Q No.1 Use following title of accounts to complete journal entries of given transactions.

CASH A/C RECEIVABLE A/C PAYABLE RENT EXPENSE

DRAWING CAPITAL SALARIES EXPENSE EQUIPMENT
FURNITURE
SERVICE INCOME SUPPLIES

1) Mr. A deposited into bank Rs.50,000 to start a business

2) Paid rent for three months at Rs.2500 per month
3) Bought office equipment from B&Co. for Rs. 10000, paid to
them Rs.3000 and promised to pay the balance after two months.
4) Rendered services to clients and received cash Rs. 5000
5) Purchase supplies for cash Rs. 400
6) Paid salaries to staff Rs. 5400
7) Bought furniture for Rs. 3200,paid to K&Co. Rs.1200 and
promised to pay balance after one month
8) Withdrew cash for personal use Rs. 3000
9) Billed to Nasir for services rendered Rs. 12500
10) Received from Nasir Rs.5000

Transaction No.1: Mr.A deposited into bank Rs.50,000 to start a business

Now take first transaction in which Mr. A invested in business Rs.50,000.

Two head of accounts will be affected; one is Cash and another Capital-A Account. Since
investor is bringing cash in business so cash will increase in business, Capital was zero
before this investment so this account will also increase by same amount. Hence both
head of accounts will increase and cash is debited and capital a/c credited.

Remember we cannot use Bank Account as head of account because this title is not available
in company’s accounting title as given above.
Title of Account Nature of Account Increase/Decrease Debit/Credit
Cash Assets Increase Debit
Capital-A Owner’s equity Increase Credit

Transaction No.2: Paid rent for three months at Rs.2500 per month.
In this transaction, business is paying rent for three months, so total amount paid is Rs.7500
which should be treated as prepaid but firm does not use prepaid account so we can use only
Rent expense as head of account. When expense incurred, it increases and if cash paid then
cash decreases.
Title of Account Nature of Account Increase/Decrease Debit/Credit
Rent Expense Expense Increase Debit
Cash A/c Assets Decrease Credit
Transaction No.3: Bought office equipment from B&Co. for Rs. 10000, paid to them
Rs.3000 and promised to pay the balance after two months.

In this transaction firm is buying equipment for Rs.10,000 while only paying Rs.3000. It
means some amount will remain due and this amount will be treated as liability. In this
situation, we can not prepare two head of accounts, now we need three head of account as
follows. Assets will increase, cash decrease because firm is paying and A/c Payable(liability)
increases because firm is committed to pay due amount.

Title of Account Nature of Account Increase/Decrease Debit/Credit

Equipment Assets Increase Debit
Cash A/c Assets Decrease Credit
A/c Payable Liability Increase Credit

Transaction No.4: Rendered services to clients and received cash Rs. 5000

Now firm has rendered services to its client. Whenever firm rendered services to client, firm
can record it as revenue irrespective of cash received or not. Revenue increases when firm
rendered services and cash increases because firm received cash from client immediately.

Title of Account Nature of Account Increase/Decrease Debit/Credit

Cash A/c Assets Increase Debit
Service Revenue Revenue Increase Credit

Transaction No.5: Purchase supplies for cash Rs. 400

Purchase supplies means assets will increase in firm in the form of supplies and cash
decreases as firm paid cash.
Title of Account Nature of Account Increase/Decrease Debit/Credit
Supplies A/c Assets Increase Debit
Cash a/c Assets Decrease Credit

Transaction No.6: Paid salaries to staff Rs. 5400

Salaries paid by firm so expenses will increase and cash decreases.

Title of Account Nature of Account Increase/Decrease Debit/Credit

Salaries Expense Increase Debit
Expense
 Cash a/c Assets Decrease Credit

Transaction No.7: Bought furniture for Rs. 3200, paid to K&Co. Rs.1200 and promised
to pay balance after one month

In this transaction firm is buying furniture but did not pay full amount. This kind of
situation always settled by three head of account, one for assets that firm is buying,
cash to show partial payment and remaining balance is treated as liability.
Title of Account Nature of Account Increase/Decrease Debit/Credit
Furniture A/c Assets Increase Debit
Cash A/c Assets Decrease Credit
A/c Payable Liability Increase Credit

Transaction No.8: Withdrew cash for personal use Rs. 3000

When owner withdraw some amount for personal use, it can not be treated as expense for
business but rather it shows reduction in owner’s investment in business. Both head of
accounts will decrease because cash decreases in business as well as owner’s investment.

Title of Account Nature of Account Increase/Decrease Debit/Credit

Drawing-A Owner’s equity Decrease Debit
Cash a/c Assets Decrease Credit

Transaction No.9: Billed to Nasir for services rendered Rs. 12500

When firm billed to any client, it means firm rendered services to client and not yet
received cash. In this situation firm record this transaction as A/c Receivable to show
that this amount is due and firm will collect it from client in near future. As we discussed
earlier that rendered services to client should be reported as revenue whether firm
received cash immediately or not.

