchased, so machinery account will increase, and will be debited. On the other hand, payment of machinery is being made by cheque that reduces the bank balance of the business, so bank account will be credited.

  2. Expense- It is the costs incurred to maintain the profitability of business in the process of earning profits. This help in the generating revenues, business operations and production such as rent, wages, depreciation, interest, salaries. They are measured by the services rendered or the cost of assets during an accounting period. For example, rent paid. The journal entry is:

    Rent A/c Dr.

    To Cash A/c

    Here, rent is an expense. All expenses have debit balance. Hence, rent is debited. On the other hand, as rent is paid in cash that reduces the cash balances, so cash account is credited.

  3. Liability- Liabilities refer to the financial obligations or debt which a business owes to others such as loans from banks, other persons or creditors for goods supplied. Long term liabilities are loans which are payable after a period of 1 year. Short term liabilities are obligations which are payable within a period of time.

    The journal entry is:

    Bank A/c  Dr.

    To Bank Loan A/c

    Here, loan from bank is a liability to the firm. As all liabilities have credit balance, so loan from bank has been credited because it increases the liabilities.

  4. Income- It refers to the amount received from selling the products or providing services to customers, royalty and commission received; they are added to the capital.

    For example, rent received from tenant. The journal entry is:

    Cash A/c   Dr.

    To Rent A/c

    Here, rent is an income; hence, rent account has been credited and cash has been debited, as rent received increases the cash balances.

  5. Capital- It refers to the amount invested in form of cash or asset by the owner in a firm's business or organisation of his choice. It is a claim on the assets of the business and also it will be an obligation of the business towards the owner of the firm. On the balance sheet, the capital is shown on the liabilities side.

    For example, additional capital introduced by owner. The journal  entry is:

    Cash A/c  Dr.

    To Capital A/c

    The amount of capital increases i.e. credited when additional capital is introduced. On the other hand, the cash account is debited when the cash balances decrease i.e. capital introduced in form of cash.

Question LA 3

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

Solution LA 3

In a business, recording each and every transaction is of utmost importance. Not doing so, can notably affect the financial status of the business.

A transaction is first recorded in the journal, the book of original entry. However, if the further details on expense, revenue, equity, liability or increase or decrease in assets are needed, an account is brought in use. A detailed record of the information relating to a financial transaction can be termed as an account. It helps in determining the financial position of the business.

There are some steps to record transactions in accounts; it can be easily understood with the help of an example.

Sold goods to Mr. X worth Rs. 40,000 on 12th April and received payment Rs. 40,000 on 25th April. The following journal entries will be recorded:

 

Date

Particulars

L.F

Debit Rs. 

Credit Rs. 

Apr. 12

 

 

 

 

Apr 25.

X' A/c Dr

 To Sales

(Goods sold on credit to Mr. X)

 

Cash A/c Dr

 To X's A/c

(Cash received from Mr. X)

22

18

 

 

 

13

22

40,000

 

 

 

 

40,000

 

40,000

 

 

 

 

40,000

Step 1- Locate the account in ledger, i.e. Mr. X's Account.

Step 2- Enter the date of transaction in the date column of the debit side of Mr. X's Account.

Step 3- In the 'Particulars' column of the debit side of Mr. X's 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 Mr. X's 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 Mr. X's Account.

Step 7- 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 8- Total of account is to be written on either sides.

Question LA 4

What is a journal? Give a specimen of journal showing at least five entries.

Solution LA 4

Journal is known to be the book of original entry. Any financial transaction which takes place is recorded first in a journal so that they can be used for future references. The recording is done as and when a transaction occurs i.e. in a chronological order.

Performa of Journal

In the books of.....

Date

Particulars

L.F.

Debit

Rs.

Credit

Rs. 

 

 

 

 

 

 

 

 

 

 

Date- Date of the transaction is entered in the first column. This date is entered only once unless and until there is a change in the date of transaction. It should be entered in proper sequence.

