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SIMPLE SECRETS BEHIND

DIFFICULT
ACCOUNTING-CONCEPTS
(from scratch to balance sheet)
Volume – 1

By
A. Hari Prakash

Statistics
Pages 28
Words 5306
3 AUDIOBOOK COLLECTIONS

6 BOOK COLLECTIONS
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BEFORE YOU PROCEED

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Please note that ‘buck’ is a common word used for all currencies. Hence
amounts have been mentioned as ‘bucks’. Learners may substitute the
word ‘bucks’ with the currency of the country they live in or the currency
they are familiar with.

In case you find this study material useful, please recommend it to others.
If not, please convey your suggestions and opinions to me at
accountshariprakash@yahoo.com
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Passing on these notes as an attachment to an email to others or photo-

copying the same for others is, in case of any author, for that matter, an
infringement of the copyrights of the author and is belittling of his / her
efforts, experience and years of hard work. And, finally, it is the author who
stands to lose the revenue.

Just for information, spellings that conform to British English have been
used.

Regret, I am not computer-savvy. Kindly excuse errors in formatting.

Knowledge says, “I know so much.”

Wisdom says, “I know only so much.”
Ego says, “What is there for me to learn from others?”
Humility says, “Let us all learn from one another.”
― Author not known
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PREFACE

These secrets are a result of umpteen mistakes I have committed in the

course of more than 43 years of accounts-writing, including preparation of
more than 700 real-life balance-sheets and over 150 real-life project-
reports, all manually, an indication that the analytical capabilities have not
been handed over to the computer.

Add to this, over two decades of teaching accounts and related subjects
and conducting programmes for many schools and colleges.

No need to memorise entries. No need to use any tricks to remember

concepts. These secrets, deep-rooted in logic and common sense, are
explained in an easy-to-understand step-by-step method.

These secrets, apart from becoming a life-long asset, would not only help
the learner in understanding advanced chapters quite easily but also make
classroom instructions, video and YouTube lectures, tuition sessions and
self-study efforts more comprehensible.

Prior knowledge of accounts is not necessary.

Accounts is no rocket science. If this book is studied methodically as

suggested, the simple secrets of accounting (from scratch to preparation of
balance sheet from raw data) (all the volumes) can be learnt in about two
weeks, without any assistance.

If I am not mistaken to be having a high opinion of myself, I can

confidently state that the above compilation stands many notches above
existing text books, reference materials, internet downloads, etc. of even
the leading professors, authors and practicing accountants because the
above compilation is not just bookish knowledge, but practical
understanding born out of more than 43 years of roller-coaster ride of ups
and downs in real-life accounting-career.
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This compilation would help the students in not only acquiring

knowledge and scoring high, but also simultaneously getting prepared
to start an accounting career.

This compilation can help freshers, applying for an accounting job, to

brush up their knowledge before getting ready for an interview.

Non-finance businesspersons, with the help of this compilation, can

stop signing blindly on the dotted line as asked for by their auditors
and be able to ask questions before confidently attesting the papers.

Irrespective of the level of accounting knowledge a learner has, with

the help of this compilation (all the volumes), he / she needs a
maximum of 15 days of self-study to understand the basic nuances of
accounting and be able to prepare balance sheet from raw data.

Well! What are you waiting for?

Go ahead!

Knowledge, without wisdom, is like water in the sand.

―Guinean proverb
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SUGGESTED METHOD OF STUDY

Optimise your learning of the accounting-secrets by making a workable

schedule depending on your other commitments.

There are 16 sections (from scratch to preparation of balance sheet)

spread over eight mini-volumes.

Volume – I
01. Basics
02. How a financial statement takes shape – I

Volume – II
03. How a financial statement takes shape – II, III and IV
04. Journal entries

Volume – III
05. Expenses and incomes (cash)
06. Expenses and incomes (credit)

Volume – IV
07. Depreciation

Volume – V
08. Closing stock

Volume – VI
09. Outstanding expenses
10. Prepaid expenses
11. Incomes to be received
12. Incomes received in advance
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Volume – VII
13. Bad debts
14. Reserve for doubtful debts

Volume – VIII
15. Final accounts - 1
16. Final accounts - 2

It is recommended that, irrespective of the level of knowledge a learner

has about accounts, he / she should first study Volumes I, II and III
compulsorily as the basics are discussed in detail in these volumes. Only
after having completed with these volumes, the learner may proceed to
other volumes. Also, the last volume may be taken up only at the end.

