Financial RepoRting assignment-3

Q1. Analyze the effect of these transactions on the accounting equation

a) Manohar invested ₹30,000 cash in the company’s share capital
(shares of ₹10 each).

Assets = Liabilities + Equity

Effect on Accounting Equation:
Assets: Cash increases by ₹30,000

Liabilities: No change
Equity: Share Capital increases by ₹30,000 (30,000 shares x ₹10 each)
Updated Accounting Equation:
Assets (₹30,000 Cash) = Liabilities (₹0) + Equity (₹30,000 Share Capital)
This transaction increases both Assets (Cash) and Equity (Share Capital),
keeping the accounting equation balanced.

b) Bought supplies of photographic materials on credit, ₹9,000

Effect on Accounting Equation:
Assets: Supplies (Photographic Materials) increase by ₹9,000
Liabilities: Creditors (Accounts Payable) increase by ₹9,000
Equity: No change

Updated Accounting Equation:

Assets (₹9,000 Supplies) = Liabilities (₹9,000 Creditors) + Equity (No change)
This transaction increases both Assets (Supplies) and Liabilities (Creditors) by
₹9,000, keeping the accounting equation balanced.
 c) Bought photographic equipment for cash, ₹12,000.
Effect on Accounting Equation:
Assets: Photographic Equipment increases by ₹12,000

Cash decreases by ₹12,000

Liabilities: No change
Equity: No change
Updated Accounting Equation:
Assets (₹12,000 Photographic Equipment, -₹12,000 Cash) = Liabilities (₹0) +
Equity (No change)

This transaction increases one asset (Photographic Equipment) and

decreases another asset (Cash) by the same amount (₹12,000), keeping the
accounting equation balanced.
d) Received fees for photographic services, ₹15,000.
Effect on accounting equation:

Assets: Cash increases by 15,000

Liabilities: No change
Equity: Revenue(Fees earned) increases by 15,000
This transaction increases by both Assets and Equity by the same amount
(15,000), keeping accounting equation balanced.
e) Paid creditor for supplies, ₹5,000.

Effect on accounting equation:

Assets: Cash decreases by 5,000
Liabilities: Creditors(Account payable) decreases by 5,000
This transaction decreases by both Assets and liabilities by the same amount
(5,000), keeping accounting equation balanced.
 f) Manohar invested further 12,000 cash in the company’s share
capital.
Effect on accounting equation:

Assets: Cash increases by 12,000

Equity: Share capital increases by 12,000
This transaction increases by both Assets and Equity by the same amount
(12,000), keeping accounting equation balanced.
g) Billed customers for services, ₹19,000.
Effect on accounting equation:

Assets: Account Receivable (Debtors) increases by 19,000

Equity: Revenue (Fees earned) increases by 19,000
This transaction increases by both Assets and Equity by the same amount
(19,000), keeping accounting equation balanced.
h) Paid office rent, ₹2,500, and electricity charges, ₹1,200.

Effect on accounting equation:

Assets: Cash decreases by 3,700 (2,500+1,200)
Equity: Expenses (Rent and electricity) increases by 3,700, which decreases
equity.
This transaction decreases by both Assets and Equity(due to increased in
expenses)by the same amount (3,700), keeping accounting equation
balanced.
i) Paid dividends, ₹4,000.
Effect on accounting equation:
Assets: Cash decreases by 4,000
Equity: Dividend decreases by 4,000 (distribution of profits to shareholders)
This transaction decreases by both Assets and Equity by the same amount
(4,000), keeping accounting equation balanced.
j) Prepared the monthly payroll to be paid on February 1, ₹11,500.

Effect on accounting equation:

Assets: No change (payment will be made on February 1)
Liabilities: Accrued expenses (Wages payable) increase by 11,500
Equity: Expenses (Wages expense) increases by 11,500, which decreases by
11,500.
This transaction increases Liabilities (Wages Payable) and decreases Equity
(due to increased Wages Expense) by 11,500, keeping the accounting
equation balanced.

Assets = Liabilities + Equity

Cash Trade Receivables Supplies Equipment Trade Payables Equity
Jan 1 +30000 +30000
Balance 30000 30000
Jan 2 +9000 +9000
Balance 30000 9000 9000 30000
Jan 5 -12000 +12000
Balance 18000 9000 12000 9000 30000
Jan 7 +15000 +15000
Balance 33000 9000 12000 9000 45000
Jan 13 -5000 -5000
Balance 28000 9000 12000 4000 45000
Jan 18 +12000 +12000
Balance 40000 9000 12000 4000 57000
Jan 22 +19000 +19000
Balance 40000 19000 9000 12000 4000 76000
Jan 27 -3700 -3700
Balance 36300 19000 9000 12000 4000 72300
Jan 31 -4000 -4000
Balance 32300 19000 9000 12000 4000 68300
Q2. Prepare the balance sheet, statement of profit and loss, statement of
changes in equity and statement of cash flows.
BALANCE SHEET

Balance sheet of Qualphoto company

as on January 31, 20XX
Particular Amount Amount
1. Equity and liabilities
a) Shareholders funds
Share capital 42,000
Retained earning 14,800
b) Liabilities
Current liabilities:
Account payable 4,000
Payroll payable 11,500
Total 72,300
2. Assets
Current Assets :
Cash 32,300
Account Receivables 19,000
Supplies 9,000
Non current assets:
Photographic equipment 12,000
Total Assets 72,300

Statement of Profit and Loss

Statement of Profit and Loss

For the Month Ended January 31, 20XX
Particular Amount Amount
Revenue:
Fees for Photographic Services 15,000
Billed Customers for Services 19,000
Total Revenue 34,000

Expenses:
Office Rent 2,500
Electricity charges 1,200
Payroll(accrued) 11,500
Total expenses 15,200

Net profit (Net income) 18,800

Statement Of Changes In Equity

Statement of Changes in Equity

For the Month Ended January 31, 20XX

Particular Share capital Retained earning Total equity

Balance as of January 1 ₹ 0.00 ₹ 0.00 ₹ 0.00
Add: Investment by owner ₹ 42,000.00 ₹ 42,000.00
Add: Net Income ₹ 18,800.00 ₹ 18,800.00
Less: Dividend paid ₹ 4,000.00 ₹ 4,000.00
Balance as of January 31 ₹ 42,000.00 ₹ 14,800.00 ₹ 56,800.00

Statement Of Cash Flows

Statement of Cash Flows

For the Month Ended January 31, 20XX
Particular Amount Amount
Cash flow from operating activities
Cash received from customers 15,000
Cash paid to suppliers & creditors -5,000
Cash paid for rent & utilities -3,700
Cash paid for dividends -4,000
Net cash provided by operating activities 2,300
Cash Flows from Investing Activities
Purchase of Photographic equipment 12,000
Net Cash Used in Investing Activities -12,000
Cash Flows from Financing Activities
Cash received from issuance of share capital 42,000
Net Cash Provided by Financing Activities 42,000
Net Increase in Cash 32,300
Cash at the beginning of the period (January 1) 0
Cash at the end of the period (January 31) 32,300