ANALYSIS OF TRANSACTIONS USING THE ACCOUNTING EQUATION

Example 1:
Show the effect of the following transactions on the accounting equation.
1. Investment by owner / introduction of capital
On the 1st January 2011, Qayyum started a business by putting
RM35,000 into the business bank account. He also transfers his own
car (valued at RM 24,000) to the business.
Assets

=

Liabilities

+ Owner Equity

2. The purchase of asset and incurring liability
a) A shop premise costing RM100,000 were acquired for the
business. The money was borrowed from CIMB bank and is due
for repayment in 10 years' time.
b) A stock of goods for resale was acquired at a cost of RM10,000
on credit from a supplier BS Store.
Assets

=

Liabilities

+ Owner Equity

3. The purchase of asset by cash
The business purchase a computer set costing RM5,000 for cash
(using the business cheque)
Assets

=

Liabilities

+ Owner Equity

4.Payment of liability
A business cheque for RM3,000 was sent to BS Store .
Assets

=

Liabilities

+ Owner Equity

Statement of Financial Position (or Balance Sheet)

Expenses) Example 2: Continuing from Example 1. Lee for RM2. .RM Assets Shop Premise Motor Vehicle Computer Stock Cash at bank TOTAL ASSETS Liability Loan Creditor TOTAL LIABILITY Owner's Equity . 5. *Ignore the effect on stock for the time being since periodic inventory system will be used. If the business makes profit: A = L + (OE + Profit) A = L + OE + (Revenue .300 is sold to Mr. Assets = Liabilities + Owner Equity 6. Sale of an asset for cash payment Stock costing RM1.Capital TOTAL LIABILITY & OE 2.100 cash. Sale of an asset on credit Stock costing RM2. Assets = Liabilities + Owner Equity 7.5a.200. The Effect of Profit or Loss on Capital The accounting equation: A = L + OE.000 is sold on credit to Gemilang Store for RM3. Pay expenses Qayyum pays RM100 cash for the shop's electricity bill.

Drawing by the owner a) Qayyum pays a holiday package for his family with a RM1. Normally the goods can be sold for RM500. b) Qayyum also has taken goods costing RM300 for his own personal use.200 business cheque. Assets = Liabilities + Owner Equity Statement of Comprehensive Income RM Sales Revenue (-) Cost of goods sold Gross profit Electricity expenses Profit/(loss) Statement of Financial Position RM Assets Shop Premise Motor Vehicle Computer Stock Cash at bank TOTAL ASSETS Liability Loan Creditor .Assets = Liabilities + Owner Equity 8.

000 by issuing a note payable.  They are shown on a T-shape ledger format with the debit place on the left-hand side and credit on the right-hand side.TOTAL LIABILITY Owner's Equity Capital Profit/(loss) (-)Drawing TOTAL OE TOTAL LIABILITY & OE Note: Profit increases owner’s equity while loss reduces owner’s equity Rules of debit and credit  The use of double-entry bookkeeping will ensure a more systematic and efficient recording of transactions and determination of profit. due in 2 years 04 Received cash from fees earned RM9.450 on credit 27 Received RM5.000 from customers on amount owed on June 17 30 Paid salaries for RM1.  The rules: TYPE OF DEBIT (Dr) CREDIT (Cr) TRANSACTION Assets Increase Decrease Owner's equity Decrease Increase Liabilities Decrease Increase Revenue Decrease Increase Expenses Increase Decrease CLASS EXERCISE Question 1 Deala Sofia establishes an insurance agency on June 2014 and completed the following transactions during June: Jun Opened a business bank account in the name of DS Agency with e deposit RM50. expenses.760 20 Paid RM2. revenue and liabilities.000 by cheque 10 Purchase office equipment RM5. owner's equity.assets.200 08 Paid automobile expenses RM1.500 to employees .500 cash 16 Paid rental RM3.500 17 Performed service on credit RM10.000 as capital 01 02 Borrowed RM15.  The rules of double-entry involve the 5 types of transactions .500 on notes signed on June 02 23 Purchased supplies for RM3.

She started business on 1 July 2014 by paying RM45.330 Bought Furniture and Fittings by cash RM4.000 from MARA and made first payment to TopMarks RM6.Expense e Liabilities Equity s E.g ↑Equipm ↑EngLi 0 0 0 .000.30 Paid utilities bill for RM350 Required: Indicate the effect of each transaction using the following format. Dat Assets = + Owner’s + Revenue .00 0 0 Question 2 Chendana runs a boutique shop in Desa Semarak Muadzam. 14 Sold all the goods she bought on 4 July for cash RM5. Below are related transactions for the first month operation: July 02 04 07 08 11 Bought goods for resale on credit from Arfa Butik RM3.000 15 Paid staff wages by cheque RM880 16 Sold half of the goods bought on 8 July to Optime on credit .800 Purchased goods for resale for cash RM3.500 Bought van on credit from TopMarks Sdn Bhd for RM22.000 Bought goods for resale on credit from Jakel for RM12. ent RM15.00 RM15.000 into newly opened bank account.000 Borrowed RM10.

00 0 ↑BIMB loan RM150. Due to Donna carelessness.000 .00 0 0 Balance Sheet Position Assets Liabilities Owner’s Equity RM150. Effect On Accounting Equation Dat Assets Liabilities Owner’s e Equity E.g. Paid rent by cash RM1. Donna to join the business and she brought RM7. Datin Lyza threatened to sue the boutique and Chendana promised to pay RM3.200 Paid office maintenance by cheque RM550 Required: Show how each of the above transaction affects the accounting equation and how the balance sheet identity would appear after each transaction. a potential client.000 for medical treatment.000 RM150. ↑Building RM150.000 Chendana allow her cousin.000 of her own money into the business.17 18 25 28 RM8. which is used to pay part of the amount owed to TopMarks. Datin Lyza fell and broke her arm.