While the first section (Basics) may take up to 2 hours, other sections
require much-less time. So, plan for a time table of 15 days. It wouldn't
be surprising if you complete the book (all the volumes) in much less
time.

After studying each section, attempt problems on the same from various
text books, references, internet downloads and so on. Compare your
answers to those given in the respective sources. You will be surprised
that you are almost always bang on target.

Use a long ruled-book and don't forget to number the pages for ease of
reference. Use a scale to draw lines. Highlight important points. Write
neatly and legibly even if it takes some extra time. Don't scribble.
Remember, well-begun is half-done. Ill-begun is never done.

At the most, study three sections at one go. Practice the same before you
move on to the next section. Study the sections in the order given.
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There is a reason to the order that makes difficulty level to go up

gradually.

BON STUDIES!

“Knowledge that is not being used for winning of further knowledge

does not even remain, it decays and disappears.”
― J D Bernal, me
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BASICS

To start with, just know these 10 points.

01.CONCEPT AND CONVENTION

Every country has its own traffic rules. But, all have one common
ingredient, that is, the traffic has to move in an orderly way, stop at
junctions to make way for pedestrians and give way to cross-traffic,
etc. This is known as CONCEPT.

Maybe, in some countries, it is left-side-driving and in some others, it

may be right-side-driving. In some countries, 3 minutes are
earmarked for halting-traffic at junctions, in some other countries, it
may be more or less. This is called CONVENTION.

Concept and convention, together, make for TRAFFIC RULES.

Let us take another example. The education department of a local

government makes it a rule that schools shall introduce a common
dress-code (known as uniform) for all students so that the students
belonging to various economic-groups don't discriminate against one
another. This is one of the CONCEPTS of education.

Different schools prefer different dress-types to maintain an identity.

Some may prefer white shirt and blue trousers, some, checks and
stripes, and so on. This is the CONVENTION (regarding dress).
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Put together, concept and convention are the DRESS CODE of the
school.

Coming to a more practical example. It is well-known and well-

established that the sum of 2 and 2 is 4. Whether a nursery child does
the calculation, a scientist does, a shopkeeper, a housewife,
whosoever, for that matter, does, every one of them gets 4 as the
answer. This is CONCEPT.

One may choose to write it as 2 + 2 = 4 or sum of 2 and 2 is 4 or 2

and so on. +2
4

This is CONVENTION.

Put together, it is MATHEMATICAL PRINCIPLE.

Same is the case with accounts. We have ACCOUNTING

CONCEPTS and ACCOUNTING CONVENTIONS which, together,
make for ACCOUNTING PRINCIPLES.

For example, amount spent on travelling has to be considered as

TRAVELLING AND CONVEYANCE ACCOUNT. This is the
CONCEPT.

Some firms consider it as TRAVELLING ACCOUNT. Some, as

TRAVELLING AND CONVEYANCE ACCOUNT. Some others, as
CONVEYANCE ACCOUNT. Yet, some others, as TRANSPORT
ACCOUNT. And so on and so forth. These are all CONVENTIONS.
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Put together, they make for ACCOUNTING PRINCIPLES.

You shouldn't, but may go wrong in CONVENTIONS. For instance,

instead of writing “TRAVELLING ACCOUNT” you may have
written it as “TRANSPORT ACCOUNT”. Later on, while finalising, they
can be grouped under a name conventionally used by the firm as all these
names have similar meanings.

But never go wrong in CONCEPT. Don't write the total of 2 and 2 as

5, 6, etc. The answer has to be only 4. Don't write money spent on,
say, conveyance as “RENT ACCOUNT”. Don't enter 25 bucks as 250
bucks. These are all mistakes in CONCEPTS.

02. DIRECTLY- AND INVERSELY-PROPORTIONAL

EQUATIONS
In mathematics, we have two of the very common concepts. They are
directly-proportional and inversely-proportional equations. These
equations would be of great help when you are studying advanced
chapters like shares, ratio analysis, etc.

Now, let us elaborate on these concepts.

Let us assume that 10 mangoes cost 50 bucks

Then, one mango costs (50 / 10) bucks ie., 5 bucks
3 mangoes would cost (3 x 5) bucks ie., 15 bucks

In other words, 3mangoes would cost. (50 /10 x 3) bucks ie., 15 bucks

It may be observed that to find out for one unit, we have to divide. To
find out for anything other than one unit, ie., more or less than one,
we have to multiply. Here, if one variable (mango) goes up, the other
variable (value), too, goes up. If one comes down, the other,
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too, comes down. This is the DIRECTLY-PROPORTIONAL

EQUATION.

