Recording of Transactions-I

illustrate different kinds of events, three more transactions have been added (transactions to ). . Rohit started business with cash Rs. , , Analysis of Transaction : The transaction increases cash on one hand and increases capital on the other hand. Increases in assets are debited and increases in capital are credited. Therefore record the transaction with debit to Cash and credit to Rohit’s Capital. . Opened a bank account with an amount of Rs. , , Analysis of Transaction: The transaction increases the cash at bank on one hand and decreases cash in hand on the other hand. Increases in assets are debited and a decreases in assets are credited. Therefore, record the transactions with debit to Bank account and credit to Cash account. . Bought furniture for Rs. , and issued cheque for the same Analysis of Transaction : This transaction increases furniture (assets) on one hand and decreases bank (assets) on the other hand by Rs. , . Increases in assets are debited and decreases are credited. Therefore record the transactions with debit to Furniture account and credit to Bank account. . Bought Plant and Machinery from Ramjee lal for the business for Rs. , , and an advance of Rs. , in cash is given. Analysis of Transaction : This transaction increases plant and machinery (assets) by Rs. , , , decreases cash by Rs. , and increases liabilities (M/s Ramjee Lal as creditor) by Rs. , , . Increases in assets are debited whereas decreases in assets are credited. On the other hand increases in liabilities are credited. Therefore, record the transaction with debit to furniture account and with credit to Cash and Ramjee Lal’s account. Cash Account ( ) , , Capital Account ( ) , , ( ) , Cash Account ( ) , , ( ) , , Bank Account ( ) , , Furniture Account ( ) , Bank Account ( ) , , ( ) , . Goods purchased from Sumit Traders for Rs. , Analysis of transaction : This transaction increases purchases (expenses) and increases liabilities (M/s Sumit Traders as creditors) by Rs. , . Increases in expenses are debited and increases in liabilities are credited. Therefore record the transaction with debit to Purchases account and credit to Sumit Traders account. . Goods costing Rs. , sold to Rajani Enterprises for Rs. , Analysis of transaction : This transaction increases sales (Revenue) and increases assets (Rajani Enterprises as debtors). Increases in assets are debited and increases in revenue are credited. Therefore record the entry with credit to Sales account and debit to Rajani Enterprises account. . Paid the monthly store rent Rs. , in cash Analysis of transaction : The payment of rent is an expense which decreases capital thus, are recorded as debits. Credit cash to record decrease in assets. . Paid Rs. , as salary to the office employees Analysis of transaction : The payment of salary is an expense which decreases capital thus, are recorded as debits. Credit Cash to record decrease in assets. Cash Account ( ) ( ) , , ( ) , Plant and Machinery Account ( ) , , Ramjee Lal’s Account ( ) , , Purchases Account ( ) , Sumit Traders Account ( ) , Sales Account ( ) , Rajani Enterprises Account ( ) , Rent Account ( ) , Cash Account ( ) , , ( ) , , ( ) , ( ) , . Received cheque as full payment from Rajani Enterprises and deposited same day into bank Analysis of transaction : This transaction increase assets( Bank) on the one hand and decreases assets(Rajani Enterprises as debtors) on the other hand. Increase in assets is debited whereas decrease in assets is credited. Therefore record the entry with debit to Bank account and credit to Rajani Enterprises account. Test Your Understanding - I . Double entry accounting requires that : All transactions that create debits to asset accounts must create credits to liability or capital accounts; A transaction that requires a debit to a liability account require a credit to an asset account; (iii) Every transaction must be recorded with equal debits equal total credits. . State different kinds of transactions that increase and decrease capital. . Does debit always mean increase and credit always mean decrease? . Which of the following answers properly classifies these commonly used accounts: ( ) Building ( ) Wages ( ) Credit sales ( ) Credit purchases ( ) Electricity charges due but not yet paid(outstanding electricity bills) ( ) Godown rent paid in advance(prepaid godown rent) ( ) Sales ( ) Fresh capital introduced ( ) Drawings ( ) Discount paid Liabilities Revenue Expense , , , , , , , , , , , (iii) , , , , , , Illustration Analyse the effect