I am presenting my further written-in book ''The System of Accounting" Level II; transactions affect on business for which i tried my best to close up every aspect on the point. I think it will be proved helpful to students and fruitful to readers. with regards - SYED AQEEL RAZA

1. 1
Volume – I
YEAR 2015
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
WRITTEN BY:
SYED AQEEL RAZA

2. 2
TABLE OF CONTENTS

3. 3
< AFFECTS ON BUSINESS TRANSACTIONS>
Brief Introduction………………………………………………………………………………………..49
Analyzing, Equation, Rules Entry…………………………………………………………….51-70
Transactions…………………………………………………………………………………………………………………………………………… 50
The Accounting equation for a new company……………………………………………………………………………………….. 51
Mr. Frances starts his business with a capital investment of Rs. 100,000/=……………………………………………… 52
Taken shop on rent Rs.5, 000/= per month with deposit of Rs.10, 000/=, the rent paid in advance…..53-54
Purchased merchandise on cash Rs.50, 000/=…………………………………………………………………………………………..55
Cartage on merchandise Rs.1000/= paid…………………………………………………………………………………………………..56
Purchased merchandise of Rs.5000/= on credit from ABC & Co………………………………………………………..………57
Sold merchandise Rs.5, 000/= at cost for to a cash customer…………………………………………………….………………58
Sold merchandise for Rs.12, 000/= which costs to Rs. 10, 000/= to a cash customer…………..…………………..59
Cash paid to ABC & Co. Rs.2500/= as part payment……………………………………………………..…………………..60-61
Sold merchandise of Rs.10, 000/= on credit to AA & Co. at a profit of Rs.2000/=……………………………………62
Cash received Rs.5000/= as part payment from AA & Co. as part payment………………………….. ……….63-64
Merchandise returned to ABC & Co. Rs.1000/= and paid cash Rs. 1500/=…………………………..………………….65
Merchandise returned by Cash customer of Rs.2000/=…………………………………………… …………………….66-67
Paid salary Rs. 3000/= to employee…………………………………………………………………………… …………………68-69
Operated a bank account with Rs.5, 000/=……………………………………………………………………………….………….70
Accounting Equation………………………………………………………………………………………………………..………………….71
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

4. 4
Every business transaction affects the fundamental
accounting equation as to Assets = Liabilities +
Owners’ Equity or owners’ Equity + Liabilities=
Assets under rules of Debit and Credit or Increase or
Decrease in values.
Assets are the Resources of the business and
equities provide the source to acquire these assets.
Therefore, ASSETS = EQUITIES OR RESOURCES
=SOURCES.
The accounting equation can be expressed in three
ways:
Assets = Liabilities + Owners’ Equity
Liabilities = Assets – Owners’ Equity
Owners’ Equity = Assets – Liabilities
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

5. 5
Here are following transactions showing the effect on accounting equation;
The Accounting equation for a new company
Jan 05, 2015: Mr. Frances starts his business with a capital investment of
Rs. 100,000/=.
Jan 06, 2015: Taken shop on rent Rs.5, 000/= per month with deposit of
Rs.10, 000/=, the rent paid in advance
Jan 07, 2015: Purchased merchandise on cash Rs.50, 000/=.
Jan 08, 2015: Cartage on merchandise Rs.1000/= paid.
Jan 08, 2015: Purchased merchandise of Rs.5000/= on credit from ABC & Co.
Jan 10, 2015: Sold merchandise Rs.5, 000/= at cost for to a cash customer.
Jan 15, 2015: Sold merchandise for Rs.12, 000/= which costs to Rs. 10,
000/= to a cash customer.
Jan 16, 2015: Cash paid to ABC & Co. Rs.2500/= as part payment.
Jan 17, 2015: Sold merchandise of Rs.10, 000/= on credit to AA & Co. at a
profit of Rs.2000/=.
Jan 20, 2015: Cash received Rs.5000/= as part payment from AA & Co. as
part payment.
Jan 22, 2015: Merchandise returned to ABC & Co. Rs.1000/= and paid cash
Rs. 1500/=
Jan 25, 2015: Merchandise returned by Cash customer of Rs.2000/=.
Jan 30, 2015: Paid salary to Rs. 3000/= to employee.
Operated a bank account with Rs.5, 000/=.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>

