Ans.

1
Cash a/c dr. 500000 500000 40000 40000 50000 50000

To Capital a/c Purchase a/c dr. To Cash a/c Furniture a/c dr. To Cash a/c Assets a/c dr. 100000 To Cash a/c Purchase a/c dr. To Cash a/c Purchase a/c dr. 2500 30000

100000

30000

To Sundry Creditor a/c Cartage a/c 2500 2500

2500

To Cash a/c Cash a/c dr. 25500

To Sales a/c Cash a/c dr. 2400

25500

To Sales a/c Mahendra a/c dr. 4650 To Sales a/c Freight a/c dr. 120 To Cash a/c

2400

4650

120

Bank a/c dr. 8000 To Cash a/c 8000 Cash a/c dr. 5000 5000

To Bank a/c Cash a/c dr. 3000

To Bank a/c

3000 1650 1650

Provision for bad debts a/c dr. To Mahendra a/c Salary expenses a/c dr.4600 To Cash a/c

4600

Ans no. 2
(i) Profit for the year is calculated by subtracting the expenses from the revenue. As, matching concept is the significant relation between revenue and expenses of the business, it has been applied in the treatment of profit for the year. Accounting cost concept states that all assets are recorded in the books of accounts at their purchase price, which includes cost of acquisition,transportation, and installation and not at its market price.It includes all types of assets like plant and machinery, building,stock,vehicle and so on. Thus, for the treatment of Stock cost concept is applied.

(ii)

Morgan's Balance Sheet as at 31st August 2006
Capital & Liabilities Amount Capital Profit of the year Loan from Nicola repayable 2011 Assets 9000Machinery 18,000Office equipment 5000Cash Debtors Amount 7000 2500 200 3500

Provision for depreciation Accrued expenses Creditors Bank Total

2400Prepayments Stock 300Drawings 1800 2200 38,700.00 Total

600 3900 21,000 38,700.00

(iii) To eliminate or reduce the bank overdraft, morgan should pay the money to the bank. So, he needs to maximize his business profit. (iv) There will be no effect on bank overdraft and it remains Rs.2200 as loan is not taken from the bank loan account will increase as Morgan already had loan from Nicola of Rs. 5000 and with addition of Rs.20,000 as on 1st september 2006, total loan accounts of morgan holds Rs.25,000. Profit for the year will decrease as the interest to be paid to Nicola will increase with the increment of loan amount. Capital will have no effect as owners equity is independent of the loan account.

Ans 3. Journal Entries: 1. Purchase a/c dr. 3000 To Abraham a/c 3000

(Being goods purchase from Abraham on credit) 2. Abraham a/c dr. 18000 To Bank a/c 18000

(Being amount paid by bank)

3. Abraham a/c dr. 6000 To Sales a/c 6000

(Being goods sold on credit to abraham) 4. Cash a/c dr. 2000 To Abraham a/c 2000 (Being cash received from abraham) 5. Sales return a/c dr. To Abraham a/c (Being goods return from Abraham) 6. Purchase a/c dr. 3000 Purchase a/c dr. 2000 To Cash a/c To Abraham a/c 3000 2000 500 500

(Being goods purchase from Abraham & immediately paid of 1st purchased) 7. Abraham a/c dr. To Cash a/c 3500 3500

(Being amount paid to Abraham by cash) Ledgers:

Abraham a/c
Date Jan 1 Jan 2 Jan 6 Jan 8 Jan 13 Jan 17 Jan 20. Particulars Purchase a/c Bank a/c Sales a/c Cash a/c Sales return a/c Purchase a/c Cash a/c Dr. 18000 6000 2000 500 2000 3500 20000 Dr. Cr. 3000 Balance Remarks

Purchase a/c
Date Jan1 Jan 17 Jan 17 Particulars Abraham a/c Abraham a/c Cash a/c Dr. 3000 2000 3000 Cr. Balance 8000 Dr. Remarks

Bank a/c
Date Jan 2 Particulars Abraham a/c Dr. Cr. 18000 Balance 18000 Cr. Remarks

Sales a/c
Date Jan 6 Particulars Abraham a/c Dr. Cr. 6000 Balance 6000 Cr. Remarks

Sales Return a/c
Date Jan 13. Particulars Abraham a/c Dr. 500 Cr. Balance 500 Dr. Remarks

Cash a/c
Date Jan 8. Jan 17 Jan 20 Particulars Abraham a/c Purchase Abraham Dr. 2000 Cr. 3000 3500 Balance 4500 Cr. Remarks

Trial Balance
Description Abraham Purchase Bank a/c Sales Sales return Cash Dr. Amount 20000 8000 500 ________ Cr. Amount 18000 6000 __4500

Total

___28500

_28500

CASE STUDY Ans. no.1 Dr. Loniak has probably invested CASH, BUILDING,VAN,STOCK OF MEDICINES and VACCINATIONS, FURNITURE, LAB EQUIPMENTS in her business. The basic accounting equation is

ASSETS= LIABILITIES+OWNER'S EQUITY
Thus, in her business the accounting equation can be,

CASH+BUILDING+VAN+STOCK+FURNITURES+LAB EQUIPMENTS = CREDITORS+ BANK LOAN +CAPITAL
Ans. no.2 CASH, BUILDING,VAN,STOCK OF MEDICINES and VACCINATIONS,FURNITURES,LAB EQUIPMENTS, GOODWILL can be the assets of the given business. BANK LOAN, CREDITORS can be the liabilities of her business. Ans. no.3 If Dr. Loniak receives a cash payment for a visit. It records the real things,assets,property of the business. So, it comes under real account. Cash a/c dr. To income on service a/c Ans.no.4. Similarly, if Dr. Loniak wrote a check to pay for new veterinary equipment to be used. It is a real account. Veterinary equipment a/c dr. To Bank a/c ZZZ ZZZ XXX XXX

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