of each transaction on assets and liabilities and show that the both sides of Accounting Equation (A = L + C) remains equal : Introduced Rs. , , as cash and Rs. , by stock. Salary Account ( ) , Cash Account ( ) , , ( ) , , ( ) , ( ) , ( ) , Rajani Enterprises Account ( ) , ( ) , Bank’s Account ( ) , , ( ) , ( ) , Purchased plant for Rs. , , by paying Rs. , in cash and balance at a later date. (iii) Deposited Rs. , , into the bank. (iv) Purchased office furniture for Rs. , , and made payment by cheque. (v) Purchased goods worth Rs. , for cash and for Rs. , in credit. (vi) Goods amounting to Rs. , was sold for Rs. , on cash basis. (vii) Goods costing to Rs. , was sold for Rs. , , on credit. (viii) Cheque issued to the supplier of goods worth Rs. , . (ix) Cheque received from customer amounting to Rs. , . (x) Withdrawn by owner for personal use Rs. , . Solution Transaction (i) It affects Cash and Inventory on the assets side and Capital on the other hand. There is increase in cash by Rs. , , and Inventory of goods by Rs. , on assets side of the equation. Capital is increased by Rs. , , . Liabilities + Capital + Inventory(Stock) , , + , , , Total , , , , Transaction (ii) It affects Cash and Plant and Machinery on the assets side and liabilities on the other side of the equation. There is an increase in plant and machinery by Rs. , , and decrease in cash by Rs. , . Liability to pay to the supplier of plant and machinery increases by Rs. , , . Liabilities+ Capital +Inventory + Plant and Machinery , , + , , , ( , ) , , , , , , + , + , , , , + , , Total , , , , Transaction (iii) It affects assets side only. The composition of the asset side changes. Cash decreases by Rs. , , and by the same amount bank increases. Liabilities + Capital + Inventory + Plant and + Bank Machinery , , + , + , , , , + , , ( , , ) + , , , , + , + , , + , , , , + , , Total , , , , Transaction (iv) It affects assets side only. The composition of the asset side changes. Furniture increases by Rs. , , and by the same amount bank decreases. =Liabilities + +Inventory + Plant and + Bank + Furniture Machinery , , + , + , , + , , , , + , , ( , , ) + , , , , + , + , , + , , + , , , , + , , Total , , = , , Transaction (v ) It affects Cash and Inventory on the assets side and liability on the other side. There is decrease in cash by Rs. , and increase of inventory of goods by Rs. , , on the assts side of the equation. Liabilities increases by Rs. , . = Liabilities + + Inventory +Plant and + Bank + Furniture Machinery , , + , + , , + , , + , , , , + , , ( , ) + , , , , , + , , + , , + , , + , , , , + , , Total , , = , , Transaction (vi ) It affects Cash and Inventory on the assets side and capital on the other side. There is an increase in cash by Rs. , and decrease in inventory of goods by Rs. , on the assets side of the equation. Capital increases by Rs. , . Liabilitie + + Inventory + Plant and+ Bank + Furniture Machinery , , + , , + , , + , , + , , , , + , , , + ( , ) + , , , + , , + , , + , , + , , , , + , , Total , , = , , Transaction (vii ) It affects Debtors and Inventory on the assets side and capital on the other side. There is increase in debtors by Rs. , , and decrease in Inventory of goods by Rs. , on the assets side of the equation. Capital increases by Rs. , . = Liabilities + + Inventory +Plant and + Bank + Furniture + Debtors Machinery , , + , , + , , + , , + , , , , + , , ( , ) + , , + , , , + , + , , + , , + , , + , , , , + , , Total , , = , , Transaction (viii ) It affects Bank on the assets side on one side and liability on the other side. There is decrease in bank by Rs. , on the assets side and liability also decreases by Rs. , . =Liabilities + +Inventory +Plant and + Bank + Furniture + Debtors Machinery , , + , + , , + , , + , , + , , , , + , , ( , ) ( , ) , , + , + , , + , , + , , + , , = , , + , , Total , , = , , Transaction (ix ) It affects assets side only. The composition of the assets side changes. Bank increases by R. , and by the same amount Debtors decreases. = Liabilities + + Inventory +Plant and + Bank + Furniture + Debtors Machinary , , + , + , , + , , + , , + , , , , + , , + , ( , ) , , + , + , , + , , + , , + , = , , + , , Total , , = , , Transaction (x ) It affects Cash on the asset side and Capital on the other hand. There is decrease in Cash by Rs. , on the assets side whereas capital decreases by Rs. , . = Liabilities + + Inventory +Plant and + Bank + Furniture + Debtors Machinery , , + , + , , + , , + , , + , , , + , , ( , ) + ( , ) , , + , + , , + , , + , , + , = , , + , , Total , , = , ,