FINANCIAL ACCOUNTING

CIA 1.2

SUBMITTED BY

2020349 KHUSHI NAHAR

CLASS- 1BBAC
 CASE STUDY

On 18 October 2019, Mr Tushar Goyal thought of starting a business of ‘Packaged Drinking Water’. He decided to invest Rs 15,00,000. He arranged the amount from various sources- Rs 6,00,000 from his friend Harsh on 25
October and the same day he applied for a loan with all the required documents in the nearby branch of BOI- Bank of India. Since, Tushar had very good relations with the bank manager, the latter did not ask him for collateral
security. Tushar also had a keen interest in the stock market, so he decided to sell his shares worth Rs 4,50,000 so that he can use this amount as an investment for his business.
On 8 November 2019, the bank loan was sanctioned and an amount of Rs 3,50,000 was directly transferred to his account. Before this he had opened a bank account on 1 November with the same branch of BOI where he had applied
for a loan. The next day he received the passbook and other related documents of the bank account and he subsequently deposited Rs 1,00,000 in the bank account and kept 50,000 as cash in hand.
On 13 November 2019, he borrowed Rs 1,00,000 from Ms Tanvi for remaining capital requirement at 8.76% interest rate. Tushar promised to pay back the money on 20 February 2020 and also on the same day he withdrew Rs 30000
from his capital permanently. He also withdrew Rs 1,00,000 from his bank account on 15 November 2019.
Hence till date Tushar has Rs 2,50,000 as cash in hand and Rs 12,50,000 in his bank account. On 19 November 2019, he rented a premises by paying an advance of Rs 10,000 through his bank account and agreed to pay Rs 30,000 as
rent every month.
On 1 January 2020. “THE CRYSTAL WATER LTD.”
At the end of three months the following transactions were recorded ( excluding transactions made before the business started)

PARTICULARS AMOUNT
Purchases (credit purchases being 1,00,000) 250,000
Sales ( credit sales being 2,00,000) 500,000
Rent 90,000
Insurance expenses 15,000
Electricity Expenses 20,000
Miscelleneous Expenses 14,000
Wages 20,000 \
Service and Maintenance 6,000
Factory setup 43,000
Drawings 48,000
Interest paid to Ms Tanvi 8,760
Interest paid to bank 20,000
Principal amount paid back to bank (1st installment) 35,000
Interest paid to bank 7,000

On 1 February 2020, Mr Tushar purchased a laptop worth Rs 29000 and on 29 February, purchased a printer worth Rs 8000 by cash and will charge depreciation at the rate of 8% pa and 10% pa respectively on both the assets.
JOURNAL ENTRIES IN THE BOOKS OF THE CRYSTAL WATER LTD

DATE PARTICULARS LF DEBIT CREDIT

2020
1-Jan Cash a/c dr 1,050,000
To Tushar's Capital a/c 1,050,000
(Being capital introduced in the business)

1-Jan Bank a/c dr 1,000,000

To Cash a/c 1,000,000
( Being cash deposited in the bank)

1-Jan Bank a/c dr 350,000

To BOI Loan a/c 350,000
( Being loan received from Bank of India)

1-Jan Cash a/c dr 100,000

To Ms Tanvi's loan a/c 100,000
( Being amount borrowed from Ms Tanvi

1-Jan Cash a/c dr 100,000

To Bank a/c 100,000
(Being cash withdrawn for office use)

1-Jan Premises Advance a/c dr 10,000

To Bank a/c 10,000
(Being advance paid for factory premises)

1-Feb Laptop a/c dr 29,000

To cash a/c 29,000
(Being laptop purchased in cash)

20-Feb Ms Tanvi's loan a/c dr 100,000

Interest on loan a/c dr 8760
To bank a/c 108,760
(Being loan amount paid off with interest)

20-Feb Tushar's Capital a/c dr 30,000

To bank a/c 30,000
( Being capital withdrawn permanently)

29-Feb Printer a/c dr 8,000

To cash a/c 8,000
( Being printer purchased for cash)

31-Mar Purchases a/c dr 250,000

To Anjali's a/c 100,000
To Bank a/c 150,000
(Being Goods purchased)

31-Mar Dimple a/c dr 200,000

Bank a/c dr 300,000
To sales a/c 500,000
(being goods sold)

31-Mar Rent a/c dr 90,000

To bank a/c 90,000
(Being rent paid)

