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Furniture and Credit Transactions Guide

1. Akshay brought Rs. 250000 in cash and Rs. 140000 was deposited in the bank to start the business. Goods worth Rs. 680000 were purchased from Gul Traders on credit. 2. Goods were sold to Rambo Traders at a profit of 25% on cost. Rs. 438000 was received from Rambo Traders and Rs. 250000 was paid to Gul Traders. 3. Rs. 250000 was issued to the bank for sales tax registration, closing the transactions for the initial period of business.

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Saumendra Sahoo
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11 views12 pages

Furniture and Credit Transactions Guide

1. Akshay brought Rs. 250000 in cash and Rs. 140000 was deposited in the bank to start the business. Goods worth Rs. 680000 were purchased from Gul Traders on credit. 2. Goods were sold to Rambo Traders at a profit of 25% on cost. Rs. 438000 was received from Rambo Traders and Rs. 250000 was paid to Gul Traders. 3. Rs. 250000 was issued to the bank for sales tax registration, closing the transactions for the initial period of business.

Uploaded by

Saumendra Sahoo
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

transaction 1

Purchased furniture worth Rs. 25000/- in cash

1 locate the accounts -


accounts involved furniture cash

2 Decide the type Real Real

3 Rule Debit what comes in Debit what comes in


Credit what goes out Credit what goes out

4 Application of rule Furniture came in Cash gone out

5 Conclusion Debit Furniture A/C Credit Cash A/C

In case of pure cash transaction personal a/c will be ignored.

transaction 2
Purchased stationery worth Rs. 648/- in cash

1 locate the accounts -


accounts involved Stationery cash

2 Decide the type Nominal a/c Real

3 Rule Debit all expenses & losses Debit what comes in


Credit all gains & incomes Credit what goes out

4 Application of rule Stationery is an expense Cash gone out

5 Conclusion Debit Stationery a/c Credit Cash A/C

transaction 3
Sold goods worth Rs. 246321/- to Shyam Traders on credit.

1 locate the accounts -


accounts involved Goods A/C Shyam Traders A/C

2 Decide the type Real A/C Personal A/C


3 Rule Debit what comes in Debit the Receiver
Credit what goes out Credit the Giver

4 Application of rule Goods have gone out Shyam Traders is a rece

5 Conclusion Credit Goods A/C Debit Shyam Traders a/

transaction 4
- Withdrew cash of Rs. 10000/- from bank.

1 locate the accounts -


accounts involved Cash A/C Bank A/C

2 Decide the type Real A/c Real A/C

3 Rule Debit what comes in Debit what comes in


Credit what goes out Credit what goes out

4 Application of rule Cash has come in Cash goes out from ban

5 Conclusion Debit cash a/c Credit bank a/c

FOR AKSHAY GENERAL STORES

July 1, 2020
Akshay brought Rs. 250000 in cash in business

1 locate the accounts -


accounts involved Akshay Cash

2 Decide the type Personal a/c Real A/C

3 Rule Debit the receiver Debit what comes in


Credit the giver Credit what goes out

4 Application of rule Akshay is a giver Cash has come in

5 Conclusion Credit Akshay A/C Debit Cash A/C

To reflect that Akshay is the owner of this business, his a/c will be recorded as Akshay's Capital A/C
July 1, 2020
Akshay deposited Rs. 140000/- into bank

1 locate the accounts -


accounts involved Bank Cash

2 Decide the type Real a/c Real A/C

3 Rule Debit when the balance increases Debit what comes in


Credit when the balance reduces Credit what goes out

4 Application of rule The bank balance increases Cash has gone out

5 Conclusion Debit Bank a/c Credit cash a/c

July 2, 2020
purchased goods worth Rs.680000/- from Gul Traders on credit.

1 locate the accounts -


accounts involved Goods A/C Gul Traders

2 Decide the type Real a/c Personal a/c

3 Rule Debit what comes in Debit the receiver


Credit what goes out Credit the giver

4 Application of rule Goods have come in Gul traders is a giver

5 Conclusion Debit Goods a/c Credit Gul Traders a/c

July 2, 2020
spent Rs.4500/- on freight to bring the goods to his godown.

