Accounting Accounting Equation & Equation &

Golden RulesGolden Rules

Accounting Accounting Equation & Equation &

Golden RulesGolden Rules

AAcknowledgementcknowledgementWe are, student of PGGCG-11, hereby, We are, student of PGGCG-11, hereby, acknowledging our sincere thanks to our acknowledging our sincere thanks to our supervisorsupervisor MRS. MEENU VERMA, prof. of MRS. MEENU VERMA, prof. of accountingaccounting …. ….for providing me with the best for providing me with the best of her knowledge to fulfill my project report.of her knowledge to fulfill my project report.We would also like to thank our CR for suggesting We would also like to thank our CR for suggesting us the topic of our study….and our parents who us the topic of our study….and our parents who had helped us throughout the process of collection had helped us throughout the process of collection and organizing the data of our research…last but and organizing the data of our research…last but not the least thanks to our group while deriving not the least thanks to our group while deriving conclusions of the project report.conclusions of the project report. THANKS TO ALLTHANKS TO ALL

Accounting Equation

Assets = Sources of finance Assets = Liabilities + Equity

Give one transaction for each of the following that will

(a) increase an asset and decrease another asset.

(b) increase an asset and increase a liability.

(c) decrease an asset and decrease a liability.

(d) increase an asset and increase capital.

(e) decrease an asset and decrease capital.

Kershaw has the following transactions. Draw accounting equation to show the effect of these transactions on his assets, liabilities and capital. Also show his final Balance Sheet.

(a) Commenced business with cash Rs. 20,000.

(b) Purchased goods for cash Rs. 5,000 and credit Rs. 6,000.

(c) Purchased office equipment for cash Rs. 8,000.

(d) Paid office rent Rs. 1,000.

(e) Sold goods for cash Rs. 10,000 (costing Rs. 7,000)

if) Sold goods on credit for Rs. 6,000 (costing Rs. 3000)

(g) Withdrew cash for personal use RS. 2,000.

Assets = Liabilities + Equitya Cash Rs.20,000 = + Capital Rs.20,000

bCash Rs.15,000 + Goods Rs. 11,000

=Creditors Rs.6000

+ Capital Rs.20,000

cCash Rs.7,000 + Goods Rs. 11,000 + Equipment Rs.8000

=Creditors Rs.6000

+ Capital Rs.20,000

dCash Rs.6,000 + Goods Rs. 11,000 + Equipment Rs.8000

=Creditors Rs.6000

+ Capital Rs.19,000

eCash Rs.16,000 + Goods Rs. 4,000 + Equipment Rs.8000

=Creditors Rs.6000

+ Capital Rs.22,000

f

Cash Rs.16,000 + Goods Rs. 1,000 + Equipment Rs.8000 +Debtors Rs.6000

=Creditors Rs.6000

+ Capital Rs.25,000

g

Cash Rs.14,000 + Goods Rs. 1,000 + Equipment Rs.8000 +Debtors Rs.6000

=Creditors Rs.6000

+ Capital Rs.23,000

Classification of Accounts

Personal Accounts Natural persons Artificial persons Representative personal accounts

Real Accounts Tangible Real A/c Intangible Real A/c

Nominal Accounts Incomes & Gains Expenses & Losses

Class ActivityClass Activity:

Let’s give it a short!!!Cash A/c

Rent A/c

Shah Rukh A/c

Salary A/c

Tuition Fees

Machinery A/cBank A/c

Pre-Paid Expenses A/c

Furniture A/c

Sales A/c

Outstanding Salary A/c

Goodwill A/c

Loose Tools A/cInvestments A/c

Purchases A/c

Test Your knowledge!!!1. Salary prepaid2. Rent account  3. Salary outstanding A/c 4. Bank account  5. Capital account6. Goodwill account  7. Patents account  8. Purchases account9. Investments10. Freehold Premises11. Corporation Bank Ltd.12. Brokerage Account

1. Personal A/c2. Nominal A/c3. Representative Personal A/c

4. Artificial Personal A/c5. Artificial Personal A/c6. Intangible Real A/c7. Intangible Real A/c8. Nominal A/c9. Tangible Real A/c10. Tangible Real A/c11. Artificial Personal A/c12. Nominal A/c

Recording of Transactions:

Rule for Personal Accounts: Debit the Receiver Credit the Giver

Rule for Real Accounts: Debit what Comes in Credit what goes out

Rule for Nominal Accounts: Debit all expenses & Losses Credit all incomes & gains.

