ACCOUNTING EQ

PARTICULARS LIABILITIES

ABC Ltd. Company starts business

by issuing shares of 500000
Purchased machinery of 100000
for cash.

Purchased raw material inventory

on credit worth 1 lakh. Increase in Creditors 100000
Paid Rent 50000
Paid Dividend 10000
Received 200000 for services
rendered
OUNTING EQUATION
ASSETS = LIABILITIES + EQUITY
EQUITY ASSETS

Increase in Equity 500000 Increase in Cash 500000

Decrease in Cash 100000

Increase in Machinery 100000

Increase in Material 100000

Decrease in Equity 50000 Decrease in Cash 50000
Decrease in Equity 10000 Decrease in Cash 10000

Increase in Equity 200000 Increase in Cash 200000

 ACCOUNTING EQ
PARTICULARS
ABC Ltd. Company starts business by issuing
shares of 500000

Purchased machinery of 100000 for cash.

Purchased raw material inventory on credit

worth 10000
Paid Rent 50000
Paid Dividend 10000
Received 200000 for services rendered
Total

Total Liabilities and

Equity
 ACCOUNTING EQUATION
ASSETS = LIABILITIES + EQUITY
LIABILITIES EQUITY ASSETS

500000 cash

cash
machinery

10000 inventory
-50000 cash
-10000 cash
200000 cash
10000 640000 Total

650000 Total Assets

TIES + EQUITY
ASSETS

500000

-100000
100000

10000
-50000
-10000
200000

650000
Illustration 2.1

Consider the following transactions pertaining to A’s business:

1. Started business with cash Rs. 300,000.

2. Purchased goods for cash Rs. 120,000.
3. Purchased goods on credit Rs. 60,000.
4. Purchased furniture for cash Rs. 20,000.
5. Deposited Rs. 50,000 in the bank account.
6. Sold goods costing Rs. 15,000 for Rs. 18,000, on credit.
7. Sold goods costing Rs. 30,000 for Rs. 36,000, in cash.
8. Paid rent Rs. 10,000 and salaries Rs. 20,000.
9. Withdrew Rs. 15,000 from the bank account to pay for private expenses.
10. Received cash against goods sold on credit Rs. 18,000.

SOLUTION

1. Started business with cash Rs. 300,000.

2. Purchased goods for cash Rs. 120,000.
3. Purchased goods on credit Rs. 60,000.
4. Purchased furniture for cash Rs. 20,000.
5. Deposited Rs. 50,000 in the bank account.
6. Sold goods costing Rs. 15,000 for Rs. 18,000, on credit.
7. Sold goods costing Rs. 30,000 for Rs. 36,000, in cash.

8. Paid rent Rs. 10,000 and salaries Rs. 20,000.

9. Withdrew Rs. 15,000 from the bank account to pay for private expenses.

10. Received cash against goods sold on credit Rs. 18,000.

 Asset

TOTAL
ASSETS
(Analysis )

amount contributed in business 300000 300000

increase Stock and reduced cash balance 0
Increase stock 60000 60000
increase furniture and reduced cash balance 0
increase bank balance and reduced cash balance 0
18000increase in debtors -15000decrease in stock 3000
36000increase in cash -30000decrease in stock 6000
Reduce 30000 from cash balance

-30000
Reduce 15000 from bank balance
-15000
Cash received +18000 Less reduction in debtors
18000 0
total 324000
This analysis on both sides shows that the accounting equation is taken care off.
 TOTAL LIABILITIES =
owners' equity + Outsider's
Liabilities
(Analysis ) owners' Outsiders TOTAL
equity Liabilites

increase in capital balance 300000 300000

0 0
increase creditors 60000 60000
0 0
0
add3000 in owners' equity 3000 3000
add 6000 in owners' equity 6000 6000

Less -30000 from profits which will

reduce owner's equity -30000 -30000
less -15000 from owner's Capital , as its
drawing -15000 -15000

0
total 264000 60000 324000
s taken care off.