Assets Liabilities

• Cash , Bank • Bank loan, Mortgage loan

• Stock • Bank Overdraft
• Furniture, Machinery, • Creditor
Equipment, Land, Building, • Bills Payable
• Debtor
• Bills receivable
• Investment, Shares
 Expenses Income
• Rent • Dividend received
• Salary • Rent Received
• Wages • Commission received
• Commission • Interest received
• Electricity charges
• Interest on loan
• Freight and cartage
• Stationery and postage expenses
 ACCOUNTING EQUATION
➢ It is a mathematical expression which shows that the assets and
liabilities of a firm are equal.
➢ An accounting equation is based on the Dual Aspect concept of
accounting.
➢ Total claims (those of outsiders and of the proprietors) will always be
equal to the total assets of the firm.

ASSETS = LIABILITIES + CAPITAL

 PROCESS OF PREPARING ACCOUNTING EQUATION
1. Analyse the transaction in terms of variables, i.e., Assets, Liabilities,
Revenues and Expenses.
2. Decide the effect of the transactions in terms of increase or
decrease of variables stated in 1.
3. Record the effect on the relevant side of the equation.
Show the accounting equation for the following transactions:
1. Raj started business with Capital Rs. 5,00,000 2. Purchased goods for Rs. 10,000
3. Sold goods for Rs. 5,000 4. Salary Paid Rs. 2,000
5. Rent Received Rs. 1,000
PARTICULARS CASH STOCK = LIABILTIES + CAPITAL

1. Started Business 5,00,000 ------ ------- 5,00,000

2. Purchased goods (10,000) 10,000 ------- ---------
New Equation 4,90,000 10,000 = ------- 5,00,000
3. Sold goods 5,000 (5,000) ------- ---------
New Equation 4,95,000 5,000 = ------- 5,00,000
4. Salary paid (2,000) ------ ------- (2,000)
New Equation 4,93,000 5,000 = ------- 4,98,000
5. Rent Received 1,000 ------ ------ 1,000
New Equation 4,94,000 5,000 = ------ 4,99,000

Assets = Liabilities + Capital

4,94,000 + 5,000 = 0 + 4,99,000
4,99,000 = 4,99,000
L.H.S. = R.H.S
1. Mr. X started a business with capital Rs. 2,00,000
2. Purchased furniture for Rs. 20,000
3. Mr. X introduced a further capital (additional capital) of Rs. 50,000
4. Depreciation on furniture @ 10% for 6 months
5. Opened a bank account with a deposit of Rs. 50,000
6. Bought goods from Ram Rs. 10,000
Particulars Cash Stock Furniture Bank = Ram (Creditor) Capital
1. Started Business 2,00,000 2,00,000
2. Purchased
Furniture (20,000) 20,000
New Equation 1,80,000 20,000 = 2,00,000
3. Additional
Capital 50,000 50,000
New Equation 2,30,000 20,000 = 2,50,000
4. Depreciation on
Furniture (1,000) (1,000)
20,000x10/100x6/12
New Equation 2,30,000 19,000 = 2,49,000
5. Opened a bank
Account (50,000) 50,000
New Equation 1,80,000 19,000 50,000 = 2,49,000

6. Bought goods
from Ram 10,000 10,000
New Equation 1,80,000 10,000 19,000 50,000 = 10,000 2,49,000

1,80,000 + 10,000 + 19,000 + 50,000 = 10,000+ 2,49,000

2,59,000 = 2,59,000 L.H.S = R.H.S
1. Started business with cash Rs. 20,000, Stock Rs. 10,000,
Furniture Rs. 5,000 and Building Rs. 50,000
2. Obtained a loan from IDBI bank Rs. 12,000
3. Sold goods for credit to Rahul Rs. 4,000
4. Received commission Rs. 6,000
5. Paid Interest on loan @ 10%
6. Repaid Loan
Particulars Cash Stock Furniture Building Rahul (Debtor)= Bank Loan Capital

1. Started business 20,000 10,000 5,000 50,000 85,000

2. Loan from IDBI 12,000 12,000

New equation 32,000 10,000 5,000 50,000 = 12,000 85,000

3. Credit Sales (4,000) 4,000

New equation 32,000 6,000 5,000 50,000 4,000 = 12,000 85,000

4. Recd Commission 6,000 6,000

New Equation 38,000 6,000 5,000 50,000 4,000 = 12,000 91,000

5. Paid interest on (1,200) (1,200)

Loan = 12,000*10/100

New Equation 36,800 6,000 5,000 50,000 4,000 = 12,000 89,800

6. Repaid Loan (12,000) (12,000)

New Equation 24,800 6,000 5,000 50,000 4,000 = 0 89,800

A = L+C = 24,800 + 6,000 + 5,000 + 50,000 + 4,000 = 89800 89,800 = 89,800 L.H.S. = R.H.S
 HOME WORK -1

1. Mr. A started a business with capital Rs. 1,00,000

2. Purchased for Rs. 20,000
3. Sold goods for Rs. 5,000
4. Rent paid for building Rs. 1,000
5. Interest received on investment Rs. 2,000
6. Withdrew from business Rs. 5,000 for personal use
ALL THE BEST