1st year accounting notes

accunting notes

Form the desk of M.A f Saleem.

According to Institute of certified public accounts accounting is an art of analyzing regarding classification classifying and summarizing in a significant manner and in term of money transaction and even which are in part at least of financial character and interpreting the result of thereof.

Business Dealing.

There are two types of Business Dealing.

1. Cash dealing 2. Credit dealing /on account/ on payable on credit.

(If a business states that the transaction is on cash, we will accept cash, but if the transaction is on credit, the name of the company from which the purchase and sale is being made will be given.)

Ex: 1. Purchases Merchandise Rs: 60,000.

2. Purchases Merchandise from modern furniture Rs: 60,000.

Accounting is a systematic mythology through which we record financial event Accounting is the art of recording, summarizing and presentation of financial events (cash) is an enterprise through mythology.

Accounting Base:

1. Assets

2. Liabilities

3. Owner Equity

4. Revenue

5. Expenses.

1. Assets Assets are the resources of firm or organization.

(Those with whom to do business)

Types of Assets:

1. Current Assets

2. Fixed Assets.

Current Assets

Definition of Current Assets:

Current assets are assets that a company expects to convert into cash, sell, or use up within one year. Current assets are those assets used in short period (with in five year).

Common examples of current assets include:

1. Cash– Physical currency, bank balances.

2. Accounts receivable – Money owed to the business by customers.

3. Inventory – Raw materials, work-in-progress, and finished goods.

4. Prepaid expenses – Payments made in advance for goods or services (e.g., insurance).

5. Marketable securities – Short-term investments easily converted into cash.

6. Short-term loans and advances – Loans the company expects to receive back within a year.

7. Petty cash funds- Small expenses of a farm.

8. Bills Receivable or Notes Receivable

A promise by the buyer to pay on a fixed date on a stamp paper. This is a current asset of the seller because he can get the bill deducted from the bank before the fixed period or can pay off his debt by looking at a third party. It is also called a Bill of Exchange.

9. Accounts Receivable:

Accounts receivable are amounts due to a company from customers who have received goods or services but have not yet paid. These are recorded as current assets on the balance sheet because they are expected to be collected within a year.

10. Merchandise Inventory:

Merchandise Inventory refers to the goods that a business holds for the purpose of selling.

11. Office Supplies:

Office Supplies refer to consumable items used in the daily operations of an office

12. Income Receivable:

Income Receivable refers to the income that a company has earned but has not yet received in cash. It is also known as accrued income.

Fixed assets:

Fixed assets are long-term, tangible assets that a business uses in its operations and does not intend to sell in the short term.

They are also known as non-current assets or capital assets.

Examples of fixed assets:

 Buildings

 Machinery

 Vehicles

 Furniture

 Land/Building/Factory.

 Equipment

Liabilities:

Liabilities are obligations or debts that a person, business, or organization owes to others. They represent amounts that must be paid or services that must be provided in the future.

Types of Liabilities:

1. Current Liabilities.

2. Non –Current Liabilities.

Current Liabilities.

To be paid over a period of one year. In current liabilities we have to pay our liabilities in short period of time.

1. Accounts payable – Amounts owed to suppliers.

2. Short-term loans – Loans or lines of credit due within a year.

3. Accrued expenses – Expenses incurred but not yet paid (e.g., salaries, interest).

4. Unearned revenue – Money received before delivering goods or services.

5. Taxes payable – Income tax, sales tax, or other taxes owed.

6. Current portion of long-term debt – The part of a long-term loan due within the year.

Non –Current Liabilities.

Non-Current Liabilities are financial obligations a company is required to pay beyond one year.

1. Long-Term Loans – Bank loans or bonds payable that are due after more than one year.

2. Debentures – Unsecured debt instruments issued by a company, repayable after a long duration.

3. Mortgage payable – Loan secured by property, with long-term repayment.

4. Lease liabilities – For long-term lease agreements

5. Deferred tax liabilities – Taxes owed but not payable in the current period.

6. Pension obligations – Future payments owed to retirees.

3. Owner’s Equity.

Own investment by the owner.

Assets=Liabilities Owner’s Equity

Profits kept in the business rather than distributed to shareholders.

 Contra income account. Drawings or Withdrawals – Money taken out of the business by the owner, which reduces equity.

4. Revenue:

Revenue (also called sales, income, or turnover) is the total amount of money a business earns from its normal business activities, typically from selling goods or providing services, before any expenses are deducted

5. Expenses.

Expenses are the costs a business incurs in the process of earning revenue. They represent the outflow of economic benefits during a period, reducing net income and ultimately affecting owner’s equity.

Types of Expenses:

1. Operating Expenses – Related to daily operations.

 Rent Expenses
 Utilities Expenses
 Salaries and wages Expenses

Office supplies Expenses

2. Cost of Goods Sold (COGS) –Purchases of goods sold.

3. Administrative Expenses – Costs related to general business operations

4. Selling and Marketing Expenses – Advertising, sales commissions.

5. Financial Expenses – Interest paid on loans.

6. Depreciation and Amortization – The allocation of the cost of long-term assets over time.

 Depreciation

Depreciation is the systematic allocation of the cost of a tangible fixed asset (like machinery, vehicles, or equipment) over its useful life. It reflects the wear and tear and aging, of an asset used in the business.