Particulars- Details of business transactions like, name of the parties involved and the name of related accounts, are recorded.

L.F. - Page number of ledger account when entry is posted.

Debit Amount- Amount of debit account is written.

Credit Amount- Amount of credit account is written.

 Example:

Date 

Transactions by Mr. Ram 

April 01

Started business with cash Rs.1,13,000

April 06

Open a bank account Rs.40,000

April 12

Purchase goods for cash Rs.5,000

April 19

Goods sold for cash Rs.4,500

April 25

Goods sold to Mr. X Rs.3,400

 

Journal in the books of Mr. Ram 

Date

Particulars

 

L.F.

Dr. (Rs.)

Cr.(Rs.)

2014

 

 

 

 

 

Apr. 01

Cash A/c

Dr.

 

1,13,000

 

 

 To Capital A/c

 

 

 

1,13,000

 

(Being business started with cash)

 

 

 

 

 

Apr.02

Bank A/c

Dr.

 

40,000

 

 

 To Cash A/c

 

 

 

40,000

 

(Being bank account opened with cash)

 

 

 

 

 

Apr.12

Purchases A/c

Dr.

 

5,000

 

 

 To Cash A/c

 

 

 

5,000

 

(Being goods purchased for cash)

 

 

 

 

 

Apr.19

Cash A/c

Dr.

 

4,500

 

 

 To Sales A/c

 

 

 

4,500

 

(Being goods sold for cash)

 

 

 

 

 

Apr.25

Mr. X's A/c

Dr.

 

3,400

 

 

 To Sales A/c

 

 

 

3,400

 

(Being goods sold to Mr. X on credit)

 

 

 

 

 

Total

 

1,62,900

1,62,900

 

Question LA 5

Differentiate between source documents and vouchers.

Solution LA 5

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 which helps in recording

It acts as a basis for recording transactions

Legality/Validity

It can be used as evidence in the court of law

It can be used for authenticating transactions

Prepared By

It is prepared by the those 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

Cash memo, invoice, pay-in-slip (if used as evidence), debit note, credit note, cash vouchers, transfer vouchers

 

Question LA 6

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

Solution LA 6

Majority of the business prefers the double entry accounting system i.e. the dual aspect concept over single entry system as it consists of dual effect i.e. two kinds of amount, debit and credit which affects each transaction. It is based on the fact that if there is receiver, there should be a giver. However, at any point of time, the assets of a business entity will always be equal to the total of its liabilities and capital i.e. total claims.

The equation between the assets and claims can be read as follows: 

Ncert Solutions Cbse Class 11-commerce Accountancy Part I Chapter - Recording Of Transactions I 

or Liabilities = Asset - Capital

or Capital = Assets - Liabilities

The equation can also be represented as:

Assets - Liabilities = Capital

Assets - Capital = Liabilities

The above equation cannot be altered. For example, 

1. Business started with cash Rs.1,00,000

Cash A/c Dr 

 To Capital A/c

Assets

=

Liabilities

+

Capital

Cash

(1,00,000)

 

 

 

1,00,000

Assets decrease, as cash is invested into the business and capital increases. Thus the equality between LHS and RHS remains intact.

2. Goods purchased on credit Rs.20, 000

Assets

=

Liabilities

+

Capital

Cash

 

1,00,000

Stock

 

20,000

 

 

=

Creditors

 

20,000

 

 

+

 

 

1,00,000

 

Assets increase as well as liability increases, without disturbing the equality.

3. Goods purchased with cash Rs.25,000

Assets

=

Liabilities

+

Capital

Cash

1,00,000

(25,000)

Stock

20,000

25,000

 

=

 

20,000

 

+

 

1,00,000

 

As goods are purchased for cash, so cash balance reduces by Rs.25,000, but on the other hand, stock balance increases by Rs.25,000. Thus the total balance of LHS remains equal to the total claims. 

Question LA 7

Explain the double entry mechanism with an illustrative example.