Let us now discuss the INVERSELY-PROPORTIONAL

EQUATION. In this case, if one variable goes up, the other comes
down and vice versa.

For example,
If 10 persons can construct a road in one day
One person would require (1 x 10) days to do the job
5 persons would require (1 x 10 / 5) days, ie., 2 days to complete the
job

Here, to find out for one unit, we multiply and to find out for anything
other than one, ie., more or less than one, we have to divide. To
repeat, the above two equations would help you when studying the
advanced chapters.

03. FIRM AND THE OWNER

Let us assume there is a guy named A. He starts a firm called A &
Co. For all practical purposes, he is the owner of the firm.

He can do anything he wants with the firm. He can work hard and
make it prosper. He can laze around and run into losses. He can invite
friends and waste time chit-chatting. He can even close the firm and
go on a vacation. No one can question him.

But for accounting purposes, A (the owner) is different from A &Co

(the firm). For accounting purposes, A &Co (the firm) is more
important than A (the owner).
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While reading a balance sheet or other accounts-related documents,

we should assume that the firm has hands, mouth, lips, etc. like us
and it, too, can talk. Hence, if you want any information about the
firm, pretend talking to the firm. It shall give replies including
information about the owner.

There is no need to talk to the owner, proprietor, partner, director, etc.

This concept, like the earlier ones, would make reading of the
financial statements like profit and loss account and balance sheet
very much easier. As you go along, you will understand the
importance of this concept.

ALWAYS IMAGINE THAT THE FIRM (NOT THE OWNER)

IS TALKING TO YOU

04. ASSETS = LIABILITIES

Let us assume that our friend A loves cars. He has identified a car
(which costs a thousand bucks) that he wants to buy. But he does not
have money to buy that. He goes to a moneylender, borrows one
thousand bucks and buys his dream car.

He is driving around town when we happen to meet him at a

junction. He gets down to greet us and proudly shows off his new
possession. We congratulate him, “Oh! What a nice car!” He is
happy and says, “This is my asset. It cost me one thousand bucks.”
(One of the meanings of ‘asset’ is ‘property’).

Then we ask him discreetly, “Do you have any liabilities?”

(‘Liability’ means ‘what we owe others’). He replies, “Yes, I owe
moneylender one thousand bucks. He lent me the money to buy this
car.” A draws a matrix to explain his financial position.
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A
LIABILITIES ASSETS
(in bucks) (in bucks)
Moneylender 1,000 Car 1,000
Total 1,000 Total 1,000

He elaborates, “My asset (car) is one thousand bucks. My liability

(the moneylender) is also one thousand bucks. In other words, my
asset is equal to my liability. In case, the moneylender insists on
being paid immediately, I will have to sell the car and give him the
proceeds of the sale. Or, I will have to surrender the car to him.
Alternatively, I will have to borrow from moneylender – 2 and pay
moneylender – 1. Then, moneylender – 2 will become my liability.
Whatever be the case, my asset is equal to my liability.”

From the above, we can understand that whosoever’s financial

position we may try to compile, it is that ASSETS are always equal
to LIABILITIES. Be it an unborn baby or a dead person, infant or an
adult, a petty shop or a big corporate-entity, an animal or a statue, be
it anyone or anything, for that matter, the financial position always
indicates that ASSETS = LIABILITIES. This concept becomes
clearer as we go along.

It may be noted that in most of the text books and other reference-
materials, it would be given as ASSETS = CAPITAL +
LIABILITIES.

This is technically wrong. Capital is one of the liabilities for the firm.
So, it should be
ASSETS = LIABILITIES or ASSETS = CAPITAL + OTHER
LIABILITIES
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05. ACCOUNTS IS NOTHING BUT SIMPLE ARITHMETIC AND

LOGIC
Accounts is nothing but simple arithmetic and logic. To put it bluntly,
accounts is just a combination of + (addition), - (subtraction), x
(multiplication) and ÷ (division), the basic mathematical operations
and sheer common sense.
Take for example, a pavement vendor. He would have hardly
attended primary school or not even that. But, he would reel out
statistics about his business. He may say, “This product fetches 70%
of my revenue. This item is just to attract customers. I had 500 bucks
in the morning. I got 1000 bucks from the money lender. I gave
interest of 150 bucks…. ............................................”
He, with no educational background, is already a 50% accountant.
We, with an education, must be at least 75% accountants. It is the
25% in us that is in a confused state. This study material’s humble
effort is to bring out this 25% in us and merge with the 75% to make
us 100% accountants.

