ISC WADIA’S TUTORIALS 

FUNDAMENTALS
1) Capital Account:
● It is the personal account of the proprietor
● When he introduces Cash, Goods, Assets or services into the firm for starting
the business.
● Capital account always shows a credit balance.
● Assets – Liabilities = Capital

2) Drawings Account :
● It is the personal account of the proprietor
● When he withdraws cash, Goods, Assets or services from the firm for his personal or
domestic use.
● It always shows a debit balance.

3) Entity Concept :​ It means that the identity of the firm is separate from the identity of the
proprietor, and we always look at the transaction from the firms point of view.

4) Goods account :​ Any commodity in which I (firm) is dealing, or which I buy for resale is
called as goods. Eg. If I buy 10 chairs for resale, then I can say I bought “GOODS” and when I
sell them at a profit I can say that I sold “GOODS”

5) Assets / Properties : ​All assets or properties which I own are assets. Eg: Cash in hand, bank
balance, Plant & machinery, Land & building, Furniture & fixture. Assets always shows a
debit balance.

6) Liabilities:​ All the amounts which I (firm) owe are known as Liabilities. Eg: Capital a/c,
Loans taken, bank overdraft, creditors, bills payable, outstanding exp. Liabilities always
shows a credit balance.

7) Debtors :​ Any person from whom I (firm) have to receive Cash, Goods, Assets or services in
future is known as my debtor.

8) Creditor :​ Any person from whom I (firm) have to pay Cash, Goods, Assets or services in
future is known as my creditor.

9) Transactions:​ Transactions are divided into two :

1. Cash Transaction
2. Credit Transaction
Transaction
|
_________________________________________________
| |
Cash Transaction Credit transaction
1. Word “cash” is mentioned 1. Word “cash” is not mentioned
2. Party’s name is not mentioned 2. Party’s name is mentioned
Note: ​If both are not mentioned it is assumed to be a cash transaction.
10) Incidental Expenses / Capital Expenses : ​Those expenses which are paid in relation to the
acquisition of assets are called as incidental / capital expenses. They are always added to
 ISC WADIA’S TUTORIALS 
the cost of the asset.
Eg. 1. Brokerage paid on purchase of shares.
2. Repairs & Renewals paid on purchase of second hand machinery/ car
3. Erection charges, installation charges, fixation charges paid on plant & machinery.

11) Solvent Person :​ If a persons assets are more than his liabilities then he is called as solvent
person. He can pay his dues on time.

12) Insolvent Person :​ If a persons liabilities are more than his assets then he is called as
insolvent person. He cannot pay his dues on time.

13) Baddebts :​ When we cannot recover the money from our customers / debtors, it is our loss
& such losses are called as baddebts.

14) Trade Discount :​ Trade discount is given by the manufacturer to the wholesaler to
encourage the buyer to buy goods in bulk / large Quantities.
● T.D is always calculated on G.L.L.C ( Gross , List, Label, Catalogue Price)
● After we deduct T.D from G.L.L.C we get Net / Cost price.
● T.D has to be calculated whether the goods are sold for cash or credit.
● T.D is never recorded in the books.

15) Cash Discount :

● C.D is given by the seller to the buyer or by wholeselar to retailer to encourage the buyer to pay
cash on the spot or within 3-4 days.
● C.D is always calculated on net / cost price.
● After we deduct the C.D from the net / cost price we get cash received or cash paid.
● C.D is calculated only in the case of cash transaction not in the case of credit transaction.
● C.D is always recorded in the books.

16) 4 typical Drawings :

● Income Tax
● House Rent
● Life Insurance Premium
● Daughter’s college fees.

17) 4 Typical intangible Assets :

● Goodwill
● Patent
● Trade Marks
● Copyrights

GROSS/LIST/LABEL/CATALOGUE (G.L.L.C)
LESS:- TRADE DISCOUNT (TD)
= NET PRICE/ COST PRICE
LESS :- CASH DISCOUNT (CD)
LL;L; CASH PAID/ RECEIVED

STEPS FOR JOURNALISING:

Ask yourself the following question

1. Are there 2 parties involved
 ISC WADIA’S TUTORIALS 
2. Is there any exchange of services between them
3. Is there any exchange of goods or assets between them
4. Is there any exchange of cash or cheques between them

THEN APPLY THE ELIMINATION STEPS:

1. Always look at the transaction from the firm’s point of view,
2. Our own account in our own books is never affected.
3. An account which gets debited and credited at the same time for the same amount gets cancelled.