Illustration On March 1, Suresh starts Softomation, as a proprietory business, for developing customized computer software.

The transact Softomation in March are as follows: On March 1, 2010, Suresh invests Rs 50,000 in cash. Asset Source 50000 Balance Sheet March 1, 2010 Equity 50000 Cash 50000 Total 50000 50000 On March 2, Suresh takes a loan of Rs 20000 from Manish for Softomation 20000 Balance Sheet March 2, 2010 Equity 50000 Cash 70000 Creditors 20000 Total 70000 70000 On March 3, Softomation buys a computer costing Rs 58000 in cash 58000 Balance Sheet March 3, 2010 Equity 50000 Cash 12000 Creditors 20000 Equipment- Computer 8000 5 Total 70000 70000 On March 4, Softomation buys computer supplies for 6000 on credit. 6000 Balance Sheet March 4, 2010 Equity 50000 Cash 12000 Creditors 26000 Suppies 6000 Equipment- Computer 8000 5 Total 76000 76000 On March 19, Softomation receives Rs 12000 for providing softwore services. 12000 Balance Sheet March 19, 2010 Equity 62000 Cash 24000 Creditors 26000 Suppies 6000 Equipment- Computer 8000 5 Total 88000 88000 On March 21, Softomation pays Rs 2000 to the creditor for supplies. 2000 Balance Sheet March 21, 2010 Equity 62000 Cash 22000 Creditors 24000 Suppies 6000 Equipment- Computer 8000 5 Total 86000 86000 On March 29, Softomation pays employees salary Rs 4000, and office rent Rs 1200. 4000 1200 Balance Sheet March 29, 2010 Equity 56800 Cash 16800 Creditors 24000 Suppies 6000 Asset Source

Asset Exchange

Asset Source

Asset Source

Asset Use

Asset Use

Total

80800

Equipment- Computer 8000 5 80800 Asset Source

On March 30, Softomation provides software services worth Rs 8000 on credit 8000 to a retail store Balance Sheet March 30, 2010 64800 Cash 16800 24000 Debtors 8000 Suppies 6000 Equipment- Computer 8000 5 88800 88800

Equity Creditors

Total

On March 31, Suresh withdraws Rs 3500 from business for personal use. 3500 Balance Sheet March 31, 2010 Equity 61300 Cash 13300 Creditors 24000 Debtors 8000 Suppies 6000 Equipment- Computer 8000 5 Total 85300 85300 The following is the summary of the Softomation transactions during March 2010 On March 1, 2010, Suresh invests Rs 50,000 in cash. 50000 On March 2, Suresh takes a loan of Rs 20000 from Manish for Softomation 20000 On March 3, Softomation buys a computer costing Rs 58000 in cash 58000 On March 4, Softomation buys computer supplies for 6000 on credit. 6000 On March 19, Softomation receives Rs 12000 for providing softwore services. 12000 On March 21, Softomation pays Rs 2000 to the creditor for supplies. 2000 On March 29, Softomation pays employees salary Rs 4000, and office rent Rs 1200. 4000 1200 On March 30, Softomation provides software services worth Rs 8000 on credit to a retail store 8000 On March 31, Suresh withdraws Rs 3500 from business for personal use. 3500 Effects of Transaction on Accounting Equation Assets Cash 50000 50000 20000 70000 -58000 + Debtors + 0 + 0 + 0 + 0 + 0 + Supplies + 0 + 0 + 0 + 0 + 0 + + + + + + Equipment 0 0 0 0 58000

Asset Use

= Liabilities = Creditors = 0 = 0 = 20000 = 20000 = 0

March 1 Balance March 2 Balance March 3

Balance March 4 Balance March 19 Balance March 21 Balance March 29 Balance March 30 Balance March 31 Balance

12000 0 12000 12000 24000 -2000 22000 -5200 16800 0 16800 -3500 13300

+ + + + + + + + + + + + +

0 0 0 0 0 0 0 0 0 8000 8000 0 8000

+ + + + + + + + + + + + +

0 6000 6000 0 6000 0 6000 0 6000 0 6000 0 6000

+ + + + + + + + + + + + +

58000 0 58000 0 58000 0 58000 0 58000 0 58000 0 58000

= = = = = = = = = = = = =

20000 6000 26000 0 26000 -2000 24000 0 24000 0 24000 0 24000

Softomation Profit & Loss A/c for the month ended March 31, 2010 Particulars Rs Revenues: Revenues from services Expenses: Salaries Expense 4000 Rent Expense 1200 Total Expenses Net Profit

