Recording Of Business Transactions - I Class 11 Notes Accountancy Chapter 3 - CBSE
Chapter : 3
What Are Recording Of Business Transactions – I ?
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Accounting Equation
Accounting Equation is a mathematical expression which shows that the assets of a firm are equal to the sum of its liabilities and the capital contributed by the owner.
Mathematical Expression of Accounting Equation
- Assets = Liabilities or Claims of Outsiders + Capital or Owner's Equity
- Capital - Assets = Liabilities
- Liabilities = Assets - Capital
Types of Transactions Affecting Accounting Equation
A business transaction may result in any of the following manner :
- Increase in one Asset and Decrease in other Asset.
- Increase in an Asset and simultaneously increase in a Liability.
- Increase in Asset and Increase in Capital or Owner's Equity.
- Decrease in an Asset and simultaneously Decrease in a Liability.
- Decrease in an Asset and simultaneously Decrease in Capital.
- Increase in one Liability and Decrease in other Liability.
Effect of Various Transactions on the Accounting Equation
| No. | Transaction | Assests | Liabilities & Capital |
| 1. | Capital | ||
| (i) ₹50,000 brought in by owner | Cash ↑ by ₹50,000 | Capital ↑ by ₹50,000 | |
| (ii) Started business with cash of ₹20,000, furniture of ₹30,000, Goods of ₹40,000 and creditors of ₹10,000 | Cash ↑ by ₹20,000 | Creditors ↑ by ₹10,000 | |
| Furniture ↑ by ₹30,000 Stock ↓ by ₹40,000 | Capital ↑ by ₹80,000 | ||
| 2. | Drawings | ||
| (i) Cash withdraw ₹4,000 | Cash ↓ by ₹4,000 | Capital ↓ by ₹4,000 | |
| (ii) Purchased refrigerator of ₹12,000 for personal use | Cash ↓ by ₹12,000 | Capital ↓ by ₹12,000 | |
| (iii) Goods of ₹1,000 (sale price ₹1200) used for personal use. | Stock ↓by ₹1,000 | Capital ↓ by ₹1,000 | |
| 3. | Purchase of Goods | ||
| (i) Cash purchase of ₹6,000 | Stock ↑ by ₹6,000 | ||
| Cash ↓ by ₹6,000 | |||
| (ii) Credit purchase of ₹5,000 | Stock ↑ by ₹5,000 | Creditors ↑ by ₹5,000 |
| No. | Transaction | Assests | Liabilities & Capital |
| 4. | Sale of Goods | ||
| (i) Cash sale of ₹9,000 | Cash ↑ by ₹9,000 | - | |
| Stock ↓ by ₹9,000 | - | ||
| (ii) Credit sale of ₹4,000 | Debtors ↑ by ₹4,000 | - | |
| Stock ↓ by ₹4,000 | |||
| (iii) Goods costing ₹400 sold at profit ₹100 in cash | Cash ↑ by ₹500 | Capital ↑ by ₹100 | |
| Stock ↓ by ₹400 | |||
| (iv) Goods costing ₹700 sold at profit ₹200 on credit | Debtors ↑ by ₹900 | Capital ↑ by ₹200 | |
| Stock ↓ by ₹700 | |||
| 5. | Discount Allowed | ||
| Received ₹800 from debtors in Allowed full settlement of ₹900 | Cash ↑ by ₹800 | Capital ↓ by ₹100 | |
| Debtors ↓ by ₹900 | |||
| 6. | Discount Received | ||
| Paid ₹12,000 to creditors in full settlement of ₹13,500 | Cash ↓ by ₹12,000 | Creditors ↓ by ₹13,500 Capital ↑ by ₹1,500 | |
| 7. | Purchase of Fixed Assets | ||
| Furniture purchased of ₹9,000 in cash | Furniture ↑ by ₹9,000 Cash ↓ by ₹9,000 | — | |
| 8. | Depreciation | ||
| Depreciate furniture by ₹1,000 | Furniture ↓ by ₹1,000 | Capital ↓ by ₹1,000 | |
| 9. | Charity | ||
| Goods of ₹600 given as charity (Sale Price ₹800) | Stock ↓ by ₹600 | Capital ↓ by ₹600 | |
| 10. | Loss by Fire | ||
| Goods of ₹400 lost by fire (sale price ₹450) | Stock ↓ by ₹400 | Capital ↓ by ₹400 |
Journal
Journal is a Book of Original or Primary Entry in which the business transactions are recorded in chronological order, i.e, as and when they take place. Journal is a Book of Original Entry as all the transactions are recorded first of all, as and when they take place. Journal Entries are of two types:
- Simple Journal Entry: If a Journal Entry involves two accounts, i.e. one debit and one credit account, then it is termed as Simple Journal Entry.
- Compound Journal Entry: If a Journal Entry involves more than two accounts, i.e. when one or more accounts are debited and one or more accounts are credited or vice versa, then it is termed as Compound Journal Entry.
Advantages Of A Journal
- Journal reduces the possibility of committing error.
- Provides an Explanation of the transaction.
- Provides Chronological record of Transactions.
- Facilitates Ledger Posting.
Steps In Journalising
Step 1: Recognise the accounts involved in the transaction.
Step 2: Recognise the nature of accounts involved in the transaction.
Step 3: Ascertain the account to be debited and credited.
Step 4: Ascertain the amount by which accounts are to be debited and credited.
Step 5: Write the date of the transaction in the Date column.
Step 6: In the Particulars column, write the name of the accounts to be debited and credited.
Step 7: Draw ruling of a Journal and record the transaction.
Rules Of Journal Entries
Journal entries are the first step in the accounting process and are used to record financial transactions in a company's books. To maintain consistency and accuracy, certain rules, known as "Rules of Journal Entries" or
"Golden Rules of Accounting," are followed. These rules are based on the accounting equation and ensure that each transaction is properly recorded. The three fundamental rules of journal entries are:
- Personal Accounts: Debit (Dr.) the receiver, Credit (Cr.) the giver.
- Real Accounts: Debit (Dr.) what comes in, Credit (Cr.) what goes out.
- Nominal Accounts: Debit (Dr.) all expenses and losses, Credit (Cr.) all incomes and gains.
