Accounting Equation 5.

Illustration 1.

Show Accounting Equation on the basis of the following transact

1. Sunil started business with cash 1,00,000
2. Purchased goods in cash 50.000.
3. Purchased furniture from M/s Samrat Furnitures 20.000.
4. Sold goods costing 25,000 for 35,000 against cash.
5. M/s Samrat Furnitures was paid in cash.
Solution:
S. No. Transactions Assets Liabilities Capital

1. Sachin started business with cash 1,00,000 1,00,000

2. Purchasedgoods in cash +50,000
50,000
New Equation 1,00,000 1,00,000
3. Purchasedfurniture from M/'sSamrat Furnitures (Note 1) +20,000 20,000 0
New Equation 1,20,000 20,000 1,00,000
Sold goods costingR 25,000 - 25,000

forR35,000 (Note 2) +35,000 0 10,000

New Equation 1,30,000 20,000 1,10,000
5. Paidto M/s Samrat Furnitures -20,000 -20,000 0
New Equation 1,10,000 1,10,000
Notes: 1. The transaction with M/s Samrat Furnitures R 20,000) is a credit transaction since it is not stated to
be cash payment.
2. Sale of goods has resulted in a proft of 10,000. It has been added to capital because net proft at
the year end is transferred to Capital Account.

Illustration 2.
Prepare the Accounting Equation on the basis of the following:
1. Started business with cash 70,000.
2. Credit purchases of goods R 18,000.
3. Payment made to creditors in full settlement ? 17,500.
4. Purchase of machinery for cash 20,000. (KVS)
Solution:
S.No. Transactions Assets Liabilities +Capital
Cash ( + Stock)+Machinery )= Creditors () Capital (
1 Started business with cash 70,000 70,000 + 0 + 70,000
2. Credit Purchases ofgoods 18,000 0+18,000 + 18,000 0
New Equation 70,000 + 18,000 0 18,000 70,000
Payment made to creditor
full settlement -17,500 + 18,000 500
New Equation 52,500 + 18,000 +
70,500
Purchase of machinery for cash -20,000 + 0 +20,000
New Equation 32,500 + 18,000 20,000 70,500
llustration 3.
Prepare the Accounting Equation on the basis of the following:
1. Rakesh commenced business with cash. 1,50,000
2. Furniture purchased for cash. 20,000
25,000
3. Purchased goods from Mahesh on credit.
14,000
4. Sold goods (costing 10,000) to Mohan for cash.
20,000
5. Additional capital introduced.
2,000
6. Commission received in advance.
22,500
7. Paid to creditor (Mahesh) in full settlement.
5,000
8. Sold goods (costing 7 15,000) for 18,000 out of which R
received in cash.
9. Depreciation on furniture provided @ 10%.

Solution: Liabilities +Capital

S. Transactions Assets Commin. + Capital
Creditors +
Stock + Debtors =

No. Cash + Furniture + Recd. in

Advance

1. Rakesh Commenced 0+ 0+ 1,50,000

0+ 0 + 0
business with cash 1,50,000 +

2. Furntiure purchased 0 0+ 0t
for cash -20,000 + 20,000+
0 0 + 0+1,50,000
1,30,000+ 20,000 + 0+
New Equation
3. Purchased goodsfrom 0+ 25,000 + 0 = 25,000 + 0
Mahesh +
20,000+ 25,000 + 0 25,000 + 0+1,50,000
1,30,000 +
New Equation
4. Cash Sales + + 4,000
0 10,000 + 0
(Proft 14,000-710,000)14,000+
0 25,000+ 0+1,54,000
New Equation 1,44,000+ 20,000 + 15,000+

5. Additional capital 20,000

introduced 20,000 + 0 + + + 0+
25,000 + 0+1,74,000
New Equation 1,64,000 + 20,000+ 15,000+

6. Commission received 0 0+ 2,000+

in advance 2,000+ + +

1,66,000 + 20,000 + 15,000+ 0 25,000 + 2,000+ 1,74,000

New Equation
7. Paid to creditor Mahesh|
-22,500 + 0 25,000 + 0+ 2,500
22,500 in full settlement + +
20,000+ 15,000 + 0 0+ 2,000 1,76,500
New Equation 1,43,500+ E

8. Sold goods (costing

15,000) for 18,000
out which 5,000
+ 3,000
received in cash 5,000+ 0 15,000 13,000 =
0+
1,48,500+ 20,000+ 0+13,000 0+2,000 1,79,500
New Equation

9. Depreciation on furniture 2,000

0 2,000+ 0 = 0+
10% on 20,000
1,48,500 + 18,000 + 0+13,000 0+ 2,000+ 1,77,500
New Equation
 llustration 4.
Present the following transnctions in the Accounting Equation:

1Ramstarted business with cash 25,000 and 6. Paid rent 200

cheque of 25,000 to open a Bank Account 7. Received interest from Bank 100
2. Purchased goods on credit 700
4,000 8. Sold goodson credit (cost 500)
3. Purchased goods for cash
1,000 9. Paid to creditors 400
4. Purchased furniture for cash
500 10. Pid Petty Expenses 200
5. Withdrew cash for personal use from Bank 700

Solution:
S. Transactions Assets Capital+ Liabilities
No. Cash Bank + Stock + Furniture + Debtors = Capital+ Creditors

