APPLICATIONS OF GOLDEN RULES IN TRANSACTIONS (Ep.4)
By: Instant Concepts
Tags: Accounting, Money, Business, Finance, Profit

Hello guys, hope you are all doing great. This episode is a continuation of the previous episode, financial accounting. In this, we will be going to understand the application of Golden rules in the form of examples. So, let’s begin our blog.

Before continuing this, once visit the previous blog for concept clarity.

Let’s consider the transactions of Guptas grocery shop and apply the golden rules we learnt in that for passing the JOURNAL ENTRIES.

TRANSACTIONS OF GUPTAS GROCERY SHOP

Owner invested an amount of Rs. 2,00,000 in the business on 1–08–2021.

Step1: Identify the transaction.

In the example the two transactions are:

(1) Cash A/c

(2) Capital A/c

Step2: Identify the Nature of the Account.

Cash is Asset, ( Real A/c) — As the money is coming into the business it is Dr.(Debit).

Capital is the liability to the business, so comes in Cr. ( Credit ).

Step3: Application of Golden rule.

2.Purchased Counter table and tables of Rs.15,000 for cash.

Step1: Identify the transaction.

In the example, the two transactions are:

(1) Furniture A/c

(2) Cash A/c

Step2: Identify the nature of the account.

Furniture is Asset ( Real A/c),

Cash is an Asset ( Real A/c),

Step3: Application of the golden rule.

Furniture is coming into the business, so Dr.

Cash goes out from the business, so Cr.

So the journal entry can be written as,

3. Purchased cupboards from Srinivsa furnitures on credit of Rs.10000.

The two transactions involved here are,

1.Furniture A/c

2.Srinivasa furniture’s A/c

By applying golden rules of accounting:

Furniture ( Asset) comes under Real A/c.

As the furniture is coming into the business, it is Dr.

Srinivasa furniture’s comes under Personal A/c.

As the srinivasa furniture’s is a giver it comes under Cr.

The journal can be as follows:

4. Purchased inventory for Rs. 80,000 from whole saler and paid Rs. 40,000 as cash and Rs. 40,000 on credit.

The accounts involved here are,

(1)Purchases A/c

(2)Cash A/c

(3)Wholesaler A/c

By applying Golden rules:

Purchasing of Inventory (Expense) — Nominal A/c

As the Goods coming into the business , it is Dr.

Cash (Asset) — Real A/c

As the cash is going out of the business it is a Cr.

Wholesaler — Personal A/c

As the wholesaler is a giver, it is recorded in Cr.

The journal is as follows:

5. Sold Goods of Rs.80,000 for Rs.1,08,000

The Accounts involved here are:

(1) Cash A/c

(2) Sales A/c

(3) Profit and Loss A/c

By Applying Golden rules,

Cash (Asset) — Real A/c

As the cash is coming into the business, it is Dr.

Sales ( Income) — Nominal A/c

Income comes under Cr in Nominal A/c.

Profit (Income) — Nominal A/c

Profit is an Income, so it comes in Cr.

The Journal Entry is as follows:

6. Transportation Charges of Rs.450

The Accounts involved here are,

Expense A/c

Cash A/c

By applying Golden rules:

Transportation charges ( Expense) — Nominal A/c

In Nominal A/c all expenses comes under Dr.

Cash ( Asset) — Real A/c

As the cash is going out of the business, it comes under Cr.

The Journal entry is as follows:

7. Paid rent to shop Rs.10,000.

The Accounts involved here are:

Expenses A/c

Cash A/c

By applying Golden rules:

Rent paid (Expense) — Nominal A/c

All expenses comes under Dr. in Nominal A/c

Cash (Asset) — Real A/c

As the Cash is going out of the business it is Cr.

8. Salary paid Rs.8000

The accounts involved here are:

(1) Expenses A/c

(2) Cash A/c

By applying Golden rules:

Salary (Expense) — Nominal A/c

All expenses comes under Dr. in Nominal A/c

Cash (Asset) — Real A/c

As the Cash is going out of the business it is Cr.

The Journal entry is as follows:

9. Paid Rs.10,000 to Srinivasa furnitures for Cupboards bought for Credit.

The accounts involved here are:

(1) Srinivasa furniture A/c

(2) Cash A/c

By applying Golden rules of Accounting:

Srinivasa furniture — Personal A/c

As the Furniture shop, Srinivasa furniture is receiving the money, it comes under Dr.

Cash (Asset) — Real A/c

As the cash is going out of the business, it comes under Cr.

The Journal entry is as follows:

10. Paid electricity bill of Rs.10,000

The accounts involved here are:

(1) Expenses A/c

(2) Cash A/c

By applying the Golden rules of Accounting:

Paying Electricity bill (Expense) — Nominal A/c

All expenses comes under Dr. in Nominal A/c

Cash (Asset) — Real A/c

As the cash is going out of the business, it comes under Cr.

The Journal entry is as follows:

11. Paid Rs.4,0000 for the goods bought on Credit for the Wholesaler.

The accounts involved here are:

Wholesaler A/c

Cash A/c

By applying the Golden rules of Accounting:

Wholesaler -(Personal A/c)

As the Wholesaler is receiving the cash, it comes under Dr.

Cash (Asset) — Real A/c

As the cash is going out of the business, it comes under Cr.

The Journal entry is as follows:

12. Cash borrowed from Rambabu Rs.60,000

The accounts involved here are:

Cash A/c

Rambabu’s A/c

By applying the Golden rules of Accounting:

Cash is coming into the business, so it comes under Dr. (According Real A/c)

Rambabu A/c (Personal A/c)

As the Rambabu is giving money to the business, it comes under Cr.

