The Most Interesting Ways to Learn Accounting in a Few Simple Steps
Continuing with old series “learn accountancy without pains” let us learn more in an interesting way….
In this session I would try to familiarize you with the commonly used terms used in Accountancy. Let us start with a story heard by most of us in our childhood.
Lord Krishna and SUDAMA were studying at Sandipan Ashram. One day both of them along with others were sent by the Gurumata to fetch wood from the forest to be used as fuel for cooking food at Ashram.
When they were leaving Gurumata tied some dry Rice in a cloth and handed over to Sudama with an instruction that if any of them feel hungry they could feed themselves on those rice.
The rice were Assets in the hands of Gurumata as she owed it as she has cultivated the land has raised RICE. This Asset was her CAPITAL too. Thus, there was a balance between the Assets and Capital as sum total of Assets is equal to Capital
The accounting equation would have been:
Assets = liabilities + Capital
Rice Nil Rice
The equation is balanced.
RICE handed over to SUDAMA by the Gurumata were a Credit* created into Account of SUDAMA which could be brought to zero** by Gurumata if either of them consumed those RICE. Gurumata could have treated those rice given in Charity. In that case Assets and Capital of Gurumata would have been reduced to zero***. Stock given free of cost reduces Assets and reduced the Capital also.
*
Sudama’s Accounting equation:
Assets = liabilities + Capital
Rice Rice Nil
The equation is balanced.
**
Consumption of Rice by either of them would have made the accounting equation looks like as follows in Sudama’s books of accouts:
Assets = liabilities + Capital
Nil Nil Nil
***
Consumption of rice by either of them would have resulted into following Accounting Equation in the books of accounts of Gurumata
Assets = liabilities + Capital
Nil Nil Nil
As SUDAMA had those RICE with him, he had become DEBTOR to the Gurumata. Now Gurumata has Debtor in her account and her Capital is intact^. In case of non-consumption SUDAMA could bring his Debt to nil by the way of handing back those RICE to Gurumata^^^. Now the situation or the balance sheet of Gurumata would have been changed again. Stock of rice grain constituting ASSETS would have been into her account and at the same time she would have CAPITAL of RICE. Again, a balance between the two would have struck.
^
The books of accounts of Gurumata would have this Accounting Equation:
Assets = liabilities + Capital
Rice Debtors
Nil Rice Nil Rice
^^
Assets = liabilities + Capital
Rice Nil Rice.
^^^
Assets = liabilities + Capital
Rice Debtors
Rice Nil Rice.
Now there was a heavy pour in the forest. Both the friends took shelter on two different trees. Both were hungry. SUDAMA was in the process of thinking that if the rain continues, he would be left with small portion of RICE to satisfy his hunger as he was supposed to hand over the portion of RICE to Lord Krishna also. The agreement was there between both of them. This is what we call PARTNERSHIP. Though the capital of such partnership has not been supplied by either of them. This type of agreement can be termed as TRUST/ SOCIETY.
In the books of Accounts of Trust the Accounting Equation would have been as follows:
Assets = liabilities + Capital
Rice Rice.
Lord krishna asked SUDAMA if he had anything to eat? SUDAMA replied negatively. As SUDAMA was planning to eat away the share of rice grain of his partner lord Krishna, he is in the process of EMMBEZLEMENT.
SUDAMA ate away whole of the rice including the portion of grain rice meant for Lord Krishna. The moment he ate that he became DEBTOR TO LORD KRISHNA. The DEBT towards Gurumata vanished as after consumption the rice had become CHARITY FROM GURUMATA which was undertaken without any expectation of anything in return.
Lord Krishna has become his CREDITOR.
In the Books of Accounts of Sudama the Accounting Equation would have been:
Assets = liabilities + Capital
Lord krishna
Rice Rice Nil
In the books of Accounts of Lord Krishna the Accounting Equation would have been:
Assets = liabilities + Capital
Debtors
Sudama Nil Rice.
Whole of his life SUDAMA paid his DEBT by undergoing all the miseries of life. He never had plenty of food, plenty of clothes, plenty of other necessities. All the miseries he underwent were INTEREST PAID FOR THE DEBT HE OWED TO LORD KRISHNA. INTEREST PAYMENT NEVER REDUCES THE AMOUNT OF LOAN. In the books of accounts the Accounting Equation would have been as follows:
Assets = liabilities + Capital
Miseries OF Life Interest on Debt towards Lord Krishna.
Lord Krishna was leading a lavish life after the Ashram stage while SUDAMA was leading a miserable life.
His wife forced him to seek help from his friend Lord Krishna as he was resourceful. Sudama was not having anything to take as gift for lord Krishna. His wife tied some RICE in a cloth and send him to Lord Krishna.
When he reached there Lord krishna entertained him well. But Sudama was not able to tell his miseries to lord krishna because of his shy nature.
One day both the friends were sitting together. Lord krishna asked him whether Sudama has brought any gift for him? Sudama replied “No”.
Then lord krishna told him that he already owed him RICE which were meant for both of them and Sudama alone had consumed creating DEBT ON HIM. NOW throughout his life after Ashram he has suffered all the miseries for paying INEREST OF THE DEBT. Now his wife has sent again the RICE so thant he may pay back his DEBT AND MAY BE RELIEVED OF HIS DEBT BURDEN.
Sudama reluctantly handed over the RICE to lord krishna and took leave from him.
On his way back to his home he was thinking that Lord Krishna has done nothing for him to bring him out of his miserable life. He was worried about his wife and children. He was also worried as to how he will face his family as his friend Lord Krishna had not asked anything of his family or their miserable conditions.
When he reached his village, he was surprised to see that whole of the village has changed. His hut was changed into palace. His family was well equipped with all the luxuries of life.
Then he realised that Lord Krishna has waived his Interest over the DEBT AND COMPENSATED HIM FOR THE INTEREST PAID BY HIM.
