Assure you have just started a Mobile store. You sell mobile sets and currencies of Airtel, Vodaphone, Reliance and BSNL. Take five transactions and prepare a position statement after every transaction. Did you firm earn profit or incurred loss at t

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    We shall consider five transactions and show how they are accounted for in the books of the business.

     

    1. Mr. Rajesh brings Rs.100000 cash as capital into his business.

    2. He purchases Mobile Set to his shop Rs.10000

    3. He buys currencies for cash Rs.50000

    4. He sells currencies worth Rs.30000 for Rs.40000 on credit to Arjun

    5. He pays wages to servants Rs.1000

     

     

    Transaction 1: The business receives capital in cash. Capital is a liability and cash is an asset to the business.

     

    Liability

     

    Asset

     

    Capital

    100000

    Cash

    100000

     

    Transaction 2: Mobile Set is purchased for cash. This transaction can be reflected as under

    Capital

    100000

    Cash Rs. (100000- 10000)

     

    90000

       

    Mobile Set

    10000

    Total

    100000

    Total

    100000

     

    Transaction 3: Purchased of currencies for cash. This can be reflected in the statement as under.

     

    Capital

    100000

    Cash Rs. (90000- 50000)

     

    40000

       

    Mobile Set

    10000

       

    Stock ofcurrencies

    50000

    Total

    100000

    Total

    100000

     

     

    Transaction 4: Sold currencies to Arjun on credit for Rs.40000, the cost of which is only Rs. 30000. In this transaction the affected accounts are Currencies account, Arjun account and Profit & Loss account. Since the profit belongs to the owner it is fair to add it to the owner’s capital. The effect of this transaction can appear on the statement as shown below:

     

    Capital

    100000

    Cash

    40000

    Profit

    10000

    Mobile Set

    10000

       

    Stock ofcurrencies(50000-30000)

    20000

       

    Arjun (Debtors)

    40000

    Total

    110000

    Total

    110000

     

    Transaction 5: Payment of wages Rs.1000.The cash balance gets reduced in the asset side and profit gets reduced as a result of the expenditure (wages account) on the liability side. This changes the statement as shown below:

    Capital

    100000

    Cash (40000 – 1000)

    39000

    Profit (10000-1000)

    9000

    Mobile Set

    10000

       

    Stock ofcurrencies

    20000

       

    Arjun (Debtors)

    40000

    Total

    109000

    Total

    109000

     

    According to above book keeping entry Mr. Rajesh brings Rs.100000 cash as capital into his business. And one end of 5 transection his capital is Rs 109000. so, it is clear that Firm earn profit of Rs 9000.

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