So, anyone can become an accountant. There is nothing to worry

about.

06. TYPES OF ACCOUNT

In accountancy, there are three types of accounts. They are:
Real account
Personal account
Nominal account

Real account is that which we can see, touch and feel. There are
certain exceptions which we shall take up at a later stage. Examples
of real account are car account, building account, computer account,
furniture account, etc.
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Personal account is the name of a person or an organisation. For

example, we have Smith's account, Ram's account, Siemens's
account, etc.

Just check whether an account is a real account. If not, try to fit it

into the personal-account category. If it doesn't fit in even there, just
dump it in the nominal-account category.
For example, you go in an auto, enjoy the ride, reach your
destination and pay as per the meter. You have experienced the ride
but cannot see it or touch it.

Similarly, you pay rent for a particular month. You enjoyed the
shelter the house provided but cannot see it. These (rent account,
travelling account, etc.) are nominal accounts.
Each of the above three types of accounts has to be dealt with in a
particular way.
In case of real accounts, it is DEBIT WHAT COMES IN and
CREDIT WHAT GOES OUT.

In case of personal accounts, it is DEBIT THE RECEIVER and

CREDIT THE GIVER.
In case of nominal accounts, it is DEBIT ALL EXPENSES AND
LOSSES and CREDIT ALL INCOMES AND GAINS.
Combined, they are known as GOLDEN RULES.

Indeed, they are golden in characteristics. But, many a time, the

learner gets confused with these rules. Hence, in a later volume of
this book, a simpler method of identifying the treatment of these
accounts has been given. Now and then, the learner may refer to the
golden rules to make sure the answers are correct.
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07. WORDS AND ABBREVIATIONS USED IN ACCOUNTING

Words and abbreviations used in accounting have different
meanings according to the context in which they are used.

For example,
‘DR’ can mean ‘debtor’, ‘debit’ or ‘debited’.
‘CR’ can mean ‘creditor’, ‘credit’ or ‘credited’.
‘Loan’ can mean loan given to others or loan received from others.
‘Deposit’ can mean deposit given to others or deposit received from
others.
‘A/C’, ‘A/c’ or ‘a / c’ means account.
As the study progresses, you will be able to make out the context in
which abbreviations and words like the above are used.

08. REALISTIC VALUES HAVE TO BE CONSIDERED

Let us assume it is 25/12/2012. A sells 10,000 bucks worth of pens
to B on the condition that B pays A later.

On 31/12/2012, A sits down to prepare his financial statements. He

finds that B owes him 10,000 bucks. He thinks of collecting that
amount and closing his (B’s) account. So, he approaches B and
requests for payment. B replies, “Sorry friend. I need some time to
pay you. I haven’t sold a single pen that you have given me.”

A understands the position of B. He agrees, “Yes, I understand your

position. I, too, am a businessman like you. I will come next week.
Please arrange for 10,000 bucks.”

B appears slightly annoyed, “Who says “10,000 bucks? I owe you

only 9,000 bucks.”

A is shocked, “But I sold you 10,000 bucks worth of pens.”

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B replies, “Yes, you sold me 10,000 bucks worth of pens. But among
them, 1,000 bucks worth of pens are defective. Some are broken,
some have scratches, some don’t even write properly. What will I do
with those defective pens?”

A realizes his unintentional mistake. He replies, “Sorry friend. Later

on, I will replace the defective ones with good ones. You may pay
me only 9,000 bucks on my next visit.”

On returning to his office, A sits down to complete his financial

statements. This time, he shows against the account of B, 9,000
bucks instead of 10,000 bucks. This is because 9,000 bucks is a
realistic figure.

So, we can understand one thing from the above example.

Before we finalise our accounts, we should analyse each account

thoroughly and bring the account to its realistic position and reflect
the same in our statements.

There are some exceptions which we will take up as we get to the

same.