 Amortization :

Amortization is the process of gradually writing off the cost of an intangible asset over its useful life. It works similarly to depreciation, but while depreciation applies to tangible assets (like machinery or vehicles), amortization is used for intangible assets such as:

 Patents

 Copyrights

 Trademarks

 Goodwill (in some cases)

 Software.

General Journal Practice Set with Solutions

1. Started business with cash Rs. 250,000

Particulars	Debit (Rs.)	Credit (Rs.)
Cash A/c Dr.	250,000
To Capital A/c		250,000

2. Purchased furniture for cash Rs. 30,000

Particulars	Debit (Rs.)	Credit (Rs.)
Furniture A/c Dr.	30,000
To Cash A/c		30,000

3. Bought goods for cash Rs. 20,000

Particulars	Debit (Rs.)	Credit (Rs.)
Purchases A/c Dr.	20,000
To Cash A/c		20,000

4. Sold goods for cash Rs. 15,000

Particulars	Debit (Rs.)	Credit (Rs.)
Cash A/c Dr.	15,000
To Sales A/c		15,000

5. Paid shop rent Rs. 5,000

Particulars	Debit (Rs.)	Credit (Rs.)
Rent A/c Dr.	5,000
To Cash A/c		5,000

6. Paid salaries Rs. 8,000

Particulars	Debit (Rs.)	Credit (Rs.)
Salaries A/c Dr.	8,000
To Cash A/c		8,000

7. Received commission Rs. 2,500

Particulars	Debit (Rs.)	Credit (Rs.)
Cash A/c Dr.	2,500
To Commission A/c		2,500

8. Deposited cash into bank Rs. 50,000

Particulars	Debit (Rs.)	Credit (Rs.)
Bank A/c Dr.	50,000
To Cash A/c		50,000

9. Withdrew cash for personal use Rs. 4,000

Particulars	Debit (Rs.)	Credit (Rs.)
Drawings A/c Dr.	4,000
To Cash A/c		4,000

10. Paid electricity bill Rs. 1,500

Particulars	Debit (Rs.)	Credit (Rs.)
Electricity Expense A/c Dr.	1,500
To Cash A/c		1,500

Credit Transactions Solutions

11. Purchased goods on credit from Hamza Traders Rs. 25,000

Purchases A/c Dr. 25,000
To Hamza Traders A/c 25,000

12. Sold goods on credit to Ahmed Rs. 18,000

Ahmed A/c Dr. 18,000
To Sales A/c 18,000

13. Purchased furniture on credit from Bilal & Co. Rs. 12,000

Furniture A/c Dr. 12,000
To Bilal & Co. A/c 12,000

14. Received cash from Ahmed Rs. 10,000

Cash A/c Dr. 10,000
To Ahmed A/c 10,000

15. Paid Hamza Traders Rs. 15,000

Hamza Traders A/c Dr. 15,000
To Cash A/c 15,000

16. Returned goods to Hamza Traders Rs. 2,000

Hamza Traders A/c Dr. 2,000
To Purchase Returns A/c 2,000

17. Ahmed returned goods worth Rs. 1,500

Sales Returns A/c Dr. 1,500
To Ahmed A/c 1,500

18. Allowed discount to Ahmed Rs. 500

Discount Allowed A/c Dr. 500
To Ahmed A/c 500

19. Received discount from Hamza Traders Rs. 300

Hamza Traders A/c Dr. 300
To Discount Received A/c 300

20. Purchased goods on credit from Ali Traders Rs. 10,000

Purchases A/c Dr. 10,000
To Ali Traders A/c 10,000

Golden Rules (Exam Point of View)

Personal Account

Debit the Receiver, Credit the Giver

Real Account

Debit What Comes In, Credit What Goes Out

Nominal Account

Debit Expenses and Losses, Credit Incomes and Gains

Quick Revision Table

Transaction	Debit	Credit
Capital Introduced	Cash	Capital
Cash Purchase	Purchases	Cash
Credit Purchase	Purchases	Creditor
Cash Sale	Cash	Sales
Credit Sale	Debtor	Sales
Rent Paid	Rent	Cash
Salary Paid	Salary	Cash
Commission Received	Cash	Commission
Drawings	Drawings	Cash
Cash Deposited in Bank	Bank	Cash

General Journal Practice Questions with Solutions (Set 2)

