Unite 2 FA

Double entry framework

System of
accounting

Accrual /Mercantile System

Cash system
Accounting entries are made on the
Accounting entries are made only when
having become due for receipt or
cash is received or paid.
payment.
Types of Transaction

Cash Credit
A transaction which does not
A Cash transaction with involves
involve immediate Payment or
immediate Payment or receipt of
receipt of cash is called Credit
cash is called cash transaction.
transaction.

e.g goods Purchased e.g Good sold on

For cash. Credit to Radhe.
• state whether the following are cash or credit transactions:
• Bought machinery from Ghosh& Co. ₹ 1,500;
• Bought a table from D & Co. for cash 700;
• Paid salary to Samir in cash 150;
• Sold old machinery to Bikash 750;
• Paid electric bill by cheque 70;
• Purchased utensils from Sashank & Co. 500;
• Sold shares of UniTech to Mahabir 1,200;
• Paid salary to Rahim in cash.
Ans;
• state whether the following are cash or credit transactions:
• Bought machinery from Ghosh& Co. ₹ 1,500; Credit
• Bought a table from D & Co. for cash 700; cash
• Paid salary to Samir in cash 150; Cash
• Sold old machinery to Bikash 750; Credit
• Paid electric bill by cheque 70; cash
• Purchased utensils from Sashank & Co. 500. Credit
• Sold shares of UniTech to Mahabir 1,200. Credit
• Paid salary to Rahim in cash. cash
Transaction & Event
Transaction Event

• Involves two parties • May or may not involve two parties

• Bring change in the financial Position • May or may not bring any change in the
financial position
• Must be expressed in Terms of Money
• May or may not be expressed in terms of
money.
1. State whether the following events are transactions or not

• a) Invested cash to start a business 1,00,000

• b) Purchased furniture for cash 5,000;
• c) Employed Ramesh as an assistant at a monthly salary of 4,000,
• d) Purchased goods on credit 10,000.
• e) Sent price-list to prospective customers,
• f) Received an order from a customer for supply of goods 20,000
• g) Supplied goods to the customer as per order;
• h) The customer returned part of the goods due to some defects 1,000,
• i) Payments received from the customer 8,000,
• j) Paid assistant's wages 1,500,
• k) Sent an order to a supplier for delivery of goods next month,
• L) Dismissed the assistant from his job.
1. State whether the following events are transactions or not

• a) Invested cash to start a business 1,00,000 T

• b) Purchased furniture for cash 5,000; T
• c) Employed Ramesh as an assistant at a monthly salary of 4,000, E
• d) Purchased goods on credit 10,000. T
• e) Sent price-list to prospective customers. E
• f) Received an order from a customer for supply of goods 20,000 E
• g) Supplied goods to the customer as per order; T
• h) The customer returned part of the goods due to some defects 1,000. T
• i) Payments received from the customer 8,000, T
• j) Paid assistant's wages 1,500. T
• k) Sent an order to a supplier for delivery of goods next month. E
• L) Dismissed the assistant from his job. E
• M) A prospective employee is interviewed. E
• N) Borrowed money for business use 5000. T
• O) goods destroyed by flood 3000 E
• P) sudden death of the owner of the business. E
Accounting Equation
• Accounting equation is the basis for double entry system of accounting. It states that Every time a Transaction takes Place ,
there is a always two- sided effect of the same Amount .
• This may Be Expressed in the form of the following equation:

• Assets= Liabilities+ Capital

Example: find out capital
Cash 20,000
Stock 30,000
Building 20,000
Machinery 3,60,000
Debtors 90,000
Creditors 60,000
• A= L+C
A-L =C
A-C = L
(20000+30000+20000+360000+90000)-(60000)=460000

Dr Cr
Cash(R) Capital(P)
Ex;
• Total assets of vivan on 31 December 2021 were 56000.his liabilities
were creditors 7000. bank overdraft 5000, bill payable 8000. calculate
his capital as on that date.
C= A-L
C= 56000- 7000-5000-8000
Capital = 56,000 - 20,000 = 36,000
Ex:
• Find out the missing information in the following table:
Assets liabilities capital
65000 30000 ?
50000 ? 35000
? 35000 60000
50000 10000 ?
68000 ? 21000
? 45000 90000

