Starting

With Accounting

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Financial Statements

Financial statements are written records that convey the business activities and the financial performance of a company.

01 02 03

Balance s he et Income state me nt Cash flow

Position of a company at Profitability for a Cash inflow and outflow

a point of time particular period for a particular period

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Elements Of Financial Statements

1 2 3 4 5

Assets Liabilities Equity Income Expenses

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Asset

a resource controlled by the entity as a result of past events and from which future
01 Asset
economic benefits are expected to flow to the entity.

üPlant, Machinery and Equipment

üAccounts Receivable

üCash

üInventories

üInvestments

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Liability

present obligation of the entity arising from past events, the settlement of which is
02 Liability
expected to result in an outflow from the entity of resources embodying economic
benefits.

üLoan

üCreditors

üTax payable

üUnearned revenue

üSalary payable

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Equity

is the residual interest in the assets of the entity after deducting all its liabilities..
03 Equity

üOwners contribution

üRetained earnings

üComprehensive income

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Income

is increases in economic benefits during the accounting period in the form of inflows
04 Income
or enhancements of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from equity participants.

üSale of goods or services

üGain on sale of asset

üRoyalty fees

üInterest and dividend received

üRent received

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Expense

are decreases in economic benefits during the accounting period in the form of
05 Expe nse
outflows or depletions of assets or incurrences of liabilities that result in decreases
in equity, other than those relating to distributions to equity participants.

üCost of sales

üLoss on sale of assets

üRent paid

üInterest

üDepreciation

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Basic Accounting Equation

Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲 𝐈𝐧𝐜𝐨𝐦𝐞

Less Expenses
Profit

üDouble entry

üAccrual
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Recording Process

1 2 3 4 5

Transaction Journal Ledger Trial Balance Financial Statement

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Transaction 1

Cash 30L Capital January 1, 2021: Mr. Rakesh started garments business in by
30L incorporating a partnership firm with his brother. Together
they invested Rs 30,00,000. Rakesh will be actively involved
in the business.

Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲

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Transaction 2

January 2: He takes a loan of 30,00,000 from the bank @12%

Cash 30L Loan 30L
interest, repayable in the next 2 years (equal amount every
month)

Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲

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Transaction 3

Advance
Rent
7.92L January 3 Hired a premise on rent for Rs. 66,000 per month
and paid 1 years rent in advance.

Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲

Cash
7.92L

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Transaction 4

Inventory
28L
January 3 Purchased goods for cash Rs 28,00,000.

Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲

Cash 28L

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Transaction 5

Plant &
Machinery
8L January 7 Bought a sewing machine for cash totaling to Rs.
7,50,000 and installation expenses paid Rs. 50,000. Life of
machinery is 5 years.

Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲

Cash 8L

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Transaction 6

Plant &
Machinery
50k January 9 Purchased computer for the office and paid by
cheque Rs. 50,000. Life of computers 3 years

Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲

Cash 50k

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Transaction 7

Cash 7L Reserves January 10 15% of the goods was sold for Cash Rs. 7,00,000,
2.8L with a condition for return within 7 days.

𝐈𝐧𝐜𝐨𝐦𝐞 7.0L
Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲 Less Expenses 4.2L
Profit 2.8L

Inventory
4.2L

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Transaction 8

Accounts
Receivable Reserves January 11 45% of the Goods Sold at Rs.20,00,000, money
20L 7.4L will be received in next month.

𝐈𝐧𝐜𝐨𝐦𝐞 20.0L
Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲 Less Expenses 12.6L
Profit 7.4L

Inventory
12.6L

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Transaction 9

January 11 Stationery purchased for Rs. 5,000 in cash

𝐈𝐧𝐜𝐨𝐦𝐞
Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲 Less Expenses 5k
Profit (5k)

Cash 5k Reserves
5k

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Transaction 10

Inventory January 13 Half the goods sold on 10th January were

2.1L
returned. Cash paid.

𝐈𝐧𝐜𝐨𝐦𝐞 (3.5L)
Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲 Less Expenses (2.1L)
Profit (1.4L)

Reserves
Cash 3.5L
1.4L

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Transaction 11

Prepaid
Expenses 23k
January 15 Insurance premium for 1-year, paid Rs. 24,000 by
cheque.

𝐈𝐧𝐜𝐨𝐦𝐞
Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲 Less Expenses 1k
Profit (1k)

Cash 24k Reserves

1k

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Transaction 12

TDS Payable January 30 Salary for the month Rs 205,000. TDS deducted
0.205L
on the same at 10%. Amount paid through cheque.

𝐈𝐧𝐜𝐨𝐦𝐞
Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲 Less Expenses 2.05L
Profit (2.05L)

Cash Reserves
1.845L 2.05L

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Transaction 13

Bills Payable January 30 Received electricity bill for the month, Rs 30,000.
30k

𝐈𝐧𝐜𝐨𝐦𝐞
Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲 Less Expenses 30k
Profit (30k)

Reserves
30k

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Transaction 14

Cash2L Advance from January 31 Received a purchase order to supply goods worth
Customer 2L Rs. 50,00,000 over the next 6 months. Received Rs. 2,00,000
advances.

Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲

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Transaction 15

Cash 1L January 31 Placed order worth Rs. 20,00,000 with the

supplier, paid Rs. 100,000 in advance. Materials will be
delivered in the next month.

Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲

Advance to
Supplier 1L

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Transaction 16

Cash / Bank January 31 Rakesh offered to give 2% discount for goods sold
18.6L
on 11th Jan, and the customer agreed to pay on same day
through cheque. However, cheque was deposited on 1st Feb.

𝐈𝐧𝐜𝐨𝐦𝐞
Assets – Liabilities = 𝐄𝐪𝐮𝐢𝐭𝐲 Less Expenses 0.4L
Profit (0.4L)

Reserves
Accounts 0.4L
Receivable
20L

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