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Lecture 2

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8 views3 pages

Lecture 2

Uploaded by

tenir46570
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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 Asset are resources of business given to it by.

o Owner (called Capital)


o Others (called Liabilities)

So in accounting this equation will always remain true.

Asset=capital + Liabilities
o If two of these things are given and one is not given, we can find it using this equation.
This is called accounting equation and it is base of all accounting.
E.g. if a business has assets of Rs100. Out of which assets of Rs 60 are of owner and of Rs 40 are
of bank. If business closes today, bank will take 40 and business owner will take 60.
 As we are doing accounting of business, so we always have to think from
the business perspective.
 When expense increases, capital decreases (and cash decreases) and when
income increases capital increases (and cash increases).
o E.g. Owner bought goods costing 500 on credit and sale them in 700. Now out of
this 700, 200 are of owner. So, with profit capital of owner increases by 200 and
due to expenses he got 200 instead of 700. So, expenses decreased the capital of
the owner.
o Revenue and sale are not profit.
So,
sales−Expense=Profit
 We can say that profit is income less expense.
 Revenue is recorded when it is earned, not when cash is received.
o In cash base of accounting we record revenue when we receive its cash. What
we are reading is not cash base accounting. So for us this concept is wrong.
o So, we will record revenue when we have delivered goods (if we are selling
goods) Or we have rendered services, no matter cash is received or not.
 When we have done our duty, we have a right to receive cash.
 Now, this cash may receive or not receive, revenue will be recorded.
 E.g. A teacher has taught students for a month and now he has a right to
receive cash no matter when they give him.
 So, income will be recorded for the month he has delivered
services. Then, if he did not receive cash it will be recorded as
debtor.

Question 1: Mr. A started business of fitness gym on 1st January 2009.

1. Jan
Started business with 50,000 in cash.
(capital |cash )
2. Jan
Purchased shop for 10,000 on cash.
(Shop | Cash )
3. Jan
Purchased Furniture for 5,000 on cash.
( Furniture | Cash )
4. Jan
Purchased equipment for 15,000 on credit.
( equipment |Payable for equipment )
5. Jan
Paid 15,000 for equipment bought.
(cash | payable for equipment )
6. Jan
Rendered services and received fees of 20,000 in cash.
(cash | Revenue )
7. Jan
Paid electricity expense of 3000 in cash.
(cash |Electricity Expense )
8. Jan
Paid telephone expense for the gym of Rd 2,000 in cash.
(cash |Telephone Expense )
9. Jan
Paid rent of parking space 1,000 in cash.
(cash |Rent Expense )
10. Jan
Paid insurance of equipment 1,000 in cash.
(cash | Insurance Expense )
11. Jan
Withdrew Rs3,000 from his personal use in cash.
(drawing |Cash )

Solution:
 We will write total of all subheads under them and not their grand total as I have done in this
question.

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