Livestock Economics, Marketing and Business Management

TRANSACTION FOR SYSTEM OF BOOK KEEPING

Transaction 1

• A starts a business with a capital of Rs.10000
• There are two aspects of transactions. The business has received a cash of Rs.10000. It is its asset but on the other hand it has to pay a sum of Rs.10000 to A. Thus:

Capital and Liabilities	Rs	Assets	Rs
Capital	10000	Cash	10000

Transaction 2

• A Purchase furniture for cash worth Rs.2000. The position of his business will be as follows:

Capital and Liabilities	Rs	Assets	Rs
Capital	10000	Cash Furniture	8000 2000
	10000		10000

Transaction 3

• A purchase cotton bales from B are Rs.5000 on credit. He sells for cash cotton bales costing 3000 for Rs.4000 and Rs.1500 on credit to P.
• As a result of these transactions the business makes a profit of Rs 1500(i.e. Rs.5500 – Rs.4000), this will increase A’s capital from Rs.10000 to Rs.11500.
• The business will have liability of Rs.5000 to B and two more assets in the form of a debtor P for Rs.1500 and stock of cotton bales of Rs.1000.
• The position of his business will now be as follows:

Capital and Liabilities	Rs	Assets	Rs
Creditor(B) Capital	5000 11500	Cash(Rs.8000+4000) Stock of cotton bales Debtor(P) Furniture	12000 1000 1500 2000
	16500		16500

Transaction 4

• A withdraws cash of Rs.1000 and cotton bales of Rs.200 for his personal use. The amount and the goods withdrawn will decrease relevant assets and A’s capital.
• The position will be now as follows.

Capital and Liabilities	Rs	Assets	Rs
Creditor(B) Capital (Rs 11500-Rs 1200)	5000 10300	Cash(Rs.12000+Rs 1000) Stock of cotton bales Debtor(P) Furniture	11000 800 1500 2000
	15300		15300

• The result of applying the system of double entry system may be summarised in the following rule:“The every debit there must be equivalent credit and vice versa.”