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Introduction To Accounting: Pg. 1 Compiled By: Abdul Ahad Butt
Introduction To Accounting: Pg. 1 Compiled By: Abdul Ahad Butt
INTRODUCTION TO ACCOUNTING
CHPATER-1
ACCOUNTING THEORY
Transactions
Example:
Purchase Transaction:
Sales Transaction:
Definitions: Business
Business is an economic system where goods and services are exchanged for one another or
for money.
Business Transaction
A business transaction is an event involving an interchange of goods, money or services
between two or more parties with financial recording
From which future economic benefits are expected to flow to the entity.
Example: Land, building, Machinery, vehicles, furniture, cash in hand, cash at bank,
computer, mobile, closing inventory/Stock
Liabilities (Present obligation settlement of which results into outflow of resources
(Cash)
A liability is defined as:
a present obligation of an entity
Equity is the residual interest in equity after the value of all its liabilities has been deducted
from the value of all its assets. Equity comprises of amount invested by owners into business
plus undrawn profits.
Revenue is income arising in the course of the ordinary activities of the entity. It
includes sales revenue, fee, rental income and income from interest.
Example: sale income, rent income, fee income, interest income, commission income
Expenses (Amount for which benefit has been obtained)
Expenses include both routine business expenses and losses.
Expenses arising in the normal course of activities, such as the cost of sales and other
operating costs, including depreciation of non-current assets.
Losses include for example, the loss on disposal of a non-current asset, and losses
arising from damage due to fire or flooding
Example: Salaries, Utility bills, Interest expenses, commission expenses, Rent payable
Drawings
Amount taken by the owner from business for his personal use
ANALYSIS OF TRANSACTION
Transactions
Example:
Purchase Transaction:
Sales Transaction:
Sept
Solution:
Capital Credit
Loan Credit
Cash Credit
Cash Credit
Cash Credit
Sale Credit
Shirts Credit
Cash Credit
Cash Credit
Sept
Solution:
Cash Credit
Bank Credit
Creditor-Ahmed Credit
Capital Credit
Debtor Credit
Cash Credit
Cash Credit
Cash Credit
Sales Credit
Question:3
Show the increase/decrease in accounting heads in each of the following transactions.
Solution:
Capital Credit
Creditor-Saeed Credit
Cash Credit
Purchases Credit
Sales Credit
Cash Credit
Bank Credit
Question:4
Show the increase/decrease in accounting heads in each of the following transactions
Capital Credit
Cash Credit
Bank Credit
Bank Credit
Bank Credit
Cash Credit
JOURNAL, LEDGER
AND
TRIAL BALANCE
Oct,17 Took Rs.7,500 out of cash and paid into the bank.
Solution:5 Faraz
Ledger
Bank
c/d 22,250
Creditor Salman
Bank 21,500
Creditor Haseeb
Purchases 4,750
Purchases
Salman 22,500
Haseeb 6,250
Capital
Bank 50,000
c/d 50,000
Purchase Return
Salman 1,000
Haseeb 750
c/d 1,750
1,750 1,750
Sales
Cash 4,500
Wasim 9,750
Cash 5,250
Cash
Sales 5,250
c/d 2,250
9,750 9,750
Debtor-Wasim
c/d 6,250
9,750 9,750
Machinery
Bank 13,750
Luqman 6,750
c/d 20,500
Creditor Luqman
Machinery 6,750
c/d 6,750
Sale Return
Wasim 3,500
Muneeb 250
Debtor-Muneeb
c/d 5,250
Trial Balance
Debit Credit
Bank 22,250
Purchases 33,500
Creditor-Salman
Capital 50,000
Creditor-Haseeb 10,250
Cash 2,250
Sale 25,000
Debtor-Wasim 6,250
Machinery 20,500
Debtor-Muneeb 5,250
Creditor-Luqman 6,750
93,750 93,750
Mar,22 Let off part of the premises receiving rent by cheque Rs.75(Rental Income)
Solution:6 Arsalan
Bank
c/d 23,325
Capital
Bank 30,000
c/d 30,000
Purchases
Zohaib 1,625
Wahid 1,710
c/d 3,335
Creditor-Zohaib
c/d 1,280
Creditor Wahid
Purchases 1,710
c/d 1,710
Fixture
Bank 2,250
c/d 2,250
Cash
Stationary 405
Wages 2,925
Drawings 660
c/d 10
Sales
Cash 4,125
Asad 1,155
c/d 5,280
Rent
Cash 125
c/d 125
Stationary
Cash 405
c/d 405
Purchase Return
Zohaib 345
c/d 345
Rent Income
Bank 75
c/d 75
Sale 1,155
c/d 1,155
Drawings
