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PRINCIPLES

OF

ACCOUNTING

ASSETS
ALL ECONOMIC RESOURCES OWNED BY A BUSINESS TO
GET FUTURE BENEFITS
FOR EXAMPLE
CASH, MACHINE, EQUIPMENT, BUILDING

EXPENSE
AMOUNT PAID FOR BUSINESS
ACTIVITIES

RENT EXPENSE
SALARIES EXPENSE
REPAIR EXPENSE
INSURANCE EXPENSE
UTILITIES CHARGES

REVENUE
SOURCES TO EARN INCOME
COMMISSION

INCOME
SERVICE INCOME
SALES REVENUE
INTEREST INCOME
RENT INCOME

LIABILITY
AMOUNT DUE ON BUSINESS
LOAN

TAKEN FROM BANK


GOODS BOUGHT WITHOUT
PAYMENT
SERVICES TAKEN ON CREDIT
EXPENSES DUE BUT NOT PAID

CAPITAL
AMOUNT INVESTED BY OWNER
IN BUSINESS
NATURE OF ACCOUNT
1.
2.
3.
4.
5.

ASSETS
EXPENSE
LIABILITIES
REVENUE
CAPITAL/OWNERS EQUITY

DEBIT

CREDIT

LEFT

SIDE OF ACCOUNT IS DEBIT


RIGHT SIDE OF ACCOUNT IS
CREDIT
DEBIT
LEFT SIDE OF ACCOUNT

CREDIT
RIGHT SIDE OF ACCOUNT

RULES OF DEBIT AND


CREDIT
INCREASE

OF

ASSET
INCREASE OF
EXPENSE
DECREASE OF
LIABILITY
DECREASE OF
REVENUE
DECREASE OF
CAPITAL

DECREASE

OF

ASSET
DECREASE OF
EXPENSE
INCREASE OF
LIABILITY
INCREASE OF
REVENUE
INCREASE OF
CAPITAL

ANALYSIS OF BUSINESS TRANSACTIONS


TITLE

OF ACCOUNT ( at least

two)
NATURE OF ACCOUNT ( any of
five)
INCREASE OR DECREASE
DEBIT OR CREDIT

Q:PURCHASE FURNITURE FOR


CASH RS.4000
FURNITURE

CASH A/C
ASSET
INCREASE
DECREASE
DEBIT

A/C
ASSET

CREDIT

Q: PURCASHE MACHINE FOR


CASH RS.5000
MACHINE

A/C

A/C
ASSET
INCREASE
DECREASE
DEBIT

CASH
ASSET

CREDIT

Q:PURCASHE OFFICE SUPPLIES


FOR CASH RS.700
OFFICE

SUPPLIES

A/C
ASSES
INCREASE
DECREASE
DEBIT

CASH
ASSET

CREDIT

Q:CASH DEPOSITED IN BANK


A/C RS.25,000
BANK

A/C

A/C
ASSET
INCREASE
DECREASE
DEBIT

CASH
ASSET

CREDIT

CASH WITHDREW FROM BANK


FOR OFFICE RS.5000
CASH

A/C

A/C
ASSET
INCREASE
DECREASE
DEBIT

BANK
ASSET

CREDIT

PURCAHSE MERCHANDISE FOR


CASH RS. 10,000
PURCHASES

A/C
ASSET
INCREASE
DECREASE
DEBIT

A/C

CASH
ASSET

CREDIT

PURCASHE EQUIPMENT AND


PAID BY CHEQUE RS.36,000
EQUIPMENT
ASSET

A/C

BANK
ASSET

INCREASE

DECREASE
DEBIT

CREDIT

Q.PAID RENT EXPENSE


RS.4000
RENT

EXPENSE
EXPENSE
INCREASE
DECREASE
DEBIT

CASH
ASSET

CREDIT

Q.RECEIVED CONSULTING FEE


INCOME RS.25,000
CASH
ASSET
INCREASE
DEBIT

FEE INCOME
REVENUE
INCREASE
CREDIT

BILLED TO MR.AMIR FOR


SERVICES GIVEN ON CREDIT
RS. 32,000
A/C

RECEIVABLE(AMIR)
ASSET
INCREASE
DEBIT

FEE INCOEM
REVENUE
INCREASE
CREDIT

RECEIVED CASH FROM


MR. AMIR RS.20,000
CASH

A/C
RECEIVABLE(AMIR)
ASSET
ASSET
INCREASE
DECREASE
DEBIT
CREDIT

PURCASHE COMPUTER ON
CREDIT FROM REHMAN
RS.30,000
EQUIPMENT
ASSET
INCREASE
DEBIT

A/C PAYABLE(Rehman)
LIABILITY
INCREASE
CREDIT

PAID BY CHEQUE TO
MR. REHMAN RS. 10,000
A/C

PAYABLE(Rehman)

