Effect of business transactions on accounting equation

Question 1

1. A Smart sets up in business by opening a coffee shop and puts £5,000 cash
into his business bank account.

2. A Smart buys furniture for the shop for £1,500, paying by cheque.

3. A Smart spends a further £2,800 to buy coffee making equipment, paying by

cheque.

4. A Smart borrows £10,000 from the bank to develop the business.

5. A Smart now buys coffee, tea, milk, sugar for £700 and pays in cash from the
business bank account.

6. In the first day of trading, A Smart uses up £650 of his inventory, and makes
sales totaling £1,050.

Required: Show the effect of each transaction on the following accounting

equation

Assets = Liabilities + capital

Question 2

i. B Smith starts a new business by putting £10,000 into a business bank

account.

ii. Smith obtains a bank loan of £5,000 for the business.

iii. smith buys a delivery van for £6,000, paying by cheque.

iv. Smith buys stock for £2,500 on credit from Super Good Enterprise.

v. All the stock is sold for £4,000 on credit to Mr. Bong.

vi. Smith pays a business electricity bill of £100 by cheque.

vii. Finally Smith takes £300 out of the business to pay for his son’s tuition fees.

Required: Show the effect of each transaction on the following accounting

equation.

Assets = Capital + Profit -Drawings + Liabilities