1 locate the accounts -


accounts involved Freight a/c Cash a/c

2 Decide the type Nominal a/c Real A/c

3 Rule Debit all expenses & losses Debit what comes in


Credit all gains & incomes Credit what goes out

4 Application of rule Freight is an expense Cash has gone out

5 Conclusion Debit Freight A/C Credit cash a/c

July 6, 2020
sold 60% of the goods to M/s. Rambo Traders at a profit of 25% on cost on credit.

1 locate the accounts -


accounts involved Goods a/c Rambo Traders a/c

2 Decide the type Real a/c Personal a/c

3 Rule Debit what comes in Debit the receiver


Credit what goes out credit the giver

4 Application of rule Goods have gone out Rambo Traders is a rece

5 Conclusion Credit Goods a/c Debit Rambo Traders

Sold 60% of the goods = 680000*60% 408000 cost of goods sold


Profit @ 25% on cost 102000
Selling Price 510000

In the above case, it is informed that goods worth Rs. 408000/- are sold at a profit of 25% on sales

IF THE SELLING PRICE IS 100


PROFIT IS 25
Cost = Selling price - profit 75
According to the information, we have got cost and profit %.
The given cost of Rs. 408000/- is equivalent to 75

Cost 75 25 Profit
Given cost 408000 136000 (408000*25/75)
Add : Profit 136000
Selling Price 544000
Verification : Profit *100/SP 25

July 8, 2020
received 80% of his dues from his customer.
1 locate the accounts -
accounts involved Bank Rambo Traders

2 Decide the type Real A/c Personal a/c

3 Rule Debit when the balance increases Debit the receiver


Credit when the balance reduces credit the giver

4 Application of rule The bank balance increases Rambo Traders is a give

5 Conclusion Debit Bank a/c Credit Rambo Traders

July 12, 2020


He issued a cheque of Rs.250000/- to his supplier.

1 locate the accounts -


accounts involved Bank Gul Traders

2 Decide the type Real A/c Personal a/c

3 Rule Debit when the balance increases Debit the receiver


Credit when the balance reduces credit the giver

4 Application of rule The bank balance reduces Gul Traders is a receiver

5 Conclusion Credit bank a/c Debit Gul Traders a/c

July 18, 2020


He issued a cheque of 2020
July 18, Rs.250000/-
He appliedtoforhissales
supplier.
tax registration.

1 locate the accounts -


accounts involved Bank a/c sale tax a/c

2 Decide the type Nominal A/c Real a/c

3 Rule Debit all expences and losses Debit what comes in


Credit all gains and incomes credit what goes out

4 Application of rule The bank balance reduces cash has gone out

5 Conclusion Dedit bank a/c Credit sales tax a/c


IN THE BOOKS OF AKSHAY GENERAL STORES

Date Particulars LF Debit

01.07.2020 Cash a/c Dr. 250000


To Aksay's Capital A/C
(Being cash brought in by Akshay as capital)
01.07.2020 Bank a/c Dr. 140000
To Cash A/C
(Being cash deposited into bank)
02.07.2020 Goods A/C Dr. 680000
To Gul Traders A/C
Being goods purchased on credit)
03.07.2020 Freight a/c Dr. 4500
To Cash A/C
Being freight paid in cash)
06.07.2020 Rambo Traders a/c Dr. 510000
To Goods a/c
(Being goods sold to the above party)
08.07.2020 Bank a/c Dr. 408000
To Rambo Traders a/c
Being 80% of the dues received)
12.07.2020 Gul Traders a/c Dr. 250000
To Bank a/c
(Being cheque issued to the above party)
18.07.20 Bank a/c Dr. 0
To sales tax a/c
(being tax issued to sales tax a/c)
Debit what comes in
Credit what goes out

