Illustration # 1

Jane Lee started business on 1 January, 20X9 and decides to set up a bookshop. She decides to invest
all her personal savings $2,000 to start her business. During the first month of her business following
transactions took place:
1. Invested cash $2,000 in business.
2. Purchased building for business use for $500 paying by cash.
3. Purchased furniture on credit from Wood shop for $200.
4. Opened a business bank account and deposited $500 cash.
5. Repaid the amount due to Wood shop by cheque$200.
6. Withdrew cash $100 from business for her personal use.
Required:
Enter the above transaction in an accounting equation.
SOLUTION
Invested cash $2,000 in business
Sr # ASSETS = CAPITAL + LIABILITIES
Cash
$ $
1. 2,000 2,000
Purchased building for business use for $500 paying by cash.
Sr # ASSETS = CAPITAL + LIABILITIES
Cash Building
$ $ $
1. 2,000 2,000
2. (500) 500 -
1,500 500 2,000
Purchased furniture on credit from Wood shop for $200.
Sr # ASSETS = CAPITAL + LIABILITIES
Cash Building Furniture Wood shop
$ $ $ $
1. 2,000 2,000
2. (500) 500 -
1,500 500 2,000
3. - - 200 - 200
1,500 500 200 2,000 200
Opened a business bank account and deposited $500 cash.
Sr # ASSETS = CAPITAL + LIABILITIES
Cash Building Furniture Bank Wood shop
$ $ $ $ $
1. 2,000 2,000
2. (500) 500 -
1,500 500 2,000
3. - - 200 - 200
1,500 500 200 2,000 200
4. (500) 500
1,000 500 200 500 2,000 200
Repaid the amount due to Wood shop by cheque$200.
Sr # ASSETS = CAPITAL + LIABILITIES
Cash Building Furniture Bank Wood shop
$ $ $ $ $
1. 2,000 2,000
2. (500) 500 -
1,500 500 2,000
3. - - 200 - 200
1,500 500 200 2,000 200
4. (500) 500
1,000 500 200 500 2,000 200
5. - - - (200) - (200)
1,000 500 200 300 2,000 -
Withdrew cash $100 from business for her personal use.
Sr # ASSETS = CAPITAL + LIABILITIES
Cash Building Furniture Bank Wood shop
$ $ $ $ $
1. 2,000 2,000
2. (500) 500 -
1,500 500 2,000
3. - - 200 - 200
1,500 500 200 2,000 200
4. (500) 500
1,000 500 200 500 2,000 200
5. - - - (200) - (200)
1,000 500 200 300 2,000 -
6. (100) - - - (100)
900 500 200 300 1,900

CLASS PRACTICE
Question No. 1
Peter Reid decides he is going to open a bookshop called Easyread, which he does by investing $5,000
on 1st January 20X7. During the first month of Easyread’s existence, the following transactions occur:
(a) Bookshelves are purchased for $1,800
(b) Books are purchased for $2,000
(c) Half of the books are sold for $1,500 cash
(d) Peter draws $200 out of the business for himself
(e) Carpets are purchased for $1,000 on credit (to be paid in two month’s time)
(f) A bulk order of books worth $400 is sold on credit (to be paid in one month’s time) for $600
Required: Write down the accounting equation after each transaction has occurred.
Question No. 2
Explain the dual effects of each of the following transactions:
(a) A business receives a loan of $5,000 from its bank
(b) A business pays $800 cash to purchase goods for resale
(c) The proprietor of a business removes $50 from the till to buy her husband a birthday present
(d) A business sells goods costing $300 at a profit of $140
(e) A business repays a $5,000 bank loan, plus interest of $270
Question No. 3
Neelam decides to open up a flower stall in the market, to sell flowers and potted plants. Determine the
accounting equation after each of the following transactions:
(a) She puts $2,500 into her business
(b) She purchases a market stall for $1,800
(c) She purchases flowers and potted plants from a trader in the new garden wholesale market, at a
cost of $650.
(d) She sells her plants and flowers for $900 cash
(e) She pays herself $180 as wages
Question No. 4
Draw up the accounting equation for Albert after each of the following transactions:
(a) Started business with $10,000
(b) Bought a motor van on credit for $500
(c) Took a loan of $150 from P
(d) Puts a further $5,000 cash into the business
(e) Bought stock for $2,000
(f) Sold stock worth $500 for $900 for cash
(g) Bought goods on credit $220
(h) The owner takes out $100 cash for his personal use
(i) Repaid P
Question No. 5
Show the effect of each of the following on the accounting equation:
(a) Bought a motor van on credit $500
(b) Repaid by cash a loan owed to P Smith $200
(c) Bought goods for $150 paying by cheque
(d) The owner puts a further $5,000 cash into the business
(e) A debtor pays us $400
(f) Bought goods on credit $220
(g) The owner takes out $100 cash for his personal use
(h) We pay a creditor $190 by cheque