Debit / Credit....!

Debit / Credit....!

Debit / Credit

Equity also decreases due to the owners receiving money or goods from the business for personal use. It is called debit.

 

01. Equity in a business company named Kajiba on 01.04.2023 350000 Additional capital 50000 Profit for the year 75000 Debts for the year 20000 Find the ending equity for the year 31.03.2024?

31.03.2024 Ending equity = Beginning equity + Net profit + Additional capital – Debts

= 350000 + 75000 + 50000 – 20000

= 475000 – 20000

= 455000

 

  02. The information obtained for the year ended 31.03.2024 of a sole proprietorship named Suresh is as follows

 Capital 275000

 Surplus capital 62000

 Income for the year 83000

 Expenses for the year 38000

 Debit for the year 19000

I. To calculate the equity as on 31.03.2024

Profit = Income – Expenses

= 83000 – 38000

= 45000

31.03.2024 Final equity = Initial equity + Net profit + Surplus capital – Debits

= 275000 + 45000 + 62000 – 19000

= 363000

 

03. The information obtained for the year ended 31.03.2024 of a sole proprietorship named Kamal is as follows

 Capital 415000

 Additional capital 103000

 Annual income 147000

 Annual expenses 118000

 Annual debits

Cash 15000

Material 10000

 

I. To calculate the equity as on 31.03.2024

Profit = Income – Expenses

= 147000 – 118000

= 25000

31.03.2024 Final equity = Initial equity + Net profit + Additional capital – Debits

= 415000 + 25000 +103000 – 25000

= 522000

 

04. The information obtained for the year ended 31.03.2024 of a sole proprietorship named Kumaran is as follows

 31.03.2024 Equity 515000

 Additional capital 63000

 Annual income 98000

 Annual expenses 46000

 Annual withdrawal 17000

I. Equity calculation

31.03.2024 Final equity = Initial equity + Net profit + Additional capital – Debit

515000 = Initial equity + 63000 + 52000 - 17000

515000 = Initial equity + 98000

Initial equity = 515000 – 98000

Initial equity = 417000

 

05. The information obtained from a sole proprietorship named Amalan is as follows:

 Bank loan

 Investment

 Rent received

 Bank loan interest

 Capital

 Sales

 Creditors

 Debit

 Furniture and equipment

 Motor repair charges

 Investment income

 Paid Brokerage

Categorize the above items as assets, liabilities, rights, income, and expenses?

 

1. Asset

• Furniture

• Investment

 

2. Liability

• Creditors

• Bank loan

 

3. Ownership

• Debit

• Capital

 

4. Income

• Sales

• Investment income

• Rent received

 

5. Expenses

• Insurance premiums

• Commission paid

• Bank loan interest

• Motor vehicle repair charges

 

06. The information obtained from a sole proprietorship named Dhanusa is as follows:

 Purchase of goods sold

 Depreciation received

 Depreciation paid

 Furniture

 Cash

 Salary

 Interest received

 Bank loan

 Investment

 Rent received

 Bank loan interest

 Capital

 Sales

 Payer

 Revenue

 Rent payable

 Debit

 Land

 Investment income

 Commission paid

The above items are classified as assets and liabilities. ,Categorize on the basis of ownership, income, expense?

 

1. Asset

• Furniture

• Investment

• Cash

• Land

• Income

 

2. Liability

• Payable

• Rent payable

• Bank loan

 

3. Ownership

• Debit

• Capital

 

4. Income

• Sales

• Discounts received

• Interest received

• Investment income

• Rent received

 

5. Expenses

• Insurance premiums

• Brokerage paid

• Bank loan interest

• Discounts given

• Salary

• Cost of goods sold

 

Double Effect of Transactions

Equation

Accounting

• The process of providing useful information to stakeholders in a business to make decisions is called accounting.

• Financial information is essential for many business decisions. The accounting used primarily to provide such financial information is called financial accounting.

Accounting Equation

 

• The values ​​expressed as assets and the values ​​expressed as equity are equal to each other. The form of equation used to show this relationship is called accounting equation

 

Creating an Accounting Equation

 

• When all the resources required for the business are provided by the owner, the accounting equation will be as follows.

