Ledger Problems and solution

Problem 1: Journal Entries for a Newly Started Business

Amit decided to start his own business in April 2016. On April 01, 2016, he introduced Rs. 1,00,000 in cash as capital to establish the business. During the month, the business carried out several transactions involving the purchase of furniture, purchase and sale of goods, payments to suppliers, collections from customers, and operating expenses.

Transactions during April 2016

Date	Business Transaction
April 01	Amit started the business with cash capital of Rs. 1,00,000.
April 02	The business purchased furniture for cash of Rs. 7,000.
April 08	The business purchased goods for Rs. 2,000 in cash and Rs. 1,000 on credit from Sharma Traders.
April 14	The business sold goods on credit to Gupta Brothers for Rs. 12,000 and made cash sales of Rs. 5,000.
April 18	Amit withdrew goods worth Rs. 2,000 for personal use.
April 22	The business paid Rs. 500 to Sharma Traders against the amount payable.
April 26	The business received Rs. 10,000 from Gupta Brothers against the amount receivable.
April 30	The business paid Rs. 2,000 as salaries expense.

Required

Prepare the Journal Entries for all the above transactions in the books of Amit.

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Solution

Journal of Amit

Date	Particulars	Debit (Rs.)	Credit (Rs.)
Apr. 01	Cash A/c Dr. To Capital A/c (Being cash introduced as capital to start the business)	1,00,000	1,00,000
Apr. 02	Furniture A/c Dr. To Cash A/c (Being furniture purchased for cash)	7,000	7,000
Apr. 08	Purchases A/c Dr. To Cash A/c To Sharma Traders A/c (Being goods purchased for cash Rs. 2,000 and on credit Rs. 1,000 from Sharma Traders)	3,000	2,000 1,000
Apr. 14	Gupta Brothers A/c Dr. Cash A/c Dr. To Sales A/c (Being goods sold on credit to Gupta Brothers for Rs. 12,000 and for cash Rs. 5,000)	12,000 5,000	17,000
Apr. 18	Drawings A/c Dr. To Purchases A/c (Being goods withdrawn by Amit for personal use)	2,000	2,000
Apr. 22	Sharma Traders A/c Dr. To Cash A/c (Being Rs. 500 paid to Sharma Traders against the amount payable)	500	500
Apr. 26	Cash A/c Dr. To Gupta Brothers A/c (Being Rs. 10,000 received from Gupta Brothers against the amount receivable)	10,000	10,000
Apr. 30	Salaries A/c Dr. To Cash A/c (Being salaries paid in cash)	2,000	2,000

Explanation

1. April 01 – Capital Introduced

Amit introduced Rs. 1,00,000 cash into the business. Cash comes into the business, therefore Cash A/c is debited. Capital increases, therefore Capital A/c is credited.

Entry:
Cash A/c Dr. Rs. 1,00,000
To Capital A/c Rs. 1,00,000

2. April 02 – Furniture Purchased

Furniture is an asset of the business. The business purchased furniture for cash.

Furniture increases → Debit Furniture A/c
Cash decreases → Credit Cash A/c

Entry:
Furniture A/c Dr. Rs. 7,000
To Cash A/c Rs. 7,000

3. April 08 – Goods Purchased for Cash and Credit

Goods worth Rs. 3,000 were purchased:

Cash purchase = Rs. 2,000
Credit purchase from Sharma Traders = Rs. 1,000

Therefore, total Purchases = Rs. 3,000.

Entry:
Purchases A/c Dr. Rs. 3,000
To Cash A/c Rs. 2,000
To Sharma Traders A/c Rs. 1,000

4. April 14 – Goods Sold for Cash and on Credit

Two sales took place:

Credit sale to Gupta Brothers = Rs. 12,000
Cash sale = Rs. 5,000

Total Sales = Rs. 17,000.

Gupta Brothers become debtors, so their account is debited. Cash received is also debited. Sales is credited with the total amount of sales.

Entry:
Gupta Brothers A/c Dr. Rs. 12,000
Cash A/c Dr. Rs. 5,000
To Sales A/c Rs. 17,000

5. April 18 – Goods Withdrawn for Personal Use

Amit withdrew goods worth Rs. 2,000 for his personal use. Such withdrawal is called Drawings.

Entry:
Drawings A/c Dr. Rs. 2,000
To Purchases A/c Rs. 2,000

⭐ Exam Point:

When the proprietor withdraws goods for personal use, the entry is:

Drawings A/c Dr.
To Purchases A/c

Do not debit Cash A/c because the proprietor has withdrawn goods, not cash.

6. April 22 – Payment to Sharma Traders

The business owed Sharma Traders Rs. 1,000 and paid Rs. 500. Payment reduces the liability to Sharma Traders.

Liability decreases → Debit Sharma Traders A/c
Cash decreases → Credit Cash A/c

Entry:
Sharma Traders A/c Dr. Rs. 500
To Cash A/c Rs. 500

7. April 26 – Amount Received from Gupta Brothers

Gupta Brothers owed the business Rs. 12,000 and paid Rs. 10,000.

Cash increases → Debit Cash A/c
Amount receivable decreases → Credit Gupta Brothers A/c

Entry:
Cash A/c Dr. Rs. 10,000
To Gupta Brothers A/c Rs. 10,000

8. April 30 – Salaries Paid

Salary is an expense of the business. Expenses are debited when they increase.

Salary expense increases → Debit Salaries A/c
Cash decreases → Credit Cash A/c

Entry:
Salaries A/c Dr. Rs. 2,000
To Cash A/c Rs. 2,000

Quick Revision

Transaction	Debit	Credit
Capital introduced	Cash	Capital
Furniture purchased for cash	Furniture	Cash
Goods purchased for cash	Purchases	Cash
Goods purchased on credit	Purchases	Creditor
Goods sold for cash	Cash	Sales
Goods sold on credit	Debtor	Sales
Goods withdrawn for personal use	Drawings	Purchases
Payment to creditor	Creditor	Cash
Receipt from debtor	Cash	Debtor
Salary paid	Salaries	Cash