Factory, office and warehouse need money to operate them.
Expenses related to daily, weekly, monthly, quarterly, half yearly and yearly known as operating expenses.
Operating expenses includes manufacturing expenses, administrative expenses, office expenses, selling and distribution expenses.
All the costs related to management and administrative of the organization is known administrative expenses.
These expenses are incurred day-to-day office activities.
The main expenses are office salary, management expenses, office expenses, office rent etc.
These expenses are deducted from capital in accounting equation in sole proprietorship.
These expenses are debited in profit and loss account.
Outstanding is expense incurred but not paid.
Outstanding is also known as payable, to be paid, unpaid, due.
It is liability for the organization.
It is shown in liabilities side of accounting equation or balance sheet.
Prepaid is paid in advance before.
Outstanding is also known as payable, to be paid, unpaid, due.
It is liability for the organization.
It is shown in liabilities side of accounting equation or balance sheet.
Keep in Mind (KIM)
Factory overheads: |
Office overheads: |
Selling and distribution overheads: |
Productive expenses Unproductive expenses Direct/indirect materials Consumed store All factories expenses like: Estimating expenses, drawing Rent, rates, stationery expenses Phone, mobile and internet bills Lighting, heating, power Salary to general staff Manager or director salary Depreciation on factory assets Factory repairs and maintenance |
Establishment charge Manager or director salary All office expenses like: Salary to office staff Rent, rates and tax Stationery, postage expenses Phone, mobile and internet bills Bank charge, audit fee, Insurance Depreciation on office assets Office repairs and maintenance
|
Carriage outward (on sales) Advertisement Free sample Salary to sales agent Commission to sales agent Rent to warehouse or godown Stationery, postage expenses Phone, mobile and internet bills Insurance of warehouse Depreciation on warehouse Depreciation on delivery van Warehouse repairs and maintenance |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 7
PK Glass House has following extracted data for the month of April 2020:
a. Business started with cash Rs 23,000; bank balance 37,000 and stock Rs 80,000.
b. Goods sold for cash Rs 45,000.
c. Rent paid for Rs 5,000 by cheque.
d. Electricity bill payable Rs 600.
e. Internet bill paid in advance Rs 4,500.
f. Salary paid part time accountant in cash Rs 4,000 and still payable Rs 2,000.
g. Non-life insurance paid by cheque Rs 1,200; it includes Rs 300 as advance.
Required: Expanded accounting equation
[Answer: Assets = Rs 120,100; Capital = Rs 117,500; Liabilities = Rs 2,600]
SOLUTION:
Explanation:
(a) Cash, bank and stock increases assets; it also increases capital.
(b) Goods sold for cash increases cash but decreases stock.
(c) Rent paid by cheque decreases bank; it is expenses and decreases capital.
(d) Electricity bill paid decreases cash; it is expenses and decreases capital.
(e) Advance internet bill decreases cash; but it is prepaid so it increases asset.
(f) Salary paid decreases cash; it is expenses so decreases capital. Still payable is outstanding; it increases liabilities.
(f) Insurance decreases cash; it is expenses so decreases capital. Advance insurance increases assets.
