RECORDING OF
TRANSACTION
Accounting Equation
Business Transactions and Source Document
Business transactions are exchanges of economic consideration
between parties and have two-fold effects that are recorded in at least
two accounts. Business transactions are usually evidenced by an
appropriate documents such as Cash memo, Invoice, Sales bill,
Pay-in-slip, Cheque, Salary slip, etc. A document which provides
evidence of the transactions is called the Source Document or a
Voucher.
Accounting Equation
Accounting Equation
Accounting equation signifies that the assets of a business are always
equal to the total of its liabilities and capital (owner’s equity). The
equations reads as follows:
Total Assets = Total Liabilities Or
Total Assets = Internal Liabilities + External Liabilities Or
Total Assets = Capital + Liabilities
Illustration - 1
Prepare accounting equation on the basis of the following:
(a) Harsha started business with cash Rs 2,00,000
(b) Purchased goods from Naman for cash Rs 40,000
(c) Sold goods to Bhanu costing Rs 10,000/- for Rs 12,000
(d) Bought furniture on credit Rs 7,000
Analysis of Transactions
(a) Harsha started business with cash Rs 2,00,000
Cash Capital
Analysis of Transactions
Purchased goods from Naman for cash Rs 40,000
Cash Stock
Analysis of Transactions
Sold goods to Bhanu costing Rs 10,000/- for Rs 12,000
Stock Debtor
Profit = 12000-10000
= 2000 ( Added to capital)
Analysis of Transactions
Bought furniture on credit Rs 7,000
Furniture Creditors
Solution 1
Asset Liability
Transaction Capital
Cash Stock Debtors Furniture Creditors
Harsha started business 200000 200000
with cash Rs 2,00,000
Purchased goods from 200000 200000
Naman for cash Rs 40,000 (-) 40000 (+) 40000
Sold goods to Bhanu costing 160000 40000 200000
Rs 10,000/- Rs 12,000 (-) 10000 (+) 12000 (+) 2000
Bought furniture on credit 160000 30000 12000 202000
Rs 7,000 7000 7000
Total 160000 30000 12000 7000 7000 202000
Solution 1
Total Assets = Capital + Liabilities
160000 + 30000 + 12000 + 7000 = 7000 + 202000
209000 = 209000
Illustration- 2
Rohit has the following transactions :
(a) Commenced business with cash Rs.1,50,000
(b) Purchased machinery on credit Rs. 40,000
(c) Purchased goods for cash Rs. 20,000
(d) Purchased car for personal use Rs. 80,000
(e) Paid to creditors in full settlement Rs. 38,000
(f) Sold goods for cash costing Rs. 5,000 for Rs. 4,500
(g) Paid rent Rs. 1,000
(h) Commission received in Rs. 2,000
Solution 2
Asset Liability
Transaction Capital
Cash Stock Machinery Creditors
Commenced business with cash 150000 150000
Rs.1,50,000
Purchased machinery on credit Rs. 150000 150000
40,000 (+) 40000 (+) 40000
150000 40000 40000 150000
Purchased goods for cash Rs. 20,000
(-) 20000 (+) 20000
Purchased car for personal use Rs. 130000 20000 40000 40000 150000
80,000 (-) 80000 (-) 80000
Paid to creditors in full settlement Rs. 50000 20000 40000 40000 70000
38,000 (-) 38000 (-)40000 (+) 2000
Sold goods for cash costing Rs. 5,000 12000 20000 40000 0 72000
Rs. 4,500 (+) 4500 (-) 5000 (-) 500
16500 15000 40000 0 71500
Paid rent Rs. 1,000
(-) 1000 (-) 1000
15500 15000 40000 0 70500
Commission received in Rs. 2,000
(+) 2000 (2000)
Total 17500 15000 40000 0 72500
