Answer to Question #222135 in Financial Math for Nachiket Pawar

Question

Mahesh wants to start his business and for that he decides that he will take loan for

Rupees 7 Lakhs from the Bank of Baroda. He also decides to use his saving worth 3 lakhs

in the bank account to start the business. Discuss how these two transactions will be

recorded in the books of accounts by passing the relevant journal entries? How these

transactions will be reflected in the Books of accounts (that’ is in the financial statements)?

Lastly, conclude your answer by stating the applicability of which accounting

assumption/s you did the above mentioned accounting treatment/ recognition and

presentation in the books of accounts.

"Please Only Give Me The Reference Of The Answer"

Answer 1

In these two transactions, the journal entries will be as follows 

Dr Bank 7 Lakhs

Cr Long term Loan Payable 

Dr Bank 3 lakhs

Cr Drawings 3 lakhs 

The overall journal entry will be; 

Dr Bank 10 lakhs 

Cr Capital 10 lakhs 

In the financial statements, the balance sheet will have 

Assets as 

Bank 10 lakhs 

Capital as 

Capital 3 lakhs 

Long term liabilities 

Loan Repayable 

Long term loan 7 lakhs 

The accounting assumption used above is the basic one that; Assets = Liabilities + Capital 

Further, double entry system has come into place where one has to prepare journal to come up with the final figures for the financial statements.