Solution 786526

Solution
ACCOUNTING EQUATION
Class 11 - Accountancy
1. Calculation of Closing Capital (Capital as on March 31, 2014)
Assets = Liabilities + Capital
1,75,000 = 50,000 + Capital
Capital = ₹1,25,000
Calculation of Profit Earned during the Year
Closing Capital = Opening Capital + Additional Captial + Profit - Drawings
1,25,000 = 1,00,000 + 0 + Profit - 0
Profit = 1,25,000 - 1,00,000
= ₹25,000
2. Calculation of Closing Capital (Capital as on March 31, 2014)
3,80,000 = 75,000 + Capital
Capital = ₹3,05,000
Closing Capital = Opening Capital + Additional Capital + Profit - Drawings
3,05,000 = 2,00,000 + 60,000 + Profit - 36,000
3,05,000 = 2,24,000 + Profit
Profit = 3,05,000 - 2,24,000
= ₹81,000
CE
3. In this Capital as on 31st March,2013 means the closing capital, Closing capital means: (a) Current Assets and Long-Term
Prepaids, less (b) Total Liabilities, determined as of the close of business on the Closing date i.e. 31st March, 2013 which will be
calculated as follows:-
Closing Capital = Closing Assets - Closing Liabilities (i.e., Ram’s Loan)
RK
= Rs 3,00,000 - Rs 50,000 = Rs 2,50,000

Profit = Closing Capital + Drawings - Additional Capital - Opening Capital
= Rs 2,50,000 + Rs 30,000 - Rs 50,000 - Rs 1,00,000 = Rs 1,30,000
4. "Accounting Equation (A = L + C) i.e., Assets= Liabilities+Capital always holds good under all circumstances."
For Example,
i. Started business with stock = ₹5,500, Capital = ₹ 3,500 and Creditors = ₹ 2,000
Stock = Creditors + Capital
₹ 5,500 = ₹ 2,000 + ₹ 3,500
ii. Stock taken by the proprietor for private use ₹ 500
Stock = Creditors + Capital
(₹ 5,500 - ₹ 500) = ₹ 2,000 + (₹ 3,500 - ₹500)
₹ 5,000 = ₹ 2,000 + ₹ 3,000
₹ 5,000 = ₹ 5,000
5. Cash Stock Debtors Liabilities Capital
(i) Started business with cash and goods + 1,00,000 + 20,000 + 1,20,000
(ii) Sold goods on credit (20000 × 50%)+2000 0 - 10,000 + 12,000 + 2,000
New Balance 1,00,000 + 10,0000 + 12,000 + 1,22,000
(iii) Rent paid - 5,000 - 5,000
New Balance 95,000 + 10,000 + 12,000 1,17,000
(iv) Ram paid cash (12000 × 50%) + 6,000 - 6,000
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New Balance 1,01,000 10,000 6,000 = 1,17,000
Creditors for
6. No. Particulars Cash Stock Furniture Capital
furniture
(i) Started Business with cash Rs 80,000 and goods Rs 70,000 80,000 70,000 0 =0 1,50,000
(ii) withdraw cash for personal use Rs 20,000 (20,000) 0 0 =0 (20,000)
New Equation 60,000 70,000 0 =0 1,30,000
Bought furniture for Rs 15,000 on credit and paid salaries

(iii) (8,000) 0 + 15,000 = 15,000 (8,000)
Rs 8,000.
New Final Equation 52,000 70,000 15,000 = 15,000 1,22,000

7. Accounting equation is:
Or Capital = Assets - Liabilities
Or Capital = (Cash + Bank + Debtors + Plant and Machinery + Building + Furniture + Bills Receivable) - (Creditors + Bills
Payable)
= ₹ (25,000 + 47,500 + 18,000 + 80,000 + 2,00,000 + 24,000 + 56,500) - ₹ (22,000 + 23,500)
= ₹ (4,51,000 - 45,500) = ₹ 4,05,500
8. Accounting Equation
=
Assets + Capital
S.No. Transaction Liabilities
CE
Cash + Stock + Bank = Creditors
+ +
(i) Started business with cash and goods + 3,90,000
1,40,000 2,50,000
RK
+
1,40,000 + 3,90,000
2,50,000
Goods (costing ₹50,000) sold at a profit of 25% on + 12,500

(ii) + 62,500 - 50,000
cost (Profit)
+
2,02,500 4,02,500
2,00,000
+
(iii) Deposited into bank - 1,80,000
1,80,000
+ +
22,500 4,02,500
2,00,000 1,80,000
(iv) Purchased goods from Mohan + 80,000 + 80,000
+ +
New equation 22,500 80,000 + 4,02,500
2,80,000 1,80,000
Calculation of Selling Price
Cost of Goods Sold = 50,000
Add: Profit 25% of ₹50,000 = 12,500
Sales = 62,500
S.No. Transaction
Cash + Stock = Outstanding Salary
(a) Started business with cash + 1,20,000 + 1,20,000
1,20,000 1,20,000
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(b) Purchased goods for cash - 10,000 + 10,000
1,10,000 + 10,000 1,20,000
(c) Rent received + 5,000 + 5000 (Income)
1,15,000 + 10,000 1,25,000
(d) Outstanding salary + 2,000 - 2,000 (Expense)
1,15,000 + 10,000 2,000 + 1,23,000
(e) Interest received + 700 + 700 (Income)
1,15,000 + 10,000 2,000 + 1,23,700
(f) Sold goods costing ₹5,000 for ₹7,000 + 7,000 - 5,000 + 2,000 (Profit)
1,22,700 + 5,000 2,000 1,25,700
(g) Goods destroyed by fire - 500 - 500
1,22,700 + 4,500 2,000 + 1,25,200

