Page 93 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes Income earned in the form of net profit should be added to the capital account.
Net profit A/c Dr ` 45,000

To Capital A/c ` 45,000
Dr Capital A/c Cr
Particulars ` Particulars `
To Drawings (Balancing fig.) 17,000 By Balance B/d 1,25,000

To Balance c/d 1,53,000 By Net profi t 45,000
1,70,000 1,70,000
At the end of the year, the total volume of the capital should be equivalent to `1,70,000 but it
amounts ` 1,53,000. It is only due to the personal drawings of the owner of the enterprise.
The next non-current liability account is loan from P.N. Bank.
The closing volume of the loan is more than the opening balance of loan; it means that the
firm has recently borrowed an amount of `10,000 in addition to opening balance of the loan

borrowings.
While borrowing, what happens in the fi rm?

Debit what comes in - Cash resources are coming inside the business.
Credit the giver/liabilities - Register the name of the banker who is nothing but the giver
of the loan.

Dr Loan P.N. Bank A/c Cr
Particulars ` Particulars `
By Balance B/d 40,000
To Balance c/d 50,000 By Cash (Balancing fi g) 10,000
50,000 50,000
The next non-current liability is Mr. White’s loan amount of `25,000.
The opening balance of the loan amount is greater than the closing balance which amounted
to `25,000; it means that the initial loan amount was paid during the year.
Dr Mr. White’s A/c Cr
Particulars ` Particulars `
To Cash (Loan paid) 25,000 By Balance B/d 25,000
To Balance c/d -----------
25,000 25,000
While repaying the loan amount, what happens in the fi rm?

The name of the party that receives the amount of loan repayment should be mentioned.
Debit the receiver - Cash resources are going out of the firm during the moment of making

the repayment of the loan. Credit what goes out of the fi rm.
The closing balances of the land and building are greater than the opening balances:

this means that additional land and building was procured by the firm for its future
prospects.

The purchase of the land & building leads to applications -outflow of fund

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