Test: Recording Of Transactions - 1

Assets = Capital + Liabilitiess is the basic accounting equation. The fundamental accounting equation, also called the balance sheet equation, represents the relationship between the assets, liabilities, and owner's equity of a person or business. It is the foundation for the double-entry bookkeeping system.

To calculate the net goods, other expenses - including taxes - have to be deducted as well. Thus, the formula for calculating it: 
Total revenue - total expenses = net income. 

Net income, in deducting other expenses, involves more than just the most direct expenses related to the product sold.

Non-Cash or Transfer vouchers are the documentary evidence of non-cash transactions. These vouchers are prepared to record the non-cash transactions of the business. Examples of non-cash vouchers are: Goods sold on Credit; Sale of Fixed Assets or Investment on Credit; Writing-off depreciation or Bad Debts, Returns Inward, etc.

• The company's asset account Cash will decrease.
• Liabilities are not involved in this transaction.
• The proprietorship's owner's equity decreases by an entry to the Drawing account. If the company is a corporation, Stockholders' Equity will decrease by an entry to Retained Earnings or to Dividends.

Payment of expenses will reduce the assets. When an expense is recorded at the same time it is paid for with cash, the cash (asset) account declines, while the amount of the expense reduces the retained earnings account.

Invoice is the business document which is prepared by the seller when he sells goods on credit. It is the evidence of business transaction being takes place. It is the source document.

When cash book is prepared, there is no need to prepare cash account because question of recording credit transactions does not arise, as it records only cash transactions. Hence, the balances of cash book are directly entered in the trial balance.

Return of goods purchased on credit to the supplier is recorded in the Purchase return journal. Sometimes goods purchased are returned to the supplier for various reasons such as goods are not of the required quality, or are defective, etc. For every return, a debit note is prepared , the original one is sent to the supplier for making necessary entries in his book and on the basis of duplicate copy of debit note entry is recorded in purchase return journal.

Items owned by a business that have monetary value are called as an assets. Assets may be classified as current assets ,fixed assets ,ficitious assets. Assets have a depreciation value after its use.