Prof. leena george transaction analysis

1. Transaction Analysis
Dual Entry Concept
Prepared by Assistant Professor Leena George, School of
Management
, Presidency University, Bangalore
1

2. Dual Entry Concept – Luca Pacioli, 1494
• Every transaction has two aspects
• Both aspects of the transaction are recorded in the books of accounts
• It is give and take – in order to receive some value an equal value
needs to be given
For example if you are buying a laptop by paying Rs.50000, you are
receiving laptop by giving away Rs.50000. In business also we can see
this aspect which is actually the fundamental aspect of accounting.
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
2

3. Types of accounts – Rules of debit and credit
Account Name Increases Decreases
Assets Debit Credit
Liabilities Credit Debit
Income Credit Debit
Capital(Owner’s Equity) Credit Debit
Expenses Debit Credit
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
3

4. Accounting Equation
Assets = Liabilities + Owner’s Equity
Extended Accounting Equation
[Assets = Liabilities + Owner’s Equity+ Income – Expenses (+PROFIT – LOSS) -
Drawings/Dividends paid + Additional Investment]
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
4

5. Transaction Analysis using Accounting Equation
June 1 Ron started a business M/s Black Rock with a capital of
Rs.100000.
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
5
Date Assets = Liabilities + Owner’s Equity
Cash Inventory Loan Capital
June 1 100000 = 100000
Account Effect
Cash( ASSET)
Capital (OWNER’S
EQUITY)
Increases
Increases

6. June 1 He borrowed Rs.50000 from his friend to
start business
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
6
Date Assets = Liabilities + Owner’s Equity
Cash Inventory Loan Capital
June 1 150000 50000 100000
Account Effect
Cash(ASSET) Increases
Loan( LIABILITY) Increases

7. June 1 He bought furniture for Rs.20000 on credit
Date
Assets = Liabilities + Owner’s Equity
Cash Bank Inventory Furniture Computer = Loan Creditors Accounts Payable Capital Income Expenses
June 1 150000 20000 = 50000 20000 100000
June 1 =
June 1 =
=
=
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
7
Account Effect
Furniture(ASSET) Increases
Creditors(LIABILITY) Increases

8. June 10 Bought goods to be sold by paying Rs.50000
Date
Assets = Liabilities + Owner’s Equity
Cash Ba
nk
Inventory Furnitur
e
Computer = Loan Creditors Accounts Payable Capital Income Expenses
June 1 150000 2000
0
= 50000 20000 10000
0
June10 (50000) 50000 =
=
=
=
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
8
Account Effect
Inventory(ASSET) Increases
Cash(ASSET) Decreases

9. June 15 Printing and stationery expenses were paid
Rs.5000
Date
Assets = Liabilities + Owner’s Equity
Cash Ban
k
Inventory Furniture Computer = Loan Creditors Accounts Payable Capital Income Expenses
June 1 150000 20000 = 50000 20000 10000
0
June10 (50000) 50000 =
June
15
(5000) = (5000)
=
=
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
9
Account Effect
Printing & Stationery
Expense(EXPENSE)
Increases
Cash ( ASSET) Decreases

10. June 20 Additional capital contributed by owners
through bank Rs.60000
Date
Assets = Liabilities + Owner’s Equity
Cash Bank Inventory Furniture Computer = Loan Creditors Accounts Payable Capital Income Expenses
June 1 150000 20000 = 50000 20000 10000
0
June10 (50000) 50000 =
June 15 (5000) = (5000)
June20 60000 = 60000
=
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
10
Account Effect
Bank(ASSET) Increases
Capital(owner’s equity) Increases

11. June 1, Appointed Mr. X for a salary of
Rs.5000/month
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
11

12. June 21, Bought goods worth Rs.20000 on
credit from M/s Blue Light to be sold
Date
Assets = Liabilities + Owner’s Equity
Cash Bank Inventory Furniture Computer = Loan Creditors Accounts Payable Capital Income Expenses
June 1 150000 20000 = 50000 20000 10000
0
June10 (50000) 50000 =
June 15 (5000) = (5000)
June20 60000 = 60000
June21 20000 = 20000
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
12
Account Effect
Inventory(ASSET) Increases
Accounts
Payable(LIABILITY)
Decreases

13. June 23, Sold goods costing Rs.20000 for
Rs.35000 for cash
Date Assets = Liabilities + Owner’s Equity
Cash Bank Inventory Furniture Computer = Loan Creditors Accounts
Payable
Capital Income Expenses
June 1 150000 20000 = 50000 20000 100000
June10 (50000) 50000 =
June 15 (5000) = (5000)
June20 60000 = 60000
June21 20000 = 20000
June 23 35000 (20000) 35000 (20000)
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
13
Account Effect
Inventory(ASSETS) Decreases
Cash(ASSET) Increases
Sales(INCOME) Increases
Cost of goods sold(EXPENSE) Increases

14. June 25, Received an advance from a customer for
Rs.10000 for goods to be delivered next month
Date
Assets = Liabilities + Owner’s Equity
Cash Bank Inventory Furniture Computer = Loan Creditors A/P Capital Income Expenses
June 1 150000 20000 = 50000 20000 100000
June10 (50000) 50000 =
June 15 (5000) = (5000)
June20 60000 = 60000
June21 20000 = 20000
June 23 30000 (20000) 30000 (20000)
June25 10000 10000
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
14
Account Effect
Advance received(LIABILITY) Increases
Cash?(ASSET) Increases

