1. while an asset is increasing in a concern, it must be
debit
eg. while purchasing furniture, debit the Furniture
2. while asset is decreasing, it must be credit
eg. when giving cash cash will be credit
example of comprises of above two transaction
when purchasing furniture for cash
Debit- Furniture
Credit- Cash
3.When increasing Liability, it must be credit.
eg. when we purchase something by credit it increasing our
liability.
entry-
when we are purchsing furniture by credit from Mr.ABC
the entry will be-
Debit- Furniture (increasing furniture)
Credit- Mr.ABC (increasing Liability)
4. When decreasing liability it must be debit.
eg. when paying cash to the person, if we are payable to
him.
eg.When paying cash to MR.ABC
entry -
Debit-Mr.ABC(decreasing our liability)
Credit-Cash (decreasing Asser)
Personal A/c:
Benefit receiver is Debit,Benefit giver is Credit as per
Personal A/c.
Exp-We are give to cash Mr.x entry is
Mr.X A/c Dr
To Cash A/c
(Being cash Paid to Mr.X here X is Person benefit reciver it
is personal A/c, Cash is a real A/c this is goes to outside
this entry is as per Personal& Real A/c)
Real A/c:
What comes in is Debit, What goes out is Credit as per
Real A/c,
Exp-We are Received cash fromMr.X entry is
Cash A/c Dr
To Mr.X A/c
(Being Cash Received from Mr.X)
Nominal A/c:
All losses,Expenditure are Debit,All gains,profits are
Credit as per nominal A/c.
Exp:-We are Pay amount for telephoine Expences that entry is
Telephone Expences A/c Dr
To cash A/c
(Being cash Paid against to Telephone Expences)here
telephone expences is expenditure for the companyit is a
nominal a/c, cash is a Real a/c,
Exp;we are get discount
cash A/c Dr
To Receive Discount
Being we are get the Discount here discount is we are get it
is Profit , cash is a real as per nominal A/c & real A/c
2. You are required to prepare a Profit & Loss
Account for the year ending 31st December, 2007 and the
Balance Sheet on that date. The Trial Balance of XYZ Ltd.
for the year ended 31st December 2007 is as follows:-
Trial Balance of XYZ Ltd. as on 31st Dec. 2007
Debit Balances
Rs.
Credit Balances
Rs.
Materials used
3,50,000
Sales(including 2% Sales tax)
9,18,000
Cost of Labour
1,50,000
Sale of Scrap
100
Stock, finished and work in process on 31st December, 2006
50,000
Rent received
2,000
Wages : Factory Staff
15,000
Discounts
2,750
Directors Remuneration
50,000
Recovered against fire claim re : Stock
5,000
Salaries : Clerical Staff
75,000
Capital : Equity
25,000
Insurances : Workmen’s Compensation
1,500
Preference- 9%
8,000
General, fire etc.
2,000
Creditors
1,56,000
Directors’ Life Insurance
1,500
Provision for Taxation
1,05,000
Maintenance : Buildings
1,000
Profit & Loss Account
13,750
Plant and Machinery
12,500
Rent and Rates of premises and hire of plant
20,000
Heat, Light and Power
15,000
Experimental and Laboratory Expenses
10,000
Canteen Expenses
5,000
Staff Welfare expenses
2,500
Motor Expenses
12,500
Professional Charges
2,800
Postage and Telephone
3,500
Books, Printing and Stationery
11,000
Sundry expenses
10,000
Carriage and Packing on Sales
3,300
Discounts
5,000
Debtors
1,78,000
Freehold Property
50,000
Plant and Machinery
12,500
Fixtures and Fittings – Offices
3,500
Office machinery and Equipment
3,000
Motor Car and Van
6,500
Stock of materials on 31st Dec. 2007
1,20,000
Bank
38,000
Sales Tax Paid
15,000
12,35,600
12,35,600
Depreciation is to be provided at the following rates:
Plant and Machinery
10%
Fixture and
Fittings 05%
Office Machinery, etc.
10%
Motor Vans and Cars
25%
The stock of finished goods and work in progress as on 31st
December, 2007 was Rs. 35,000. Provide for preference
dividend and ordinary dividend at 10%. The total taxation
liability is estimated at Rs.1,50,000 of which Rs. 75,000
relates to the current year.
Debtors include Rs. 10,000 deposited as security against
government contracts.
The Works Manager is paid partly by salary and partly by a
commission; he is entitled to a commission of 5% on the
amount by which the surplus in the factory cost exceeds 20%
of the sales for the period. Charge the commission if any
in the Profit and Loss Account.
The Trial Balance of M/S Ram & Co,Shows chosing stock of
Rs,30000. It will be recorded in: - ..................
(a) Trading A/c; (b) Profit & Loss A/c; (c) Balance Sheet;
(d) Both (a) & (b)
I am completed MBA finance & Mcom, I had 8 years experience
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