Rs 20000

5200 14800

Softomation Balance Sheet as on March 31, 2010 Equity and Liabilities Equity: Capital Invested Add: Profit Less: Drawings Creditors Rs 50000 14800 64800 3500 Rs Assets Cash Debtors Suppies Equipment- Computer 61300 24000 Rs 13300 8000 6000 58000

Total

85300

85300

Softomation Cash Flow Statement for the month ended March 31, 2010 Particulars Cash flow from operating activities Cash received from software services Cash paid to suppliers

Rs 12000 -2000

Rs

Salaries paid Rent paid Net cash provided by the operating activities Cash flow from investing activities Purchase of equipment Net cash used in investing activities Cash flow from financing activities activities Capital invested by Suresh Loan from Manish Drawings made by Suresh Net cash provided by financing activities Net increase in cash Add: Opening cash balance Closing cash balance

-4000 -1200 4800

-58000 -58000

50000 20000 -3500 66500 13300 0 13300

Illustration On Jan 1, 2010, Qualphoto Company was incorporated. The following transactions took place during the first month: 2010 Jan

1 2 5 7 13 18 22 27 31

The company issued 3,000 shares of Rs 10 each 3000 10 Bought supplies of photographic material on credit, Rs 9000. 9000 Bought photographic equipment for cash , Rs 12,000. 12000 Received fees for photographic services, Rs 15,000. 15000 Paid creditors for supplies Rs 5000. 5000 Took a loan for Rs 12000. 12000 Billed customer for services Rs 19000. 19000 Paid office rent Rs 2500, and clectricity charges Rs 1200. 2500 1200 Paid dividend Rs 4000. 4000

Required 1 Analyze the effects of these transaction on the accounting equation. 2 Prepare profit and loss account for the month of January, balance sheet as on Jan 31, 2010 and cash flow statement for the month of Jan. Solution 1 Effect of transaction on accounting equation (amounts are in rupees) Assets Cash 30000 30000 0 30000 + Debtors + 0 + 0 + 0 + 0 + Supplies + 0 + 0 + 9000 + 9000 + + + + + Equipment 0 0 0 0 = Liabilities = Creditors = 0 = 0 = 9000 = 9000

Jan 1 Balance Jan 2 Balance

Jan 5 Balance Jan 7 Balance Jan 13 Balance Jan 18 Balance Jan 22 Balance Jan 27 Balance Jan 31 Balance

-12000 18000 15000 33000 -5000 28000 12000 40000 40000 -3700 36300 -4000 32300

+ + + + + + + + + + + + + +

0 0 0 0 0 0 0 0 19000 19000 19000 19000

+ + + + + + + + + + + + + +

9000 9000 9000 9000 9000 9000 9000

+ + + + + + + + + + + + + +

12000 12000 12000 12000 12000 12000 12000 12000

= = = = = = = = = = = = = =

0 9000 0 9000 -5000 4000 12000 16000 0 16000 0 16000 0 16000

Qualphoto Company Profit & Loss A/c for the month ended Jan 31, 2010 Particulars Revenue: Fees revenue Expenses: Rent Expense Electricity Expense Total Expenses Net Profit

Rs

Rs 34000

2500 1200 3700 30300

Qualphoto Company Balnce Sheet as on Jan 31, 2010 Equity and Liabilities Rs Rs Assets Share Capital 30000 Cash + Net profit 30300 Debtors 60300 Supplies - Dividend 4000 Equipment 56300 Creditors 16000 72300 Cash Flow Statement for the month ended Jan 31, 2010 Particulars Rs Cash flow from operating activities Cash received from fees 15000 Cash paid to suppliers -5000 Rent paid -2500 Electricity charges paid -1200 Net cash provided by the operating activities Cash flow from investing activities Purchase of equipment Net cash used in investing activities

Rs 32300 19000 9000 12000

72300

Rs

6300

-12000 -12000

Cash flow from financing activities activities Proceeds from issue of shares Loan taken Dividend paid Net cash provided by financing activities Net increase in cash Add: Opening cash balance Closing cash balance

30000 12000 -4000 38000 32300 0 32300

Page-55 Problem 1C.5 Cash 2010, Nov. 1 7000 a -5000 Bal 2000 b 15000 Bal 17000 c -1000 Bal 16000 d -800 Bal 15200 e 400 Bal 15600 f -200 Bal 15400 g Bal 15400 h -1000 Bal 14400 i -300 Bal 14100 j -9000 Bal 5100 k -4000 Bal 1100 Assets = Debtors Office Supplies VDs D 1000 500 42000 5000 1000 500 47000 1000 1000 1000 -400 600 600 600 600 600 600 600 500 500 500 500 200 700 700 700 700 700 700 47000 47000 47000 47000 47000 2000 49000 49000 49000 49000 49000 Liabilities Creditors 9000 9000 9000 9000 9000 9000 9000 2000 11000 -1000 10000 10000 -9000 1000 1000 + Equity Share Capital Retained Profit 20000 21500 20000 20000 20000 20000 20000 20000 20000 20000 20000 20000 20000 21500 15000 36500 -1000 35500 -800 34700 34700 34700 34700 34700 -300 34400 34400 -4000 30400