Profit is added on capital and losses are reduced from capital.
10. Calculation of Closing (Capital as on March 31, 2012)
5,00,000 = 1,00,000 + Capital
Capital = ₹4,00,000
Closing Capital = Opening Capital + Additional Capital + Profir - Drawings
CE
4,00,000 = 3,00,000 + 0 + Profit - 0
Profit = 4,00,000 - 3,00,000
= ₹1,00,000
11. We will deal with the following items in the accounting equation is as follows:
RK
i. Accrued interest shall be added to assets on the assets side and added to the capital on the other side.
ii. It will increase cash on the assets side and increase the liabilities.
iii. It will decrease assets (Cash) and increase assets (Prepaid insurance).
iv. Salary, being expense will be deducted from the capital, and being unpaid will be added to liabilities.
12. The fundamental accounting equation shows the relationship between capital, liabilities, and assets. One side of the equation
shows the assets owned by the business and the other side describes how the acquisition of assets has been financed and the
claims which exist against the business. Accounting Equations can be expressed as follows:
Assets = Capital + Liabilities.
Revenue and expenses accounts are not shown separately in the equation. These are adjusted in the capital. Revenues being
incomes or gains are added to capital and expenses or losses are deducted from the capital. Any income or gains are added to
capital and losses are deducted from capital.
13. Dr. SANJAY (Creditor's A/c) Cr.
₹ ₹
Record decrease on this side Record increase on this side
ii. To Cash 25,000 i. By Purchases 40,000
iv. To Good Returned 2,000 iii. By Purchases 16,000
v. To Cash 20,000
Balance c/d (b/f) 9,000
TOTAL 56,000 TOTAL 56,000
14. i. Interest due but not received shall be added to assets on one side and to the capital on other side.
ii. Rent received in advance will increase cash on the assets side and increase the liabilities.
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iii. Insurance premium paid in advance will decrease one asset (cash) and increase another asset (Prepaid insurance).
iv. Salary being an expense will be deducted from the capital and being unpaid will be added to liabilities.
Assets Liabilities
15. No. Particulars Cash Bank Stock Machinery Capital Liabilities
(i) Started Business with cash and goods 8,00,000 - 2,00,000 - = 10,00,000 -
(ii) Cash deposited into bank (5,00,000) 5,00,000 - - - -
New Equation - -
(iii) 3,00,000 5,00,000 2,00,000 = 10,00,000
Purchased Machinery + 10,000 + 10,000
New Equation 3,00,000 2,00,000

(iv) 5,00,000 + 10,000 = 10,00,000 10,000
Purchased goods for cash (80,000) + 80,000
New Equation 2,20,000 10,000

(v) 5,00,000 2,80,000 10,000 = 10,00,000
Paid to Arjun by cash (10,000) (10,000)
New Equation 5,00,000 = 10,00,000

(vi) 2,10,000 2,80,000 10,000 + Nil
Salary paid (20,000) (20,000)
Final New Equation 2,10,000 4,80,000 2,80,000 10,000 = 9,80,000 Nil
16. i. Calculation of Closing Capital (Capital as on March 31, 2012)

8,00,000 = 1,00,000 + Capital
Capital = ₹7,00,000
Caluculation of Profit Earned during the Year
CE
Closing Capital = Opening Capital + Addition Capital + Profit - Drawings
7,00,000 = 5,00,000 + 0 + Profit - 0
Profit = 7,00,000 - 5,00,000
= ₹2,00,000
RK
ii. Calculation of Closing Capital (Capital as on March 31, 2012)

8,00,000 = 1,00,000 + Capital
Capital = ₹7,00,000
Calculating of Profit Earned during the Year
Closing Capital = Opening Capital + Additional Capital + Profit - Drawings
7,00,000 = 5,00,000 + 40,000 + Profit - 10,000
7,00,000 = 5,30,000 + Profit
Profit = 7,00,000 - 5,30,000
= ₹1,70,000
17. a. Closing Capital = Closing Assets - Closing Liabilities(loan)
= ₹15,00,000 - ₹2,00,000
= ₹13,00,000
Profit = Closing Capital - Opening Capital
= ₹13,00,000 - ₹7,50,000
= ₹5,50,000
b. Profit = Closing Capital + Drawings - Additional or further Capital - Opening Capital
= ₹13,00,000 + ₹40,000 - ₹1,25,000 - ₹7,50,000
= ₹4,65,000
Liabilities
S.No. Transaction Assets = Capital
+
Cash + Stock + Debtors Prepaid = Outstanding

Salary Creditors Rent
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+
(i) Harish started business with cash +1,80,000 +1,80,000
1,80,000 1,80,000
Purchased goods for ₹ 60,000 cash

(ii) -60,000 +90,000 +30,000
and on ₹ 30,000 credit
1,20,000 90,000 30,000 1,80,000
Sold goods for ₹40,000 cash

(iii) +40,000 -24,000 +16,000 (profit)
costing ₹24,000
1,60,000 66,000 30,000 1,96,000
Rent paid ₹5,000 Rent outstanding

