Unique Academy for Commerce Accounting Equation P a g e | 1.

Learning Objectives Accounting Equation

 Dual Aspect Concept
 Practical Applicability of Dual Aspect Concept
 Accounting Equation
 Construction of Accounting Equation
 Construction of Balance Sheet on the basis of Accounting Equation
 Ascertainment of Profit by Accounting Equation

Dual-Aspect Concept
Each transaction has two aspects, which is known as Dual-Aspect and this the basis of double entry record.
As the name implies the entry made for each transaction is composed of two parts- one for debit and another
for credit.
Significance: This concept gives rise to the accounting equation:
Asset = Capital + Liabilities
Practical Questions
1. Arvind had the following transactions. Use Accounting Equation to show their effect, on his
assets, liability and capital:
(a) Invested Rs. 15,000 in cash as capital
(b) Purchased goods for cash Rs. 7,500
(c) Purchased a building for Rs. 15,000, giving Rs. 5,000 in cash and the balance through a loan.
(d) Sold goods costing Rs. 1,000 for Rs. 1,500
(e) Purchased an old car for Rs. 2,800 cash
(f) Received cash as rent Rs. 3,600.
(g) Paid cash Rs. 500 for loan and Rs. 300 for interest.
(h) Paid cash for household expenses Rs. 300.
(i) Received Cash for dividend on securities Rs. 200
(j) Purchase furniture for Rs. 1000
(k) Paid rent in Rs. 500
(Answer: Assets= 27,700, Capital = 18,200, liabilities = 9,500)

2. Show the Accounting Equation on the basis of the following transactions and present a Balance
sheet on the last new equation balances:
Rs.
Mohan commenced business with cash 70,000
Purchased goods on credit 4,000
Withdrew for private use 1,700
Goods purchased for cash 10,000
Paid wages 300
Paid to Suppliers 10,000
Sold goods for cash (Cost Price was Rs. 3,000) 15,000
Rent paid Rs. 1,000; and rent outstanding Rs. 200
Sold goods to G. Rai on credit costing Rs. 1,000 for Rs. 1,200.
(Answer: Assets= 79,200, Capital = 79,000, liabilities = 200)
(Hint: Rs. 10,000 paid to Suppliers will be treated as Rs. 4,000 paid for outstanding liability and
remaining Rs. 6,000 has been paid as advance to suppliers)
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3. Develop the accounting equation from following information available at the beginning and at the end of
accounting period:
Particulars Beginning of At the end of
Period (Rs. in 000) Period (Rs. in 000)
Capital 51,000 ?
Loan 11,500 11,500
Trade payables 5,700 5,800
Fixed Assets 12,800 12,720
Inventory 22,600 22,900
Trade receivables 17,500 17,500
Cash and Bank 15,300 15,600
(a) Reset the equation and find out profit.
(b) Prepare Balance Sheet at the end of the accounting period.
Answer:
Opening Accounting Equation: Assets= 68,200, Capital = 51,000, liabilities =17,200
Closing Accounting Equation: Assets= 68,720, Capital = 51,420, liabilities =17,300
Profit = Rs. 420; Balance Sheet Total = 68,720

4. Assets and liabilities of Mr. X as on 31.12.2011 and 31.12.2012 are as follows:

31.21.2011 Rs 31.12.2012 Rs
Assets
Building 1,00,000 97,500
Furniture 50,000 45,000
Stock 1,20,000 2,70,000
Sundry debtors 40,000 90,000
Cash at bank 70,000 85,000
Cash in hand 1,200 3,200
Liabilities
Loans 1,00,000 80,000
Sundry creditors 40,000 70,000
One life insurance policy of the proprietor was matured during the period and the amount Rs 40,000 is
retained in the business. Proprietor took @ Rs 2,000 p.m. for meeting family expenses.
Reset the equation and find out profit.

5. Mr. Anup runs a wholesale business where in all purchases and sales are made on credit. He furnishes
the following closing balances:
31-12-2011 31-12-2012
Sundry debtors 70,000 92,000
Bills receivable 15,000 6,000
Bills payable 12,000 14,000
Sundry creditors 40,000 56,000
Stock 1,10,000 1,90,000
Bank 90,000 87,000
Cash 5,200 5,300
(a) Reset the equation and find out profit.
(b) Prepare Balance Sheet at the end of the accounting period.

6. Mr. Dass has provided following details related to his financials. Find out the missing figures:
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Particulars (Rs. in’000)

Profits carved during the year 5,000
Assets at the beginning of year A
Liabilities at the beginning of year 12,000
Assets at the end of the year B
Liabilities at the end of the year C
Closing capital 35,000
Total liabilities including capital at the end of the year 50,000
Answer:
Assets at the beginning of year (A) = 18,000
Assets at the end of the year (B) = 50,000
Liabilities at the end of the year (C) = 15,000

7. Which transaction will satisfy the following (In Accounting Equation)?

(a) Decrease the assets and decrease the liabilities
(b) Increase the assets and increase the liabilities
(c) Decrease the assets and decrease the capital
(d) Decrease the assets and increase another asset
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