Started business with cash 4 lakh machinery 1 lakh.Purchased goods fro...
Introduction
In this scenario, a business is started with cash of 4 lakh and machinery worth 1 lakh. The business then purchases goods worth 1 lakh from Pawan. Later, 60% of the goods purchased from Pawan are sold to Pankaj with a 10% trade discount. Finally, 80% of the payment is made to Pawan in settlement of his account. Additionally, a depreciation of 20,000 is charged on the machinery.
Explanation
To understand the transactions and their impact on the business, let's break it down into key points:
Starting the Business
- Cash investment of 4 lakh is made to start the business.
- Machinery worth 1 lakh is also brought into the business.
Purchase of Goods
- Goods worth 1 lakh are purchased from Pawan.
Sales to Pankaj
- 60% of the goods purchased from Pawan are sold to Pankaj.
- A trade discount of 10% is given to Pankaj on the selling price.
Payment to Pawan
- 80% of the payment is made to Pawan in settlement of his account.
Depreciation on Machinery
- A depreciation of 20,000 is charged on the machinery.
Impact on the Financial Statements
Now, let's analyze the impact of these transactions on the financial statements of the business:
Balance Sheet
- The cash investment of 4 lakh will be recorded as a cash asset on the balance sheet.
- The machinery worth 1 lakh will also be recorded as a fixed asset on the balance sheet, but its value will be reduced by the depreciation of 20,000.
- The goods purchased from Pawan worth 1 lakh will be recorded as inventory on the balance sheet.
Profit and Loss Statement
- The goods sold to Pankaj will be recorded as sales revenue on the profit and loss statement, but its value will be reduced by the trade discount of 10%.
- The cost of goods sold will include the cost of the goods purchased from Pawan (1 lakh) and the remaining cost of the goods sold to Pankaj (60% of 1 lakh).
- The difference between the sales revenue and the cost of goods sold will give the gross profit.
Conclusion
In conclusion, starting a business with cash and machinery, purchasing goods, selling goods with a trade discount, settling accounts, and charging depreciation on machinery have various impacts on the financial statements. It is important for businesses to accurately record and analyze these transactions to assess their financial health and make informed decisions.
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