Solution LA 7

Majority of the business prefers the double entry accounting system i.e. the dual aspect concept over single entry system as it consists of dual effect i.e. two kinds of amount, debit and credit which affects each transaction. It is based on the fact that if there is receiver, there should be a giver.

If a business firm acquires an asset for cash, it has to give some other asset say cash or the obligation to pay for it in future. Thus, giver necessarily implies a receiver and a receiver necessarily implies a giver.

In double entry system, accounts are classified as shown below:

Ncert Solutions Cbse Class 11-commerce Accountancy Part I Chapter - Recording Of Transactions I 


 



  1. Personal Accounts: Accounting transactions relating to persons such as individuals, firms, bank and companies are known as personal accounts, such as Mr. A, M/s ABC and Co. etc.

    Rule of double entry system for personal accounts: Debit the receiver and credit the giver.

    For example: Cash paid to Mr. A.

    Mr. A's A/c

    Dr.

    To Cash A/c

     

    (Being cash paid to Mr. A)

     

     
  2. Impersonal Accounts: It relates to non living things. Impersonal accounts are further classified as real accounts and nominal accounts.

    1. Real Account- Accounting transactions relating to tangible assets such as properties, goods and cash and intangible assets such as patents and trademark are known as real accounts.

      Rule of double entry system for real accounts: Debit what comes in and credit what goes out.

      For example: Furniture purchased for cash.

      Furniture  A/c

      Dr.

      To Cash A/c

       

      (Being furniture purchased for cash)

       

       
    2. Nominal Account: Accounting transactions relating to incomes and expenses and gains and losses of the firm are known as nominal accounts.

      Rule of double entry system for nominal accounts:Debit all expenses and losses and credit all incomes and gains.

      For example : Rent paid

      Rent A/c

      Dr.

      To Cash A/c

       

      (Being rent paid)

       

       

     


 

Chapter 3 - Recording of Transactions - I Exercise 89

Question NUM 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 

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 

Solution NUM 3

S. No

Explanation

Assets

=Liabilities + Capital

 

 

Cash   +

Stock +

Debtors

Furniture

Creditors

+ Capital

a.

Increase in Cash

1,75,000

 

 

 

 

 

 

Increase in Capital

 

 

 

 

 

1,75,000

 

 

1,75,000

 

 

 

= NIL +

1,75,000

b.

Increase in Stock

 

50,000

 

 

 

 

 

Increase in Creditors (Rohit)

 

 

 

 

= 50,000+

1,75,000

 

 

1,75,000 +

50,000

 

 

= 50,000 +

1,75,000

c.

Increase in Debtors (Manish)

 

 

20,000

 

 

 

 

Decrease in Stock

 

(17,500)

 

 

 

 

 

Increase in Capital (Profit)

 

 

 

 

 

2,500

 

 

1,75,000 +

32,500 +

20,000

 

= 50,000 +

1,77,500

d.

Increase in Furniture

 

 

 

10,000

 

 

 

Decrease in Cash

(10,000)

 

 

 

 

 

 

 

1,65,000 +

32,500 +

20,000 +

10,000 

=50,000 +

1,77,500

e.

Decrease in Creditors (Rohit)

 

 

 

 

(50,000)

 

 

Decrease in Cash

(48,500)

 

 

 

 

 

 

Increase in Capital

(Discount received)

 

 

 

 

 

1,500

 

 

1,16,500 +

32500 +

20,000 +

10,000 

=NIL +

1,79,000

f.

Increase in Cash

20,000

 

 

 

 

 

 

Decrease in Debtors (Manish)

 

 

(20,000)

 

 

 

 

 

1,36,500 +

32500 +

NIL +

10,000 

=NIL +

1,79,000

g.

Decrease in Capital (Expense)

 

 

 

 

 

(1,000)

 

Decrease in Cash

(1,000)

 

 

 

 

 

 

 

1,35,500 +

32500 +

NIL +

10,000 

=NIL +

1,78,000

h.