09. EVERY DEBIT HAS A CREDIT AND VICE VERSA

In accounting, there is a concept called “Every debit has a credit and
vice versa”. By this we mean something as follows:

Debit (bucks) Credit (bucks)

A's account debit 10000
B's account credit 10000
Total 10000 10000
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Debit (bucks) Credit (bucks)

A's account debit 8000
B's account debit 2000
C's account credit 10000
Total 10000 10000

Debit (bucks) Credit (bucks)

A's account debit 10000
B's account credit 7000
C's account credit 3000
Total 10000 10000

Debit (bucks) Credit (bucks)

A's account debit 6000
B's account debit 4000
C's account credit 5000
D's account credit 5000
Total 10000 10000

Let us examine each of the above:

Debit (bucks) Credit (bucks)

A's account debit 10000
B's account debit 10000
Total 10000 10000

Here A's account has been debited with 10000 and B's account has
been credited with 10000. On both sides, there is one account each
and the totals are the same.
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Debit (bucks) Credit (bucks)

A's account debit 8000
B's account debit 2000
C's account credit 10000
Total 10000 10000

In the above case, there are two accounts on the debit side and
only one account on the credit side. Both the totals are the same.

Debit (bucks) Credit (bucks)

A's account debit 10000
B's account credit 7000
C's account credit 3000
Total 10000 10000

In this case, there is only one account on the debit side and two
accounts on the credit side. As usual, both the totals are the same.

Debit (bucks) Credit (bucks)

A's account debit 6000
B's account debit 4000
C's account credit 5000
D's account credit 5000
Total 10000 10000

Here too, both the debit and credit totals are same in spite of
having two accounts in each of the sides.

From this we can infer that when we say every debit has a credit
and vice versa, we mean that irrespective of the number of
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accounts in each of the sides, it is the totals that should be the same
on both the sides.

If the debit total is, say, 4512 bucks, then the credit total, too,
should be 4512 bucks.

It is the figures that are added and subtracted and not the letters of
the alphabet. Hence importance has to be given to the totals on
both the sides. This doesn't mean that heads of account are not
important. They too, are. But, a little extra focus is required on the
figures as they decide whether the final statement, i.e. the balance
sheet tallies or not.

But, be assured that as we go along, this concept too, will become

clearer.

10. WHY DO WE HAVE TO MAINTAIN ACCOUNTS?

Why do we have to keep records? There are only four reasons. There
cannot be 5th, 6th, 7th, etc. reasons for the keeping of the records.
Even if one comes up with a 5th or 6th reason, these reasons, too,
come within the ambit of the four reasons mentioned below.

1. To know whether we are making profits or incurring losses. To

know this, what we do is to group all incomes on the one side and
all expenses on the other side. If incomes total is more than the
expenses total, we have made a profit. If expenses total is more
than the incomes total, we have incurred a loss.

2. To know who all owe us money. For example, we go to X and

say, “Please give us 10000 bucks.” He may ask, “Why?” Then we
show X our records and say, “That day we sold you pens
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worth 10000 bucks”. Then X verifies his records and on finding

our claim correct, gives us the amount. So a record of transactions
would help us know who all owe us money.

3. Similarly, keeping records lets us know to whom all we owe

money. If someone, say, Y approaches us and asks us for money
against a certain transaction, we, too, would refer to our records
and then pay Y. So, keeping records helps us in identifying to
whom all we owe money.

4. Last, but not the least, keeping records helps us know what assets
we have. Assets mean car, building, machinery, computer, etc.

So, there are only 4 reasons as mentioned above because of which

we have to maintain proper records. Try finding 5th reason and see
how it fits within the ambit of the four reasons mentioned.
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EXERCISES
1. Read the introductory part of any accountancy text book /
accountancy reference material or browse through the internet.
Compare the details given there with the details given in this
chapter. Except for the terminology, gist of the matter should be the
same.
2. List out ten different items under each head of account.
3. Based on logic, rather than on memory, try listing all the ten points
mentioned in this chapter.
4. Imagine yourself to be an accounts teacher and try explaining
(verbally) the nuances of accounts that you have learnt so far from
this study material.

“Do question, even the basics!

You will be a fool for once!
If you don't, you will be, for a lifetime.”
― Himmilicious
 Page 24

HOW A FINANCIAL STATEMENT

TAKES SHAPE – I

Let us assume it is 10 pm of 31/12/2012. There is a person by name

P. He has 10,000 bucks with him. He is lying down on his bed and
thinking, “What shall I do with this 10,000?”
He makes a list in his mind.

I will give it away in charity.

I will buy clothes for my family and myself.
I will keep it in a fixed deposit.
I will start a business.
I will throw a New Year party.
I will keep it in cash for emergencies.
And the list goes on.

Let us assume, as he is contemplating, he goes off to sleep. Next

morning, ie., 01/01/2013, he wakes up at 6.00 am. He has decided
to start a business.

Let us also imagine that P is a firm believer in astrology. He

wouldn’t do any major thing without consulting his astrologer.

So, he visits his astrologer, stretches his palm and requests him to
predict his future. He also reveals his desire to do business.