Assets = Equity

A = L

• Ajith started a business with Rs. 500 000, where the business has Rs. An asset (cash) of Rs. 500,000 is obtained, and the entire value of the asset belongs to the owner of the business, Kamalan.

 

Assets = Equity

500,000 = 500,000

 

• When the owner does not have enough capital to invest, the following calculation equation is found

Asset = Equity + Liability

A = L + E

• After obtaining capital, Ajith's business obtains a bank loan of Rs. 300,000. If the assets (cash) of the business increase by Rs. 300,000, and a liability (bank loan) of Rs. 300,000 is created to be paid by the business to outsiders.

Asset = Ownership + Liability

500000 = 500000

300000 = - + 300000

 

Ownership Change Occurrence

• Owner Capital

• Owner Debit

• Income for the Year

• Expenses for the Year

 

01. The following transactions are given to you for the first month of a computer repair business started by Suresh.

1. Rs. 500 00 was invested by the owner

2. Rs. 200 000 was obtained as a bank loan.

3. Rs. 100 000 was deposited in a fixed deposit account.

4. Income earned from computer repair is Rs. 60 000

5. Monthly rent of the business is Rs. 10 000.

6. Rs. 20 000 was taken from Suresh's business for his personal needs.

7. An equipment is purchased for Rs. 100 000 was paid.

8. Monthly telephone bill Rs. 5000 was paid.

9. Additional source of funds Rs. 50 000 was invested.

10. Repayment of installments for bank loan Rs. 20 000

 

 The way in which the above transactions affect the accounting equation can be shown as follows.

 

	Asset =                                                                  Equtity+ Liability
	Equipment	Fixed Deposit	Cash	Ownership	Bank Loan
1.			+ 500000	+ 500000
2.			+ 200000		+ 200000
3.		+ 100000	+ 100000
4.			+  60000	+  60000
5.			-  10000	-  10000
6.			-  20000	-  20000
7.	+ 100000		+ 100000
8.			-   5000	-   5000
9.			+  50000	+  50000
10.			-  20000	-  20000
	100000     +  100000     + 555000    =   575000  +  180000

 

02. The following balances were found in Vijay Business on 2023.08.01

 

Assets

 Furniture 300000

 Inventory 200000

 Debtors 100000

 Cash 200000

 

Liabilities

 Bank Loan 300000

 Creditors 100000

 

The transactions that took place in the first week of August 2023 are as follows.

1. Goods worth Rs. 100 000 were purchased for sale.

2. A batch of goods purchased for Rs. 100 000 was sold for cash for Rs. 125 000.

3. Bank loan of Rs. 50000 was repaid.

4. Salary of Rs. 10 000 was given.

5. Out of the goods kept for resale in the business, Ajith has taken goods worth Rs. 20 000 for his personal use.

6. Furniture worth Rs. 50 000 was purchased for office use.

7. Goods worth Rs. 200 000 were purchased from Sudhan for the purpose of resale.

8. A batch of goods purchased for Rs. 60 000 was sold on credit for Rs. 100 000.

9. Rs. 80 000 was received from the debtor.

10. Rs. 50 000 was paid to the creditor.

 

Show the method of calculating the owner's equity value on 2023.08.01.

 

I. Equity as on 2023.08.01

Equity =Total Assets - Liabilities

= (200 000 +100 000 + 200 000 + 300 000) - (300 000 + 100 000)

= 800 000 – 400 000

= 400 000

 

  

 II. How Transactions Affect the Accounting Equation

 

	Asset =                                                                             Equtity + Liability
	Furniture Equipment		Inventory	Debtors	Cash	Equtity	Bank Loan	Creditors
1.	300000		+ 200000	+ 100000	+200000	400000	+300000	+ 100000
1.			+ 100000		-100000
2.			- 100000		+125000	+  25000
3.					- 50000		-50000
4.					- 10000	- 10000
5.			- 20000			- 20000
6.	+ 50000				- 50000
7.			+ 200000					+ 200000
8.			-  60000	+ 100000		+ 40000
9.				-  80000	+ 80000
						- 50000		- 50000
	350000		320000	120000	145000	=435000	+250000	+ 250000

 

03. The following balances were visible in Simbu Business on 01 July 2023.

 

 Motor vehicle 500 000

 Inventory 200000

 Cash 100000

 Bank loan 200000

 Lenders 100000

 Capital 500000

 

The transactions that took place in the month of July were as follows.