Decrease in Capital (Drawings)

 

 

 

 

 

(3,000)

 

Decrease in Cash

(3,000)

 

 

 

 

 

 

 

1,32,500 +

32500 +

NIL +

10,000 

=NIL +

1,75,000

 

Question NUM 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.

Solution NUM 4

S.No

Explanation

Assets

=

 Liabilities + Capital

 

 

Cash  +

Machinery +

Stock

 

Creditors +

Unaccured Income

+

Capital

a.

Increase in Cash

1,50,000

 

 

 

 

 

 

 

 

Increase in Capital

 

 

 

 

 

 

 

1,50,000

 

 

1,50,000

 

 

=

NIL

 

+

1,50,000

b.

Increase in Machinery

 

40,000

 

 

 

 

 

 

 

Increase in Creditors

 

 

 

=

40,000

 

 

 

 

 

1,50,000+

40,000

 

=

40,000

 

 

1,50,000

c.

Increase in Stock

 

 

20,000

 

 

 

+

 

 

Decrease in Cash

(20,000)

 

 

 

 

 

 

 

 

 

 1,30,000 +

40,000 +

20,000

=

40,000

 

+

1,50,000

d.

Decrease in Cash

(80,000)

 

 

 

 

 

 

 

 

Decrease in Capital (Drawings)

 

 

 

 

 

 

 

(80,000)

 

 

50,000 +

40,000

+20,000

=

40,000

 

+

70,000

e.

Decrease in Creditors

 

 

 

 

(40,000)

 

 

 

 

Decrease in Cash

(38,000)

 

 

 

 

 

 

 

 

Increase in Capital

 

 

 

 

 

 

 

 

 

(Discount received)

 

 

 

 

 

 

 

2,000

 

 

12,000 +

 40,000 +

20,000 

=

NIL

 

+

72,000

f.

Increase in Cash

4,500

 

 

 

 

 

 

 

 

Decrease in Stock

 

 

(5000)

 

 

 

 

 

 

Decrease in Capital (Loss)

 

 

 

 

 

 

 

(500)

 

 

16,500 +

40,000 +

15,000

=

NIL

 

+

71,500

g.

Decrease in Cash

(1000)

 

 

 

 

 

 

 

 

Decrease in Capital (Expense)

 

 

 

 

 

 

 

(1000)

 

 

15,500 +

40,000 +

15,000

=

NIL

 

+

70,500

h.

Increase in Cash

2,000

 

 

 

 

 

 

 

 

Increase in Unaccrued Income

 

 

 

=

 

2,000

 

 

 

 

17,500

40,000

15,000

=

NIL

2,000

+

70,500

 

Question NUM 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 

Solution NUM 5

S.No

Explanation

Assets

=

Liabilities + Capital

 

 

Cash  +

Stock +

Prepaid Expenses

=

Outstanding Expenses

+

Capital

a.  

Increase in cash

1,20,000

 

 

 

 

 

 

 

Increase in capital

 

 

 

 

 

 

1,20,000

 

 

1,20,000

 

 

=

NIL

+

1,20,000

b.  

Increase in stock

 

10,000

 

 

 

 

 

 

Increase in cash

(10,000)

 

 

=

 

 

 

 

 

1,10,000 +

10,000

 

=

NIL

+

1,20,000

c.  

Increase in cash

 5,000

 

 

 

 

 

 

 

Increase in capital (Income)

 

 

 

 

 

 

5,000

 

 

1,15,000 +

10,000

 

=

NIL

+

1,25,000

d.  

Increase in outstanding expenses

 

 

 

=

2,000

 

 

 

Decrease in capital (Expense)

 

 

 

 

 

 

(2,000)

 

 

1,15,000 +

10,000

 

=

2,000

+

1,23,000

e.  

Increase in prepaid expenses

 

 

1,000

 

 

 

 

 

Decrease in cash

(1,000)

 

 

 

 

 

 

 

 

1,14,000 +

10,000

+ 1,000

=

2,000

+

1,23,000

f.  