(iv) -5,000 +2,000 -7,000(Expense)
₹2,000
1,55,000 66,000 30,000 2,000 1,89,000
Sold goods on ₹ 50,000 credit

(v) -38,000 +50,000 +12,000 (Profit)
(costing Sold goods on ₹ 38,000)
1,55,000 28,000 50,000 30,000 2,000 2,01,000
(vi) Salary paid in advance -3,000 +3,000
Final Equation 1,52,000 28,000 50,000 3,000 30,000 2,000 2,01,000

19. STATEMENT OF EQUATION ACCOUNTING EQUATION
+
CE
S.No. Transaction Assets = Liabilities
Capital
+ + Prepaid = + Outstanding +
Cash
Stock Exp. Creditors exp. Capital
RK
+
(i) Started business with Cash 1,00,000 =0
1,00,000
New Equation 1,00,000 =0 1,00,000

(ii)
Paid rent in advance - 3,000 + 3,000
New Equation 97,000 3,000 =0 1,00,000

(iii) Purchased goods for cash ₹50,000 and credit + =
- 50,000 +0
₹20,000 70,000 +20,000
New Equation 47,000 70,000 3,000 20,000 1,00,000

(iv) + -
Sold goods for cash ₹80,000 costing ₹40,000 +0 =0 + 40,000
80,000 40,000
New Equation 1,27,000 30,000 3,000 = 20,000 1,40,000

(v) Paid salary in cash ₹4,500 and salary
- 4,500 +0 +0 =0 + 1,000 - 5,500
outstanding ₹1,000
New Equation 1,22,500 30,000 3,000 = 20,000 1,000 1,34,500

(vi)
Bought motor cycle for personal use ₹30,000 - 30,000 + 0 +0 =0 +0 - 30,000
Final Equation 92,500 30,000 3,000 = 20,000 1,000 1,04,500

20. Owner's Equity means balance standing to the credit of Capital Account of the proprietor. It is the capital investment plus earning
minus expenses of the business.Capital is contribution made by owner in business
The Equation to calculate Owner's Equity or Capital = Assets - liabilities
For Example:
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i. Started Business with Stock = ₹ 2,500, Capital = ₹ 1,500 and Creditors = ₹ 1,000
Owner's Equity = Assets - Creditors
Owner's Equity = ₹ 2,500 - ₹ 1,000
Owner's Equity = ₹ 1,500
ii. If the above example is continued and rent paid ₹ 500, then Owner's Equity will be:
Owner's Equity = Capital before rent paid - Rent paid
= ₹ 1,500 - ₹ 500
= ₹ 1000
21. Capital = Assets - Liabilities
Capital of Ram on 31st March, Current Year = Total Assets - Loan
= ₹ 50,000 - ₹ 12,500
= ₹ 37,500
Profit of Ram for the year ended 31st March (Current Year)
= Capital on 31st March (Current year) - Capital on 1st April (Last Year)
= ₹ 37,500 - ₹ 25,000
= ₹ 12,500
S.No. Transaction
Cash + Stock + Machinery = Creditors
(i) Started business with cash + 70,000 + 70,000
70,000 70,000
CE
(ii) Purchased goods on credit + 18,000 + 18,000
70,000 + 18,000 18,000 + 70,000

(iii)
Payment to creditors in full settlement - 17,500 - 18,000 + 500 (Gain)
RK
52,500 + 18,000 0 + 70,500

(iv)
Purchased machinery for cash - 20,000 + 20,000
32,500 + 18,000 + 20,000 0 + 70,500

=
Assets + Capital
Liabilities
S.No. Transaction
+ + =
Cash
Stock Debtors Creditors
+ +
(i) Started business with cash and goods + 90,000
60,000 30,000
+
60,000 90,000
30,000
(ii)
- +
Purchased goods for cash and credit + 25,000
40,000 65,000
+
20,000 25,000 + 90,000
95,000
(iii)
Goods costing ₹48,000 sold at a profit of 33 %. 3/4th payment
1
3
+ - +
received in cash 48,000 64,000 16,000
(iv) + +
68,000 25,000 + 90,000
31,000 16,000
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Goods costing ₹20,000 sold at a loss of 5% out of which ₹12,000 + - + 7,000 - 1,000
were received in cash 12,000 20,000 (Loss)
+ +
80,000 25,000 + 89,000
11,000 23,000
(v)
- - 10,000
Paid rent and salary
10,000 (Expense)
+ +
70,000 25,000 + 79,000
11,000 23,000
(vi)
+
Received cash from debtor - 15,000
15,000
+
85,000 + 8,000 25,000 +79,000
11,000
(vii)
- 800
Paid telephone bill - 800
(Expense)
+
84,200 + 8,000 25,000 + 78,200
11,000
1
Add: Profit 33 % of ₹48,000 = 16,000
3
Selling Price = 64,000

3
Cash Sales = 64,000 × = 48,000
CE
4
1
Credit Sales = 64,000 × 4
= 16,000
Less: Loss of 5% on ₹20,000 = 1,000
RK
Selling Price = 19,000