6. 6
AFFECTS ON BUSINESS TRANSACTIONS
The Accounting equation for a new company
The accounting Equation for a brand new
company looks like;
Since the business has only been planned not
yet invested it has neither assets nor liabilities.
Therefore,
ASSETS = LIABILITIES + Owner’s Equity
0 = 0 + 0
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>

7. 7
AFFECTS ON BUSINESS TRANSACTIONS
Jan 05, 2015: Mr. Frances starts his business with a capital investment of Rs. 100,000/=.
When Mr. Frances was planning to start business, he had zero capital and as
soon as he put cash into business ,the value of capital has increased from zero
to Rs.100,000/= and the value of cash has also been increased by
Rs.100,000/=as an liquid assets.
Analysis:
1) Accounts involved = Cash -Frances, Capital
2) Nature of Accounts =Assets -Owner’s Equity
3) Increase or decrease =Increases -Increases
4) Rules of Debit and Credit =Debit -Credit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
CASH Owner’s, Capital
+Rs.100, 000/= = 0 +Rs.100, 000/=
Accounting Rules:
Assets increases debit decreases credit.
Capital decreases debit increases credit.
Cash/Liquid Assets = Debit
Capital/Proprietorship = Credit
Recording of Entry:
Jan 05,Cash 100,000/=
Capital/Frances 100,000/=
(To record the Investment in the business)
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

8. 8
Jan 06, 2015: Taken shop on rent Rs.5, 000/= per month with cash deposit of Rs.10, 000/=, the
rent paid in advance.
Analysis:
1) Accounts involved = Prepaid Rent -Cash
2) Nature of Accounts =Assets -Assets
3) Increase or decrease =Increases -Decreases
4) Rules of Debit and Credit =Debit -Credit
5) Accounts involved = Shop Deposit -Cash
6) Nature of Accounts =Assets -Assets
7) Increase or decrease =Increases -Decreases
8) Rules of Debit and Credit =Debit -Credit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Frances, Capital
Cash + 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Balance +15000 + 85000 = +100000
In this entry, the pre-paid rent which assumed assets before consumption increased in Assets
and the cash has been paid which is decreasing in assets. The shop deposit is a recoverable
asset increasing in assets and the cash paid against it decreasing in assets.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

9. 9
Accounting Rules:
Assets increases debit decreases credit.
Prepaid Rent/Current Assets = Debit
Shop Deposit/Fixed Assets = Debit
Cash/Assets = Credit
Recording of Entry:
Compound entry:
Jan, 06 Prepaid Rent 5,000/=
Shop Deposit 10,000/=
Cash 15,000/=
(To record the payment of shop deposit & rent in advance)
Broken Entry:
Jan, 06 Prepaid Rent 5,000/=
Cash 5,000/=
(Paid shop rent in advance)
Shop Deposit 10,000/=
Cash 10,000/=
(Cash paid for shop deposit)
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

10. 10
Jan 07, 2015: Purchased merchandise on cash Rs.50000/=
Analysis:
1) Accounts involved = Merchandise - Cash
2) Nature of Accounts =Assets -Assets
3) Increase or decrease =Increases -Decreases
4) Rules of Debit and Credit =Debit -Credit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Frances, Capital
Cash + 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Balance +65000 + 35000 = +100000
Accounting Rules:
Assets increases debit decreases credit.
Merchandise/Current Assets = Debit
Cash/ Current Assets = Credit
Recording of Entry:
Jan 07,Merchandise 50,000
Cash 50,000
(To record purchased merchandise on cash)
This transaction affects the accounting equation as to increase in assets and decrease in
assets cash too and no change is made in equities side of the equation.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

11. 11
Jan 08, 2015: Cartage on merchandise Rs.1000/= paid.
Analysis:
1) Accounts involved = Cartage -Cash
2) Nature of Accounts = Expense -Assets
3) Increase or decrease = Increases -Decreases
4) Rules of Debit and Credit = Debit -Credit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Frances, Capital
Cash + 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Balance +65000 + 34000 = +99000
Accounting Rules:
Expense increases debit decreases credit.
Assets increases debit decreases credit.
Cartage/Expense = Debit
Cash/Current Assets = Credit
Recording of Entry:
Jan, 08 Cartage Rs. 1000
Cash Rs. 1000
(To record paid Cartage for merchandise carried to shop)
The Asset “Cash” is decreased and the Expense decreases in owner’s Equity or from owner’s profit.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