The Journal entry is as follows:

13. Purchased goods of Rs.1,00,000 and paid Rs.60,000 as cash and remaining Rs.40,000 on credit.

The accounts involved here are:

Purchases A/c

Cash A/c

Wholesaler A/c

By applying Golden rules of Accounting:

Purchased goods (Expense) — Nominal A/c

As purchasing of the goods is an expense, it comes under Dr.

Cash (Asset) — Real A/c

As the cash is going out of the business, it comes under Cr.

The Journal Entry is as follows:

14. Sold goods of Rs.50,000 to Catering

The accounts involved here are:

Cash A/c

Sales A/c

By applying the Golden rules of Accounting:

Cash (Asset) — Real A/c

As the cash is coming into the business, it comes under Dr.

Sales of Goods ( Income) — Nominal A/c

All incomes of the business comes under Cr.

The Journal Entry is as follows:

15. Purchased Cool drinks of Rs.34,000

The Accounts involved here are:

Purchases A/c

Cash A/c

By applying the Golden rules of Accounting:

Purchased Cool drinks (Expenses) — Nominal A/c

All the Expenses in the business come under Dr.

Cash (Asset) — Real A/c

As the money is going out of the business, it comes under Cr.

The Journal Entry is as follows:

16. Sold Cool drinks of Rs. 34,000 for Rs.40,000

The Accounts involved here are:

Cash A/c

Sales A/c

Profit and Loss A/c

By applying the Golden rules of Accounting:

Cash (Asset) — Real A/c

As the cash is coming into the business, it comes under Dr.

Sale of Cool drinks (Income) -Nominal A/c

All incomes of the business comes under Cr.

Profit (Income) — Nominal A/c

All Incomes in the Nominal A/c comes under Cr.

17.Repaid Loan of RS.10,000 to Rambabu

The Accounts involved here are:

(1) Rambabu’s A/c

(2) Cash A/c

By applying the Golden rules of Accounting:

Rababu’s A/c — Personal A/c

As Rambabu is the receiver, it comes under Dr.

Cash (Asset) — Real A/c

As the money is going out of the business, it comes under Cr.

The Journal Entry is as follows:

18.Repairs of Fan Rs.300

The Accounts involved here:

(1) Expenses A/c

(2) Cash A/c

By applying the Golden rules of Accounting:

Repairs to fan (Expense) — Nominal A/c

All the Expenses comes under Dr. in Nominal A/c

Cash (Asset) — Real A/c

As the going out of the business, it comes under Cr.

The Journal entry is as follows:

19.Purchased Dairy Products of Rs.1420 from Visakha Dairy.

The Accounts involved here are:

(1) Purchases A/c

(2) Visakha Dairy A/c

By applying the Golden rules of Accounting:

Purchased Dairy products (Expenses) — Nominal A/c

All the expenses comes under Dr. in the Nominal A/c

Visakha dairy A/c — Personal A/c

As the Visakha dairy is the giver, it comes under Cr.

The Journal Entry is as follows:

20. Sold Dairy Products of Rs.1420 to Rs.1620

The Accounts involved here are:

(1) Cash A/c

(2) Sales A/c

(3) Profit and Loss A/c

By applying the Golden rules of Accounting:

Cash (Asset) — Real A/c

As Cash is coming into the business, it comes under Dr.

Sold Dairy Products (Income) — Nominal A/c

All Incomes in the Nominal A/c comes under Cr.

Profit (Income) — Nominal A/c

All Incomes in the Nominal A/c comes under Cr.

21. Cash payment of Rs.1420 to Dairy Products

The Accounts involved here are:

(1)Cash A/c

(2) Dairy products A/c

By applying the Golden rules of Accounting:

Dairy Products A/c — Personal A/c

As the Dairy products is the receiver, it comes under Dr.

Cash (Asset) — Real A/c

As the Cash is going out from the business, it comes under Cr.

The Journal Entry is as follows:

22. Repayment of Rs.20,000 to Rambabu

The Accounts involved here are:

(1) Rambabu’s A/c

(2) Cash A/c

By applying the Golden rules of Accounting:

Rambabu’s A/c — Personal A/c

As the Rambabu is Receiving the money, it comes under Dr.

Cash A/c (Asset) — Real A/c

As the cash is going out of the business, it comes under Dr.

The Journal Entry is as follows:

23. Sold goods of Rs.40,000 to Rs. 54,000

The Accounts involved here are:

(1) Cash A/c

(2) Sales A/c

(3) Profit and Loss A/c

By applying the Golden rules of Accounting:

Cash (Asset) — Real A/c

As the cash is coming into the business, it comes under Dr.

Sales of Goods (Income) — Nominal A/c

All the incomes comes under Cr. in Nominal A/c.

Profit (Income) — Nominal A/c

All the incomes comes under Cr. in Nominal A/c

The Journal Entry is as follows:

24. Transportation charges of Goods Rs.500

The Accounts involved here are:

(1) Expense A/c

(2) Cash A/c

By applying the Golden rules of Accounting:

Transportation charges ( Expense) — Nominal A/c

All the Expenses in the Nominal A/c comes under Dr.

Cash (Asset) — Real A/c

As the cash is going out from the business, it comes under Cr.

The Journal Entry is as follows:

This is for today’s episode, we will cover Ledger Accounts in the next episode. Practice more entries along with the examples covered here.

Thank you for reading, meet you in the next episode of Finance and Accounting.

Until then take care,Cyaa.