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My son Kushal is preparing for his 12th standard exam. As there are no regular classes in the college, he has to study at home. I always relied on self study so I thought why he should not do it. He has already proved his self study abilities by passing Oracle DBA OCA at the age of 15 and CISA at 17.

 

He was having trouble in understanding accounting. I learned accounting practically even before I started studying so I did not have any problem with accounting when I appeared for 12th or CS or CA. Accounting is a subject which need ones involvement from the very basic steps. One must understand the transactions/ events and then the method of recording them.

 

Therefore, I devised the following plan for him.

 

I asked him to form an imaginary proprietary business of computer trading by the name “Kushal Computers”.  Starting a new business involves opening a bank account, introducing capital, borrowing, acquiring fixed assets, buying and selling etc. I give below a narrative of the transactions, recording of cash and journal entries and preparation of final accounts that is Trading and Profit and Loss account and balance sheet.

 

 

Kushal introduced Rs. 10,000/- in cash for the business.

He opened a current account with Karnataka Bank Ltd by depositing Rs. 5000/-.

He borrowed Rs. 1,00,000/- interest free loan from me.

He Rented a shop/showroom at a monthly Rent of Rs. 2000/- . He paid Rs. 6000/- to the landlord by cheque of Karnatake Bank. (Rs. 2000/- as advance Rent and Rs. 4000/ as deposit).

He acquired Furniture worth Rs. 15,000/- for the showroom from Vijay Furniture (amount paid by cheque).

He bought 5 computers from Vishal computers @15000/- amounting Rs. 75000/- and paid Rs. 25000/- by cheque.

He paid Rs. 500/- for transportation of computers.

He sold one computer in cash for Rs. 20,000/-.

He sold one Computer to Ramesh for Rs. 21000/- and received Rs. 15000/- by cheque.

He sold one computer to Gopal for Rs. 22000/- on credit for 2 months.

He incurred Rs. 500/- for traveling and conveyance expenses.

 

Let us see how these transactions are recorded in the books of account.

 

 

Cash Book

Date

Receipts

Ledger

Folio

Amount

Date

Payment

Ledger

Folio

Amount

1/1/2009

Kushal Asawa A/c

 

10,000

1/1/2009

Karnataka Bank Ltd. A/c

 

5,000

 

Capital introduced in cash

 

 

 

Cash deposited for opening current account

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1/1/2009

Inward Transport A/c

 

500

 

 

 

 

 

Local carting for computers

 

 

 

 

 

 

 

 

 

 

2/1/2009

Computer Sales A/c

 

20,000

 

 

 

 

 

One PC sold in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5/1/2009

Travelling and Conveyance Exps A/c

 

500

 

 

 

 

 

Local conveyance expenses paid

 

 

 

Total Receipts

 

30,000

 

Total Payments

 

6,000

 

 

 

 

 

Cash in Hand

 

24,000

 

 

 

 

 

Total

 

30,000

 

 

 

Journal

Date

Particulars

Ledger

folio

Debit

Credit

1/1/2009

Karnataka Bank Ltd.

 

1,00,000

 

 

To Ramanuj Asawa

 

 

1,00,000

 

Interest free loan received by cheque and deposited in the bank.

 

 

 

 

 

 

 

 

1/1/2009

Rent A/c

 

2,000

 

 

Rent Deposit A/c

 

4,000

 

 

To, Karnataka Bank Ltd.

 

 

6,000

 

Rent for Jan 09 and Deposit for 2 months paid to the Landlord by cheque.

 

 

 

 

 

 

 

 

1/1/2009

Furniture A/c

 

15,000

 

 

To, Karnataka Bank Ltd.

 

 

15,000

 

Furniture purchased from Vijay Furniture and payment made by cheque.

 

 

 

 

 

 

 

 

1/1/2009

Computer Purchase A/c

 

75,000

 

 

To, Vishal Computers

 

 

75,000

 

5 desktop computers bought.

 

 

 

 

 

 

 

 

1/1/2009

Vishal Computers A/c

 

25,000

 

 

To, Karnataka Bank Ltd. A/c

 

 

25,000

 

Paid by cheque on account.

 

 

 

 

 

 

 

 

3/2/2009

Ramesh A/c

 

21,000

 

 

To Computer Sales A/c

 

 

21,000

 

One PC sold in credit

 

 

 

 

 

 

 

 

3/2/2009

Karnataka Bank Limited A/c

 

15,000

 

 

Ramesh A/c

 

 

15,000

 

Cheque received on account.

 

 

 

 

 

 

 

 

4/2/2009

Gopal A/c

 

22,000

 

 

Computer Sales A/c

 

 

22,000

 

One PC sold at 2 months credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Ledger

 

Account of : Kushal Asawa  (Proprietor A/c)

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

1/1/2009

Cash received

 

 

10,000

Cr

10,000

 

 

 

 

 

 

 

 

Account of :Karnataka Bank Limited

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

1/1/2009

To cash deposited for a/c opening

 

5,000

 

Dr

5,000

1/1/2009

To cheque from Ramanuj Asawa deposited

 

1,00,000

 

Dr

1,05,000

1/1/2009

By cheque issued to landlord

 

 

6,000

Dr

99,000

1/1/2009

By Ch to Vijay Furniture

 

 

15,000

Dr

84,000

1/1/2009

By ch. To Vishal Computers

 

 

25,000

Dr

59,000

3/1/2009

To ch recd from Ramesh

 

15,000

 

Dr

74,000

 

 

 

 

 

 

 

 