12. 12
Jan 08, 2015: Purchased merchandise of Rs. 5000/= on credit from ABC & Co.
Analysis:
1) Accounts involved = Merchandise - A/c Payable (ABC & Co.)
2) Nature of Accounts =Assets -Liabilities
3) Increase or decrease =Increases -Increases
4) Rules of Debit and Credit =Debit -Credit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Frances, Capital
Cash + 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
A/c P/A ABC Co = +5000
Balance +70000 + 34000 = +5000 +99000
Accounting Rules:
Assets increases debit decreases credit.
Liabilities decreases debit increases credit.
Merchandise/Assets = Debit
A/c Payable (ABC & Co.) /Liabilities = Credit
Recording of Entry:
Jan 08,Merchandise 5000
A/c Payable (ABC & Co.) 5000
(To record merchandise purchased on credit)
This transaction affects the accounting equation as to increase assets/merchandise and
increase in liabilities A/c payable ABC & Co. by equal amount.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

13. 13
Jan 10, 2015: Sold merchandise Rs.5, 000/= at cost for to cash customer.
Analysis:
1) Accounts involved = Sale - Cash
2) Nature of Accounts =Revenue -Assets
3) Increase or decrease =Increases -Increases
4) Rules of Debit and Credit =Credit -Debit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Cash Frances, Capital
Cash + 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
A/c P/A ABC Co = +5000
Merchandise sold -5000 + 5000
Balance +65000 + 39000 = +5000 +99000
Accounting Rules:
Assets increases debit decreases credit.
Revenue decreases debit increases credit.
Cash/Assets = Debit
Sale = Credit
Recording of Entry:
Jan 10,Cash 5000
Sale 5000
(To record merchandise sold without profit & loss)
This transaction affects the equation as to increase in assets/cash and decrease in
merchandise. The sale is connected with revenue but reducing the stock of merchandise
affecting profit and loss and taken into account directly in merchandise.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

14. 14
Jan 15, 2015: Sold merchandise for Rs.12, 000/= which costs Rs. 10,000/= to a cash customer.
Analysis:
1) Accounts involved = Sale = Cash =Profit
2) Nature of Accounts =Revenue =Assets =Capital
3) Increase or decrease =Increases =Increases =Increases
4) Rules of Debit and Credit =Credit =Debit =Credit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Cash Frances, Capital
+ 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
A/c P/A ABC Co = +5000
Merchandise sold -5000 + 5000
Merchandise sold -10000 + 12000 +2000 (Profit)
Balance +55000 + 51000 = +5000 +101000
Accounting Rules:
Assets increases debit decreases credit.
Revenue decreases debit increases credit.
Capital decreases debit increases credit.
Cash/Current Assets = Debit
Sales/Revenue = Credit
Capital/Profit = Credit
Recording of Entry:
Jan 15,Cash 12000
Sales 10000
Capital 2000
(To record merchandise sold on profit)
This transaction affects the equation as to increase in assets/cash, decrease in merchandise
and increase in owner’s equity by profit.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

15. 15
Jan 16, 2015: Cash paid to ABC & Co. Rs.2500/=as partpayment.
Analysis:
1) Accounts involved = A/c Payable - Cash
2) Nature of Accounts =Liabilities -Assets
3) Increase or decrease =Increases -Decreases
4) Rules of Debit and Credit =Credit -Credit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Cash Frances, Capital
+ 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
A/c P/A ABC Co = +5000
Merchandise sold -5000 + 5000
Merchandise sold -10000 + 12000 +2000 (Profit)
ABC & Co. - 2500 -2500
Balance +55000 + 48500 = +2500 +101000
Accounting Rules:
Assets increases debit decreases credit.
Liabilities decreases debit increases credit.
A/c Payable/Liabilities = Debit
Cash/Assets = Credit
Recording of Entry:
Jan 16,ABC & Co. (A/c Payable) 2500
Cash 2500
(To Record cash paid to ABC & Co. as part payment)
This transaction affects the equation as to decrease in liabilities and decrease in cash/assets
with equal amount.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