1. Ram started business

with cash 25,000 and
cheque of 25,000 25,000+ 25,000 + 0 + 0+ 0 50,000+ 0
2. Purchased goods on
credit for 4,000 0 + 4,000 + 0 4,000
New Equation 25,000+ 25,000 + 4,000 + 50,000 + 4,000
3. Purchased goods for
cashfor 1000 -1,000 + 0 1,000 + 0 + 0 0
New Equation 24,000 + 25,000 +
0
5,000 0 50,000 + 4,000
4. Purchased furniture for
cash for 500 -500 + 0 + 0+ 500 0 + 0
New Equation 23,500 + 25,000 + 5,000 + 500 0 50,000 4,000
5. Withdrew cash for
personal use 700
from Bank 0 700 + 0 + -700
New Equation 23,500 + 24,300 + 5,000 + 500 0 = 49,300+
4,000
6. Paid rent 200 (Note 1)-200 0 + 0 0 0 -200
New Equation 23,300 24,300 5,000 + 500 0 49,100 4,000
7 Received interest 100
(Note 2) 0+ 100 + 0+ 0 100
New Equation 23,300 24,400 + 5,000 + 500 =49,200 4,000
8. Sold goods costing
500 for 700 on
credit (Note 3) 0 + 500+ 0 + 700 200 0
New Equation 23,300 + 24,400 + 4,500 + 500 700 49,400 4,000
9. Paid to creditors? 400 -400 0 + 0 + 0 0 400
New Equation 22,900 + 24,400 + 4,500 + 500 + 700 = 49,400 + 3,600
10. Paid Petty Expenses
200 (Note 4) -200 0+ + + -200 +
New Equation 22,700+ 24,400+ 4,500 + 500 700
+ 49,200 3,600
Illustration 7.
Prepare Accounting Equation of the following transactions and also the Balance Sheet:

1. Manu started business with cash. 1,00,000

Opened a Bank Account and transferred 7 4,00,000 from his
Savings Account.
2. Purchased a building from Sohan for 12,00,000 paid by
taking a loan from SBI. 10,00,000
3. Paid interest on loan 20,000 and instalment of 7 1,00,000.
4. Purchased goods from Rohan on credit. 1,00,000
5. Goods returned to Rohan costing 20,000
6. Sold goods costing F 40,000 for 50,000 on credit to Ram.
7. Took goods from business for personal use. 10,000
8. Accrued interest. 5,000
9. Commission received in advance. 20,000
10,000
10. Cash received from Ram.
Solution: Solution on Page No. 5.11.
Solution: (1llustration 7, Page No. 5.9)

S. No. Transactions Assets Liabilities Capital

Cash + Bank+ Building+ Stock +Debtors + Accrued = Loan +Creditors +Comm. + Capital
Interest from SBI Recd. in
Advance

1. |Started business with cash

and Opened Bank Account
with 4,00,000 1,00,000+4,00,000 + 0+ 0 0 0 0 0 + 0+5,00,000
2. Building Purchased
on loan from SBI
0-2,00,000+12,00,000+ 0 0
+ 0 10,00,000 + 0
New Equation 1,00,000 + 2,00,000+ 12,00,000 + 0 + + 0 = 10,00,000 + 0 + 0+ 5,00,000
3. Paid Interest on Loan
20,000 and Instalment of |
1,00,0000 0 - 1,20,000 0+ + 0 = -1,00,000 + 20,000
New Equation 1,00,000 + 80,000 +12,00,000+ + + 0 9,00,000 0
+ 0+4,80,000
Purchased Goods from Rohan 0 + 0 + 0+1,00,000 + 0+1,00,000 +
0+
New Equation 1,00,000 + 80,000 + 12,00,000+1,00,000 0 9,00,000
+ +1,00,000 + 0+4.80,000
5. Goods Returned to Rohan
Costing 20,000 0 + 04+ 0 20,000 0+ 0 20,000 + +

New Equation 1,00,000 + 80,000 +12,00,000 + 80,000 0+ 0 9,00,000 + 80,000 + 0+ 4,80,000

6. Sold Goods worth 50,000
(CostingR 40,000) on credit
to Ram (Profit = R50,000-

40,000 = 10,000) 0+ + 0 40,000 50,000 + 0 0 + 10,000

New Equation 1,00,000 +80,000+12,00,000 + 40,000 + 50,000 + 0 9,00,000 + 80,000 0+4,90,000
7. Took Goods of 10,000
for Personal Use 0 + 0 + 0 10,000 0 0 0 + 0 0 10,000
New Equation 1,00,000 + 80,000 + 12,00,000 +30,000 50,000 + 0 9,00,000 + 80,000 0+ 4,80,000
8. Accrued Interest 0+ + 0 5,000 + 0 + 5,000
New Equation 1,00,000 + 80,000 + 12,00,000 + 30,000 50,000 + 5,000 = 9,00,000 + 80,000 0+4,85,000
9. Commission Received in
Advance 20,000 20,000 + + 0 + + 0 + 20,000 +
1,20,000 + 80,000+ 12,00,000 + 30,000 50,000 + 5,000= 9,00,000 80,000
New Equation
0
20,000 4,85,000
Cash Received from Ram 10,000 + 0 0 + 10,000 + 0
10. 0 +

New Equation 1,30,000 +80,000 +12,00,000+ 30,000 +40,000+ S,000 = 9,00,000

80,000 20,000+ 4,85,000
 BALANCE SHEET OF MANU as at ..

Liabilities | Assets
Capital 4,85,000|Cash in Hand 1,30,000

Loan from SBI 9,00,000 Cash at Bank 80,000

30,000
Creditors 80,000 Stock
Commission Received in Advance 40,000
20,000 Debtors
5,000
Accrued Interest
12,00,000
Building
14,85,000
14,85,000