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Accounting Accounting Equation & Equation &
Golden RulesGolden Rules
Accounting Accounting Equation & Equation &
Golden RulesGolden Rules
AAcknowledgementcknowledgementWe are, student of PGGCG-11, hereby, We are, student of PGGCG-11, hereby, acknowledging our sincere thanks to our acknowledging our sincere thanks to our supervisorsupervisor MRS. MEENU VERMA, prof. of MRS. MEENU VERMA, prof. of accountingaccounting …. ….for providing me with the best for providing me with the best of her knowledge to fulfill my project report.of her knowledge to fulfill my project report.We would also like to thank our CR for suggesting We would also like to thank our CR for suggesting us the topic of our study….and our parents who us the topic of our study….and our parents who had helped us throughout the process of collection had helped us throughout the process of collection and organizing the data of our research…last but and organizing the data of our research…last but not the least thanks to our group while deriving not the least thanks to our group while deriving conclusions of the project report.conclusions of the project report. THANKS TO ALLTHANKS TO ALL
Accounting Equation
Assets = Sources of finance Assets = Liabilities + Equity
Give one transaction for each of the following that will
(a) increase an asset and decrease another asset.
(b) increase an asset and increase a liability.
(c) decrease an asset and decrease a liability.
(d) increase an asset and increase capital.
(e) decrease an asset and decrease capital.
Kershaw has the following transactions. Draw accounting equation to show the effect of these transactions on his assets, liabilities and capital. Also show his final Balance Sheet.
(a) Commenced business with cash Rs. 20,000.
(b) Purchased goods for cash Rs. 5,000 and credit Rs. 6,000.
(c) Purchased office equipment for cash Rs. 8,000.
(d) Paid office rent Rs. 1,000.
(e) Sold goods for cash Rs. 10,000 (costing Rs. 7,000)
if) Sold goods on credit for Rs. 6,000 (costing Rs. 3000)
(g) Withdrew cash for personal use RS. 2,000.
Assets = Liabilities + Equitya Cash Rs.20,000 = + Capital Rs.20,000
bCash Rs.15,000 + Goods Rs. 11,000
=Creditors Rs.6000
+ Capital Rs.20,000
cCash Rs.7,000 + Goods Rs. 11,000 + Equipment Rs.8000
=Creditors Rs.6000
+ Capital Rs.20,000
dCash Rs.6,000 + Goods Rs. 11,000 + Equipment Rs.8000
=Creditors Rs.6000
+ Capital Rs.19,000
eCash Rs.16,000 + Goods Rs. 4,000 + Equipment Rs.8000
=Creditors Rs.6000
+ Capital Rs.22,000
f
Cash Rs.16,000 + Goods Rs. 1,000 + Equipment Rs.8000 +Debtors Rs.6000
=Creditors Rs.6000
+ Capital Rs.25,000
g
Cash Rs.14,000 + Goods Rs. 1,000 + Equipment Rs.8000 +Debtors Rs.6000
=Creditors Rs.6000
+ Capital Rs.23,000
Classification of Accounts
Personal Accounts Natural persons Artificial persons Representative personal accounts
Real Accounts Tangible Real A/c Intangible Real A/c
Nominal Accounts Incomes & Gains Expenses & Losses
Class ActivityClass Activity:
Let’s give it a short!!!Cash A/c
Rent A/c
Shah Rukh A/c
Salary A/c
Tuition Fees
Machinery A/cBank A/c
Pre-Paid Expenses A/c
Furniture A/c
Sales A/c
Outstanding Salary A/c
Goodwill A/c
Loose Tools A/cInvestments A/c
Purchases A/c
Test Your knowledge!!!1. Salary prepaid2. Rent account 3. Salary outstanding A/c 4. Bank account 5. Capital account6. Goodwill account 7. Patents account 8. Purchases account9. Investments10. Freehold Premises11. Corporation Bank Ltd.12. Brokerage Account
1. Personal A/c2. Nominal A/c3. Representative Personal A/c
4. Artificial Personal A/c5. Artificial Personal A/c6. Intangible Real A/c7. Intangible Real A/c8. Nominal A/c9. Tangible Real A/c10. Tangible Real A/c11. Artificial Personal A/c12. Nominal A/c
Recording of Transactions:
Rule for Personal Accounts: Debit the Receiver Credit the Giver
Rule for Real Accounts: Debit what Comes in Credit what goes out
Rule for Nominal Accounts: Debit all expenses & Losses Credit all incomes & gains.