Cash Received = 12,000
Hence, Credit Sales = 7,000
Balance Sheet
as on ...
Liabilities Amount (₹) Assets Amount (₹)
Creditors 25,000 Cash 84,200
Capital 94,200 Stock 27,000
Debtors 8,000
1,19,200 1,19,200
24. Based on the accounting equation Assets=Liabilities + Capital, closing capital can be found by the following formula:
Closing Capital= Assets - Liabilities
= 1,00,000 - 20,000
= 80,000
Profit = Closing Capital + Drawings - Opening Capital
= 80,000 - 60,000
= 20,000
=
Assets + Capital
25. No. Particulars Liabilities
Transaction M/s Vinod & Sons started business and Effect of Cash
= =+3,00,000
1 invested Rs 3,00,000 as his capital transaction 3,00,000
New Balance 3,00,000 =3,00,000
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Transaction Purchased goods for cash Cash + = + Capital
2 Old Balance 3,00,000+ Good Liabilities + 3,00,000
Effect of (90,000) =0 +0
Transaction + =0
90,000
+
New Balance 2,10,000 =0 + 3,00,000
90,000
+
+ = Creditor
Cash Good + Capital
Transaction Old Balance Machinery = 0
Purchased Machinery on credit 2,10,000+ + + 3,00,000
3 Effect of +0 =
0 90,000 +0
Transaction + 1,25,000 1,25,000
+0
+ =
New Balance 2,10,000 + 1,25,000 + 3,00,000
90,000 1,25,000
+ =
+ + Capital
Cash Good Liabilities
Transaction Old Balance Machinery + 3,00,000
Purchased old car for personal use 2,10,000+ + =
4 Effect of + 1,25,000 +
(1,00,000) 90,000 1,25,000
Transaction +0 (1,00,000)
+0 =0
+ =
New Balance 1,10,000 + 1,25,000 + 2,00,000
90,000 1,25,000
Drwaings are deducted from capital of business
CE
Liabilities
S.No. Transaction Assets = Capital
26. +
=
RK
Cash + Stock + Debtors

Creditors
(i) Started business with cash 2,00,000 2,00,000
2,00,000 2,00,000
(ii) Bought product for ₹ 60,000 cash and on ₹ 1,50,000 credit -60,000 +2,10,000 +1,50,000
+1,40,000 2,10,000 1,50,000 2,00,000
Sold goods for ₹ 40,000 cash at 20% profit on ₹ 72,000 credit +26,000
(iii) + 48,000 -1,12,000 +90,000
at 25% profit (Profit)
+1,88,000 98,000 90,000 1,50,000 2,26,000
-5,000
(iv) Rent paid -5,000
(Expenses)
+
98,000 90,000 1,50,000 2,21,000
1,83,000
Working Note:
Calculating seling price of product sold
Cost of goods sold = 40,000
Add: 20% profit of ₹ 40,000 = 8,000
Hence, selling price for goods sold for cash = 48,000
Cost of goods sold = 72,000
Add: 20% profit of ₹ 72,000 = 18.000
Hence, seling price for goods sold for credit = 90,000
Total Profit = 8,000 + 18,000 = ₹ 26,000 (add in capital)
Total Cost of Goods Sold = 40,000 + 72.000 = ₹ 1,12,000(reduced in stock)
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Debtors value = Rs.90,000
27. The accounting equation shows on a company's balance sheet whereby the total of all the company's assets equals the sum of the
company's liabilities and shareholders' equity. By applying accounting equation capital= Assets-Liabilities
Closing Capital = Assets - Liabilities
= 6,00,000 - 18,000
= Rs 5,82,000
Opening capital = Closing capital + Drawings - Profit - Additional Capital
= 5,82,000 + 36,000 - 60,000 - 60,000
= Rs 4,98,000
28. i. Purchase of Machinery for Cash: Increase in Machinery account and decrease in Cash account.
ii. Purchase of Machinery on Credit: Increase in Machinery account and an increase in liability account.
iii. Capital introduced by proprietor: Increase in Cash account and increase in Capital account.
iv. Payment to Creditors: Decrease in Cash account and decrease in Creditors account.
v. Cash withdrawn by the proprietor from the business for personal use: Decrease in Cash account and decrease in Capital
account.
Assets Liabilities
= Creditor+
29. No. Particulars Cash Stock Debtor Furniture
Capital
(i) Started business with cash Rs 1,75,000 1,75,000 +0 +0 - = 0 + 1,75,000
(ii) Purchased goods from Rohit Rs 50,000 0 + 50,000 +0 0 = 50,000 + 0
= 50,000 +
New Equation 1,75,000 + 50,000 +0 0
1,75,000
CE
Sold goods on credit to Manish (costing Rs 17,500) for Rs +
(iii) 0 + 20,000 0 = 0 + 2,500
20,000 (17,500)
= 50,000 +
RK
New Equation 1,75,000 + 32,500 + 20,000 0

1,77,500
(iv) Purchased furniture for office use of Rs 10,000 (10,000) +0 +0 + 10,000 = 0 + 0
= 50,000 +
New Equation 1,65,000 + 32,500 + 20,000 + 10,000
1,77,500
= (50,000) +
(v) Cash paid to Rohit in full settlement of rs 48000 (48,000) +0 +0 +0
2,000
New Equation 1,17,000 + 32,500 + 20,000 + 10,000 = 0 + 1,79,500
+
(vi) Cash received from Manish RS 20000 20,000 +0 +0 = 0 + 1,79,500
(20,000)
New Equation 1,37,000 + 32,500 +0 + 10,000 = 1,79,500

