Ch. 1 Recording of Transactions-I [Accountancy]

Chapter 3

Recording of Transactions-I

Accounting Equation :

Accounting equation signifies that the assets of business are always equal to total of its liabilities.

I.e., Accounting Equation:=

Assets = Liabilities + Capital

S. No.

Transaction

Assets

Liab.     + Capital

Cash     +Stock + Debtors  + Furniture= Creditor + Capital

a	Started Business with cash	200,000	0	0	0	0	200,000
b	Purchased goods from X for cash	(40,000)	40,000	0	0	0	0
c	Sold Goods	0	(10,000)	12,000	0	0	2,000
d	Bought Furniture on credit	0	0	0	7,000	7,000	0

Final Equation

160,000  + 30,000  + 12,000 +  7,000 = 7,000   + 202,000

Note:-

1] Profit/income (eg- Commission/Dividend/Discount received) - Capital will be increased.

2] Loss/Expenses (eg- rent/salary/electric charge/carriage paid) - capital will be reduced.

3] Drawing : Capital will be decreased.

4] Depreciation on fixed assets : Fixed Assets (-) , Capital (-)

5] Outstanding expenses : New heading will be open in liability, Capital (-)

6] Goods destroyed by fire : Stock (-) , Capital (-)

7] Charity of cash : Cash (-) , Capital (-)

Books Of Original Entity {Journal}

The book in which the transaction is recovered for the first time is called Journal or Books Of Original Entity. The sources document, as discussed earlier, is required to record the transaction in it.

It includes:

1] Journal.

2] Subsidiary Books.

Subsidiary Books Includes:-

Purchase Book

Cash Book

Sale Book

Purchase Book

Sales Return

Bill Receivable

Bill Payable

Rules of Debit and Credit

All accounts are divided into five categories for the purposes of recording the transactions: (a) Asset

(b) Liability

(c) Capital

(d) Expenses/Losses, and

(e) Revenues/Gains.

Following are the rules:

(i) “Increase in asset is debited, and decrease in asset is credited.”

(ii) “Increase in expenses/losses is debited, and decrease in expenses/ losses is credited.”

(iii) “Increase in liabilities is credited and decrease in liabilities is debited.”

(iv) “Increase in capital is credited and decrease in capital is debited.”

(v) “Increase in revenue/gain is credited and decrease in revenue/gain is debited.”