Let the business in our example be X Trading. The 15 transactions are as follows: 1st April - X Trading started its business with Rs. 10,000 cash and furniture of Rs. 5,000. 5th April - Purchased 1,000 units of goods for Rs. 1,000 in cash from Ram. 10th April – Bought stationery for Rs. 100 in cash.Read more
Let the business in our example be X Trading. The 15 transactions are as follows:
- 1st April – X Trading started its business with Rs. 10,000 cash and furniture of Rs. 5,000.
- 5th April – Purchased 1,000 units of goods for Rs. 1,000 in cash from Ram.
- 10th April – Bought stationery for Rs. 100 in cash.
- 25Th April – Sold 500 goods for Rs. 750 in cash.
- 1st May – Paid a rent of Rs. 1200 ( 1st April to 31st March)
- 1st June – Took a loan of Rs. 15,000 from the bank at interest@10%.
- 15Th June – Sold 400 goods for Rs. 600 to Shyam in credit.
- 1st August – Bought a computer for Rs. 10,000 in from ABC Computers in credit.
- 15th October – Received Rs. 300 from Shyam in cash.
- 1st November – Purchased 2,000 units of goods for 2,000 from Ram in credit.
- 15th November – Paid Rs. 5,000 to ABC Computers through cheque.
- 1st December – Sold 1,000 units of goods for Rs. 1,500. Received cheque as payment.
- 1st January – Obtained Trade license (valid for 5 years) by paying fees of Rs. 1000 through online bank transfer.
- 15Th February – Paid Rs. 1,500 to Ram. Through cheque.
- 15Th March – Drawings made of Rs. 2000 in cash.
We will prepare the journal, ledgers and the trial balance from the above transactions.
Journal
Journal is known as the book of primary entry or book of original entry. It is because every transaction is recorded in form of journal entries in the journal. Every journal entry affects at least two accounts (dual effect). A transaction has to be a monetary transaction otherwise it cannot be recorded as a journal entry.
The procedure of recording transactions as journal entries is simple if we follow the modern rules of accounting.
So first we have to identify which and what type of account does a transaction affect. The types of accounts are:
- Asset – Debit in case of increase Credit in case of decrease.
- Liabilities – Debit in case of decrease Credit in case of increase.
- Capital – Debit in case of decrease Credit in case of increase.
- Expense – Debit in case of increase Credit in case of decrease.
- Income – Debit in case of decrease Credit in case of increase.

Ledger
Ledgers are known as the books of principal entry or book of final entry. All the journal entries recorded in the journal are posted to the ledgers. A Ledger is where the entries related to a particular account are recorded. For example, all the transactions related to salary will be recorded in the salary account ledger.
It is very important to prepare the ledger to arrive at the balance of each account in the books of concern so that it can prepare its trial balance.
The procedure of posting journal entries in the ledger account is done is as follows:

The ledgers are as follows:

Trial Balance
The trial balance is not a part of the books of accounts. It is just a statement prepared to check the arithmetical accuracy of the books of the accounts. It also helps to know about the omission and posting mistakes. It is prepared after the ledger accounts have been drawn and their balances have been ascertained.
The balance of all the ledger accounts is posted on either side of the trial balance. Debit balance of the account on the debit side and credit balance of the account on the credit side.
Also, the closing stock from the financial statements of the previous year is posted on the debit side of the trial balance as opening stock to account for the stock with the business at the beginning of the financial year.
Following is the trial balance of X trading:


Meaning of Working Capital Firstly, let’s understand the meaning of the working capital. Working capital is the factor which demonstrates the liquidity position of the business to carry out day to day operations. It majorly includes cash & bank balances and liquid assets. Managing working capitaRead more
Meaning of Working Capital
Firstly, let’s understand the meaning of the working capital. Working capital is the factor which demonstrates the liquidity position of the business to carry out day to day operations. It majorly includes cash & bank balances and liquid assets.
Managing working capital is a crucial process to maintain short term liquidity and so ultimately resulting into achieving long term objectives efficiently. Working capital can be calculated by deducting business’s current liabilities from current assets.
To achieve the ideal working capital requirement for any business, it is important to understand various types of working capital and various ways to manage it.
Coming to Permanent Working Capital, also called as Fixed Working Capital, it is the minimum working capital required or maintained by businesses. Such type of working capital is maintained to take care of regular financial obligations like creditors, inventory, salaries etc.
Irrespective of scale of operations carried out in business, Permanent Capital is maintained by businesses which can be in form of Net Working Capital.
There is no specific formula for calculating Fixed Working Capital, it completely depends upon the business’s assets and liabilities. So accordingly, it can be estimated through the balance sheet of the business.
For calculating Permanent Working Capital, you can follow below steps:
The requirement of Permanent Working Capital changes as the business expands. It is crucial to make sure that the working capital level does not fall below the Permanent Working Capital requirement.
Types of Permanent Working Capital:
Permanent working capital is further divided into two types:
- Regular working capital – This refers to capital required to maintain healthy cashflow for purchases of raw materials, payment of wages etc.
- Reserve working capital – This refers to amount which is more than regular working capital to take care of unexpected business expenses due to contingent events.
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