A/C
LIABILITY
DECREASE
DEBIT

BANK
ASSET
DECREASE
CREDIT

MR.ABID INVESTED IN
BUSINESS RS.100,000
CASH

A/C
ASSET
INCREASE
DEBIT

CAPITAL-ABID
CAPITAL
INCREASE
CREDIT

MR. ABID WITHDRAW FROM


BUSINESS FOR PERSONAL USE
RS.6000
DRAWING-ABID
CAPITAL
DECREASE
DEBIT

CASH A/C
ASSET
DECREASE
CREDIT

MR.ABID
GENERAL JOURANL
DATE DESCRIPTION

P/R DEBIT

CREDIT

MR.ABID
GENERAL JOURANL
DATE DESCRIPTION
1 Jan

Furniture a/c
Cash a/c
(Purchase furniture
by cash)

P/R DEBIT

CREDIT

4,000
4,000

MR.ABID
GENERAL JOURANL
DATE

DESCRIPTION

1 Jan

Furniture a/c
Cash a/c
(Purchase furniture by
cash)
Machine a/c
Cash a/c
(Purchase machine by
cash)
Office supplies
Cash a/c
(Purchase supplies )

2 Jan

3 Jan

P/R

DEBIT

CREDIT

4,000
4,000

5,000
5,000

700
700

Class activity
1.
2.
3.
4.
5.
6.
7.
8.
9.

Purchase supplies for cash Rs. 400


Purchase machine for cash Rs.7000
Services rendered to client for cash Rs.
5000
Cash deposited in bank a/c Rs. 10,000
Mr. Khalid invested in business Rs. 65,000
Services rendered to client on credit to
Baber Rs. 6000
Cash withdraw from bank for office Rs.500
Purchase computer on credit from Amir Rs.
20,000
Paid salaries expense by cheque Rs.

Class activity
Purchase

equipment for Rs.30,000


from Amir and paid cash Rs.20,000,
balance is payable
Sold merchandise for Rs.10,000 to
Baber and received cash Rs.6000,
balance is receivable
Paid to Amir by cheque Rs.4000
Received from Baber Rs.1000
Paid salaries expense by cheque
Rs.3000
Earned commission Rs 7000

CLASS ACTIVITY
Purchase

office building of
$256,600 of which $ 56,600 was
applicable to the land. A cash
payment of $156,600 was made
and accept a note for the
balance.

Prepare

Journal entry

ANSWER

DR

CR
BUILDING-----------200,000
LAND------------------56,600

CASH---------------------156,600

NOTE PAYABLE-------100,000

CLASS ACTIVITY
Five

computers were purchased


at $500 each from ABC Co. on
June 1. Firm paid cash $1500 and
balance will be paid in two
instalment of $500 each.

Prepare

Journal entry

ANSWER

DR

CR
EQUIPMENT ---------- 2500

CASH----------------------------1500

A/C PAYABLE(ABC)--------1000

CLASS ACTIVITY
One

of the computer got defect


and returned to ABC Co. ABC
company accepted to give
allowance of $500.

Prepare

Journal entry

ANSWER

DR

CR
A/c payable (ABC Co) 500

Equipment
500

CLASS ACTIVITY
Sold

old plant at $ 126,000 to Classic


Co. Client agree to pay cash $26,000
as down payment. The balance will
be paid in five installments after
every three months.

Prepare

Journal entry

ANSWER
DR

CR
Cash-------------------------

26,000
A/c Receivable-----------100,000

Plant--------------------------126,000

CLASS ACTIVITY
Mr Ahmer borrowed from MCB on five year term
Rs.1 million at 11.5% interest per annum. This
amount is deposited into business bank
account.
Prepare Journal entry

ANSWER
DR

CR
Bank

a/c --------------1,000,000

Loan payable------------------1,000,000

CLASS ACTIVITY

Mr.A started business with


Rs.50,000.
Paid rent for three months at
Rs.7500.
Bought office equipment from
B&Co. for Rs. 10000, paid to them
Rs.3000 and promised to pay the
balance after two months.
Rendered services to clients and
received cash Rs. 5000
Purchase supplies for cash Rs. 400

CLASS ACTIVITY
Paid

salaries to staff Rs. 5400


Bought furniture for Rs. 3200,paid
to K&Co. Rs.1200 and promised
to pay balance after one month
Withdrew cash for personal use
Rs. 3000
Billed to Nasir for services
rendered on credit Rs. 12500
Received from Nasir Rs.5000

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