Page 124 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 6: Cash Flow Statement

Total capital should be shown at the end of the year 2009 as ` 4,20,000, but it was amounting Notes
to ` 3,50,000 shown as a closing balance. It clearly understood that ` 70,000 worth of profi t
was taken away by the owner for his personal needs; known as drawings.
The next step is to find out the depreciation provided during the year, which affects

non-current asset account of the firm i.e. Machinery account.

Before discussing the accounting transactions, the journal entry for provision for
depreciation should be known.
` `
Provision for depreciation A/c Dr 20,000
To sold Machinery Depreciation A/c 20,000

Dr. Provision for Depreciation Account Cr.
` `
To sold Machinery 20,000 By Balance B/d 1,00,000
Depreciation
To Balance C/d 1,70,000 By (Adjusted profit and loss account) 90,000

Depreciation provided during the year
1,90,000 1,90,000
Cash sale of the machinery amounted to ` 26,000.

What happens during the cash sale of a machinery?
Debit what comes in - Cash resources are coming in.
Credit what goes out- Machinery is going out of the fi rm.
` `

Cash A/c Dr 26,000
To Machinery A/c 26,000
While selling the machinery, it is most important to identify the worth of the sale transaction
of the machinery.

`
Original cost of the asset 50,000
Accumulated Depreciation 20,000
30,000
Sale price 26,000
Loss on sale of the assets 4,000
Once the loss of the transaction is found out, the amount of the loss should be appropriately
recorded.

Debit all losses.
Credit the asset account.
` `
Loss of Machinery sale A/c Dr. 4,000

To Machinery A/c 4,000

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