Your father runs a small auto body shop. He has decided to computerize his recor

Question

Your father runs a small auto body shop. He has decided to computerize his records and has asked you to explain the basics of accounting to him so that he can enter the data into his accounting software.
•Explain to him the rules of debits and credits for the balance sheet and income statement.
•Provide examples from the manufacturing industry of:
?a journal entry that would be recorded that impacts the balance sheet.
?a journal entry that would be recorded affecting the income statement.
•Please provide the assumptions behind the transactions and the full journal entries.

Explanation / Answer

Let us see the fundamental rules accounting, such as golden rules of accounting. These principles are used in journalising the transactions. There are three types of accounts they are as follows; Real account Personal account Nominal account For the above accounts there are various rules existed they are as follows; Real account: Debit what comes in Credit what goes out Personal account: Debit the receiver Credit the giver Nominal account: Debit all expenses Credit all incomes By using the above principles we have to journalise the transactions. ex; John purchased goods for $10,000 Then the entry for the above transaction will be as follows; Purchases                            10,000            Cash                                   10,000 (being purchase of the car) Let us see the effect of a transaction on income statement: Ex. Received service revenue $100,000 This transaction will affect the income statement as follows The service revenue will be recorded as the sales in the income statement. Effect of a transaction on the balance sheet: John purchased a car for the business purpose for $10,000 on account. Here this transaction will affect the balance sheet in two sides, such as on assets side and liabilities side. For this transaction, we have to report the car as the fixed asset on the assets side. Simaltaneously we hace to record the liability of the car on the on the balance sheet on the liabilities side. Ex: Assets                 I            Liabilities Car                                   $10,000

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