30. The accounting equation is considered to be the foundation of the double-entry accounting system. The total of all the assets of a
business should be equal to the total of all its liabilities in the balance sheet. Based on this double-entry system, the accounting
equation ensures that the balance sheet remains “balanced,” and each entry made on the debit side should have a corresponding
entry (or coverage) on the credit side.
Accounting equation
Transaction Assets = Liabilties + Capital
Cash + Stock + Debtors + Furniture = Creditors + Capital
(i) Harsha started business with cash 2,00,000 + 0 + 0 + 0 = 0 + 2,00,000
New equation 2,00,000 + 0 + 0 + 0 = 0 + 2,00,000
(ii) Purchased goods from Naman for cash (40,000) + 40,000 + 0 + 0 = 0 + 0
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New equation 1,60,000 + 40,000 + 0 + 0 = 0 + 2,00,000
(iii) Sold goods to Bhanu costing Rs 10,000 0 + (10,000) + 12,000 + 0 = 0 + 2,000
New Equation 1,60,000 + 30,000 + 12,000 + 0 = 0 + 2,02,000
(iv) Bought furniture on credit 0 + 0 + 0 + 7,000 = 7,000 + 0
Final equation 1,60,000 + 30,000 + 12,000 + 7,000 = 7,000 + 2,02,000

31. Owner's equity represents the owner's investment in the business minus the owner's draws or withdrawals from the business plus
the net income (or minus the net loss) since the business began.
Total Equity- ₹ 1,15,000, Owner’s Equity- ₹ 65,000.
Total Equity = Owner's Equity + Creditors
= ₹ 65,000 + ₹ 50,000
= ₹ 1,15,000
Owner's Equity = Opening Equity + Revenue during the period + Expenses during the same period
= 60,000 + 70,000 - 65,000
= 1,30,000 - 65,000
= 65,000
=
Assets +Capital
Liabilities
S.No. Transaction
+ Prepaid + =
Cash Furniture Capital
Rent Stock Creditors
+
(i) Started business with cash + 50,000
CE
50,000
50,000 + 50,000
(ii) - 3,000
Paid rent ₹4,000 including ₹1,000 as advance - 4,000 + 1,000
RK
(Expense)
46,000 + 1,000 + 47,000

(iii) Purchased goods for cash ₹30,000 and on credit - +
+ 20,000
₹20,000 30,000 50,000
+
16,000 + 1,000 20,000 47,000
50,000
(iv)
+ - + 5,000
Sold goods (costing ₹20,000) for ₹25,000
25,000 20,000 (Profit)
+
41,000 1,000 20,000 + 52,000
30,000
(v)
Purchased furniture ₹10,000 for office use and - 5,000
-15,000 + 10,000
₹5,000 for domestic use (Drawings)
+
26,000 + 1,000 + 10,000 20,000 + 47,000
30,000
Goods cost Rs.20,000 sold for Rs.25,000, profit of Rs.5,000 added to capital and 20,000 reduce from stock and 25,000 in cash.
33. Accounting equation
Transaction Assets = Liabilities + Capital
Cash + Furniture + Stock = Creditors + Capital
(i) Kunal started business with cash 2,50,000 + 0 + 0 = 0 + 2,50,000
New equation 2,50,000 + 0 + 0 = 0 + 2,50,000
(ii) He Purchased furniture for cash (35,000) + 35,000 + 0 = 0 + 0
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New equation 2,15,000 + 35,000 + 0 = 0 + 2,50,000
(iii) He paid commission (2,000) + 0 + 0 = 0 + (2,000)
New Equation 2,13,000 + 35,000 + 0 = 0 + 2,48,000
(iv) He purchased goods on credit 0 + 0 + 40,000 = 40,000 + 0
New equation 2,13,000 + 35,000 + 40,000 = 40,000 + 2,48,000
(v) He sold goods (costing ₹20,000) for cash 26,000 + 0 (20,000) = 0 + 6,000
Final equation 2,39,000 + 35,000 + 20,000 = 40,000 + 2,54,000

34. The accounting equation is considered to be the foundation of the double-entry accounting system. The accounting equation
shows on a company's balance sheet whereby the total of all the company's assets equals the sum of the company's liabilities and
shareholders' equity. Based on this double-entry system, the accounting equation ensures that the balance sheet remains
“balanced,” and each entry made on the debit side should have a corresponding entry (or coverage) on the credit side.The
financial position of any business, large or small, is assessed based on two key components of the balance sheet, assets, and
liabilities.
For example,
i. Purchasing a Machine with Cash
Company XYZ wishes to purchase a Rs. 50,000 machine using only cash. This transaction would result in a debit to Equipment
(Rs. 50,000) and a credit to Cash (Rs. 50,000). The net effect on the accounting equation would be as follows:
50,000
(50,000)
CE
0 0 0
This transaction affects only the assets of the equation, therefore there is no corresponding effect in liabilities or shareholder’s
equity in the right side of the equation.
RK
ii. Purchasing a Machine with Cash and Credit

Company XYZ wishes to purchase a Rs. 50,000 machine but it only has Rs. 25,000 of cash in its holdings. The company is
allowed to purchase this machine with an initial payment of Rs. 25,000 but it owes the manufacturer the remaining amount. This
would result in a debit to Equipment (Rs. 50,000) and a credit to both Accounts Payable (Rs. 25,000) and Cash (Rs. 25,000). The
net effect on the accounting equation would be as follows:
50,000 25,000
(25,000)
25,000 = 25,000 + 0
This transaction affects both sides of the accounting equation; both the left and right side of the equation increase by Rs. 25,000.
Assets (Rs) Liabilities
35. No. Transactions Cash Stock Machinery Creditor (Rs) + Capital (Rs)
(i) Started Business with cash Rs 80,000 80,000 +0 +0 =0 + 80,000
(ii) Credit purchase of goods Rs 28,000 0 +28,000 + 0 = +28,000 +0
New Equation 80,000 28,000 0 = 28,000 80,000

