ACCOUNTING EQUATION
Prepare Accounting Equation from the following:-
(₹)
1. Sandeep started business with Cash 1,00,000
2. Purchased furniture for cash 5,000
3. Purchased goods for cash 20,000
4. Purchased goods on credit 36,000
5. Paid for rent 700
6. Goods costing ₹ 40,000 sold at a profit of 20% for cash
Solution:
ACCOUNTING EQUATION
Assets Liabilitie
S. = + Capital
Transactio s
No
n Furnitur Creditor
. Cash + + Stock =
e s
(i) Sandeep 1,00,00 + 1,00,00
started 0 0
business
with cash
1,00,00 = + 1,00,00
0 0
(ii) Purchased –5,000 +5,000
furniture for
cash
95,000 + 5,000 = + 1,00,00
0
(iii) Purchased –20,000 +20,00
goods for 0
cash
75,000 + 5,000 + 20,000 = + 1,00,00
0
(iv) Purchased +36,00 +36,000
goods on 0
credit
75,000 + 5,000 + 56,000 = 36,000 + 1,00,00
0
(v) Rent paid -700 –700
74,300 + 5,000 + 56,000 = 36,000 + 99,300
(vi) Goods +48,000 -40,000 +8,000
costing Rs
40,000 sold
at a profit of
20% for
cash
1,22,30 + 5,000 + 16,000 = 36,000 + 1,07,30
0 0
Question 2(A):
Show the Accounting Equation on the basis of the following and present a balance sheet on the last new
equation balances:
(₹)
(i) Manu started business with cash 50,000
(ii) Bought furniture for 500
(iii) Purchased goods on credit 4,000
(iv) Sold goods on cash (cost ₹ 500) for 700
(v) Received rent 200
(vi) Purchased goods for cash 1,000
(vii) Withdrew for personal use 700
(viii) Paid to creditors 400
(ix) Paid for salaries 200
Solution:
ACCOUNTING EQUATION
Assets Liabilitie
= + Capital
S. s
Transaction
No. Furnitur
Cash + + Stock = Creditors
e
(i) Manu started business with +50,00 +50,000
cash 0
50,000 = + 50,000
(ii) Purchased Furniture –500 +500
49,500 + 500 + 50,000
(iii) Purchased goods on credit +4,00 +4,000
0
49,500 + 500 + 4,000 = 4,000 + 50,000
(iv) Sold goods costing Rs 500 +700 –500 +200
for Rs 700 (Profit)
50,200 + 500 + 3,500 = 4,000 + 50,200
(v) Rent received +200 +200
(Income)
50,400 + 500 + 3,500 = 4,000 + 50,400
(vi) Purchased goods for cash –1,000 +1,00
0
49,400 + 500 + 4,500 = 4,000 + 50,400
(vii) Withdrew for personal use –700 –700
(Drawings)
48,700 + 500 + 4,500 = 4,000 + 49,700
(viii) Paid to creditors –400 –400
48,300 + 500 + 4,500 = 3,600 + 49,700
(ix) Salaries paid –200 -200
48,100 + 500 + 4,500 = 3,600 + 49,500
Balance Sheet
as on ……
Amount (Rs Amount
Liabilities Assets
) (Rs)
Creditors 3,600 Cash 48,100
Capital 49,500 Furniture 500
Stock 4,500
53,100 53,100
Question 2(B):
Prove that the Accounting Equation is satisfied in all the following transactions of Rajaram. Also prepare a