31-Mar Insurance a/c dr 15,000

To cash a/c 15,000
(being insurance amount paid)

31-Mar Electricity expences a/c dr 20000

 To cash a/c 20000
(being electricity expenses paid)
31-Mar Miscelleneous expenses a/c dr 14,000
To bank a/c 14000
(being miscelleneous expenses paid)

31-Mar Wages a/c dr 20,000

To Bank a/c 20,000
(being wages paid)

31-Mar Service and maintenance a/c dr 6,000

To bank a/c 6,000
(being sevice and maintenance expenses paid off)

31-Mar Factory Setup a/c dr 43,000

To Bank a/c 43,000
(being factory setup expenses paid)

31-Mar Drawings a/c dr 48,000

To bank a/c 48,000
(being drawings made)

31-Mar Interest on loan a/c 7000

BOI loan a/c 35000
To bank a/c 42000
(Being 1st loan installment paid along with interest)

31-Mar Depreciation a/c dr 454

To laptop a/c 387
To printer a/c 67
(being depreciation charged)
3834214 3834124
….....
 LEDGER

Bank a/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
1-Jan To cash 1,000,000 1-Jan By Cash 100,000
To BOI Bank loan 350,000 By Premises advance 10,000
31-Mar To Sales 300,000 20-Feb By Ms Tanvi's loan 100,000
By Interest on loan 8,760
By Tushar's Capital 30,000
31-Mar By Purchases 150,000
By Rent 90,000
By Miscelleneous expenses 14,000
By Wages 20,000
By Service and Maintenance 6,000
By Factory setup 43,000
By Drawings 48,000
By Interest on loan 7,000
By BOI Bank loan 35,000
31-Mar By balance c/d 988,240

Total 1,650,000 Total 1,650,000

1-Apr To balance b/d 988,240

Cash A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
1-Jan To Capital a/c 1,050,000 1-Jan By Bank 1,000,000
To Ms Tanvi's Loan 100,000 1-Feb By laptop 29,000
To Bank 100,000 20-Feb By Printer 8,000
31-Mar By Insurance 15,000
By Electricilty expenses 20,000
By Balance c/d 178,000

Total 1,250,000 Total 1,250,000

1-Apr To Balance b/d 178,000

BOI Loan A/c

Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Bank a/c 35,000 1-Jan By Bank 350,000
To Balance c/d 315,000

Total 350,000 Total 350,000

1-Apr By Balance b/d 315,000

 Tushar's Capital A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
20-Feb To Bank a/c 30,000 1-Jan By Cash 1,050,000
31-Mar To Balance c/d 1,020,000

Total 1,050,000 Total 1,050,000

1-Apr By Balance b/d 1,020,000

Anjali's A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Balance c/d 100,000 31-Mar By Purchases 100,000

Total 100,000 Total 100,000

1-Apr By Balance b/d 100,000

Purchases A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Bank a/c 150,000 31-Mar By Trading a/c 250,000
31-Mar To Anjali 100,000

Total 250,000 Total 250,000

Rent A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Bank a/c 90,000 31-Mar By Profit and Loss A/c 90,000

Total 90,000 Total 90,000

Drawings A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Bank a/c 48,000 31-Mar By Balance c/d 48,000

Total 48,000 Total 48,000

1-Apr To balance b/d 48,000

 Miscelleneous Expenses A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Bank a/c 14,000 31-Mar By Profit and Loss A/c 14,000

Total 14,000 Total 14,000

Electricity Expenses A/c

Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Cash a/c 20,000 31-Mar By Profit and Loss A/c 20,000

Total 20,000 Total 20,000

Sales a/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Trading A/cc 500,000 31-Mar By Dimple 200,000
By Bank a/c 300,000

Total 500,000 Total 500,000

Dimple's A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Sales 200,000 31-Mar By Balance c/d 200,000

Total 200,000 Total 200,000

1-Apr To Balance b/d 200,000

Depreciation A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To laptop 387 31-Mar By Profit and Loss A/c 454
To printer 67

Total 454 Total 454

Service and Maintenance A/c

Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Bank a/c 6,000 31-Mar By Profit and Loss A/c 6,000

Total 6,000 Total 6,000

 Wages A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Bank a/c 20,000 31-Mar By Trading A/c 20,000

Total 20,000 Total 20,000

Factory Setup A/c

Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Bank a/c 43,000 31-Mar By Profit and Loss A/c 43,000