15. June 30 Paid salary to Mr.X through bank
Paid the amount owed to M/s Blue Light Rs.
20000 through bank
Paid rent of Rs.300
Purchased a computer for Rs.5000 for cash
Date Assets = Liabilities + Owner’s Equity
Cash Bank Inventory Furniture Computer = Loan Creditors A/P Capital Income Expenses
June 1 150000 20000 = 50000 20000 100000
June10 (50000) 50000 =
June 15 (5000) = (5000)
June20 60000 = 60000
June21 20000 = 20000
June 23 30000 (20000) 35000 (20000)
June25 10000 10000
June 30 (3000) (5000) (8000)
June30 (5000) (20000) 5000 (20000
)
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
15
Account Effect
Cash(ASSET) Decreases
Bank(ASSET) Decreases
Salary(EXPENSE) Increases
Computer(ASSET) Increases
Accounts Payable(LIABILITY) Decreases

16. Date
Assets = Liabilities + Owner’s Equity
Cash Bank Inventory Furniture Computer = Loan Creditors A/P Capital Income Expenses
June 1 150000 20000 = 50000 20000 100000
June10 (50000) 50000 =
June 15 (5000) = (5000)
June20 60000 = 60000
June21 20000 = 20000
June 23 35000 (20000) = 35000 (20000)
June25 10000 = 10000
June 30 (3000) (5000) = (8000)
June30 (5000) (20000) 5000 = (20000
)
Balance 132000 35000 50000 20000 5000 = 50000 30000 0 160000 35000 (33000)
Total 242000 = 242000
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
16

17. M/s Black Rock Ltd
Profit and Loss Statement for the period 1 June – 30 June,2020
Net Revenue ₹ 35000
Other income 0
Total Income 35000
Expenditure
Cost of goods sold (20000)
Salary expense (5000)
Printing & Stationery expense (5000)
Rent expense (3000)
Total expenses (33000)
Net Income/Profit 2000
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
17

18. M/s Black Rock Ltd
Statement of Changes Owner’s Equity for the period 1 June – 30
June,2020
Opening Balance of Capital ₹ 100000
+Additional Capital 60000
- Drawings/ Dividends paid -
+Net Profit 2000
- Net Loss -
Closing balance of Share capital 162000
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
18

19. M/s Black Rock Ltd
Balance Sheet as on 30 June,2020
Assets
Non current Assets ₹
Furniture 20000
Computer 5000
Total non current Assets 25000
Current Assets
Cash 132000
Cash at bank 35000
Inventory 50000
Total current Assets 217000
Total Assets 242000
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
19

20. M/s Black Rock Ltd
Balance Sheet as on 30 June,2020
Shareholder’s Equity and Liabilities
Shareholder’s Equity ₹
Equity Share capital 160000
Retained Earnings 2000
Total shareholder’s equity 162000
Liabilities
Non current liabilities
Loan 50000
Total non current liabilities 50000
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
20

21. M/s Black Rock Ltd
Balance Sheet as on 30 June,2020
Current Liabilities
Advance from customer 10000
Accounts Payable 20000
Total current liabilities 30000
Total liabilities 80000
Total shareholder’s equity and liabilities 242000
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
21

22. M/s Black Rock Ltd
Statement of Cash Flow for the period 1 June - 30 June, 2020
Cash flow from operations ₹
Cash Receipts
Cash from sales 35000
Cash from advance payments by customers 10000
Cash Payments
Cash payment to supplier (50000)
Cash payment for expenses(rent & printing) (8000)
Cash outflow from operating (13000)
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
22

23. M/s Black Rock Ltd
Statement of Cash Flow for the period 1 June - 30 June, 2020
Cash flow from investing
Purchase of computer (5000)
Cash outflow from investing (5000)
Cash flow from financing
Loan 50000
Capital introduced 100000
Cash inflow from financing activity 150000
Opening Balance 0
Closing Cash Balance 132000
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
23

24. Activity: https://www.nestle.com/sites/default/files/2021-03/2020-corp-
governance-compensation-financial-statements-en.pdf
• Please refer to the Annual Report of Nestle India Ltd and find out the following:
• Contents of Annual Report
• Which are the financial statements in Annual Report? How many notes to
financial statements are there?
• What is the Accounting year?
• Who are the auditors of Nestle India Ltd?
• What is the reporting currency?
• What are the constituents of Non current assets of the company?
• Net Profit for the year, Dividend paid or not, if yes what is the amount paid as
dividend?
• Which note number explains about the net book value(NBV) of property, plant
and equipment(PPE) and what is the NBV of PPE?
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
24

25. Some Useful Websites
• https://www.myaccountingcourse.com/accounting-principles
• https://www.accountingtools.com/articles/cost-benefit-
principle.html
• http://www.accountingmcqs.com/Accounting-Basics
Prepared by Assistant Professor Leena George, SOM,
Presidency University, Bangalore
25