(iii)
Payment made to creditors in full settlement of 27,000 (27,000) + 0 +0 = (28,000) + 1,000
New Equation 53,000 28,000 0 =0 81,000

(iv)
Purchase of machinery for cash in Rs 15,000 (15,000) + 0 + 15,000 =0 +0
New Equation 38,000 28,000 15,000 =0 81,000

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S.No. Transaction Assets = Liabilities + Capital
Cash + Furniture + Stock = Creditors Capital
1. Sandeep began his company with cash +1,00,000 +1,00,000
1,00,000 1,00,000
2. Bought furniture with cash -5,000 + 5,000
95,000 5,000 1,00,000
3. Bought goods with cash -20,000 + 20,000
75,000 5,000 20,000 1,00,000
4. Bought goods on credit +36,000 36,000
75,000 5,000 56,000 36,000 1,00,000
5. Paid for rent -700 -700
74.300 5.000 56,000 36,000 99,300
6. Goods costing ₹40,000 sold at a 20% profit for cash +48,000 - 40,000 + 8,000
1,22,300 5,000 16,000 36,000 1,07,300

Working note:
Add: Profit 20% of ₹40,000 = 8,000
Hence, Selling Price = 48,000
CE
Profit is added in capital and cash is received for Rs.48,000 stock reduce by Rs.40,000
37. ACCOUNTING EQUATION
= +
S.No. Transaction Assets
Liabilities Capital
RK
+ + + = +
Cash
Stock Debtors Furniture Creditors Capital
+ +
1. Started business with Cash ₹50,000 and goods ₹20,000 50,000 +0 +0 =0
20,000 70,000
+ +
Equation 50,000 +0 +0 =0
20,000 70,000
2.
(-) +
Bought goods for Cash ₹15,000 and on credit for ₹10,000 +0 +0 = 10,000 +0
15,000 25,000
+ +
New Equation 35,000 +0 +0 = 10,000
45,000 70,000
3.
Goods Costing ₹24,000 sold at a profit of 33 %. Half the
1
+ - +
3
+0 =0 + 8,000
payment received in Cash 16,000 24,000 16,000
+ + +
New Equation 51,000 +0 = 10,000
21,000 16,000 78,000
4.
Purchased furniture for office use ₹6,000 and for household (-) (-)
+0 +0 + 6,000 =0
use of Sudhir ₹4,000 10,000 4,000
+ + +
Final Equation 41,000 + 6,000 = 10,000
21,000 16,000 74,000
Profit = Rs.24,000 × 1/3 = Rs.8,000
Selling price = Rs.24,000 + 8,000 = Rs.32,000
12 / 38
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Accounting equation
Cash + Stock + Debotrs = Creditors + Capital
(a) Started business with Cash 1,00,000 +0 +0 =0 + 1,00,000
(b) Equation 1,00,000 + 0 +0 =0 + 1,00,000
Purchased goods for Cash ₹20,000 and on Credit ₹30,000 (-) 20,000 + 50,000 +0 = 30,000 +0
(c) New Equation 80,000 + 50,000 +0 = 30,000 + 1,00,000
Sold goods for Cash costing ₹10,000 and

(+) 12,000 (-) 25,000 + 18,000 =0 + 5,000
on Credit costing ₹15,000 both at a profit of 20%
Final Equation 92,000 + 25,000 + 18,000 = 30,000 + 1,05,000

Working notes
i. Goods costing ₹10,000 sold at a profit of 20 %
20
Profit = 10, 000 × 100
= 2,000, Sale Price 10,000 + 2,000 = 12,000
ii. Goods costing ₹15,000 sold at a profit of 20 %
20
Profit = 15, 000 × 100
= 3,000, Sale Price 15,000 + 3,000 = 18,000
iii. Profit on sale ₹2,000 + ₹3,000 = ₹5,000 is added to capital.
39. Dr. FURNITURE ACCOUNT Cr.

CE
₹ ₹
Record Increase in furniture on this side- Record a decrease in furniture on this side-
i. To Cash ( Furniture Purchased) 20,000 ii. By Cash ( Furniture Sold) 5,000

RK
iii To Cash (Furniture Purchased) 8,000 iv. By Furniture Discarded 2,500
v. By Depreciation(reduce in value of furniture) 2,000
Total 28,000 Total 9,500
Balance 18,500
28,000 28,000
S.no Particulars Assets = Liabilities + Capital
Cash +Stock +Machinery = Creditors + Capital
1 Started business with cash 70,000 0 +0 = 18,000 + 70,000
2 Purchased goods on credit 0 +18,000 +0 = 0 + 0
New Equation 70,000 +18,000 +0 = 18,000 + 70,000
3 Paid to creditors Rs 17,500 in full settlement (17,500) +0 +0 = (18,000) + 500
New Equation 52,500 +18,000 +0 = 0 + 70,500
4 Purchased machinery for cash (20,000) +0 +20,000 = 0 + 0
New Equation 32,500 +18,000 +20,000 = 0 + 70,500
5 Charged depreciation on machinery 0 +0 (2,000) = 0 + (2,000)
New Equation 32,500 18,000 18,000 = 0 + 68,500