Balance Sheet:−
1. Started business with Cash ₹ 1,20,000.
2. Purchased a typewriter for Cash for ₹ 8,000 for office use.
3. Purchased goods for ₹ 50,000 for cash.
4. Purchased goods for ₹ 40,000 on credit.
5. Goods costing ₹ 60,000 sold for ₹ 80,000 on credit.
6. Paid for Rent ₹ 1,500 and for salaries ₹ 2,000.
7. Received ₹ 800 for Commission.
8. Withdrew for private use ₹ 5,000 in cash.
ANSWER:
ACCOUNTING EQUATION
Assets Liabiliti
= + Capital
S. es
Transaction
No. Typewrit + Debto Credito
Cash + Stock + =
er rs rs
(i) Started business with cash +1,20,0 + 1,20,000
00
1,20,00 = 1,20,000
0
(ii) Purchased typewriter for –8,000 + 8,000
office use
1,12,00 + 8,000 = 1,20,000
0
(iii) Purchased goods for cash –50,000 +50,00
0
62,000 + 8,000 + 50,000 = 1,20,000
(iv) Purchased goods on credit +40,00 40,000
0
62,000 + 8,000 + 90,000 = 40,000 + 1,20,000
(v) Goods costing Rs 60,000 sold – +80,00 +20,000
for Rs 80,000 on credit 60,000 0 (Profit)
62,000 + 8,000 + 30,000 + 80,000 = 40,000 + 1,40,000
(vi) Paid rent Rs 1,500 and –3,500 –3,500
salaries Rs 2,000 (Expense
s)
58,500 + 8,000 + 30,000 + 80,000 = 40,000 + 1,36,500
(vii) Commission received +800 +800
(Income)
59,300 + 8,000 + 30,000 + 80,000 = 40,000 + 1,37,300
(viii Withdrew cash for private use –5,000 –5,000
) (Drawing
s)
54,300 + 8,000 + 30,000 + 80,000 = 40,000 + 1,32,300
Balance Sheet of Rajaram
as on ……
Liabilities Amount (Rs) Assets Amount (Rs)
Creditors 40,000 Cash 54,300
Capital 1,32,300 Typewriter 8,000
Stock 30,000
Debtors 80,000
1,72,300 1,72,300
Question 3:
Prepare Accounting Equation from the following:
(a) Started business with Cash ₹ 2,00,000.
(b) Purchased goods for Cash ₹ 60,000 and on Credit ₹ 1,50,000.
(c) Sold goods for Cash costing ₹ 40,000 at a profit of 20% and on Credit costing ₹ 72,000 at a profit of
25%.
(d) Paid for Rent ₹ 5,000.
ANSWER:
ACCOUNTING EQUATION
S. Assets = Liabilities + Capital
No Transaction
. Cash + Stock + Debtors = Creditors
(i) Started business +2,00,00 +2,00,000
with cash 0
2,00,000 = 2,00,000
(ii) Purchased Goods for –60,000 +2,10,00 +1,50,000
Cash Rs 60,000 and 0
on credit Rs 1,50,000
+1,40,00 + 2,10,000 = 1,50,000 + 2,00,000
0
(iii) Sold goods for cash +48,000 – +90,000 +26,000 (Profit)
costing Rs 40,000 at 1,12,000
a profit of 20% and
on credit Rs 72,000
at a profit of 25%
+1,88,00 + 98,000 + 90,000 = 1,50,000 + 2,26,000
0
(iv) Rent paid –5,000 –5,000 (Expenses)
+1,83,00 + 98,000 + 90,000 = 1,50,000 + 2,21,000
0
Working Note:
WN1 Calculation of Selling Price of Goods Sold
Total Cost of Goods Sold = 40,000 + 72,000 = Rs 1,12,000
Question 4:
Prepare Accounting Equation from the following:
(₹)
(a) Kunal started business with cash 2,50,000
(b) He purchased furniture for cash 35,000
(c) He paid commission 2,000
(d) He purchased goods on credit 40,000
(e) He sold goods (Costing ₹ 20,000) for cash 26,000
ANSWER:
ACCOUNTING EQUATION
S. Assets = Liabilities + Capital
No Transaction
. Cash + Furniture + Stock = Creditors
(i) Kunal started business +2,50,000 + 2,50,000
with cash
2,50,000 = 2,50,000
(ii) Purchased furniture –35,000 +35,000
for cash
2,15,000 + 35,000 = 2,50,000
(iii) Commission paid –2,000 -2,000 (Expense)
2,13,000 + 35,000 = + 2,48,000
(iv) Purchased goods on +40,000 +40,000
credit
2,13,000 + 35,000 + 40,000 = 40,000 + 2,48,000
(iv) Sold goods costing Rs +26,000 –20,000 +6,000 (Profit)
20,000 for Rs 26,000
2,39,000 + 35,000 + 20,000 = 40,000 + 2,54,000
Question 5:
Mohit has the following transactions, prepare Accounting Equation:
(₹)
(a) Business started with cash 1,75,000
(b) Purchased goods from Rohit 50,000
(c) Sold goods on credit to Manish (costing ₹ 17,500) 20,000
(d) Purchased furniture for office use 10,000
(e) Cash paid to Rohit in full settlement 48,500
(f) Cash received from Manish 20,000
(g) Rent paid 1,000
(h) Cash withdrew for personal use 3,000
ANSWER:
ACCOUNTING EQUATION
Assets = Liabilities + Capital
S.