Title of Account Nature of Account Increase/Decrease Debit/Credit

A/c Assets Increases Debit
Receivable(Nasir)
Service Revenue Revenue Increases Credit

Transaction No.10: Received from Nasir Rs.5000

Now firm received cash from client as it was due when firm rendered service to this
client on credit in transaction number 9. Now claim on Nasir will decrease and cash
increase in firm’s account.
 Title of Account Nature of Account Increase/Decrease Debit/Credit
Cash A/c Assets Increases Debit
A/c Assets Decreases Credit
Receivable(Nasir)

Practice: Write four steps of analysis

1. Rahim invested Rs.500,000 personal cash in the business by depositing

that amount in a bank account entitled Silver star Cinemas. The business gave
Rahim owner's equity in the company.
Title of Account Nature of Increase/Decrease Debit/Credit
Account

2. PaidRs.400,000 cash to purchase a theater building.

Title of Account Nature of Increase/Decrease Debit/Credit
Account

3. BorrowedRs.220,000 from the bank. Rahim signed a note payable to

the bank in the name of Silver star Cinemas.
Title of Account Nature of Increase/Decrease Debit/Credit
Account

4. Purchased theater supplies on account, Rs.1,700.

 Title of Account Nature of Increase/Decrease Debit/Credit
Account

5. Paid Rs.800 on account.

Title of Account Nature of Increase/Decrease Debit/Credit
Account

6. Paid property tax expense on theater building, Rs.1,200.

Title of Account Nature of Increase/Decrease Debit/Credit
Account

7. Paid employee salaries, Rs.2,800, and rent on equipment, Rs.1,800.

Title of Account Nature of Increase/Decrease Debit/Credit
Account

8. WithdrewRs.6,000 from the business for personal use.

Title of Account Nature of Increase/Decrease Debit/Credit
Account
 9. ReceivedRs.20,000 cash from ticket sales and deposited that amount in
the bank. (Label the revenue as Sales Revenue.)
Title of Account Nature of Increase/Decrease Debit/Credit
Account

Q No.2 Prepare General Journal entries.

1. Mr. Ahmed invested cash Rs. 125,000

Date Title of Account Debit Credit

2. Bought merchandise for cash Rs.20000

Date Title of Account Debit Credit

3. Paid rent for the month Rs.5000

Date Title of Account Debit Credit

4. Purchase office supplies for Rs.1500

Date Title of Account Debit Credit

5. Sold goods for cash Rs.5000

Date Title of Account Debit Credit
 6. Purchase goods on credit from Nasir Ali Rs.10000

Date Title of Account Debit Credit

7. Paid salaries to office staff Rs. 12500

Date Title of Account Debit Credit

8. Paid to Nasir Ali Rs.3500

Date Title of Account Debit Credit

9. Sold goods on credit to Abid Rs.15000

Date Title of Account Debit Credit

10. Merchandise return to Nasir Ali Rs.250

Date Title of Account Debit Credit

11. Goods were returned by Abid Rs.750

Date Title of Account Debit Credit

12. Withdrew cash for personal use Rs.1000

Date Title of Account Debit Credit

 13. Sold old machine at Rs.500

Date Title of Account Debit Credit

Q No.3 In July 2005, Nasir Jamal started business and completed following transactions. Prepare
General Journal entries for each business transaction.

July 1 He deposited Rs. 165,000 cash in a business bank account.(use cash as title)
Date Title of Account Debit Credit

July 2 Purchased equipment for Rs. 55,000 from ABC Co. paid Rs.20,000 andbalance will be
paid after three month.
Date Title of Account Debit Credit

July 7 Paid rent for three months Rs. 1500

Date Title of Account Debit Credit

July 12 Purchase goods on credit from Khan & Co. Rs. 1200
Date Title of Account Debit Credit

July 17 Paid salaries to staff Rs. 2500

Date Title of Account Debit Credit
 July 20 Paid to Khan &Co.Rs. 700
Date Title of Account Debit Credit

July 23 Paid insurance Rs. 400

Date Title of Account Debit Credit

July 27 Nasir withdrew Rs. 1500 cash from the business for personal use
Date Title of Account Debit Credit

Q No.4

For each of the following items, give an example of a business transaction that has the
described effect on the accounting equation:

a. Increase an asset and increase a liability.

b. Increase one asset and decrease another asset.
c. Decrease an asset and decrease owner's equity.
d. Decrease an asset and decrease a liability.
e. Increase an asset and increase owner's equity.

Q No.5 Compute the missing amount in the accounting equation for each entity:
 Assets Liabilities Owner's Equity

Company A Rs. ? Rs.61,800 Rs.34,400

Company B 65,900 ? 34,400 Company C 81,700 79,800 ?

Q No.6 Telemarketing Associates' balance sheet data at May 31, 20X2, and June 30, 20X2, follow:

May 31, 20X2 June 30, 20X2

Total assets Rs.150,000 Rs.195,000 Total Liabilities 109,000

131,000
Required

Following are three assumptions about investments and withdrawals by the owner of the business during
June. For each assumption, compute the amount of net income or net loss of the business during June 20X2.

1. The owner invested Rs.5,000 in the business and made no

withdrawals.
2. The owner made no additional investments in the business but
withdrew Rs.11,000 for personal use.
3. The owner invested Rs.41,000 in the business and withdrew Rs.6,000
for personal use.