16. 16
Jan 17, 2015: Sold merchandise of Rs.10, 000/= on credit to AA & Co. at a profit of Rs.2000/=.
Analysis:
1) Accounts involved = Sale - A/c Receivable (AA & Co.)
2) Nature of Accounts =Revenue -Current Assets
3) Increase or decrease =Increases -Increases
4) Rules of Debit and Credit =Credit -Debit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Cash Frances, Capital
+ 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
A/c P/A ABC Co = +5000
Merchandise sold -5000 + 5000
Merchandise sold -10000 + 12000 +2000 (Profit)
ABC & Co. - 2500 -2500
Merchandise sold -10000
A/C R/A +12000 +2000 (Profit)
Balance +57000 + 48500 = +2500 +103000
AFFECTS ON BUSINESS TRANSACTIONS

17. 17
Accounting Rules:
Assets increases debit decreases credit.
Revenue decreases debit increases credit.
Capital decreases debit increases credit.
A/c Receivable/Current Assets = Debit
Sales/Revenue = Credit
Profit/Capital = Credit
Recording of Entry:
Jan 16,AA & Co. (Receivable) 12000
Sale 10000
Capital 2000
(To Record merchandise sold on credit to AA & Co. on profit of Rs.2000)
This transaction affects the equation as to increase in assets, increase in sales/revenue and
increase in capital by Rs.2000/=
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

18. 18
Jan 20, 2015: Cash received Rs.5000/= as part payment from AA & Co.
Analysis:
1) Accounts involved = A/c Receivable = Cash
2) Nature of Accounts =Assets =Assets
3) Increase or decrease =Decreases =Increases
4) Rules of Debit and Credit =Credit =Debit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Cash Frances, Capital
+ 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
A/c P/A ABC Co = +5000
Merchandise sold -5000 + 5000
Merchandise sold -10000 + 12000 +2000 (Profit)
ABC & Co. - 2500 -2500
Merchandise sold -10000
A/C R/A +12000 +2000 (Profit)
A/c R/A (AA & Co) -5000 +5000
Balance +52000 + 53500 = +2500 +103000
Accounting Rules:
Assets increases debit decreases credit.
Cash/Assets = Debit
A/c Receivable (AA & Co.) = Credit
Recording of Entry:
Jan 16, Cash 5000
A/c Receivable AA & Co. 5000
(To Record the part payment received by AA & Co.,)
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

19. 19
Jan 22, 2015: Merchandise returned to ABC & Co. Rs.1000/= and paid cash Rs. 1500/=
Analysis:
1) Accounts involved = Purchase Return =A/c Payable =Cash
2) Nature of Accounts = Contra Assets =Liabilities =Assets
3) Increase or decrease =Decreases =Decreases =Decreases
4) Rules of Debit and Credit =Credit =Debit =Credit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Cash Frances, Capital
+ 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
A/c P/A ABC Co = +5000
Merchandise sold -5000 + 5000
Merchandise sold -10000 + 12000 +2000 (Profit)
ABC & Co. - 2500 -2500
Merchandise sold -10000
A/C R/A +12000 +2000 (Profit)
A/c R/A -5000 +5000
Mer.Return -1000
A/c P/A ABC & Co. -1500 -2500
Balance +51000 + 52000 = 0 +103000
Accounting Rules:
Assets increases debit decreases credit.
Liabilities decreases debit increases credit.
A/c Payable/Liabilities = Debit
Purchase Return/Contra Assets = Credit
Cash = Credit
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

20. 20
Recording of Entry:
Jan 22 A/c payable (ABC & Co.) 2500
Purchase Return 1000
Cash 1500
(To Record merchandise returned to ABC & Co. & paid balance payment)
This transaction affects the equation as to increase in cash/assets and decrease in Account
Payable (ABC & Co.).
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

