Illustration :: Types/Kinds of Accounts :: Personal, Real, Nominal

... From Page 11

Accounting Transaction » Identifying Elements effected & Account Types

 
 
Your ability in accounting is directly proportional to your ability in analysing a transaction. The better your analysis, the greater your ability. Through the analysis you need to identify the two elements affected by the transaction and should be able to state the nature of the two elements..

We write down a lot of explanation in the initial stages of the learning process just to create an understanding relating to each transaction. All that can be eliminated and only the final answer need be considered.

Illustration » Problem

 
 
Identify the elements affected by the transaction given below and also state the nature of the elements
  1. Ibrahim a sole proprietor Commenced business with a capital of Rs. 2,00,000.
  2. Bought Furniture for cash Rs. 20,000.
  3. Paid Rent to the shop owner Mr. Murugan Rs. 5,000.
  4. Paid cash into bank Rs. 1,50,000
  5. Bought Goods for cash Rs. 10,000 from M/s Shamir Jain & Co.,
  6. Bought Goods on credit from M/s Ramdas & Bros. for Rs. 10,000.
  7. Sold goods for cash Rs. 12,000 to Mr. Naryan Tiwari
  8. Bought Machinery from M/s Boolani Machinery and paid by cheque Rs. 25,000.
  9. Sold goods on credit to Mr. Natekar for Rs. 8,000
  10. Paid weekly wages to workers Rs. 5,000
  11. Paid M/s Ramdas and Brothers by cheque Rs. 5,000
  12. Received from Mr. Natekar Rs. 2,000
  13. Received commission from M/s Orion Traders for giving a trade lead Rs. 500.

"accountancy,basic,financial,accounting,process"

Illustration » Solution

 
 
  1. Commenced Business with a Capital of Rs. 2,00,000.

    Capital a/c

    Person

    Personal a/c
    Cash a/c

    Tangible aspect/Asset

    Real a/c

  2. Bought Furniture for cash Rs. 20,000.

    Furniture a/c

    Tangible aspect/Asset

    Real a/c
    Cash a/c

    Tangible aspect/Asset

    Real a/c

  3. Paid Rent to the shop owner Mr. Murugan Rs. 5,000.

    Rent Paid a/c

    Expenditure

    Nominal a/c
    Cash a/c

    Tangible aspect/Asset

    Real a/c

    • Payee name irrelevant in Recording Expenses Incurred

    The amount paid to Mr. Murugan is towards the rent of the shop and therefore it would result in the organisational expenditure on rent increasing by Rs. 2,000. Though it is given to Mr. Murugan, the shop owner, it should not be interpreted as cash paid to Mr. Murugan. The information relating to the expenditure on account of rent is normally recorded using the account head Rent Paid a/c.

    However, the payee name would be considered where an outstanding amount has been recorded earlier

  4. Paid cash into bank Rs. 1,50,000

    Cash a/c

    Tangible aspect/Asset

    Real a/c
    Bank a/c

    Organisation

    Personal a/c

  5. Bought Goods for cash Rs. 10,000 from M/s Shamir Jain & Co.,

    Cash a/c

    Tangible aspect/Asset

    Real a/c
    Goods/Stock a/c

    Tangible aspect/Asset

    Real a/c
  6. Bought Goods on credit from M/s Ramdas & Bros. for Rs. 10,000.

    M/s Ramdas & Bros. a/c

    Organisation

    Personal a/c
    Goods/Stock a/c

    Tangible aspect/Asset

    Real a/c

  7. Sold goods for cash Rs. 12,000 to Mr. Naryan Tiwari.

    Cash a/c

    Tangible aspect/Asset

    Real a/c
    Goods/Stock a/c

    Tangible aspect/Asset

    Real a/c

  8. Bought Machinery from M/s Boolani Machinery and paid by cheque Rs. 25,000.

    Bank a/c

    Organisation

    Personal a/c
    Machinery a/c

    Tangible aspect/Asset

    Real a/c

    • Cash Purchase of Machinery

    Machinery being a tangible aspect is an asset. The information relating to machinery is identified using the account head Machinery a/c. Since it is an asset/tangible aspect it is a Real account. The fact that Machinery has been purchased from M/s Boolani Machinery is irrelevant here since there is no time gap between the transactions of purchase of machinery and payment for it.

    Since a cheque is issued, the amount available in the bank is reduced and not cash. Therefore Bank a/c is affected by the transaction.

  9. Sold goods on credit to Mr. Natekar for Rs. 8,000.

    Goods/Stock a/c

    Tangible aspect/Asset

    Real a/c
    Mr. Natekar a/c

    Person

    Personal a/c

  10. Paid weekly wages to workers Rs. 5,000

    Cash a/c

    Tangible aspect/Asset

    Real a/c
    Wages Paid a/c

    Expenditure

    Nominal a/c

    • Wages Paid » Recording the Expenditure

    Wages paid is expenditure. Generally, the information relating to this expenditure is maintained using the accounting head Wages Paid a/c.
  11. Paid M/s Ramdas and Brothers by cheque Rs. 5,000.

    M/s Ramdas & Bros. a/c

    Organisation

    Personal a/c
    Bank a/c

    Organisation

    Personal a/c

    • Cheque Payment

    Since the payment is made by cheque the amount available in the bank would be reduced i.e. Bank a/c would be affected and not Cash a/c.
  12. Received from Mr. Natekar Rs. 2,000

    Mr. Natekar a/c

    Person

    Personal a/c
    Cash a/c

    Tangible aspect/Asset

    Real a/c

  13. Received commission from M/s Orion Traders for giving a trade lead Rs. 500.

    Commission Received a/c

    Income

    Nominal a/c
    Cash a/c

    Tangible aspect/Asset

    Real a/c

    • Recording Income Received

    Commission received is income. Generally, the information relating to this income is maintained using the accounting head Commission Received a/c.

Practice Problems » Types/Kinds of Accounts

"accountancy,basic,financial,accounting,process"
Author Credit : The Edifier ... Continued Page 13

♣ Copyright Krishbhavara. All rights reserved ♣ Site optimized for Internet Explorer 5.5 and above