Assets (Machinery, Building, Land, etc.) can also be purchased or sold in cash or on credit. Assets purchased are not represented through Purchases but with the name of the Asset.
Journal Entry: (When Assets are Purchased)
Example:
- Machinery purchased for cash ₹50,000.
- Machinery purchased from Vishal ₹50,000.
Solution:
Journal Entry: (When Assets are Sold)
Example:
- Machinery sold for cash ₹40,000.
- Machinery sold to Dharmendra for ₹40,000.
Solution:
Depreciation is the decrease in the value of assets due to use or normal wear and tear.
Journal Entry:
Example: Depreciation charged on machinery ₹5,000.
Solution:
Example:
- Machinery purchased for ₹20,000.
- Depreciation charged on machinery @10%.
Solution:
A discount is a concession in the selling price of a product offered by a seller to its customers. According to nature, there are two types of discount:
A. Discount Allowed
B. Discount Received
A. Discount Allowed: When at the time of sales or receiving cash, any concession is given to the customers, it is called discount allowed.
Journal Entry:
Example:
- Goods sold ₹50,000 for cash, discount allowed @ 10%.
- Cash received from Rishabh worth ₹19,500 and discount allowed to him ₹500.
Solution:
B. Discount Received: When at the time of purchase or paying cash, any concession is received from the seller, it is called discount received.
Journal Entry:
Example:
- Goods purchased for cash ₹20,000, discount received @ 20%.
- Cash paid to Vishal ₹14,750 and discount received from him ₹250.
Solution:
According to the business point of view, there are two types of Discount:
A. Trade Discount
B. Cash Discount
A. Trade Discount: The discount provided by the seller to its customers at a fixed percentage on the listed price, mostly on bulk purchases, is called a trade discount. Trade discount is not shown separately in the journal entry.
Journal Entry:
Example:
- Goods purchased from Hardik ₹20,000, at less 10% Trade Discount.
- Goods sold to Abhinav for ₹10,000 and offered him a Trade Discount of @5%.
Solution:
Example: If goods purchased or sold at a trade discount are returned: (Based on the above example)
- Goods purchased from Hardik worth ₹2,000 were returned.
- Abhinav returned goods worth ₹1,000.
Solution:
B. Cash Discount: A Cash discount is offered to those types of customers who make quick payments or payment is made by them within a fixed period.
Journal Entry:
Example:
- Goods purchased from Sahil ₹10,000 for cash, at less 10% Trade Discount and 5% cash discount.
- Goods sold to Kashish for ₹20,000 for cash and offered him a Trade Discount @5% and a cash discount @2.5%.
Solution:
Notes to Accounts:
Working Note 1:
Working Note 2:
A business may allow or receive a discount at the time of full and final settlement of the accounts of debtors or creditors.
Journal Entry:
Example:
- 01 April 2022: Purchased goods from Sayeba at the list price of ₹10,000 at a 10% Trade Discount.
- 05 April 2022: Returned goods to Sayeba for the list price of ₹1,000.
- 10 April 2022: Paid cash to Sayeba ₹7,500 in full & final settlement of her account.
Solution:
Example:
- 01 May 2022: Sold goods to Nisha at the list price of ₹50,000 at a 2% Trade Discount.
- 05 May 2022: Nisha returned the goods worth ₹5,000.
- 10 May 2022: Cash received from Nisha ₹43,000 in full & final settlement of her account.
Solution:
After closing all the books at the end of a financial year, every business starts its new books at the beginning of each year. Closing balances of all the accounts are carried forward to the new year as opening balances. As it is the first entry in the new financial year, it is called Opening Journal Entry.
Journal Entry:
Note: If the amount of capital is not given in the question, then we can calculate capital as: Capital = Total Assets – LiabilitiesExample:
ABC Ltd. has the following balances in their different ledger accounts on 1st April 2022:
- Cash: ₹25,000
- Closing Stock: ₹20,000
- Building: ₹80,000
- Debtors: ₹50,000
- Creditors: ₹40,000
Pass the opening journal entry.
Solution:
