Page 139 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes
table 7.2: Journal entries
Nature of Transaction Account to be debited Account to be credited
Commencement of business Cash account Capital account or any other
with cash liability account
Purchase of assets or goods Asset account or purchase Cash account
out of for cash account
Purchase of assets or goods on Asset account or purchase Seller's account or Creditor's
credit account account
Sale of assets or goods for
cash Cash account Asset or sale account
Sale of assets or goods on Buyer's or Debtor's account Asset or sale account
credit
For any type of expenses which Expenses account (respective Cash account for cash payment.
are due within the accounting head) In case of on credit account of
period the supplier of the service
For any type of income due Cash account for cash entry or Income Account (respective
account of the buyer of
within the accounting period services for on-credit entry head)
Expenses account (respective
For outstanding expenses Outstanding expenses a/c
head)
Expenses account
For pre-paid expenses Pre-paid expenses account
(respective head)
For outstanding or accrued Account of the person from Income account (respective
whom such income is to be
income received head)
For income received in Income account (respective Income received in advance
advance head of account) account
Asset account on
Depreciation on fixed assets Depreciation account
which depreciation charged
For goods taken for Drawing account Respective asset account
personal use
Payment made by cheque
to creditors Creditor's account Bank account
Payment received by way of
cheque from debtors Bank account Debtor's account
For transfer of Opening stock Trading account Opening stock account
For transfer of Closing stock Closing stock account Trading account

7.2.5 accounting equations

Capital or owner’s equity = Assets – outside liabilities
Asset = Capital + outside liabilities
Outside liabilities = Assets – capital
Income i.e. profit = Revenue – Expenses

Revenue = Expenses + profits
7.2.6 capital receipt and revenue receipt

Capital receipts are the amounts that are received in the form of capital introduced by the
promoters, term loan received for banks and the sale proceeds from fixed assets. Such receipts do
not affect the profit or loss. These either increase the liability or reduce the assets.
Revenue receipt on the other hand, is the amount received in normal and regular course of
business such as by sale of goods and service. These affect the profit and loss position. These are
shown on the credit side of the profit loss account. Table 7.3 showing the examples of types of
errors.

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