Increase in cash

700

 

 

 

 

 

 

 

Increase in capital (Income)

 

 

 

 

 

 

700

 

 

1,14,700 +

10,000

+ 1000

=

2,000

+

1,23,700

g.  

Increase in cash

7,000

 

 

 

 

 

 

 

Decrease in stock

 

(5,000)

 

 

 

 

 

 

Increase in capital (Profit)

 

 

 

 

 

 

2,000

 

 

1,21,700+

5,000 +

+ 1000

=

2000

+

1,25,700

h.  

Decrease in stock

 

(500)

 

 

 

 

 

 

Decrease in capital (Loss)

 

 

 

 

 

 

(500)

 

 

1,21,700+

4500 +

1000

=

2000

+

1,25,200

 

Chapter 3 - Recording of Transactions - I Exercise 90

Question NUM 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 

Solution NUM 6

S. No

Explanation

Assets

=

 Liabilities + Capital

 

 

Cash  +

Stock +

Building +

Debtors 

 

Creditors +

Outstanding Exp +

Unaccured Income +

 

Capital

a.

Increase in Cash

5,00,000

 

 

 

 

 

 

 

 

 

 

Increase in Stock

 

1,00,000

 

 

 

 

 

 

 

 

 

Increase in Capital

 

 

 

 

 

 

 

 

 

6,00,000

 

 

5,00,000+

1,00,000

 

 

=

NIL

 

 

+

6,00,000

b.

Increase in Building

 

 

2,00,000

 

 

 

 

 

 

 

 

Decrease in Cash

(2,00,000)

 

 

 

 

 

 

 

 

 

 

 

3,00,000+

1,00,000 +

2,00,000

 

=

NIL

 

 

+

6,00,000

c.

Increase in Stock

 

50,000

 

 

 

 

 

 

 

 

 

Increase in Creditors

 

 

 

 

 

50,000

 

 

 

 

 

 

3,00000+

1,50,000 +

2,00,000

 

=

50,000

 

 

+

6,00,000

d.

Increase in Debtors

 

 

 

36,000

 

 

 

 

 

 

 

Decrease in Stock

 

(25,000)

 

 

 

 

 

 

 

 

 

Increase in Capital (profit)

 

 

 

 

 

 

 

 

 

11,000

 

 

3,00,000+

1,25,000 +

2,00,000 +

36,000

=

50,000 +

 

 

+

6,11,000

e.

Decrease in Cash

(3000)

 

 

 

 

 

 

 

 

 

 

Decrease in Capital (Expense)

 

 

 

 

 

 

 

 

 

(3000)

 

 

2,97,000+

1,25,000 +

2,00,000 +

36,000

=

50,000 +

 

 

+

6,08,000

f.

Decrease in Capital (Expense)

 

 

 

 

 

 

5,000

 

 

 

 

Increase in Liabilities

 

 

 

 

 

 

 

 

 

(5,000)

 

 

2,97,000+

1,25,000 +

2,00,000 +

36,000

=

50,000 +

5,000

 

 

6,03,000

g.

Decrease in Building

 

 

(8,000)

 

 

 

 

 

 

 

 

Decrease in Capital

 

 

 

 

 

 

 

 

 

(8,000)

 

 

2,97,000+

1,25,000 +

1,92,000 +

36,000

=

50,000 +

5,000

 

+

5,95,000

h.

Decrease in Cash

(20,000)

 

 

 

 

 

 

 

 

 

 

Decrease in Capital

 

 

 

 

 

 

 

 

 

(20,000)

 

 

2,77,000+

1,25,000 +

1,92,000 +

36000

=

50,000 +

5,000

 

+

5,75,000

i.

Increase in Cash

5,000

 

 

 

 

 

 

 

 

 

 

Increase in Liability

 

 

 

 

 

 

 

5,000

 

 

 

 

2,82,000 +

1,25,000 +

1,92,000 +

36,000

=

50,000 +

5,000 +

5,000

+

5,75,000

j.