Cash gone out

Credit Cash A/C

Debit what comes in


Credit what goes out

Cash gone out

Credit Cash A/C

Shyam Traders A/C

Personal A/C
Debit the Receiver
Credit the Giver

Shyam Traders is a receiver

Debit Shyam Traders a/c

CASH BANK

Debit what comes in Debit when the balance increases


Credit what goes out Credit when the balance reduces

Cash goes out from bank Bank balance reduces

Credit bank a/c

Debit what comes in


Credit what goes out

Cash has come in

Debit Cash A/C

Akshay's Capital A/C


Debit what comes in
Credit what goes out

Cash has gone out

Credit cash a/c

Gul Traders

Personal a/c

Debit the receiver


Credit the giver

Gul traders is a giver

Credit Gul Traders a/c

(cash transaction)

Debit what comes in


Credit what goes out

Cash has gone out

Credit cash a/c

on cost on credit.

Rambo Traders a/c

Personal a/c

Debit the receiver


credit the giver

Rambo Traders is a receiver

Debit Rambo Traders

cost of goods sold

verification 20

ofit of 25% on sales

additional concept discussed


not part of given sum

(408000*25/75)
Rambo Traders

Personal a/c

Debit the receiver


credit the giver

Rambo Traders is a giver

Credit Rambo Traders

Gul Traders

Personal a/c

Debit the receiver


credit the giver

Gul Traders is a receiver

Debit Gul Traders a/c

sale tax a/c

Debit what comes in


credit what goes out

cash has gone out

Credit sales tax a/c


Credit

250000

140000

680000

4500

510000

408000

250000

Common questions

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The accounting type of an account—whether it's Real, Personal, or Nominal—determines the specific rule applied to transactions. For example, Real accounts follow the rule 'Debit what comes in, Credit what goes out,' while Personal accounts follow 'Debit the receiver, Credit the giver.' Nominal accounts use the rule 'Debit all expenses & losses, Credit all gains & incomes' .

Debiting the Bank A/C when receiving payments from customers reflects an increase in cash assets. This action aligns with 'Debit when the balance increases,' indicating that the bank's cash reserve has been augmented. This practice ensures accurate reflection of the liquidity position of the business .

The freight expense impacts the financial statements by decreasing net income, as it is recorded as a debit to Freight A/C (an expense account) and a credit to Cash A/C. Recognizing freight as an expense reflects the cost incurred to bring the goods to the site, impacting the overall profit calculation .

The application of sales tax expense follows the same nominal account rule, 'Debit all expenses & losses' but involves 'Credit what goes out' as used in Real accounts, differently from cash expenses like freight, which directly affect cash flow only. This mirrors the formal nature and administrative recording of tax liabilities, separating it from operational expenses .

Issuing a cheque to the supplier results in debiting the supplier's account because the supplier, as a Personal account, is the receiver of the payment funds. Therefore, it follows the rule 'Debit the receiver,' while the Bank A/C is credited as funds are going out .

Profit is calculated by multiplying the cost of goods by the profit percentage. In the scenario, 60% of goods worth Rs. 408,000 were sold at a 25% profit, generating Rs. 136,000 additional profit, making the selling price Rs. 544,000. This increase in selling price impacts financial transactions by altering the revenue figures .

Akshay's contribution of cash is recorded as Akshay's Capital A/C to reflect it as owner's equity, marking the funds as invested by the owner rather than a liability. This emphasizes Akshay's ownership stake in the business, as capital accounts denote owner's equity, distinguishing it from operational or creditors' funds .

The concept of 'cost of goods sold' (COGS) directly impacts journal entries as it determines the profitability of sales transactions. For goods sold on credit, COGS is credited for its value within the Goods A/C to reflect the outflow of inventory, while corresponding entries are made to record sales revenue against receivables, ensuring profit margins are transparent .

In a cash withdrawal from a bank, the Cash A/C is debited because cash has come in, aligning with the rule 'Debit what comes in,' and the Bank A/C is credited because bank funds have gone out, aligning with 'Credit what goes out' .

When Shyam Traders buys goods on credit, the Goods account is credited because goods have gone out, and Shyam Traders, being a personal account, is debited as the receiver of the goods .

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