Answer 1:-

Journal Entry
Date Particular L.F. Dr. Amount Cr. Amount
1 Bank a/c Dr. 500,000.00
To Capital a/c 500,000.00

(Being Amount invested by Owner In Business)

2 Purchase a/c Dr. 40,000.00
To Ms. Ritu a/c 40,000.00

(Being goods purchased from Ms. Ritu on credit)

3 Salary a/c Dr. 10,000.00
To Bank a/c 10,000.00
(Being Salary Paid to employee)
4 Fixed deposit a/c Dr. 200,000.00
To Bank a/c 200,000.00
(Being amount invested in Fixed deposit)
5 Drawing a/c Dr. 25,000.00
To Bank a/c 25,000.00
(Being amount withdraw by owner for personal use( School
Fees))
Total 775,000.00 775,000.00

Analysis

1.1 The Business received cheque of Rs. 500000/- from it owner. It is an Asset of a business. It impact Bank
(Assets) & Capital (Liability) side of Balance sheet. The business owes this amount to Owner.
1.2 Purchase of goods increase Inventory of Rs. 40000/- on Assets Side and also increase Creditors on Liability
side. The total of Assets and Liability are 540000.
1.3 Paying salary of Rs 10000/- decreases an asset (Bank) by Rs.10000/- and also decreases capital by Rs.
10000/-. After this transaction, the liabilities are Rs. 530000, capital is Rs. 490000 and assets are Rs.
530000.
1.4 Investing amount in Fixed deposit of Rs. 200000/-. From Bank Rs. 200000/- is Fixed and it is not use in
payment. In Asset side Bank have two amount one is Fixed Deposit and second is balance amount Rs.
290000/-. In future business also get Interest from this fixed deposit.
1.5 Owner and Business is both separate entity. Amount withdraw by Owner for his personal use/ paying
children school fees. So, its impact will decrease Bank a/c of Asset side and Capital of Liability side. Now
Bank a/c is 265000/- and liability is 465000/-.

Asset = 5,05,000
Capital = 4,65,000 (5,00,000 – 10,000 – 25,000)
Liability = 40,000

Asset = Owner’s Capital + Liability

5,05,000 = 4,65,000 + 40,000
Answer 2:-

The Five different terms commonly used for understanding the Financial Statement are:-

a) Accrued Revenue
b) Prepaid Expenses
c) Account Receivable
d) Account Payable
e) Provision/Outstanding Expenses

A) Accrued Revenue: - It is a earning by providing good and services, but there is no cash or amount
received. In other words, it is a type of revenue earned by a business, but invoice is yet to be billed to the
customer. It is also known as unbilled revenue.

For Example in electricity Consumption Company billed after completing a month, but in entire month
they provide electricity to customers. The electricity company needs to wait until the end of the month to
receive its revenues. It must acknowledge that it expects future income. Accrual accounting gives the
company tracking its financial position more accurately. At the end of the month, when the company
receives payment from its debtors (customers), receivables go down, while the cash account increases.

B) Prepaid Expenses: - Prepaid expenses are business or person paid in advance for any good and
services. In balance sheet it is recorded in Assets side. It is a future expenses for which business or
person has to pay in advance.

For example we are paying mobile recharge. First we need to pay then we can use the services.
Another example is rent in advance for upcoming month but use the things in future.

C) Account Receivable: - It is a current asset of a company. It is a amount or balance of money/earning

due to a customer for delivered/used good and services but not yet paid by customers.

For example CHS Inc. purchase Ethanol of $10,000 from Biourja LLC. Biourja LLC make an invoice
of $10,000 to CHS Inc. and it is Account receivable for Biourja LLC for unpaid invoice by CHS Inc.

D) Account Payable: - It is a current liability of a company. It is an amount of purchasing good & services
from vendor and it is unpaid by our company or business.

For example Biourja LLC purchase crude oil of $15,000 from Chevron corp. with 1 month payment
condition after delivery. It is unpaid by Biourja LLC. Till 1 month and it is traded as Account Payable
for Biourja LLC.

E) Provision/Outstanding Expenses: - Expenses incurred during current financial year, but to be paid in
next year. These expenses are also called outstanding expenses. Company or business usually done
provision on end of current financial year.
 For example Company or business need to pay Rent, telephone bill, commission, electricity bill, Audit
fees in next financial year (In April). But they book in advance as an outstanding Rent, outstanding
commission, and outstanding telephone bill. It will help company or business to save taxes.

Answer 3. A

Amount in Lakhs
cost of goods sold 580
opening stock 40
closing stock 70
Creditors at the beginning of the year. 60
creditors at the end of the year 100
cash purchases 45
Original cost of equipment sold 400
Gain on the equipment sold 50
Accumulated depreciation on the equipment 80

Total purchases = Closing Stock – Opening Stock + Cost of Goods sold

= 70 – 40 +580

= 30 +580

= 610

Credit purchases

Total Purchase = Cash Purchase + Credit Purchase

610 = 45 + Credit Purchase

Credit Purchase = 610 - 45

= 565

Payment to Creditors = Creditors at the beginning of the year + Credit Purchase – Creditors at the end
of the year

= 60 + 565 - 100

= 60 + 465

= 525

Answer 3. B Net Book Value: - It is an amount in which an organization records an assets in its Books of
account. It is calculate by the formula is original cost of an asset (-) any accumulated depreciation. It represents
an accounting methodology for the year by year reduction in the mention cost of a fixed asset. It is not
necessary that fixed asset value equal to the market price at any point of time. There are several measures that
can be used to define a valuation for a business.

Net Book Value: - Original cost of asset (-) Accumulated Depreciation

Accumulated depreciation: - It is the Sum of amount of a depreciation of a Business assets. It is a type of

expense of amount that has been depreciate for a particular year or single period. It represents the
deduction/reduction of a Business asset's cost over its useful life.

In simple words, depreciation impact negatively on cost of assets. It also present how much particular asset is
used in a year, until the asset is no longer in use. Without depreciation on asset a Business would incurred the
entire cost of an asset in the year of the purchase and it could be negative impact on profitable side of a
business.

For Example: - Biourja LLC a company spent $60,000 on Machinery. It is for long-term use in its operations.
They estimate that the Depreciation value will be $2,000 and its useful life may be 15 years. The Accumulated
depreciation expense per year would be $4,833.33.

($60,000 - $2,000)/15 = $4,833.33

Then, after five years, accumulated depreciation will be total $24,166.66 (approx.).

$4,833.33 x 5 = $24166.66 (approx.)

Calculation as per question Requirement (Amount in Lakh)

Original cost of equipment sold: - 400

Gain on the equipment sold: - 50

Accumulated depreciation on the equipment: - 80

Net Book Value = Original cost of asset - Accumulated Depreciation

Net Book Value = 400 – 80

Net Book Value = 320

Cash Proceeds from sale of Investment = Net Book Value + Gain on Equipment sold

Cash Proceeds from sale of Investment = 320 +50

Cash Proceeds from sale of Investment = 370