Based on A=C+L
Ans:
• C:35000
• L:15000
• A:95000
• C:40000
• L:47000
• A: 135000
• Total A:463000 L:182000 C:281000
Classify the following items in to asset, liability, expense,
revenue
• Building, creditors, insurance, interest received, advertising, discount
allowed, debtors, telephone charges, electricity, sale, cash, bank
overdraft, discount received, furniture, rate and taxes.
Classification(types) of Accounts

Account

Personal
Nominal
Account Real Account
Account

Natural Artificial Representative Tangible Intangible

Golden Rules
 DR CR
Ex: cash
purchase
capital
cash
pradip cash
• Started business with cash purchase nilgiri
cash sale
• Purchased goods
arun sale
• Paid cash to pradip
• Purchased goods on credit from nilgiri.
• Sold goods for cash
• Sold goods to arun on credit
Ex:
For each transaction listed below, state the names of the
account to be debited and credited:
• Received cash from A. Dhar
• Bought goods from K. Agarwal
• Paid S. Mahantry
• Sold goods for cash
• Paid salary
• Received interest
• Bought furniture from furniture world
• Sold goods to A.patel
Journal entries
• Journal is the book of original entry.
• It is the first place where the transaction are recorded.
• Suppose, you have purchased a calculator for rs 500. at first you have
to record the transaction in a paper or in a computer. This process of
recording the transaction is called journal.
• LF = ledger foilo
Pro forma for Journal Entry
Ex; 1
2021 Sethi commenced business with cash 25000
April 1.

1. He opened account with bank by cash brought in by him 20000

2. Purchased goods on credit from Mohan 2500
3. Purchased machinery for cash 4000
4. Withdrew from bank 5000
5. Purchased office equipment for cash 1000
6. Purchased goods for cash from shyamal 2000
9. Purchased goods for cash 600
DATE PARATICULAR LF Dr Cr
2021 Cash A/c Dr 25000
1 Apr To Capital A/c 25000
(Being business started with cash)
2 Apr Bank A/c Dr 20000
To cash A/c 20000
(Being bank a/c opened and cash deposited)
2Apr Purchase A/c Dr 2500
To mohan A/c 2500
(Being goods purchases On credit)
3 Apr Machinery A/c Dr 4000
To cash A/c 4000
(Being Machinery Purchases for cash)
4 Apr Cash A/c Dr 5000
To bank A/c 5000
(Being cash withdrawn from bank)
5 Apr Office equipment A/c Dr 1000
To cash A/c 1000
(Being office equ. Purchases for cash)
6 Apr Purchase A/c Dr 2000
To cash A/c 2000
(Being goods Purchases for cash)
9 Apr Purchase A/c Dr 600
To cash A/c 600
(Being goods Purchases for cash)

Total 60100 60100

 Question2 Examples ; prepare journal entries
2015 Sold goods on credit to Ram 3000
Apr 10
12 Purchased stationery for cash 100
14 Paid insurance premium 500
15 Withdrew from Bank 1500
17 Paid to Mohan 2500
19 Sold goods for cash to Ravinder 2000
20 Deposited Cash into Bank 1000
25 Paid rent of April 100
30 Drew cash from business for private use 500
30 Paid salaries to clerks 350
30 Paid telephone charges 350
Introduction Of Ledger
• Ledger is the Principle books of accounts where similar transaction
Relating to a particular Account are Recorded.
• E.g If he wants to know the total Purchases Made during a particular
Period, it will be hetic & long process for him to find out the same out
of the journal book. Therefore similar transaction are sorted out &
consolidated at one book to ascertain their net effect. This book is the
Ledger Book.
LEDGER PROFORMA
 Ex:
Date Particular L.F Dr Cr
2021 Cash a/c Dr 4900 -
11 Aug. Discount allowed a/c Dr 100 -
To ram a/c - 5000

In the books of……….

Dr Cash Account Cr
date particular J.F. Amount Date particulars J.F. Amount
11.08.21 To ram A/c 4900 31.08.21 By Balance c/d 4900
4900 4900

01.09.21 To balance b/d 4900

Discount Allowed Account

Dr Cr
date particular J.F. Amount Date particulars J.F. Amount
11.08.21 To ram A/c 100 31.08.21 By Balance c/d 100
100 100

01.09.21 To balance b/d 100