 

1. Rs. 200 000 was invested by the owner as additional capital.

2. Rs. 20 000 was paid as bank installment fee including interest of Rs. 2000.

3. Goods worth Rs. 100 000 were purchased on credit for the purpose of resale.

4. Rs. 50000 was paid to the lenders.

5. Rs. A motorcycle belonging to the owner worth Rs. 200,000 was provided for the business.

6. Goods worth Rs. 100,000 were sold on credit for Rs. 150,000.

7. Insurance premium of Rs. 10,000 was paid.

8. Rs. 70,000 was received from the debtor.

9. Rs. 5,000 was paid from the business as electricity bill for the owner's house.

10. Rs. 10,000 was received as sales commission.

 

Show the above transactions under the accounting equation.

 

Asset = Ownership + Liability

Motor Vehicle Inventory Debtors Cash Ownership Bank Loan Lenders

	Asset                                                  =  Equtity   + Liability
	Motor Vehicle	Inventory	Debtors	Cash	Equtity	Bank Loan	Lenders
1.	500000	+ 200000		+ 100000	+ 500000	+ 200000	+ 100000
2.				+ 200000	+ 200000
3.				-  20000	-   2000	-   18000
4.		+ 100000					+  100000
5.				- 50000			-   50000
6.	+ 200000				+ 200000
7.		- 100000	+ 150000		+  50000
8.				- 10000	-  10000
9.			-  70000	- 70000
10.				-  5000	-  5000
				+  10000	+ 10000
	700000	+ 200000	+ 80000	+ 295000	=943000	+ 182000	+ 150000

 

Unit – 06

Double Effect of Transactions

 

Double Entry System

 

• Transactions in a business have double effects associated with them. Recording the value of the transactions in two accounts, one as a credit and the other as an expense, is called double entry system

 

• The double entry principle was put forward by a scholar named Luca Pacioli

 

Account

• It is a generally accepted model of accounting for recording the changes (increase/decrease) in assets, liabilities, income, and expenses during a given period

 

Model of an account

Date	Discription	No	Amount	Dare	Discription	No	amount

                                                                                                                                             

 

  Types of Accounts

 

1. Asset Account –

• Cash Account

• Bank Account

• Furniture Account

 

2. Ownership Account-

• Capital Account

• Debit Account

 

3. Liability Account –

• Creditors Account

• Bank Loan Account

 

4. Income Account-

• Sales Account

• Rent Received Account

• Brokerage Received Account

 

5. Expense Account –

• Purchases Account

• Advertising Account

• Salaries Paid Account

 

Double Entry System

 

Types of Accounts	Increase	Decrease
Assets	Debit	Credit
Expenses	Debit	Credit
Ownership	Credit	Debit
Income	Credit	Debit
Liabilities	Credit	Debit

 

Transactions and their Double Entry

 

1. Ownership as Cash Capital Inflows

 Cash Account Credit

 Capital Account Expense

 

2. Capital inflows as owner's assets

 Relevant Assets Account Credit

 Capital Account Expense

 

3. Bank Loans

 Cash Account Credit

 Bank Loans Account Expense

 

 

4. Cash Purchase of Goods for Resale

 Purchases Account Credit

 Cash Account Expense

 

5. Credit Purchase of Goods for Resale

 Purchases Account Credit

 Creditors Account Expense

 

6. Cash Sale of Goods for Resale

 Cash Account Credit

 Sales Account Expense

 

7. Credit Sale of Goods for Resale

 Credit Debtors Account Credit

 

8. Payment of Salaries in Cash

 Salaries Account Credit

 Cash Account Expense

 

9. Rent in Cash

 Cash Account Credit

 Rent Received Account Expense

 

10. Owner's Cash Debit

 Debit Account Revenue

 ​​Cash Account Expense

 

Ledger

• Separate accounts should be maintained for each asset of a business. Accordingly, there can be countless asset accounts such as a motor vehicle account, a furniture account, a cash account, etc. Similarly, there can be many separate accounts for assets, liabilities, and expenses. The book that includes all these accounts is called a ledger.

 

• Recording business transactions in accounts can also be called recording business transactions in ledgers.

Debit / Credit....!