Class- ProblemIllustration From the following transactions find out the nature of
account and also state which account should be debited and which should be credited.
a) Rent paid.b) Salaries paid.c) Interest received.d) Dividends received.e) Furniture purchased for cash.f) Machinery sold.g) Outstanding for salaries.h) Telephone charges paid.i) Paid to Suresh.j) Received from Mohan (the proprietor)k) Lighting expense paid
Transaction A/c involved Nature of A/c Debit/Credit(a) Rent paid Rent a/ c Nominal a/ c Debit
Cash A/ c Real A/ c Credit(b) Salaries paid Salaries A/ c Nominal A/ c Debit
Cash A/ c Real A/ c Credit(c) Interest received Cash A/ c Real A/ c Debit
Interest A/ c Nominal A/ c Credit(d) Dividends received Cash A/ c Real A/ c Debit
Dividends A/ c Nominal A/ c Credit(e) Furniture purchased Furniture A/ c Real A/ c Debit
Cash A/ c Real A/ c Credit(j) Machinery sold Cash A/ c Real A/ c Debit
Machinery A/ c Real A/ c Credit(g) Outstand. for salaries Salaries A/ c Nominal A/ c Debit
Outstan. SalA/ c Personal A/ c Credit(h) Telephone charges Tel. Bill A/ c Nominal A/ c Debit
Cash A/ c Real A/ c Credit(i) Paid to Suresh Suresh Personal A/ c Debit
Cash A/ c Real A/ c Credit(J) Received from Mohan Cash A/ c Real A/ c Debit
(The Proprietor) Capital A/ c Personal A/ c Credit(k) Lighting Lighting A/ c Nominal A/ c Debit
Cash A/ c Real A/ c Credit
QuestionQuestion
S S no.no.
ParticularsParticulars AmouAmountnt
11 Hitesh started business with Hitesh started business with cashcash
2,50,02,50,00000
22 Purchased goods on creditPurchased goods on credit 24,0024,0000
33 Purchased goods for cashPurchased goods for cash 4,0004,000
44 Purchased furniture for cashPurchased furniture for cash 1,5001,500
55 Withdraw for private useWithdraw for private use 1,0001,000
6 6 Paid RentPaid Rent 3,0003,000
77 Received interestReceived interest 1,0001,000
88 Sold goods on creditSold goods on credit 1,7001,700
99 Paid to creditorsPaid to creditors 4,0004,000
S S no.no.
ParticularsParticulars Assets =Liabilities+ Assets =Liabilities+ CapitalCapital
11
22
Hitesh started business Hitesh started business with cash Rs. 2,50,000 with cash Rs. 2,50,000 Purchased goods on Purchased goods on credit for Rs.24,000credit for Rs.24,000
250000= 0 250000= 0 +250000+250000
24000= 24000 + 024000= 24000 + 0
33
NEW EQUQTIONNEW EQUQTION
Purchased goods for Purchased goods for cash for Rs.4000cash for Rs.4000
274000= 24000 274000= 24000 +250000 (+)4000+250000 (+)4000
(-)4000= 0 + 0(-)4000= 0 + 0
44
NEW EQUATIONNEW EQUATION
Purchase furniture for Purchase furniture for cash for Rs.1,500cash for Rs.1,500
274000= 24000 274000= 24000 +250000+250000
(+)1500(+)1500
(-)1500= 0 + 0(-)1500= 0 + 0
55
NEW EQUATIONNEW EQUATION
Withdraw cash for Withdraw cash for private use private use
274000=24000 274000=24000 +250000+250000
(-)1000= 0 + (-)1000= 0 + (-)1000(-)1000
NEW EQUATIONNEW EQUATION 273000=24000 + 273000=24000 + 249000249000
66 Paid rent Rs.3,000Paid rent Rs.3,000 (-) 3000= 0 + (-) 3000= 0 + (-)3000(-)3000
77
NEW EQUATIONNEW EQUATION
Received interest Received interest Rs.1,000Rs.1,000
270000= 270000= 24000+24600024000+246000
(+)1000= 0 +(+)1000= 0 +(+)1000(+)1000
88
NEW EQUATIONNEW EQUATION
Sold goods costing Sold goods costing Rs.1500 for Rs. 1700 Rs.1500 for Rs. 1700 on crediton credit
271000= 271000= 24000+24700024000+247000
(-)1500(-)1500
(+)1700= 0 + (+)1700= 0 + (+)200(+)200
99
NEW EQUATIONNEW EQUATION
Paid to creditors Paid to creditors Rs.4000Rs.4000
271200= 24000 + 271200= 24000 + 247200247200
(-)4000= (-)4000+ 0(-)4000= (-)4000+ 0NEW EQUATIONNEW EQUATION 267200= 20000 + 267200= 20000 +
247200247200