Profit & Loss A/c for the month ended Nov. 30 Revenues: DVD hire charges 15000 Expenses: Store rent 1000 Salary 800 Telephone charge 300 2100 Net Profit 12900

Liabilities & Equity Share Capital Retained Profit Creditors Total

Balance Sheet as on Nov. 30 Rs Assets 20000 DVDs 30400 Office Supplies 50400 Debtors 1000 Cash 51400

Rs 49000 700 600 1100 51400

Cash Flow Statement for the month ended on Nov. 30 Cash flows from operating activities: DVD hire charges received 15000 Received from customers 400 Store rent paid -1000 Salary paid -800 Paid to suppliers -200 Telephone charges paid -300 Paid to creditors -9000 Net cash provided by operating activities Cash flows from investing activities: DVD purchased -5000 Payment made to supplier of DVD -1000 Net cash used by investing activities Cash flows from financing activities: Dividend paid -4000 Net cash uses by financing activities Net decrease in cash Add: Opening cash balance Closing cash balance

4100

-6000

-4000 -5900 7000 1100

Business Decision Case Assets = Liabilities + Equity Cash Debtors Office Supplies Prepaid Expenses Deposit Creditors Unearned Revenue Capital Share Retained Profit Owners' contributio n 40000 40000 Bal 40000 0 0 0 0 40000 0 Loan taken 10000 10000 Bal 50000 0 0 0 10000 40000 0 Deposit to landlord -40000 Bal 10000 Customer billed Bal 10000 Recd. Ser Rev.5800 Bal 15800 Rec. from customers

0 25700 25700 25700

40000 40000

10000

40000

0 25700 25700 5800 31500

0 0

40000 40000

10000 10000

40000 40000

11300

-11300

Bal 27100 Paid for office supplies -1200 Bal 25900 Unearned rev. 3000 Bal 28900 Int. recd. 320 Bal 29220 Prepaid exp. -10000 Bal 19220 Exp. Incurred Bal 19220 Salary paid -6000 Bal 13220

14400

40000

10000

40000

31500

14400 14400 14400 14400 14400 14400

1200 1200 1200 1200 1200 1200 1200

40000 40000 40000 10000 40000 -10000 40000 40000 0

0 10000 10000 10000 10000 10000 10000 3000 3000 3000 3000 3000 3000

40000 40000 40000 40000 40000 40000

31500 31500 320 31820 31820 -10000 21820 -6000 15820

Profit & Loss A/c for the month ended Nov. 30 Revenues: Service revenue 31500 Interest revenue 320 31820 Expenses: Computer rental and database fees 10000 Salary 6000 Net Profit 16000 15820 Balance Sheet as on Nov. 30 Rs Assets Deposit Office Supplies 55820 Debtors 10000 Cash 3000 68820

Liabilities & Equity Share Capital 40000 Retained Profit 15820 Creditors Unearned Revenue Total

Rs 40000 1200 14400 13220 68820

Cash Flow Statement for the month ended on Nov. 30 Cash flows from operating activities: Cash received from service revenue 5800 Received from customers 14300 Computer rent, database fees and salary paid -10000 Salary paid -6000 Paid to suppliers -1200 Interest received 320 Net cash provided by operating activities 3220 Cash flows from investing activities: Security deposit -40000 Net cash used by investing activities -40000 Cash flows from financing activities: Proceed from issue of shares 40000 Loan taken 10000 Net cash provided by financing activities 50000

Net decrease in cash Add: Opening cash balance Closing cash balance

13220 0 13220

Page-101 Problem-2B.4 Journal Entries Date Particulars May-01 Cash a/c Dr To Share Capital a/c 2 No entry

LF

Dr (Rs) Cr 30000

(Rs) 30000

3 Prepaid Office Rent Expense a/c Dr To Cash a/c 4 Equipment a/c To Creditors a/c 5 No entry 15 Debtors a/c Dr To Service Revenue a/c 18 Electricity Expense a/cDr To Cash a/c 23 Cash a/c Dr To Unearned Revenue a/c 28 Supplies a/c To Creditors a/c Dr Dr

