ACCOUNTING MECHANICS:

BASIC RECORDS
 FUNDAMENTAL
ACCOUNTING EQUATION.
• Total Liabilities = Total Assets
or
Owner’s Equity+ Outside Liability=Assets
* Where Assets refer to resources which are
owned by business enterprises, Liabilities
are debts payable to Parties .
• For Example: A business is started with a
capital of Rs.10,000 brought in cash. The
above event gives rise to a cash balance of
Rs.10,000, at the same time business owes
Rs.10,000 to the owner.
Liabilities (Sources) = Assets (Uses)
Owner’s Equity = Cash
10,000 = 10,000
• For example assume that in above business,
land & Buildings worth Rs. 8,000 are
bought for cash.

The above event will make the Accounting

equation look as:-
Liabilities = Assets

Owners Equity = Cash + Land & Buildings

10,000 = 2,000 + 8,000

Another Example: In the same business a
vehicle is purchased for Rs.4,000 by taking
a loan for the purpose. The Accounting
equation for the above will be:
Liabilities = Assets
Owner’s equity + loan = Cash + L&B + Vehicle

10,000 + 4,000 = 2,000 + 8,000 + 4,000

14,000 = 14,000
• Differentiate the following items into Assets,
Liabilities, Revenue & Expenses.
1. Plant & Machinery
2. Loan
3. Rent Received
4. Building
5. Interest Received
6. Commission Paid
7. Cash
8. Electricity Expenses
9. Vehicle 21.Commission Received
10.Telephone Expenses 22.Land
11. Interest paid
12. Conveyance
13. Furniture
14. Depreciation
15. Discount Paid
16. Interest on Bank
Loan
17. Outstanding salaries
18. Insurance Expenses
19. Repair &
Maintenance
20. Bills Payable.
 Solution
1.Fixed Assets 12. Indirect Expenses
2.Liabilities 13. Current Assets
3.Indirect Income 14. Indirect Expenses
4.Fixed Assets 15. Indirect Expenses
5.Indirect Income 16. Indirect Expenses
6. Indirect Expenses 17.Current Liabilities
7.Current Assets 18. Indirect Expenses
8. Indirect Expenses 19. Indirect Expenses
9.Fixed Assets 20. Current Liabilities
10.Indirect Expenses 21. Indirect Income
11. Indirect Expenses 22. Fixed Assets
 Accounts
• Personal Account

• Impersonal Account

- Real Account
- Nominal Account
 Personal Account
• These are the accounts of individuals,
Corporate and representative personal
account with whom a trader deals .
• These can be classified into three parts:
- Natural Person
- Artificial Person
- Representative
 Real Account
• There are accounts of property or
possessions, i.e. accounts related to assets
such as cash, plant and machinery, stock-in-
hand etc.
 Nominal Account
These are the accounts relating to gains,
incomes, or losses, e.g. discount,
commission, rent, salary etc.
Golden Rules of Accounting:-
Personal Account: Dr. the receiver & Cr. the
giver.
Real Account:Dr. what comes in & Cr. What goes
Out.
Nominal Account: Dr. all expenses & losses &
Cr. All incomes & Gains.
 Journal
• It is a basic book of original entry. All
transactions are recorded in the
chronological order as and when they takes
place. The recording of transactions in the
journal is called journalizing.
 Format of Journal

Date Particular L.F. Amount Amount

(Dr.) (Dr.)
Example 1. Journalize the following transactions in
the books of Narayan.
1.Commenced business with cash Rs.40,000.
2.Purchased goods on credit from shyam
Rs.30,000.
3.Purchased Goods for Cash Rs.1000.
4.Paid gopal an advance for goods ordered.
 Solution To Example 1.
1. Cash A/c 40,000
To Capital A/c 40,000
2. Purchases A/c 30,000
To Shyam A/c 30,000

3. Purchases A/c 1,000

To Cash A/c 1,000
4. Gopal A/c 2,000
To Cash A/c 2,000
 Example 2
Journalize the following transactions in the books
of Ram.
1.Paid Wages Rs.500.
2.Drew Cash for Personal Use Rs.1000.
3. Received Commission In Cash Rs. 600.
4.Paid into Bank Rs.500
 Solution
1.Wages A/c 500
To Cash A/c 500
2. Ram Drawings A/c 1000
To Cash A/c 1000
3.Cash A/c 600
To Commission A/c 600
4. Bank A/c 500
To Cash A/c 500
 Example 3
Journalize the following transactions:-
On 2nd Jan. Purchased goods on cash. 5,000
” 4th Jan. Purchased goods from Gopal
3,000
” 5th Jan. Paid wages 500
” 8th Jan. Cash paid to Ram 7,000
” 9th Jan. Cash received from Mohan 8,000
” 11th Jan. Commission Received 9,000