1.

Date Particulars L.F. Dr. Amount (Rs.) Cr. Amount (Rs.)

3 Dec Cash account Dr. 5000 5,00,000 amanda

Bank account Dr.
To Capital account 5,05,000
(Being the amount invested
by Mrs. Veena in her business)

5 Dec Furniture account Dr. 60,000 A

To Bank 30,000
To Vendor A/C 30,000
(Being furniture purchased on
50% downpayment)
7 Dec Purchase account Dr. 3,15,000 A
To Bank 3,15,000
( Being goods purchased for sale)

8 Dec Bank account Dr. 5,00,000

To Sales 5,00,000
( Being goods sold in sales)
10 Dec Rent Dr. 10,000 A
Electricity Dr. 10,000
Salary Dr. 10,000
To Bank 30,000
(Being the amount paid for rent,
electricity and salary)

2.
A. Gross Profit
Gross profit is the profit a business makes after subtracting all the costs that are related to manufacturing
and selling its products or services. You can calculate gross profit by deducting the cost of goods sold
(COGS) from your total sales. Gross profit is a measure of how efficiently an establishment uses labor and
supplies for manufacturing goods or offering services to clients. It is an important figure when checking the
profitability and financial performance of a business.
Gross profit helps you understand the costs needed to generate revenue. When the value of the cost of goods
sold (COGS) increases, the gross profit value decreases, so you have less money to deal with your operating
expenses. When the COGS value decreases, there will be an increase in profit, meaning you will have more
money to spend for your business operations.

B. Sales Revenue
Sales Revenue is the income any business entity generates by selling its goods or providing its services
during the normal course of its operations. Sales revenue does not include the cost of goods sold (COGS)—
the costs associated with the materials, labor and manufacturing of the product themselves. It also does not
include income earned on activities that are not related to the company’s core business. Sales revenue is cal-
culated by multiplying the number of products or services sold by the price per unit.
By accurately calculating and recognizing sales revenue, the business can:
• Measure profitability.
• Decide where to invest.
• Determine whether it’s eligible for certain loans or contracts.
• Determine valuation.
C. Operating Profit
The term "operating profits" refers to an accounting statistic that calculates the profits earned by a corpo-
ration from its core business operations, where interest and tax deductions are removed from the measure-
ment. Likewise, this operating value excludes all income from the ancillary activities of the corporation, such
as earnings from individual companies in which a company might be partially invested.
The operating income can be determined by using the formula following:

*Operating Profit = Operating Revenue - Cost of Goods Sold (COGS) - Operating Expenses - De-
preciation – Amortisation. *

D. Good and Services tax

The goods and services tax (GST) is a value-added tax (VAT) levied on most goods and services sold for do-
mestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses
selling the goods and services. In a P&L statement, it is shown as a deduction from Gross Sales. Govern-
ments prefer GST as it simplifies the taxation system and reduces tax avoidance.

E. Net Profit
Net profit is the amount of money your business earns after deducting all operating, interest, and tax ex-
penses over a given period of time. To arrive at this value, you need to know a company’s gross profit. If the
value of net profit is negative, then it is called net loss. Net profit is another important parameter that deter-
mines the financial health of your business. It shows whether the business can make more than what it
spends. Net profit tells you about the profitability of your business.

3.1

Liabilities and Capital Amount Assets Amount

(Rs.) (Rs.)
Common Stock 1000 accounts receivable 250
Retained earnings 860 supplies 150
unearned revenue 200 equipment 1500
Salaries payable 150 cash 550
Accounts payable 540 prepaid insurance 300

Total Equity and Capital 2750 Total Assets 2750

3.2

Current ratio definition: Current ratio is a ratio of the assets that can be converted to cash in one year, and
the liabilities that fall due to payment within a year.

Current ratio: Current Asset

Current Liability

Current Asset = Accounts receivable + Supplies + Cash + Prepaid Insurance

 = 250 + 150 + 550 + 300
= 1250

Current Liability = Salaries payable + Accounts payable

= 150 + 540
= 690
Current ratio = Current Asset
Current Liability

= 1250
690
= 1.81

Significance: The current ratio indicates the liquidity of the company by measuring the assets which can be
potentially converted into cash and the liabilities which are due to paid in a year. A Current Ratio > 1 signi-
fies a sufficiently liquid business which can pay off its short term debts in ease thus suggesting a strong oper-
ating cycle.