Loss of Goods Due to Fire

Transcript

Loss of goods due to fire Suppose we purchase goods for sale but due to fire or flood etc, it gets destroyed this leads to loss for us Effect on Accounting Equaiton Example Goods Purchased by paying cash Rs 100000 Goods Destroyed by fire of Rs 30000 Transaction 1 Goods Purchased by paying cash Rs 100000 Effects It leads to Increase in Stock (Assets) by 100000 Since amount paid for Purchasing, it leads to decrease in cash/bank (assets) of 100000 Transaction 2 Goods Destroyed by fire of Rs 30000 It leads to Increase in Decrease in Stock (Assets) by 30000 It also is a loss for us, this loss leads to decrease in profit so decrease in capital Question 1 Started business with cash 120000 Goods Purchased for Rs 10000 by cash Rent received Rs 5000 Salary Outstanding Rs 2000 Sold goods for cash (costing Rs 5000) Rs 7000 Goods destroyed by fire Rs 500 Transaction 1 Started business with cash 120000 Effect Cash is an Asset which Increases by 120000 Capital also increases by 120000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Business commenced with Rs 120000 cash 120000 0 120000 Transaction 2 Goods Purchased for Rs 10000 by cash Effect Stock is an Asset which Increases by 10000 Cash is an Asset which decreases by 10000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Stock Old Balance 120000 = 0 + 120000 Goods Purchased for Rs 10000 by cash -10000 +10000 = + New Balance 110000 10000 = 0 + 120000 Transaction 3 Rent received Rs 5000 Effect Cash is an Asset which increases by 5000 Capital will also increase by 5000 as it is an income So Accounting Equation appears as follows Assets = Liability + Capital Cash Stock Old Balance 110000 10000 = 0 + 120000 Rent received Rs 5000 +5000 = + 5000 New Balance 115000 10000 = 0 + 125000 Transaction 4 Salary Outstanding Rs 2000 Effect Salary Outstanding is a liabilty which will increase by 2000 Capital will reduce by 2000 as it is an expense So Accounting Equation appears as follows Assets = Liability + Capital Cash Stock O/S Exp Old Balance 115000 10000 = 0 + 125000 Salary Outstanding Rs 2000 = 2000 + -2000 New Balance 115000 10000 = 2000 + 123000 Transaction 5 Sold goods for cash (costing Rs 5000) Rs 7000 Effect Stock is an asset which will drecrease by 5000 Cash is an asset which will increase by 7000 Profit earned will increase the capital by 2000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Stock O/S Exp Old Balance 115000 10000 = 2000 + 123000 Sold goods for cash (costing Rs 5000) Rs 7000 +7000 -5000 = + 2000 New Balance 122000 5000 = 2000 + 125000 Transaction 6 Goods destroyed by fire Rs 500 Effect Stock is an asset which will drecrease by 500 Capital will reduce by 500 as it is a loss So Accounting Equation appears as follows Assets = Liability + Capital Cash Stock O/S Exp Old Balance 122000 5000 = 2000 + 125000 Goods destroyed by fire Rs 5000 -500 = + -500 New Balance 122000 4500 = 2000 + 124500