The astrologer looks at his palm, makes some mental calculations

and smiles, “My dear sir, your future is very bright. You will be
making a lot of money. Goddess of Wealth would be residing in
your house. But…!” The astrologer abruptly stops and P is worried.
P asks, “But what sir?”
 Page 25

The astrologer assures him, “Oh! Nothing to worry. Only thing is

you should start the business exactly at 10.30 am. This is the most
auspicious time. If you delay, with every second that goes by, your
prosperity, too, diminishes. But, at no cost, should you start the
business even one second before 10.30 am. If you do so, you will
only witness ruin. May God bless you.”

P comes out satisfied. It is already 06.30 am. Between 06.30 am

and 10.30 am, there are still four hours left. Anything can happen. P
can change his mind and banish the thought of doing business.

But for our understanding purpose, he doesn’t change his decision.

He wants to do business but doesn’t know how to go about it.

He calls up his best friend and shares his thought. His friend
appreciates him and invites him over. P and his friend meet and
discuss the business idea.

The friend encourages him, “Go ahead. I am there to help you.” P

has his own doubts, “But, I don’t have a place to start business…...”
The friend interrupts, “Use my car shed. I haven’t been using it
lately.” P replies, “But, I don’t have the money to pay advance.”
The friend pretends to be angry, “What are friends for? You start
your business first. We shall think of the advance later when you
have enough money. Only thing is that the shed has not been
cleaned for quite some time. I don’t have the time. You will have to
clean it yourself. Here are the keys. All the best!” The friend goes
away.

P starts cleaning up the shed. By the time the shed is done, it is

already 10.00 am. Still half-an-hour is left for the auspicious
moment. P can still change his mind, “Why should I risk doing a
business? I better keep the money in fixed deposit. It is okay if I
have cleaned up my friend’s shed. After all, I have done a good
 Page 26

deed for the year. I will go back.” But P sticks to his decision of
doing business.

The watch starts ticking. It is 10.15 am. P hasn’t changed his

decision.

It is 10.25 am. P is still determined to do business.

It is 10.29 am. One minute is left. P sticks to his resolve to do

business. He finds one cardboard-box lying in a corner of the shed.
He imagines that to be his temporary cash-box. He keeps that box
in front of him. He is looking at his watch tied to his left wrist. In
his right hand is the bundle of notes worth 10,000 bucks.

The watch is ticking. 10:29:55, 56, 57, 58, 59, 60! It is 10.30 am.
As soon as the watch shows 10.30 am, he drops the bundle in the
box and shouts to reassure himself, “I have started the business.”
As soon as he drops the bundle in the box, a business entity called P
& Co comes into existence.

Now, we start talking to P & Co and not to P. Let us imagine a

conversation as follows.

We ask P & Co (and not P), “How are you?”

P & Co replies, “I am fine.”
We ask, “When did you come into existence?”
P & Co replies, “I came into existence exactly at 10.30 am when P
dropped cash in the box and started his business.”
We ask, “Do you have any assets?”
P & Co replies, “Yes. I have an asset called cash which is 10,000
bucks.”
We ask, “Do you have any liabilities?”
P & Co replies, “Yes. I have a liability called P’s capital account
which is also 10,000 bucks.”
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We ask, “What does that mean?”

P & Co replies, “My assets total is equal to my liabilities total. If P
decides to close business this very minute, I owe him 10,000 bucks
towards his capital. I have an asset of 10,000 bucks in cash which I
will give him and I would be no more there.”

P & Co gives a graphical representation of its position as follows.

P & Co

LIABILITIES ASSETS
(in bucks) (in bucks)

P’s Capital Account 10,000 Cash 10,000

Total 10,000 Total 10,000

Assets = Liabilities
So, remember to talk to P & Co (the firm) and not to P (the owner).
 Page 28

EXERCISES

1. Recreate the sequence involving more than one owner, ie.,

partners and draw up a graphical representation.

2. Try finding out from any text book, reference material, internet
download, etc. where Assets = Liabilities (and not Assets =
Capital + Liabilities) is shown.

3. Think out of the box. Break the convention without diluting the
concept and try presenting the above graphical representation in a
different way.

By the same author

JUST WRITE RIGHT (SPRINKLED WITH HUMOUR) VOL I
A 25-page free teaser-e-booklet of use to students, teachers, writers,
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Knowledge is knowing tomato is a fruit

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― Author not known
3 AUDIOBOOK COLLECTIONS

6 BOOK COLLECTIONS