Decrease in Creditors

 

 

 

 

 

(20,000)

 

 

 

 

 

Decrease in Cash

(20,000)

 

 

 

 

 

 

 

 

 

 

 

2,62,000 +

1,25,000 +

1,92,000 +

36,000

=

30,000 +

5,000 +

5,000

+

5,75,000

k.

Increase in Cash

30,000

 

 

 

 

 

 

 

 

 

 

Decrease in Debtors

 

 

 

(30,000)

 

 

 

 

 

 

 

 

2,92,000 +

1,25,000 +

1,92,000 +

6,000

=

30,000 +

5,000 +

5,000

+

5,75,000

 

Question NUM 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 

Solution NUM 7

S. No

Explanation

Assets 

=

Liabilities + Capital

 

 

Cash  +

Stock  +

Investment +

Bank

 

Creditors

+

Capital

a.

Increase in Cash

1,20,000

 

 

 

 

 

 

 

 

Increase in Capital

 

 

 

 

 

 

 

1,20,000

 

 

1,20,000 +

 

 

 

=

NIL

+

1,20,000

b.

Increase in Cash

10,000

 

 

 

 

 

 

 

 

Increase in Capital (Income)

 

 

 

 

 

 

 

10,000

 

 

1,30,000

 

 

 

=

NIL

+

1,30,000

c.

Decrease in Investment

 

 

50,000

 

 

 

 

 

 

Decrease in Cash

(50,000)

 

 

 

 

 

 

 

 

 

80,000 +

 

50,000

 

=

NIL 

+

1,30,000

d.

Increase in Cash

5,000

 

 

 

 

 

 

 

 

Increase in Capital (Income)

 

 

 

 

 

 

 

5,000

 

 

85,000+

 

50,000

 

=

NIL

+

1,35,000

e.

Increase in Stock

 

35,000

 

 

 

 

 

 

 

Increase in Creditor (Ragani)

 

 

 

 

 

35,000

 

 

 

 

85,000 +

35,000 +

50,000

 

=

35,000

+

1,35,000

f.

Decrease in Capital

 

 

 

 

 

 

 

(7,000)

 

Decrease in Cash

(7,000)

 

 

 

 

 

 

 

 

 

78,000 +

35,000 +

50,000

 

=

35,000

+

1,28,000

g.

Increase in Cash

14,000

 

 

 

 

 

 

 

 

Decrease in Stock

 

(10,000)

 

 

 

 

 

 

 

Increase in Capital (Profit)

 

 

 

 

 

 

 

4,000

 

 

92,000+

25,000 +

50,000

 

=

35,000

+

1,32,000

h.

Decrease in Creditors (Ragani)

 

 

 

 

 

(35,000)

 

 

 

Decrease in cash

(35,000)

 

 

 

 

 

 

 

 

 

57,000+

25,000 +

50,000 

 

=

NIL

+

1,32,000

i.

Decrease in cash

(20,000)

 

 

 

 

 

 

 

 

Increase in bank

 

 

 

20,000

 

 

 

 

 

 

37,000 +

25,000 +

50,000 +

20,000

=

NIL

+

1,32,000

 

Question NUM 8

Show the effect of following transaction on the accounting equation:

a. Manoj started business with

i. Cash

ii. Goods

iii. Building

 

Rs.2,30,000

Rs.1,00,000

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

Solution NUM 8

S. No

Explanation

Assets 

=

Liabilities + Capital

 

 

Cash +

Stock +

Building +

Debtors +

Prepaid Expenses

 

Creditors +

Outstanding Expenses

+

Capital

a.

Increase in Cash, Stock and Building

2,30,000 +

1,00,000 +

2,00,000

 

 

 

 

 

 

 

 

Increase in Capital

 

 

 

 

 

 

 

 

 

5,30,000

 

 

2,30,000 +

1,00,000 +

2,00,000

 

 

=

 

 

+

5,30,000

b.

Increase in Stock

 

50,000

 

 

 

 

 

 

 

 

 

Decrease in Cash

(50,000)