21. 21
Jan 25, 2015: Merchandise returned by Cash customer of Rs.2000/=.
Analysis:
1) Accounts involved = Sale Return - Cash
2) Nature of Accounts = Contra Revenue -Assets
3) Increase or decrease =Decreases -Decreases
4) Rules of Debit and Credit =Debit -Credit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Cash Frances, Capital
+ 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
A/c P/A ABC Co = +5000
Merchandise sold -5000 + 5000
Merchandise sold -10000 + 12000 +2000 (Profit)
ABC & Co. - 2500 -2500
Sale -10000
A/C R/A +12000 +2000 (Profit)
A/c R/A -5000 +5000
Mer.Return -1000
A/c P/A ABC & Co. -1500 -2500
Merchandise S/R +2000 -2000
Balance +53000 + 50000 = 0 +103000
Accounting Rules:
Assets increases debit decreases credit.
Revenue decreases debit increases credit
Sale Return/Contra Revenue = Debit
Cash/Assets = Credit
Recording of Entry:
Jan 25: Sale Return 2000
Cash 2000
(To Record merchandise returned by Cash customer)
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

22. 22
Jan 30, 2015: Paid salary Rs. 3000/= to employee.
Analysis:
1) Accounts involved = Salaries -Cash
2) Nature of Accounts = Expense -Assets
3) Increase or decrease = Increases -Decreases
4) Rules of Debit and Credit = Debit -Credit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Cash Frances, Capital
+ 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
A/c P/A ABC Co = +5000
Merchandise sold -5000 + 5000
Merchandise sold -10000 + 12000 +2000 (Profit)
ABC & Co. - 2500 -2500
Sale -10000
A/C R/A +12000 +2000 (Profit)
A/c R/A -5000 +5000
Mer.Return. -1000
A/c P/A ABC & Co. -1500 -2500
Merchandise s/R +2000 -2000
Salaries -3000 -3000
Balance +53000 + 47000 = 0 +100000

23. 23
AFFECTS ON BUSINESS TRANSACTIONS
Accounting Rules:
Expense increases debit decreases credit.
Assets increases debit decreases credit.
Salaries/Expense = Debit
Cash/Assets = Credit
Recording of Entry:
Jan, 30Salaries Rs. 1000
Cash Rs. 1000
(To record salary paid to employee)
The Asset “Cash” is decreased and the Expense decreases in owner’s Equity or from owner’s
profit.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>
AFFECTS ON BUSINESS TRANSACTIONS

24. 24
Operated a bank account with Rs.5, 000/=.
Analysis:
1) Accounts involved = Bank -Cash
2) Nature of Accounts = Assets -Assets
3) Increase or decrease = Increases -Decreases
4) Rules of Debit and Credit = Debit -Credit
Accounting Equation:
ASSETS = LIABILITIES + Owner’s Equity
Cash Frances, Capital
+ 100000 = +100000
Shop Deposit +10000 - 10000
Prepaid Rent + 5000 - 5000 =
Merchandise +50000 - 50000 =
Cartage - 1000 = -1000
Merchandise + 5000
A/c P/A ABC Co = +5000
Merchandise sold -5000 + 5000
Merchandise s -10000 + 12000 +2000 (Profit)
ABC & Co. - 2500 -2500
Merchandise sold -10000
A/C R/A +12000 +2000 (Profit)
A/c R/A -5000 +5000
Mer.Return -1000
A/c P/A ABC & Co. -1500 -2500
Merchandise +2000 -2000
Salaries -3000 -3000
Bank Account +5000 -5000
Balance +58000 + 42000 = 0 +100000
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>

25. 25
AFFECTS ON BUSINESS TRANSACTIONS
Accounting Rules:
Assets increases debit decreases credit.
Bank/Assets = Debit
Cash/Assets = Credit
Recording of Entry:
Jan, 30Bank Rs. 1000
Cash Rs. 1000
(To record cash deposited into bank)
The Asset “Cash” is decreased and bank account increases)
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>

26. 26
AFFECTS ON BUSINESS TRANSACTIONS
ACCOUNTINGEQUATION
ASSETS = LIABILITIES + OWNER’SEQUITY
CASH 42,000
BANK 5,000
SHOPDEPOSIT 10,000
ACCOUNTRECEIVEABLE 7,000
PREPAIDRENT 5,000
MERCHANDISE 31,000 = 0 + 100,000
TOTAL 100,000 = 0 + 100,000
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<aqeelraza@live.com>