Cash 660
c/d 660
Wages
Cash 2,925
c/d 2,925
Motor Van
Bank 4,500
c/d 4,500
Trial Balance
Debit Credit
Bank 23,325
Capital 30,000
Fixture 2,250
Cash 10
Sale 5,280
Creditor-Wahid 1,710
Rent 125
Stationary 405
Rent Income 75
Wages 2,925
Drawings 660
38,690 38,690
Question:7
Pass journal entries in the books of Toor and prepare ledger and Trail Balance
Solution:7 Toor
Cash
Repair 1,620
Purchase 11,250
c/d 32,670
Creditor-Ahmad
Bank 25,110
Capital
Cash 135,000
c/d 135,000
Purchases
Creditor-Ahmad 26,640
Bank
c/d 27,990
Sales
Elahi 4,860
Cash 4,410
Masood 2,610
c/d 11,880
Debtor-Elahi
c/d 3,600
Rent expense
Cash 2,520
c/d 2,520
Bank 1,350
c/d 1,350
Purchase Returns
c/d 1530
Debtor Masood
Sales 2,610
c/d 2,610
Repairs
Cash 1,620
c/d 1,620
Sale Returns
Elahi 1,260
c/d 1,260
Motor Vehicle
Bank 35,550
c/d 35,550
Motor Expense
Cash 1,350
c/d 1,350
Creditor Usama
Fixture 10,800
c/d 10,800
Fixture
c/d 10,800
Trial balance
Debit Credit
Cash 32,670
Capital 135,000
Purchase 37,890
Bank 27,992
Debtor-Elahi 3,600
Sale 11,880
Stationary 1,350
Purchase-Return 1,530
Debtor-Masood 2,610
Repair 1,620
Sale-return 1,260
Fixture 10,800
159,210 159,210
May 2013
Date
Required
(a) Use T accounts to show how these transactions should be recorded in the main ledger
accounts of the entity. The accounting system maintains separate accounts for each individual
payable and receivable in the main ledger.
Capital
Cash at bank
1 Capital 2,500,000 6 Rent 120,000
9 The Office
Company 430,000 12 D Gibson 250,000
10 Texas Chain 12 The Bushes
Stores 1,500,000 Company 540,000
15 Advertising 230,000
31 Rent 180,000
31 Balance c/f 3,110,000
Purchases
2 The Bushes
Company 540,000
Flower City 870,000
D Gibson 250,000
Weedkill 760,000
Greenery 640,000
18 The Bushes
Company 430,000
Landscape 1,100,000 31 Balance c/f 4,590,000
4,590,000 4,590,000
Sales
4 The Office
Company 430,000
V Cork 640,000
Texas Chain
Stores 1,760,000
31 Balance c/f 3,500,000 21 Public Parks 670,000
3,500,000 3,500,000
Payables -D Gibson
12 Cash at bank 250,000 2 Purchases 250,000
250,000 250,000
Payables – Weedkill
31 Balance c/f 760,000 2 Purchases 760,000
760,000 760,000
Payables - T Greenery
31 Balance c/f 640,000 2 Purchases 640,000
640,000 640,000
Payables - Landscape
31 Balance c/f 1,100,000 18 Purchases 1,100,000
1,100,000 1,100,000
Receivables - V Cork
4 Sales 640,000 Balance c/f 640,000
640,000 640,000
Receivables - Texas Chain Stores
4 Sales 1,760,000 10 Cash at bank 1,500,000
Balance c/f 260,000
1,760,000 1,760,000
Receivables - Public Parks
21 Sales 670,000 Balance c/f 670,000
670,000 670,000
Advertising expenses
Debit Credit
Rs. Rs.
Capital 2,500,000
Bank 3,110,000
Purchases 4,590,000
Sales 3,500,000
Payables:
The Bushes Company 430,000
Flower City 870,000
Weedkill 760,000
T Greenery 640,000
Landscape 1,100,000
Receivables:
V Cork 640,000
Texas Chain Store 260,000
Public Parks 670,000
Rent 300,000
Advertising 230,000
9,800,000 9,800,000
Assume that all receipts and payments are by cheque unless told otherwise.
March 2013
Date
Solution:9 Capital
Bank
Cash in hand
Date Rs. Date Rs.
5 Sales 8,700 9 Purchases 4,600
Balance c/d 4,100
8,700 8,700
Purchases
Payables - Hatts
Sales
Date Rs. Date Rs.
5 Cash in hand 8,700
7 Elliots 3,500
Receivables - Elliots
Date Rs. Date Rs.
7 Sales 3,500 31 Balance c/d 3,500
3,500 3,500
Wages
Date Rs. Date Rs.
6 Bank 1,400
12 Bank 1,400 Balance c/d 2,800
2,800 2,800
Motor van
Purchase returns
Rs. Rs.
Toby Trader 2,000
Balance c/d 4,400 KH Supplies 2,400
4,400 4,400
Debit Credit
Rs. Rs.
Capital 80,000
Bank 39,300
Cash 4,100
Purchases 36,000
Payables:
KH Supplies 2,500
Hatts 2,700
Toby Traders 13,400
Sales 29,100
Receivables:
Elliots 3,500
L. Lane 7,400
Wages 2,800
Motor van 40,000
Fixtures and fittings 5,000
Purchase returns 4,400
Loan 6,000
138,100 138,100
Note: When income is recorded
1-Sale income is recorded when risks and rewards of goods are transferred from seller to
buyer. Normally risks and rewards are transferred when the goods are delivered from seller to
buyer