1. Started business with cash Rs. 400,000

Cash A/c Dr. Rs. 400,000
To Capital A/c Rs. 400,000

2. Purchased goods for cash Rs. 35,000

Purchases A/c Dr. Rs. 35,000
To Cash A/c Rs. 35,000

3. Purchased goods on credit from Salman Traders Rs. 22,000

Purchases A/c Dr. Rs. 22,000
To Salman Traders A/c Rs. 22,000

4. Sold goods for cash Rs. 18,000

Cash A/c Dr. Rs. 18,000
To Sales A/c Rs. 18,000

5. Sold goods on credit to Asif Rs. 15,000

Asif A/c Dr. Rs. 15,000
To Sales A/c Rs. 15,000

6. Received cash from Asif Rs. 12,000

Cash A/c Dr. Rs. 12,000
To Asif A/c Rs. 12,000

7. Paid Salman Traders Rs. 18,000

Salman Traders A/c Dr. Rs. 18,000
To Cash A/c Rs. 18,000

8. Purchased machinery for cash Rs. 50,000

Machinery A/c Dr. Rs. 50,000
To Cash A/c Rs. 50,000

9. Paid carriage inward Rs. 2,000

Carriage Inward A/c Dr. Rs. 2,000
To Cash A/c Rs. 2,000

10. Paid insurance premium Rs. 3,500

Insurance A/c Dr. Rs. 3,500
To Cash A/c Rs. 3,500

11. Received commission Rs. 4,000

Cash A/c Dr. Rs. 4,000
To Commission A/c Rs. 4,000

12. Paid wages Rs. 6,000

Wages A/c Dr. Rs. 6,000
To Cash A/c Rs. 6,000

13. Purchased office equipment on credit from Bilal & Co. Rs. 25,000

Office Equipment A/c Dr. Rs. 25,000
To Bilal & Co. A/c Rs. 25,000

14. Received rent from tenant Rs. 7,000

Cash A/c Dr. Rs. 7,000
To Rent Received A/c Rs. 7,000

15. Paid telephone expenses Rs. 1,800

Telephone Expense A/c Dr. Rs. 1,800
To Cash A/c Rs. 1,800

16. Deposited cash into bank Rs. 80,000

Bank A/c Dr. Rs. 80,000
To Cash A/c Rs. 80,000

17. Withdrew cash from bank for office use Rs. 10,000

Cash A/c Dr. Rs. 10,000
To Bank A/c Rs. 10,000

18. Owner withdrew cash for personal use Rs. 5,000

Drawings A/c Dr. Rs. 5,000
To Cash A/c Rs. 5,000

19. Goods returned by Asif Rs. 1,000

Sales Returns A/c Dr. Rs. 1,000
To Asif A/c Rs. 1,000

20. Returned goods to Salman Traders Rs. 2,500

Salman Traders A/c Dr. Rs. 2,500
To Purchase Returns A/c Rs. 2,500

Board-Style Challenge Questions (Solve Yourself)

Started business with cash Rs. 600,000.
Purchased furniture Rs. 40,000 by cheque.
Purchased goods on credit from Akram Rs. 30,000.
Sold goods on credit to Kamran Rs. 25,000.
Paid rent Rs. 8,000.
Received cash from Kamran Rs. 20,000.
Paid Akram Rs. 25,000.
Received commission Rs. 5,000.
Paid salaries Rs. 12,000.
Drew cash for personal use Rs. 7,000.

General Journal Practice Questions for 1st Year Commerce

(Principles of Accounting):

Question 1

Pass journal entries for the following transactions:

Started business with cash Rs. 100,000.
Purchased furniture for cash Rs. 20,000.
Bought goods on credit from Ali Traders Rs. 15,000.
Sold goods for cash Rs. 10,000.
Paid rent Rs. 2,000.
Received cash from a debtor Rs. 5,000.

Question 2

Journalize the following:

Deposited cash into bank Rs. 50,000.
Purchased goods for cash Rs. 12,000.
Sold goods on credit to Ahmed Rs. 8,000.
Paid salaries Rs. 3,500.
Received commission Rs. 1,500.
Withdrew cash for personal use Rs. 2,000.

Question 3

Prepare General Journal entries:

Started business with cash Rs. 200,000.
Purchased machinery on credit from Bilal & Co. Rs. 40,000.
Purchased goods for cash Rs. 25,000.
Sold goods on credit to Hamza Rs. 18,000.
Paid electricity bill Rs. 1,800.
Received cash from Hamza Rs. 10,000.

Try these yourself and send me your answers.
I can check them exactly like a Karachi Board examiner and point out any mistakes.

MCQs for Practice

Capital introduced in business is credited to:
- A) Cash Account
- B) Capital Account ✅
- C) Purchases Account
- D) Sales Account
Goods purchased for cash are recorded in:
- A) Sales Account
- B) Purchases Account ✅
- C) Capital Account
- D) Rent Account
Personal withdrawal by owner is called:
- A) Capital
- B) Sales
- C) Drawings ✅
- D) Purchases
Rent paid is:
- A) Asset
- B) Expense ✅
- C) Liability
- D) Income
Goods sold on credit create:
- A) Creditor
- B) Debtor ✅
- C) Capital
- D) Expense

Short Rule for Journal Entries

Debit what comes in, Credit what goes out.
Debit expenses and losses, Credit incomes and gains.
Debit receiver, Credit giver.