Accounting Equation
Particulars |
Assets |
= |
Owner’s equity |
+ |
Liabilities |
||||||||||
|
Cash |
+ |
Bank |
+ |
Stock |
+ |
Advance |
= |
Capital ± |
|
Payable |
||||
a |
Business started |
23,000 |
+ |
27,000 |
+ |
80,000 |
+ |
0 |
= |
130,000 |
|
+ |
0 |
|
|
|
First equation |
23,000 |
+ |
27,000 |
+ |
80,000 |
+ |
0 |
= |
130,000 |
|
+ |
0 |
|
|
b |
Goods sold in cash |
45,000 |
|
0 |
|
(45,000) |
|
0 |
|
0 |
|
|
0 |
|
|
|
New equation |
68,000 |
+ |
27,000 |
+ |
35,000 |
+ |
0 |
= |
130,000 |
|
+ |
0 |
|
|
c |
Rent paid by cheque |
0 |
|
(5,000) |
|
0 |
|
0 |
|
(5,000) |
exp |
|
0 |
|
|
|
New equation |
68,000 |
+ |
22,000 |
+ |
35,000 |
+ |
0 |
= |
125,000 |
|
+ |
0 |
|
|
d |
Electricity bill payable |
0 |
|
0 |
|
0 |
|
0 |
|
(600) |
exp |
|
600 |
|
|
|
New equation |
68,000 |
+ |
22,000 |
+ |
35,000 |
+ |
0 |
= |
124,400 |
|
+ |
600 |
|
|
e |
Internet bill paid in advance |
(4,500) |
|
0 |
|
0 |
|
4,500 |
|
0 |
|
|
0 |
|
|
|
New equation |
63,500 |
+ |
22,000 |
+ |
35,000 |
+ |
4,500 |
= |
124,400 |
|
+ |
600 |
|
|
f |
Salary paid and payable |
(4,000) |
|
0 |
|
0 |
|
0 |
|
(6,000) |
exp |
|
2,000 |
|
|
|
New equation |
59,500 |
+ |
+22,000 |
+ |
35,000 |
+ |
4,500 |
= |
118,400 |
|
+ |
2,600 |
|
|
e |
Insurance paid advance |
0 |
|
(1,200) |
|
0 |
|
300 |
|
(900) |
exp |
|
0 |
|
|
|
Final equation |
59,500 |
+ |
20,800 |
+ |
35,000 |
+ |
4,800 |
= |
117,500 |
|
+ |
2,600 |
|
|
#######
Click on link for YouTube videos topic wise : |
|
Accounting Equation |
|
Basic Journal Entries in Nepali |
|
Basic Journal Entries |
|
Journal Entry and Ledger |
|
Ledger Account |
|
Subsidiary Book |
|
Cash Book |
|
Trial Balance and Adjusted Trial Balance |
|
Bank Reconciliation Statement (BRS) |
|
Depreciation |
|
Click on link for YouTube videos chapter wise: |
|
Financial Accounting and Analysis (All videos) |
|
Accounting Process |
|
Accounting for Long Lived Assets |
|
Analysis of Financial Statement |
#####
Alternatively,
Accounting Equation
Particulars |
Assets |
= |
Capital |
+ |
Liabilities |
||||
a |
Business started |
23,000 27,000 80,000 |
cash bank stock |
= |
130,000 |
|
+ |
0 |
|
|
Beginning equation |
130,000 |
|
= |
130,000 |
|
+ |
0 |
|
b |
Goods sold in cash |
45,000 (45,000 |
cash stock |
|
0 |
|
|
0 |
|
|
New equation |
130,000 |
|
= |
130,000 |
|
+ |
0 |
|
c |
Rent paid by cheque |
(5,000) |
bank |
|
(5,000) |
exp |
|
0 |
|
|
New equation |
125,000 |
|
= |
125,000 |
|
+ |
0 |
|
d |
Electricity bill payable |
0 |
|
|
(600) |
exp |
|
600 |
O/s |
|
New equation |
125,000 |
|
= |
124,400 |
|
+ |
600 |
|
e |
Internet bill paid in advance |
(4,500) 4,500 |
cash prepaid |
|
0 |
|
|
0 |
|
|
New equation |
125,000 |
|
= |
124,400 |
|
+ |
600 |
|
d |
Salary paid and payable |
(4,000) |
cash |
|
(6,000) |
exp |
|
2,000 |
O/s |
|
New equation |
121,000 |
|
= |
118,400 |
|
+ |
2,600 |
|
e |
Insurance paid and paid in advance |
(1,200) 300 |
bank prepaid |
|
(900)
|
|
|
0 |
|
|
Ending equation |
120,100 |
|
= |
117,500 |
|
+ |
2,600 |
|
#####
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 7A
PK Glass House following extracted financial data:
May 1, Balance of cash Rs 59,500; bank Rs 20,800; stock Rs 35,000; advance Rs 4,800; capital Rs 117,500 and payables Rs 2,600.
May 5, Advance expired this month: insurance of Rs 100 out of Rs 300; internet Rs 1,500 out of Rs 4,500.
May 10, Goods sold in cash Rs 25,000 at 60% profit
May 15, Rent paid for Rs 5,000 through online payment.
May 25, Electricity bill payable Rs 600.
May 30, Salary paid to part time accountant Rs 2,000 of last month and Rs 6,000 current month.
May 31, Cash deposited into bank 60,000.
Required: Expanded accounting equation
[Answer: Assets = 31,500; 75,800; 10,000; 3,200;
Owner’s equity = 119,300; Liabilities = 1,200]
***********
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