Transaction +
No. Debtor
Cash + Stock Furniture = Creditors
s
(i) Started +1,75,000 + 1,75,000
business with
cash
1,75,000 = + 1,75,000
(ii) Purchased +50,00 +50,000
goods from 0
Rohit
1,75,000 + 50,000 = 50,000 + 1,75,000
(iii) Sold goods – +20,000 +2,500
costing Rs 17,500 (Profit)
17,500 for Rs
20,000 to
Manish
1,75,000 + 32,500 + 20,000 = 50,000 + 1,77,500
(iv) Purchased –10,000 +10,000
furniture for
office use
1,65,000 + 32,500 + 20,000 + 10,000 = 50,000 + 1,77,500
(v) Cash paid in –48,500 –50,000 +1,500 (Gain)
full settlement
to Rohit
1,16,500 + 32,500 + 20,000 + 10,000 = 0 + 1,79,000
(vi) Cash received +20,000 –20,000
from Manish
1,36,500 + 32,500 + 0 + 10,000 = + 1,79,000
(vii) Rent paid –1,000 –1,000
(Expense)
1,35,500 + 32,500 + + 10,000 = + 1,78,000
(viii) Withdrew cash –3,000 –3,000
for private use (Drawings)
1,32,500 + 32,500 + + 10,000 = + 1,75,000
Question 6:
What will be the effect of the following on the Accounting Equation?
(i) Harish started business with cash ₹ 1,80,000.
(ii) Purchased goods for cash ₹ 60,000 and on credit ₹ 30,000.
(iii) Sold goods for cash ₹ 40,000; costing ₹ 24,000.
(iv) Rent paid ₹ 5,000; and rent outstanding ₹ 2,000.
(v) Sold goods on credit ₹ 50,000 (costing ₹ 38,000).
(vi) Salary paid in advance ₹ 3,000.
ANSWER:
ACCOUNTING EQUATION
Assets = Liabilities + Capital
S.
Transactio
No Prepai + Outstandin
n Debtor Creditor
. Cash + Stock + d = g Rent
s s
Salary
(i) Harish +1,80,00 + 1,80,000
started 0
business
with cash
1,80,000 = 1,80,000
(ii) Purchased –60,000 +90,00 +30,000
goods for 0
cash Rs
60,000 and
on credit
Rs 30,000
1,20,000 + 90,000 = 30,000 + 1,80,000
(iii) Sold goods +40,000 – +16,000
costing Rs 24,000 (Profit)
24,000 for
Rs 40,000
1,60,000 + 66,000 = 30,000 + 1,96,000
(iv) Rent paid –5,000 +2,000 –7,000
Rs 5,000 (Expense
and )
outstandin
g Rs 2,000
1,55,000 + 66,000 = 30,000 + 2,000 + 1,89,000
(v) Goods – +50,00 +12,000
costing Rs 38,000 0 (Profit)
38,000
sold on
credit for
Rs 50,000
1,55,000 + 28,000 + 50,000 = 30,000 + 2,000 + 2,01,000
(vi) Salary paid –3,000 +3,000
in advance
1,52,000 + 28,000 + 50,000 + 3,000 = 30,000 + 2,000 + 2,01,000
Question 7:
Use Accounting Equation to show the effect of the following transactions of M/s Royal Traders :Prepare
(₹)
(a) Started Business with Cash 1,20,000
(b) Purchased goods for cash 10,000
(c) Rent received 5,000
(d) Salary Outstanding 2,000
(e) Prepaid insurance 1,000
(f) Received interest 700
(g) Sold goods for cash (costing ₹5,000) 7,000
(h) Goods destroyed by fire 500
ANSWER:
ACCOUNTING EQUATION
S. Assets = Liabilities + Capital
No Transaction Prepaid Outstanding
. Cash + Stock =
+ Insurance Salary
(i) Started business +1,20,000 + 1,20,000
with cash
1,20,000 = 1,20,000
(ii) Purchased goods for –10,000 +10,00
cash 0
1,10,000 + 10,000 = 1,20,000
(iii) Rent received +5,000 +5,000 (Income)
1,15,000 + 10,000 = 1,25,000
(iv) Outstanding salary +2,000 –2,000 (Expense)
1,15,000 + 10,000 = 2,000 + 1,23,000
(iv) Prepaid insurance –1,000 +1,000
1,14,000 + 10,000 + 1,000 = 2,000 + 1,23,000
(iv) Interest received +700 +700 (Income)
1,14,700 + 10,000 + 1,000 = 2,000 + 1,23,700
(iv) Sold goods costing +7,000 –5,000 +2,000 (Profit)
Rs 5,000 for Rs 7,000
1,21,700 + 5,000 + 1,000 = 2,000 + 1,25,700
(iv) Goods destroyed by –500 –500
fire
1,21,700 + 4,500 + 1,000 = 2,000 + 1,25,200
Question 8(A):