Class- ProblemIllustration From the following transactions find out the nature of

account and also state which account should be debited and which should be credited.

a) Rent paid.b) Salaries paid.c) Interest received.d) Dividends received.e) Furniture purchased for cash.f) Machinery sold.g) Outstanding for salaries.h) Telephone charges paid.i) Paid to Suresh.j) Received from Mohan (the proprietor)k) Lighting expense paid

Transaction A/c involved Nature of A/c Debit/Credit(a) Rent paid Rent a/ c Nominal a/ c Debit

Cash A/ c Real A/ c Credit(b) Salaries paid Salaries A/ c Nominal A/ c Debit

Cash A/ c Real A/ c Credit(c) Interest received Cash A/ c Real A/ c Debit

Interest A/ c Nominal A/ c Credit(d) Dividends received Cash A/ c Real A/ c Debit

Dividends A/ c Nominal A/ c Credit(e) Furniture purchased Furniture A/ c Real A/ c Debit

Cash A/ c Real A/ c Credit(j) Machinery sold Cash A/ c Real A/ c Debit

Machinery A/ c Real A/ c Credit(g) Outstand. for salaries Salaries A/ c Nominal A/ c Debit

Outstan. SalA/ c Personal A/ c Credit(h) Telephone charges Tel. Bill A/ c Nominal A/ c Debit

Cash A/ c Real A/ c Credit(i) Paid to Suresh Suresh Personal A/ c Debit

Cash A/ c Real A/ c Credit(J) Received from Mohan Cash A/ c Real A/ c Debit

(The Proprietor) Capital A/ c Personal A/ c Credit(k) Lighting Lighting A/ c Nominal A/ c Debit

Cash A/ c Real A/ c Credit

QuestionQuestion

S S no.no.

ParticularsParticulars AmouAmountnt

11 Hitesh started business with Hitesh started business with cashcash

2,50,02,50,00000

22 Purchased goods on creditPurchased goods on credit 24,0024,0000

33 Purchased goods for cashPurchased goods for cash 4,0004,000

44 Purchased furniture for cashPurchased furniture for cash 1,5001,500

55 Withdraw for private useWithdraw for private use 1,0001,000

6 6 Paid RentPaid Rent 3,0003,000

77 Received interestReceived interest 1,0001,000

88 Sold goods on creditSold goods on credit 1,7001,700

99 Paid to creditorsPaid to creditors 4,0004,000

S S no.no.

ParticularsParticulars Assets =Liabilities+ Assets =Liabilities+ CapitalCapital

11

22

Hitesh started business Hitesh started business with cash Rs. 2,50,000 with cash Rs. 2,50,000 Purchased goods on Purchased goods on credit for Rs.24,000credit for Rs.24,000

250000= 0 250000= 0 +250000+250000

24000= 24000 + 024000= 24000 + 0

33

NEW EQUQTIONNEW EQUQTION

Purchased goods for Purchased goods for cash for Rs.4000cash for Rs.4000

274000= 24000 274000= 24000 +250000 (+)4000+250000 (+)4000

(-)4000= 0 + 0(-)4000= 0 + 0

44

NEW EQUATIONNEW EQUATION

Purchase furniture for Purchase furniture for cash for Rs.1,500cash for Rs.1,500

274000= 24000 274000= 24000 +250000+250000

(+)1500(+)1500

(-)1500= 0 + 0(-)1500= 0 + 0

55

NEW EQUATIONNEW EQUATION

Withdraw cash for Withdraw cash for private use private use

274000=24000 274000=24000 +250000+250000

(-)1000= 0 + (-)1000= 0 + (-)1000(-)1000

NEW EQUATIONNEW EQUATION 273000=24000 + 273000=24000 + 249000249000

66 Paid rent Rs.3,000Paid rent Rs.3,000 (-) 3000= 0 + (-) 3000= 0 + (-)3000(-)3000

77

NEW EQUATIONNEW EQUATION

Received interest Received interest Rs.1,000Rs.1,000

270000= 270000= 24000+24600024000+246000

(+)1000= 0 +(+)1000= 0 +(+)1000(+)1000

88

NEW EQUATIONNEW EQUATION

Sold goods costing Sold goods costing Rs.1500 for Rs. 1700 Rs.1500 for Rs. 1700 on crediton credit

271000= 271000= 24000+24700024000+247000

(-)1500(-)1500

(+)1700= 0 + (+)1700= 0 + (+)200(+)200

99

NEW EQUATIONNEW EQUATION

Paid to creditors Paid to creditors Rs.4000Rs.4000

271200= 24000 + 271200= 24000 + 247200247200

(-)4000= (-)4000+ 0(-)4000= (-)4000+ 0NEW EQUATIONNEW EQUATION 267200= 20000 + 267200= 20000 +

247200247200