Total 43,000 Total 43,000

Insurance A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Cash a/c 15,000 31-Mar By Profit and Loss A/c 15,000

Total 15,000 Total 15,000

Printer A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
29-Feb To cash 8,000 31-Mar By Depreciation 67
By Balance c/d 7933

Total 8,000 Total 8,000

1-Apr To Balance b/d 7933

Laptop A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
1-Jan To cash 29,000 31-Mar By Depreciation 387
31-Mar By Balance c/d 28,613

Total 29,000 Total 29,000

1-Apr To balance b/d 28,613

 Premises Advance A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
1-Jan To Bank a/c 10,000 31-Mar By Balance c/d 10,000

Total 10,000 Total 10,000

1-Apr To Balance b/d 10000

Interest on Loan A/c

Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
20-Feb To Bank a/c 8,760 31-Mar By Profit and Loss A/c 15,760
31-Mar To Bank a/c 7,000

Total 15,760 Total 15,760

Ms Tanvi's Loan A/c

Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
20-Feb To Bank a/c 100,000 1-Jan By cash 100,000

Total 100,000 Total 100,000

…..
 TRIAL BALANCE
as on 31 March 2020

Account LF Debit Credit

Bank 988,240
Cash 178,000
BOI Bank Loan 315,000
Premises Advance 10,000
Tushar's Capital 1,020,000
Debtors 200,000
Creditors 100,000
Purchases 250,000
Rent 90,000
Drawings 48,000
Miscelleneous Expenses 14,000
Electricity Expenses 20,000
Insurance 15,000
Service and Maintenance 6,000
Sales 500,000
Depreciation 454
Wages 20,000
Factory Setup 43,000
Printer 7,933
Laptop 28,613
Interest on Loan 15,760

Total 1,935,000 1,935,000

.
 DEMONSTRATING THE EFFCT OF WRONG ENTRIES ON THE FINANCIAL POSITION OF THE BUSINESS

1. Sales made worth Rs 5,00,000 including Rs 2,00,000 credit sales to Dimple

DATE PARTICULARS LF DEBIT CREDIT

2020
Dimple's a/c dr 200,000
Bank a/c dr 300,000
To Sales a/c 500,000
(Being goods sold)

2. Buying a laptop worth Rs 29,000

DATE PARTICULARS LF DEBIT CREDIT

2020
1-Feb Purchases a/c 29,000
To Cash a/c 29,000
(Being laptop purchased in cash)

*It is assumed that all other entries and legder postings relating to purchase of a laptop and depreciation have been passed correctly.
Error of principle- Purchase of laptop treated as revenue expenditure and therefore debited to purchases account.

IMPACT ON ACCOUNTING EQUATION

Purchases will increase
Assets will be reduced.

EFFECT ON LAPTOP AND DEPRECIATION ACCOUNT

Laptop a/c has not been opened and therefore no depreciation will also be allowed. Because of this the financial statement will show reduced expenses which in turn will show a higher profit.

LEDGER ACCOUNTS

Dr Sales A/c Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To Dimple's a/c 200,000 31-Mar By Trading A/c 500,000
31-Mar To Bank 300,000

Total 500,000 Total 500,000

*Items posted to the debit side of the sales account instead of credit side. (one-sided error)
Other accounts have been prepared correctly.

Purchases A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
1-Feb To cash a/c 29,000 31-Mar By Trading a/c 279,000
31-Mar To Bank a/c 150,000
31-Mar To Anjali 100,000

Total 279,000 Total 279,000

Depreciation A/c
Dr Cr
Date Particulars Amount Date Particulars Amount
2020 2020
31-Mar To printer 67 31-Mar By Profit and Loss A/c 67

Total 67 Total 67

TRIAL BALANCE

Account LF Debit Credit

Bank 988,240
Cash 178,000
BOI Bank Loan 315,000
Premises Advance 10,000
Tushar's Capital 1,020,000
Debtors 200000
Creditors 100,000
Purchases 279,000
Rent 90,000
Drawings 48,000
Miscelleneous Expenses 14,000
Electricity Expenses 20,000
Insurance 15,000
Service and Maintenance 6,000
Sales 500,000
Depreciation 67
Wages 20,000
Factory Setup 43,000
Printer 7,933
Interest on Loan 15,760

Total 2,435,000 1,435,000

*NOTES
1. It has been assumed that all other entries and ledger postings have been made correctly.
2. Sales account has a debit balance as the items had been posted on the wrong side (debit) of the account.