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Q.1 Assure you have just started a Mobile store. You sell mobile sets and currencies of Airtel, Vodaphone, Reliance and BSNL. Take five transactions and prepare a position statement after every transaction. Did you firm earn profit or incurred loss at the end? Make a small comment on your financial position at the end.


Answer:
We shall consider five transactions and show how they are accounted for in the books of the business.

1. Mr. Rajesh brings Rs.100000 cash as capital into his business.
2. He purchases Mobile Set to his shop Rs.10000
3. He buys currencies for cash Rs.50000
4. He sells currencies worth Rs.30000 for Rs.40000 on credit to Arjun
5. He pays wages to servants Rs.1000


Transaction 1: The business receives capital in cash. Capital is a liability and cash is an asset to the business.

Liability

Asset

Capital
100000
Cash
100000

Transaction 2: Mobile Set is purchased for cash. This transaction can be reflected as under
Capital
100000
Cash Rs. (100000- 10000)

90000


Mobile Set
10000

Total
100000
Total
100000


Transaction 3: Purchased of currencies for cash. This can be reflected in the statement as under.

Capital
100000
Cash Rs. (90000- 50000)

40000


Mobile Set
10000



Stock of currencies
50000

Total
100000
Total
100000



Transaction 4: Sold currencies to Arjun on credit for Rs.40000, the cost of which is only Rs. 30000. In this transaction the affected accounts are Currencies account, Arjun account and Profit & Loss account. Since the profit belongs to the owner it is fair to add it to the owner’s capital. The effect of this transaction can appear on the statement as shown below:

Capital
100000
Cash
40000
Profit
10000
Mobile Set
10000



Stock of currencies(50000-30000)
20000



Arjun (Debtors)
40000
Total
110000
Total
110000

Transaction 5: Payment of wages Rs.1000.The cash balance gets reduced in the asset side and profit gets reduced as a result of the expenditure (wages account) on the liability side. This changes the statement as shown below:
Capital
100000
Cash (40000 – 1000)
39000
Profit (10000-1000)
9000
Mobile Set
10000



Stock of currencies
20000



Arjun (Debtors)
40000
Total
109000
Total
109000

According to above book keeping entry Mr. Rajesh brings Rs.100000 cash as capital into his business. And one end of 5 transection his capital is Rs 109000. so, it is clear that Firm earn profit of Rs 9000.

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