Account of: Ramanuj Asawa

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

1/1/2009

By ch loan received

 

 

1,00,000

Cr

1,00,000

 

 

 

 

 

 

 

 

Account of : Landlord (Deposit)

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

1/1/2009

To ch. Karnataka Bank

 

4,000

 

Dr

4,000

 

 

 

 

 

 

 

 

Account of : Rent

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

1/1/2009

Rent for January paid by che

 

2,000

 

Dr

2,000

 

 

 

 

 

 

 

 

 

Account of : Furniture

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

1/1/2009

To ch. Furniture purchase

 

15,000

 

Dr

15,000

 

 

 

 

 

 

 

 

Account of : Vishal Computers

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

1/1/2009

By purchase of  5 PCs

 

 

75,000

Cr

75,000

1/1/2009

To che on account

 

25,000

 

Cr

50,000

 

 

 

 

 

 

 

 

Account of: Ramesh

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

3/2/2009

To PC sold on Credit

 

21,000

 

Dr

21,000

3/2/2009

By che received

 

 

15,000

Dr

6,000

 

 

 

 

 

 

 

 

 

Account of : Gopal

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

4/2/2009

To one PC sold on credit

 

22,000

 

Dr

22,000

 

 

 

 

 

 

 

 

Account of : Computer Purchase

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

1/1/2009

To 5 PCs purchased from Vishal Comp

 

75,000

 

Dr.

75,000

 

 

 

 

 

 

 

 

Account of : Computer Sales

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

2/1/2009

By One Pc Sold in cash

 

 

20,000

Cr

20,000

3/1/2009

By One PC sold to Ramesh

 

 

21,000

Cr

41,000

4/1/2009

By One Pc sold to Gopal

 

 

22,000

Cr

63,000

 

 

 

 

 

 

 

 

Account of : Inward Transport

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

1/1/2009

To inward carting paid in cash

 

500

 

Dr

500

 

 

 

 

 

 

 

 

Account of : Travelling and Conveyance Exps

Date

Particulars

Folio

Debit

Credit

Dr or Cr

Balance

5/1/2009

To Local Conveyance

 

500

 

Dr

500

 

 

 

 

 

 

 

 

 

Trial Balance

 

Sl No.

Account Head

Folio

Debit

Credit

1.

Kushal Asawa (Proprietor)

 

 

10,000

2.

Karnataka Bank Ltd. Current Account

 

74,000

 

3.

Ramanuj Asawa Loan 

 

 

1,00,000

4.

Furniture

 

15,000

 

5.

Landlord (Deposit)

 

4,000

 

6.

Rent

 

2,000

50,000

7.

Vishal Computers

 

 

 

8.

Ramesh

 

6.000

 

9.

Gopal

 

22,000

 

10.

Computer Purchase

 

75,000

 

11.

Inward Transport

 

500

63,000

12.

Computer Sales

 

 

 

13.

Travelling and Conveyance

 

500

 

14.

Cash in Hand

 

24,000

 

 

 

 

 

 

 

Total

 

2,23,000

2,23,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After the trial balance is prepared the closing stock should be valued for preparation of Trading and Profit and Loss Account:

 

 

Total PCs purchased

5

 

 

 

Sold

3

 

 

 

Balance in stock

2

 

 

 

 

 

 

 

 

Cost each of computers purchased

 

15,000

 

 

Inward carting

 

100

 

 

 

 

15,100

 

 

 

 

 

 

 

Closing value of 2 computers @15100

 

30,200

 

 

 

 

 

 

 

 

Trading and Profit and Loss Account for the period ended 31/1/2009

 

Particulars

Amount

Particulars

Amount

 

To Purchases

75,000

By Sales

63,000

 

To Inward Carting

500

By Closing Stock

30,200

 

To Gross Profit Carried down

17,700

 

 

 

Total

93,200

Total

93,200

 

 

 

 

 

 

 

 

 

 

 

 

To Rent

2,000

Gross Profit Brought down

17,700

 

To Travelling and Conveyance

500

 

 

 

To Depreciation

125

 

 

 

To Net Profit

15,075

 

 

 

Total

17,700

Total

17,700

 

 

 

 

 

 

 

Balance Sheet as at 31/1/2009

 

 

Liabilities

 

Amount

Assets

 

Amount

 

Proprietor’s Capital

10,000

 

Fixed Assets

 

 

 

Add: Net Profit

15,075

25,075

Furniture

15,000

 

 

 

 

 

Less: Depreciation

125

14,875

 

Loan from Ramanuj Asawa

 

1,00,000

 

 

 

 

 

 

 

Current Assets, Loans and Advances

 

 

 

Sundry Creditors

 

 

Stock in Trade

 

 

 

Vishal Computers

 

50,000

Computers

30,200

 

 

 

 

 

Sundry Debtors

 

 

 

 

 

 

Ramesh     6000

 

 

 

 

 

 

Gopal      22000

28,000

 

 

 

 

 

 

 

 

 

 

 

 

Cash and Bank Balances

 

 

 

 

 

 

Cash in Hand     24,000

 

 

 

 

 

 

Karnataka Bank 74,000

98,000

 

 

 

 

 

 

 

 

 

 

 

 

Deposit

4,000

1,60,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

1,75,075

Total

 

1,75,075

 

 

 

 

 

 

 

 

The basic purpose of this whole exercise was to explain how the records are recorded in the books of account at a very fundamental level.

 

I will cover the accounting concepts and conventions in a separate article.




Category Students, Other Articles by - CS Ramanuj Asawa 



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