Prepare Accounting Equation from the following :−
1. Started business with cash ₹ 75,000 and goods ₹ 25,000.
2. Paid for Rent ₹ 2,000.
3. Bought goods for cash ₹ 30,000 and on credit for ₹ 44,000.
4. Goods costing ₹ 50,000 sold at a profit of 25%, out of which ₹ 27,500 received in Cash.
5. Purchased a Motor-cycle for personal use ₹ 20,000.
ANSWER:
ACCOUNTING EQUATION
S. Assets = Liabilities + Capital
No Transaction
. Cash + Stock + Debtors = Creditors
(i) Started business with +75,00 + 25,000 = + 1,00,000
cash and goods 0
75,000 + 25,000 = 1,00,000
(ii) Rent paid –2,000 –2,000 (Expense)
73,000 + 25,000 = 98,000
(iii) Bought goods for cash – +74,000 +44,000
and on credit 30,000
43,000 + 99,000 = 44,000 + 98,000
(iv) Goods costing Rs +27,50 –50,000 +35,000 +12,500 (Profit)
50,000 sold at a profit 0
of 25% out of which Rs
27,500 received in
cash
70,500 + 49,000 + 35,000 = 44,000 + 1,10,500
(v) Purchased motor cycle – –20,000 (Drawings)
for personal use 20,000
50,500 + 49,000 + 35,000 = 44,000 + 90,500
Working Note:
WN1 Calculation of Selling Price
Question 8(B):
Prepare Accounting Equation from the following and also prepare a Balance Sheet:-
1. Raghu started business with Cash ₹1,50,000.
2. Bought goods for cash ₹80,000 and on credit for ₹40,000.
3. Goods costing ₹75,000 sold at a profit of 33 1313%. Half the payment received in cash.
4. Goods costing ₹10,000 sold for ₹12,000 on credit.
5. Paid for Rent ₹2,000 and for salaries ₹4,000.
6. Goods costing ₹20,000 sold for ₹18,500 for Cash.
ANSWER:
ACCOUNTING EQUATION
Assets = Liabilities + Capital
S. No. Transaction
Cash + Stock Debtors = Creditors
+
(i) Raghu started business +1,50,000 + 1,50,000
with cash
1,50,000 = + 1,50,000
(ii) Purchase goods for –80,000 +1,20,000 +40,000
cash and on credit
70,000 + 1,20,000 = 40,000 + 1,50,000
(iii) Goods costing Rs +50,000 –75,000 +50,000 +25,000
75,000 sold at a profit (Profit)
of 3313%3313%. Half
amount was received
in cash.
1,20,000 + 45,000 + 50,000 = 40,000 + 1,75,000
(iv) Goods costing Rs –10,000 +12,000 +2,000 (Profit)
10,000 sold for Rs
12,000 on credit
1,20,000 + 35,000 + 62,000 = 40,000 + 1,77,000
(v) Rent and salaries paid –6,000 –6,000
(Expense)
1,14,000 + 35,000 + 62,000 = 40,000 + 1,71,000
(vi) Goods costing Rs +18,500 –20,000 –1,500 (Loss)
20,000 sold for Rs
18,500 cash
1,32,500 + 15,000 + 62,000 = 40,000 + 1,69,500
Working Note:
WN1 Calculation of Selling Price
Balance Sheet of Raghu
as on ……
Amount
Liabilities Amount (Rs) Assets
(Rs)
Creditors 40,000 Cash 1,32,500
Capital 1,69,500 Stock 15,000
Debtors 62,000
2,09,500 2,09,500
Question 9:
If the Capital of a business is ₹ 1,20,000 and Outside liabilities are ₹ 20,000, calculate total assets of the
business.
ANSWER:
Assets = Liabilities + Capital
= 20,000 + 1,20,000
= Rs 1,40,000
Question 10:
If total assets of a business are ₹ 1,30,000 and capital is ₹ 80,000, calculate creditors.
ANSWER:
Assets Liabilities + Capital
=
1,30,000 Liabilities + 80,000
=
Liabilities 1,30,000 – 80,000
=
Rs 50,000
=
It is assumed that creditors are the only liability of the organisation, thus, Rs 50,000 are
the creditors
