Rules for Cash and Credit Transaction

Rules for Cash and Credit transaction:

1. Rules for cash transaction: A transaction is cash if the word “cash” is mentioned in the transaction. For example: Bought furniture for cash Rs. 1000 from Ahmad.

A transaction is cash if the name of seller or buyer is not mentioned in the transaction. For example: Bought goods Rs.1000.

2. Rules for credit transaction: A transaction is credit if the words “on credit” or “on account” are mentioned in transaction. For example: Bought goods Rs.1000 on credit or on account.

A transaction is credit if the name of seller or buyer is mentioned in the transaction and the word “cash” is not mentioned. For example: Bought goods from Asif Rs.1000.

Accounting Equation:

Accounting equation is an equation in which Total Assets are equal to total claims against assets or equity.

Assets = Liabilities + Capital
or
Assets = Claims against assets or Equity

Equity is the claim against assets of the business.
Equity = Liabilities + Capital