The accounting equation (or basic accounting equation) offers us a simple way to understand how assets, liabilities and capital
amounts relate to each other.
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Accounting equation
(i) Started business with cash Rs 1,00,000 and

1,00,000 + 40,000 + 0 + 0 = 0 + 1,40,000
goods Rs 40,000
New equation 1,00,000 + 40,000 + 0 + 0 = 0 + 1,40,000
(ii) Bought goods or cash Rs 30,000 and on

(30,000) + 50,000 + 0 + 0 = 20,000 + 0
credit for Rs 20,000.
New equation 70,000 + 90,000 + 0 + 0 = 20,000 + 1,40,000
(iii)Goods costing Rs 48,000 sold at a profit of

32,000 + (48,000) + 32,000 + 0 = 0 + 16,000
33.33%. Half the payment received in cash.
New Equation 1,02,000 + 42,000 + 32,000 + 0 = 20,000 + 1,40,000
(iv) Purchased furniture for office use Rs

12,000 and for household use of Sudhir Rs 20,000 + 0 + 0 + 12,000 = 0 + (8,000)
8,000.
Final equation 82,000 + 42,000 + 32,000 + 12,000 = 20,000 + 1,48,000

CE
42. The total of all the assets of a business should be equal to the total of all its liabilities in the balance sheet. Assets = Liabilities +
Capital
Capital = Assets - Liabilities Capital = (Cash + Bank + Debtors + Plant and Machinery + Building + Furniture + Bills Receivable)
- (Creditors + Bills Payable)
RK
= Rs 50,000 + 95,000 + 36,000 + 1,60,000 + 4,00,000 + 48,000 +1,13,000) - Rs (44,000 + 47,000)

= Rs (9,02,000 - 91,000)
= Rs 8,11,000.
43. The fundamental accounting equation, also called the balance sheet equation, represents the relationship between the assets,
liabilities, and owner's equity of a person or business. It is the foundation for the double-entry book keeping system. For each
transaction, the total debits equal the total credits.
Accounting equation
Cash + Stock + Machinery = Creditors + Capital
(i)Started business with cash Rs 70,000 70,000 + 0 + 0 = 0 + 70,000
New equation 70,000 + 0 + 0 = 0 + 70,000
(ii) Credit purchases of goods Rs 18,000 0 + 18,000 + 0 = 18,000 + 0
New equation 70,000 + 18,000 + 0 = 18,000 + 0
(iii) Payment made to creditors in full settlement Rs 17,500 (17,500) + 0 + 0 = (18,000) + 500
New Equation 52,500 + 18,000 + 0 = 0 + 70,500
(iv) Purchase of machinery for cash Rs 20,000 (20,000) + 0 + 20,000 = 0 + 0
Final equation 32,500 + 18,000 + 20,000 = 0 + 0

44. Opening Capital +Additional capital+ Profit for the year - Drawings for the year = Closing capital
Closing Capital = Closing Assets - Closing External Liabilities = Rs 2,00,000 - Rs 6,000 = Rs 1,94,000
Opening Capital = Closing Capital + Drawings - Additional Capital - Profits
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= Rs 1,94,000 + Rs 12,000 - Rs 20,000 - Rs 20,000
= Rs 1,66,000
=
Assets + Capital
Liabilities
S.No. Transaction
+ + =
Cash Debtors
Stock Furniture Creditors
+ +
(i) Started business with cash, goods and furniture + 30,000 + 1,00,000
20,000 50,000
+
20,000 + 30,000 1,00,000
50,000
(ii)
+
Purchased goods on credit from Gopal + 40,000
40,000
+
20,000 + 30,000 40,000 + 1,00,000
90,000
(iii)
+ -
Sold goods (costing ₹30,000) for cash ₹40,000 + 10,000 (Profit)
40,000 30,000
+
60,000 + 30,000 40,000 + 1,10,000
60,000
(iv)
Sold goods (costing ₹50,000) to Ram for - +
+ 15,000 (Profit)
CE
₹65,000 50,000 65,000
+ +
60,000 + 30,000 40,000 + 1,25,000
(v) 10,000 65,000
Goods withdrawn for personal use - 5,000 - 5,000 (Drawings)

RK
+ +
Purchased typewriter for personal use 60,000 + 30,000 40,000 + 1,20,000
5,000 65,000
(vi)
- - 20,000
+ 10,000
20,000 (Drawings)
+ +
40,000 + 30,000 40,000 + 1,00,000
5,000 65,000
(vii)
-
Purchased chairs for office use + 10,000
10,000
+ +
30,000 + 40,000 40,000 + 1,00,000
5,000 65,000
Paid for printing ₹500 and received

(viii) - 500 - 500 (Expense)
commission ₹1,200
+
+ 1,200 (Income)
1,200
+ +
30,700 + 40,000 40,000 + 1,00,700
5,000 65,000
(ix)
+ + 40,000 (Fresh
Introduced additional capital
40,000 Capital)
(x) + +
70,700 + 40,000 40,000 + 1,40,700
5,000 65,000
Paid to Gopal - - 30,000
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RKCe
30,000
+ +
New equation 40,700 + 40,000 10,000 + 1,40,700
5,000 65,000
= +
46. Liabilities Capital
+
+ + = +
Cash + Stock Outstanding
Building Debtors Creditors Capital
exp.
Started business with Cash, goods and + + +

