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Double Accounting System Equation

   

Added on  2020-05-28

13 Pages2609 Words130 Views
Answer Q1.Balance sheet equation or accounting equation is foundation of double accounting system. Theaccounting equation shows that all the assets are either financed by borrowing money or paying withthe money of the company’s shareholders. Thus the Accounting equation is: Assets = Liabilities +ShareholderEquity. Thus it represents the relationship between the assets, liabilities and owner’sequity of a business. The every transaction, the total debits are equal to the total credits. SiNoPeriodAssets(EURO)=Liabilities (EURO)+ShareHolder Equity(EURO)TotalRemarks1.1January 1, Year1 300,000 - 300,000 300,000 Share Issued1.2January 20, Year 1 35,000 35,000 - 35,000 Purchase of Fixed assets, and 50% paid though cash and 50% paidthough Bank loan1.3March 10, Year1 15,000 15,000 - 15,000 Purchase of Finished goods, 50% paid via bank and other on account1.4March 30, Year1 (30,000)- (30,000) (30,000)Salary Paid1.5July 1, Year 1 12,000 - 12,000 12,000 Rent income for 6 month1.6August 31, Year 1 470,000 - 470,000 470,000 Finished goods sold for EURO 500,000/-1.6September 31, Year 1- - - - Receipt of cash from Debtors1.7October 30, Year 1 (50,000) (50,000)- (50,000)Cash collected and also paid to Vendor1.8December 30, Year 1 (11,667)- (11,667) (11,667)Depreciation charged on fixed Assets1.9December 30, Year 1 (50,000)- (50,000) (50,000)Travelling expenses Paid for month of December1.10December 30, Year 1 (150,000)- (150,000) (150,000)Dividend PaidTotal 540,333 - 540,333 540,333 Working NoteCalculation of DepreciationDescriptionvalueLifeDepreciationBuilding50000510000Equipment2000036667Total7000016667

Answer Q. 22.1 Yes, there are errors in the given trial balance. After going through the stated trail balance we foundthat “Other revenue account”, “shorter loan” and “creditor account” (assuming that there is no anyadvance payment) are showing debit balance in place of credit Balance. Impact of these accounts havebeen recorded and rectified as per T-Accounting. We have also tried to show the impact oncorresponding account.Other RevenueDebtorsDebitCreditDebitCreditParticularsAmtParticularsAmtParticularsAmtParticularsAmtAs per Trial10000Need to be credited20000As per Trial50000(doubel impact)Need to be debited by 20000Bal10000Bal70000Bal0short term loanCashDebitCreditDebitCreditParticularsAmtParticularsAmtParticularsAmtParticularsAmtAs per Trial10000Need to be credited20000As per Trial5000(doubel impact)Need to be debited by 20000Bal10000Bal25000Bal0CreditorsPurchaseDebitCreditDebitCreditParticularsAmtParticularsAmtParticularsAmtParticularsAmtAs per Trial30000Neet to be credited60000As per Trial150000(doubel impact)Need to be debited by 60000Bal30000Bal210000Bal0

1.“Other revenue account” was debited in “trial balance” though it should have credit balance.Therefore “other revenue account” is credited by 20,000/- and “debtor account” is debited by20,000/-. Now Balance (ie. Credit) of other revenue account is 10,000/- and balance (debit) ofdebtor account is 70,000/-. 2.“Short term loan account” was debited in “trial balance” though it should have credit balance.Therefore, “Short term loan account” is credited by 20,000 and “cash account” is debited by 20,000.Now Credit Balance of Short term loan account is 10,000 and Debit balance of “cash account” is25000.3.“Creditor account” was debited in “trial balance” though it should have credit balance. Therefore, “creditor account” is credited with 60,000 and purchase account is debited by Rs. 60,000. Now Credit balance of creditors account is 30,000 and Debit balance of purchase account is 210,000.

2.2 Rectification entry passed as per T accounting i.e Debtor account is debited and Sales account iscredited with EURO 10,000/-Sales AccountDebtorsDebitCreditDebitCreditParticularsAmtParticularsAmtParticularsAmtParticularsAmtDetors10000Sales10000Bal10000Bal10000BalSales account is increased by 10,000 simultaneously debtors account is also increased by 10,000/-2.3 Rectification entry passed as per T accounting ie. Debtor account is debited and account payableaccount is credited with EURO 5000/-Account Payable AccountDebtorsDebitCreditDebitCreditParticularsAmtParticularsAmtParticularsAmtParticularsAmtDebtors5000Account Payable5000Bal0Bal5000Bal5000BalAccount payable is increased by 5000/- and debtors account is also increased by 5000/-2.4 Rectification entry passed as per T accounting i.e maintenance cost is credited and Assets tool isdebited with EURO 5000/-Maintenance CostAssets ToolDebitCreditDebitCreditParticularsAmtParticularsAmtParticularsAmtParticularsAmtAsses Tools5000Maintenance cost5000Bal0Bal5000Bal5000BalMaintenance cost is deducted by 5000/- and Assets tools account is increased by 5000/-. Now balance of maintenance cost account is decreased by 5000/- and balance of Assets tools increased by 5000/-

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