Question

Bobby opened a consulting firm and completed these transactions during November, 2017:
(a) Invested ₹ 4,00,000 cash and office equipment with ₹ 1,50,000 in a business called Bobbie Consulting.
(b) Purchased land and a small office building. The land was worth ₹ 1,50,000 and the building worth ₹ 3,50,000. The purchase price was paid with ₹ 2,00,000 cash and a long-term note payable for ₹ 3,00,000.
(c) Purchased office supplies on credit for ₹ 12,000
(d) Bobbie transferred title of motor car to the business. The motor car was worth ₹ 90,000.
(e) Purchased for ₹ 30,000 additional office equipment on credit.
(f) Paid ₹ 75,00 salary to the office manager
(g) Provided services to a client and collected ₹ 30,000
(h) Paid ₹ 4,000 for the month’s utilities.
(i) Paid supplier created in transaction c.
(j) Purchase new office equipment by paying ₹ 93,000 cash and trading in old equipment with a recorded cost of ₹ 7,000.
(k) Completed services of a client for ₹ 26,000. This amount is to be paid within 30 days
(l) Received ₹ 19,000 payment from the client created in transaction k
(m) Bobby withdrew ₹ 20,000 from the business.
Analyse the above stated transactions and open the following T-accounts:
Cash, client, office supplies, motor car, building, land, long-term payables, capital, withdrawals, salary, expense and utilities expense.

Answer 1

(a) The transaction (a) increases assets by ₹ 5,50,000 (cash ₹ 4,00,000 and office equipment ₹ 1,5,000) it will be debited and on the other hand it will increase the capital by ₹ 5,50,000, so it will be credited in capital account.

Office Equipment Account
Dr.	Cr.
(a) ₹ 4,00,000

 

Capital Account
Dr.	Cr.
(a) ₹ 1,50,000

 

Dr.	Cr.
	(a) ₹ 4,00,000
	(a) ₹ 1,50,000

(b) Purchase of land and small office building are assets.

On one hand, the purchase of these items will increase their individual accounts and this will increase the total amount of the assets in the business; so, both the accounts will be debited.

On the other hand, payment in cash on the purchase of these assets will decrease the cash balance, so cash account will be credited to the extent of amount paid.

After payment for building in cash, the balance of building account will be transferred to creditors for building account.

This will increase the amount of the creditors, which in turn will increase the total liabilities of the business.

Long-term payables are regarded as loan to the business that will increase both cash balance (due to intake of loan) as well as liabilities of the business.

Land Account
Dr.	Cr.
(b) ₹ 1,50,000

 

Building Account
Dr.	Cr.
(b) ₹ 3,50,000

 

Cash Account
Dr.	Cr.
(a) ₹ 4,00,000	(b) ₹ 1,50,000
(b) ₹ 8,00,000	(b) ₹ 50,000

 

Long Term Payable Account
Dr.	Cr.
	(b) ₹ 8,00,000