1000 1000 6000 6000

18300 18300 260 260 9800 9800 800 800 4000 4000 3500 3500

29 Computer Rental Expense a/c Dr To Cash a/c 30 Salaries Expense a/c To Cash a/c Jun-01 Cash a/c To Debtors a/c 2 Creditors a/c To Supplies a/c 6 Creditors a/c To Cash a/c Dr

14700 14700

Dr

240 240

Dr

6000 6000 2300 2300 560

10 Cash a/c Dr To Service Revenue a/c Jun-13 Creditors a/c Dr

To Cash a/c Jun-18 Telephone Expense a/c Dr To Cash a/c Jun-20 Unearned Revenue a/c Dr To Service Revenue a/c To Cash a/c Jun-27 Electricity Expense a/cDr To Cash a/c Jun-28 Salaries Expense a/c Dr To Cash a/c Jun-29 Computer Rental Expense a/c Dr To Cash a/c Jun-30 Dividend a/c To Cash a/c Dr 840

560

840 9800 9200 600 310 310 3500 3500 4000 4000 1200 1200

Ledger Dr Cash a/c Dare Particulars JF Amount (Rs) Date May-01 To Share Capital a/c 30000 May-03 May-23 To Unearned Revenue a/c 9800 May-18 May-20 May-30 May-31 39800 Jun-01 To Balnce b/d 31040 Jun-06 Jun-01 To Debtors a/c 14700 Jun-13 Jun-10 To Service Revenue a/c 2300 Jun-18 Jun-20 Jun-27 Jun-28 Jun-29 Jun-30 Jun-30 48040 Jul-01 31030 Dr Share Capital a/c Dare Particulars JF Amount (Rs) Date May-31 To Balnce c/d 30000 May-01 30000 Jun-30 To Balnce c/d 30000 Jun-01 30000 Jul-01 Dr

Cr ParticularsJF Amount (Rs) By Prepaid Office Rent Expense1000 a/c By Electricity Expense a/c 260 By Computer Rental Expense a/c 000 4 By Salaries Expense a/c 3500 By Balance c/d 31040 39800 By Creditors a/c 6000 By Creditors a/c 560 By Telephone Expense a/c 840 By Unearned Revenue a/c 600 By Electricity Expense a/c 310 By Salaries Expense a/c 3500 By Computer Rental Expense a/c 000 4 By Dividend a/c 1200 By Balance c/d 31030 48040 Cr Amount (Rs) 30000 30000 30000 30000 30000 Cr

ParticularsJF By Cash a/c By Balnce b/d By Balnce b/d

Prepaid Office Rent Expense a/c

Dare Particulars JF May-03 To Cash a/c Jun-01 To Balnce b/d Jul-01 To Balnce b/d Dr Dare Particulars JF May-04 To Creditors a/c Jun-01 To Balnce b/d Jul-01 To Balnce b/d Dr Dare

Amount (Rs) Date ParticularsJF 1000 May-31 By Balance c/d 1000 1000 Jun-30 By Balance c/d 1000 1000 Equipment a/c Amount (Rs) Date ParticularsJF 6000 May-31 By Balance c/d 6000 6000 Jun-30 By Balance c/d 6000 6000 Creditors a/c Amount (Rs) Date May-04 6800 May-28 6800 240 Jun-01 6000 560 6800

Amount (Rs) 1000 1000 1000 1000

Cr Amount (Rs) 6000 6000 6000 6000

Particulars

JF

May-31 To Balnce c/d Jun-02 To Supplies a/c Jun-06 To Cash a/c Jun-13 To Cash a/c

ParticularsJF By Equipment a/c By Supplies a/c To Balnce b/d

Cr Amount (Rs) 6000 800 6800 6800

6800 Cr Amount (Rs) 18300 18300 14700 3600 18300

Dr Debtors a/c Dare Particulars JF Amount (Rs) Date May-15 To Service Revenue a/c 18300 May-31 18300 Jun-01 To Balnce b/d 18300 Jun-01 Jun-30 18300 Jul-01 To Balnce b/d 3600 Dr Dare Particulars JF May-31 To Balnce c/d

ParticularsJF By Balance c/d By Cash a/c By Balance c/d

Jun-30 To Balnce c/d

Service Revenue a/c Cr Amount (Rs) Date ParticularsJF Amount (Rs) 18300 May-15 By Debtors a/c 18300 18300 18300 Jun-01 By Balnce b/d 18300 Jun-10 By Cash a/c 2300 29800 Jun-20 Unearned Revenue a/c 9200 29800 29800 Jul-01 By Balnce b/d 29800

Dr Dare Particulars May-18 Cash a/c

JF

Jun-01 To Balnce b/d Jun-27 To Cash a/c

Electricity Expense a/c Amount (Rs) Date ParticularsJF 260 May-31 By Balance c/d 260 260 310 Jun-30 By Balance c/d

Cr Amount (Rs) 260 260 570

Jul-01 To Balnce b/d Dr Dare Particulars JF May-31 To Balnce c/d

570 570

570

Unearned Revenue a/c Amount (Rs) Date ParticularsJF 9800 May-23 By Cash a/c 9800 Jun-20 To Service Revenue a/c 9200 Jun-01 To Balnce b/d Jun-20 To Cash a/c 600 9800 Supplies a/c Amount (Rs) Date 800 May-31 800 800 Jun-02 Jun-30 800 560

Cr Amount (Rs) 9800 9800 9800 9800 Cr Amount (Rs) 800 800 240 560 800

Dr Dare Particulars JF May-28 To Creditors Jun-01 To Balnce b/d

ParticularsJF By Balance c/d By Creditors a/c By Balance c/d

Jul-01 To Balnce b/d Dr Dare Particulars JF May-20 To Cash a/c Jun-01 To Balnce b/d Jun-29 To Cash a/c Jul-01 Dr Dare Particulars JF May-30 To Cash a/c Jun-01 To Balnce b/d Jun-28 To Cash a/c Jul-01 To Balnce b/d Dr Dare Particulars JF Jun-18 To Cash a/c Jul-01 To Balnce b/d Dr Dare Particulars Jun-30 Cash a/c

Computer Rental Expense a/c Amount (Rs) Date ParticularsJF 4000 May-31 By Balance c/d 4000 4000 4000 Jun-30 By Balance c/d 8000 8000 Salaries Expense a/c Amount (Rs) Date ParticularsJF 3500 May-31 By Balance c/d 3500 3500 Jun-30 By Balance c/d 3500 7000 7000 Telephone Expense a/c Amount (Rs) Date ParticularsJF 840 Jun-30 By Balance c/d 840 840 Dividend a/c Amount (Rs) Date ParticularsJF 1200 Jun-30 By Balance c/d 1200 1200

Cr Amount (Rs) 4000 4000 8000 8000

Cr Amount (Rs) 3500 3500 7000 7000

Cr Amount (Rs) 840 840

JF

Cr Amount (Rs) 1200 1200

Jul-01 To Balnce b/d

Trial Balance as on May 30, 2010

Sl. No. 1 2 3 4 5 6 7 8 9 10 11 12

Particulars LF Dr (Rs) Cr (Rs) Cash a/c 31040 Share Capital a/c 30000 Prepaid Office Rent Expense a/c 1000 Equipment a/c 6000 Creditors a/c 6800 Debtors a/c 18300 Service Revenue a/c 18300 Electricity Expense a/c 260 Unearned Revenue a/c 9800 Supplies a/c 800 Computer Rental Expense4000 a/c Salaries Expense a/c 3500 64900 64900

Sl. No. 1 2 3 4 5 6 7 8 9 10 11 12

Trial Balance as on June 30, 2010 Particulars LF Dr (Rs) Cr (Rs) Cash a/c 31030 Share Capital a/c 30000 Prepaid Office Rent Expense a/c 1000 Equipment a/c 6000 Debtors a/c 3600 Service Revenue a/c 29800 Electricity Expense a/c 570 Supplies a/c 560 Computer Rental Expense8000 a/c Salaries Expense a/c 7000 Telephone Expense a/c 840 Dividend a/c 1200 59800 59800

uter software. The transactions of Asset Source

Asset Source

Asset Exchange

Asset Source

Asset Source

Asset Use

Asset Use

Asset Source

Asset Use

+ Equity + + + + + + Equity 50000 50000 0 50000 0

+ + + + + + + + + + + + +

50000 0 50000 12000 62000 0 62000 -5200 56800 8000 64800 -3500 61300

the first month:

010 and cash flow

+ Equity + Shareholders' Equity + 30000 + 30000 + 0 + 30000

+ + + + + + + + + + + + + +

0 30000 15000 45000 0 45000 0 45000 19000 64000 -3700 60300 -4000 56300

Profit & Loss A/c Cash Flow Statement Revenue Expense Operating Investing Financing -5000 15000 1000 800 15000 -1000 -800 400 -200

-1000 300 -300 -9000 -4000 -4000

15000

2100

4100

-6000

Profit & Loss A/c Cash Flow Statement Revenue Expense Operating Investing Financing

40000 0 0 10000

-40000

25700 5800 5800

11300

-1200 3000 320 320 -10000 10000 6000 16000 -6000 3220 0

31820

-40000

50000