Fundamentals of Accounts and Finance Part IV –Modern

Approach of Accounting

Instructor

Prof. (Dr.) Paresh Shah

FCMA., Ph.D., D.Ed., D.D.M., D.Ed. Psy.
Alumnus of Indian Institute of Management,
Ahmedabad, (India); Institute of Cost
Accountants of India; University of London, UK;
University of Illinois, US; Darden School of
Business, University of Virginia, US; IESE
Business School, University of Navarra, Spain;
University of New South Wales, Sydney,
Australia; and Alison Education, US.
Cell no. 9824358505
Modern Approach of Accounting
Owner’s Equity
ACCOUNTING EQUATIONS
Breaking Down MAA
Modern Approach of Accounting
MAA
 ACCOUNTING EQUATION

ASSETS = LIABILITIES + OWNER’S EQUITY

This equation will remain unchanged

and will be the accountant guideline in
performing the accounting cycle
(journal until financial statements'
preparation)
Transaction 1: Dr. Shanti and his brother, Rakesh,
Pharmacist, jointly contributed Rs. 10000 in cash to
start activity named as, ‘Medcare’.
Assets = Liabilities Equity
(Increase in Cash) (Increase in Contributed
Capital)
Opening balance (OB)
Effect of investment + 10,000 Nil + 10,000
Closing balance (CB) 10,000 Nil 10,000
Transaction 2: Medcare acquires medicines worth
Rs. 6,000 from creditors.
Assets = Liabilities Equity
(Increase in Stock of (Increase in Creditors)
medicines)
Opening balance (OB) 10,000 Nil 10,000
Effect of borrowing + 6,000 +6,000 nil
Closing balance (CB) 16,000 6,000 10,000
Transaction 3: Medcare received Rs. 10,000 for
providing medicines to a counter-customer.
Assets = Liabilities + Contributed capital + Retained earnings
Other assets Increase = Liabilities + Contributed capital Increase in Sales
in Cash Income
OB 16,000 = 6,000 + 10,000 + nil
Effects of revenue 10,000 = nil + nil + 10,000
CB 16,000 + 10,000 = 6,000 + 10,000 + 10,000
Transaction 4: Handed over medicines of Rs. 6,000 and
cash expenses paid Rs. 1,000 for transaction no. 3
Assets = Liabilities + Contributed capital + Retained earnings
(Stock – (Expenses = Cost of
6000 and Goods Sold)
Cash –
1000)
OB 26,000 = 6,000 + 10,000 + 10,000
Effects of revenue - 7,000 = nil + nil - 7,000
CB 19,000 = 6,000 + 10,000 + 3,000
Transaction 5: Medcare distributes Rs. 2,000 of assets,
i.e. cash to its owners for household expenses.
Assets = Liabilities + Contributed capital + Retained earnings
Decrease (Implied Expenses in
in Cash the form of
Withdrawal or
Drawings or
Dividend)
OB 19,000 = 6,000 + 10,000 + 3,000
Effects of revenue - 2,000 = nil + nil - 2,000
CB 17,000 = 6,000 + 10,000 + 1,000
Transaction 6: Medcare billed a patient for Rs. 10,000
towards medical treatment provided on credit terms.
Assets = Liabilities + Contributed capital + Retained earnings
Other assets Accounts = Liabilities + Contributed capital + Retained earnings
receivables (Increase in Service
(Services) or Income or
Debtors Consultancy Charges
(goods) or Diagnosis Income)
OB 17,000 = 6,000 + 10,000 + 1,000
Effects of credit + 10,000 = nil + nil + 10,000
transactions
CB 17,000 + 10,000 = 6,000 + 10,000 + 11,0000
Transaction 7: Medcare collected Rs. 10,000 from a
patient to whom treatment provided in transaction no.
6.
Assets = Liabilities + Contributed capital + Retained earnings
Other assets Accounts = Liabilities + Contributed capital + Retained earnings
(Increase in receivables
cash (Decrease in
balance) accounts
receivables)
OB 17,000 + 10,000 = 6,000 + 10,000 11,000
Effects of cash 10,000 - 10,000 = nil + nil + nil
collection
CB 27,000 + nil = 6,000 + 10,000 + 11,0000
Transaction 8: Salary for the month of January Rs.
2,000 payable to Compounder.
Assets = Liabilities + Contributed + Retained
capital earnings
Other = Other + Salaries + Contributed + Retained
assets liabilities payable capital earnings
(Creditors as (Increase in
per Expense, means
transaction net retained
no. 2) earnings reduced)
OB 27,000 = 6,000 + 10,000 11,000
Recognized Nil = nil + 2,000 + nil - 2,000
expense/liabilities
CB 27,000 = 6,000 + 2,000 + 10,000 + 9,000
Transaction 9: Medcare paid Rs. 2,000 in cash to
its Compounder towards salary.
Assets = Liabilities + Contributed + Retained
capital earnings
Other = Other + Salaries + Contributed + Retained
assets liabilities payable capital earnings
(Decrease (Decrease in
in Cash) liability)
OB 27,000 = 6,000 + 2,000 + 10,000 + 9,000
Made cash - 2,000 = nil - 2,000 + nil + nil
payment
CB 25,000 = 6,000 Nil + 10,000 + 9,000
Transaction 10: Medcare received Rs. 8,000 cash, in
exchange, and it agreed to provide medical services after one
month to a patient.
Assets = + Contributed + Retained
Liabilities capital earnings
Other + cash = Other Unearned + Contributed capital + Retained
assets (Increase liabilities revenue earnings
in Cash) (as
promised)
OB 25,000 = 6,000 + nil + 10,000 + 9,000
Realized cash Nil + 8,000 = nil + 8,000 + nil + nil
in advance
from patient
CB 25,000 + 8,000 = 6,000 + 8,000 + 10,000 + 9,000
Transaction 11: Provided medical services to the patient worth
Rs. 8,000; based on advances received as per transaction no.
10
Assets = + Contributed + Retained
Liabilities capital earnings
Other + cash = Other Unearned + Contributed + Retained
assets liabilities revenue capital earnings
(decrease (Increase in
in liability, Consultancy
as promise Income)
fulfilled)
OB 25,000 + 8,000 = 6,000 +8,000 + 10,000 + 9,000
Fulfilled Nil Nil = nil - 8,000 + nil + 8,000
promise given
to patient
CB 25,000 + 8,000 = 6,000 Nil + 10,000 17,000
Transaction 12: Cash paid to purchase Rs. 20,000
of laboratory equipment for its medical centre.
Assets = Liabilities + Contributed capital + Retained earnings
Other + cash = Other + Contributed capital + Retained earnings
assets (Decreas liabilities
(Increase e in Cash)
in Office
Equipment
or Asset)
OB 33,000 = 6,000 + 10,000 17,000
Purchased assets + 20,000 - 20,000 = nil + nil + nil
CB 53,000 - 20,000 = 6,000 + 10,000 17,000
Transaction 13: Creditors demanded Rs. 600 towards
interest, as not paid in time (as per transaction no. 2)
Assets = Liabilities + Contributed + Retained
capital earnings
Other = Other Interest + Contributed + Retained
assets liabilities Payable capital earnings
(Increase in (Expense of an
interest activity, as
payable at retained earnings
liability) would reduce)
OB 33,000 = 6,000 + 10,000 17,000
Accrual of Nil = nil + 600 + nil - 600
interest
expenses
CB 33,000 = 6,000 + 600 + 10,000 + 16,400
Owners’ Equity
EXPANDED MAA
Website: https://profparesh.in
Email id: paresh@profparesh.in

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