(1) +2,30,000 =0
building 1,00,000 2,00,000 5,30,000
+ + +
Equation 2,30,000 =0
1,00,000 2,00,000 5,30,000
(2)
+
Purchased goods for Cash - 50,000 +0 +0
50,000
+ + +
New Equation 1,80,000
1,50,000 2,00,000 5,30,000
(3)
+
Sold goods costing ₹20,000 for ₹35,000 + 35,000 - 20,000 + 0
15,000
+ +
New Equation 2,15,000 5,45,000
1,30,000 2,00,000
CE
(4)
+
Purchased goods from Rahul 0 +0 = +55,000 +0
55,000
+ + +
New Equation 2,15,000 = 55,000
RK
1,85,000 2,00,000 5,45,000

(5)
Sold goods to Varun costing ₹52,000 for +
0 - 52,000 + 0 =0 + 8,000
₹60,000 60,000
+ + + +
New Equation 2,15,000 = 55,000
1,33,000 2,00,000 60,000 5,53,000
(6)
Paid cash to Rahul in full settlement
- 53,000 +0 +0 +0 = - 55,000 + 2,000
₹53,000
+ + + +
New Equation 1,62,000 =0
1,33,000 2,00,000 60,000 5,55,000
(7)
+
Salary paid - 20,000 +0 +0 +0 =0
20,000
+ + + +
New Equation 1,42,000 =0
1,33,000 2,00,000 60,000 5,35,000
(8)
Received cash from Varun in full -
+ 59,000 +0 +0 =0 - 1,000
settlement ₹59,000 60,000
+ +
New Equation 2,01,000 +0 =0 5,34,000
(9) 1,33,000 2,00,000
Rent Outstanding 0 +0 +0 +0 =0 + 3,000 - 3,000
(10) + + +
New Equation 2,01,000 +0 =0 + 3,000
1,33,000 2,00,000 5,31,000
Commission received + 13,000 +0 +0 +0 =0 +0 +
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RKCe
13,000
+ + +
New Equation 2,14,000 +0 =0 + 3,000
(11) 1,33,000 2,00,000 5,44,000
Withdrawn for personal use - 20,000 +0 +0 +0 =0 +0 - 20,000
+ + +
New Equation 1,94,000 +0 =0 + 3,000
(12) 1,33,000 2,00,000 5,24,000
Depreciation on Building 0 +0 - 10,000 + 0 =0 +0 - 10,000
+ + +
Final Equation 1,94,000 +0 =0 + 3,000
1,33,000 1,90,000 5,14,000
All expenses are reduced from capital in accounting equations and in same way income is added in capital in accounting
equations.Similarly drawing is reduced from capital in accounting equations.
47. ACCOUNTING EQUATION
=
S.No. Transaction Assets + Capital
Liabilities
+ + +
Cash = Creditors + Capital
Stocks Furniture Debtors
1. Mukesh started business with ₹80,000 80,000 +0 +0 +0 =0 + 80,000
Equation 80,000 +0 +0 +0 =0 + 80,000

2. (-) +
Purchased goods for cash ₹28,000 +0 +0 =0 +0
28,000 28,000
CE
+
New Equations 52,000 +0 +0 =0 + 80,000
28,000
3.
+
RK
Purchased goods for credit ₹20,000 0 +0 +0 = 20,000 +0

20,000
+
New Equations 52,000 +0 +0 = 20,000 + 80,000
48,000
4.
(-)
Purchased furniture for Cash ₹6,000 +0 + 6,000 +0 =0 +0
6,000
+
New Equations 46,000 + 6,000 +0 = 20,000 + 80,000
48,000
5.
(-)
Paid rent ₹2,000 +0 +0 +0 =0 (-) 2,000
2,000
+
New Equations 44,000 + 6,000 +0 = 20,000 +78,000
6. 48,000
Received Commission ₹500 + 500 +0 +0 +0 =0 + 500
+
New Equations 44,500 + 6,000 +0 = 20,000 + 78,500
48,000
7.
(-)
Withdrew Cash for private use ₹3,000 +0 +0 +0 =0 (-) 3,000
3,000
+
New Equations 41,500 + 6,000 +0 = 20,000 + 75,500
48,000
8.
Sold goods on credit for ₹40,000 (Cost - + + 10,000 (profit on
0 +0 =0
₹30,000) 30,000 40,000 sale)
9. New Equations 41,500 + + 6,000 + = 20,000 + 85,500
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18,000 40,000
(-) = (-)
Paid to Creditors ₹15,000 +0 +0 +0 +0
15,000 15,000
+ +
Final Equation 26,500 + 6,000 = 5,000 + 85,500
18,000 40,000
BALANCE SHEET OF MUKESH

as at ..............
Liabilities + Capital Amount Assets Amount
₹ ₹
Furniture 6,000
Debtors 40,000
90,500 90,500
48. Accounting Equation: Assets = Liabilities + Capital
Assets (Rs)
No. Transaction = Liabilities (Rs) + Capital (Rs)
Cash+Stock+Furniture
(i) Ram started with Cash Rs 50,000 50,000+0+0 =0 + 50,000

CE
(ii) Purchase goods on credit for Rs 4,000 0+ 4,000+0 = +4,000 +0
New equation 50,000+4,000+0 = 4,000 + 50,000
(iii) Purchase goods for cash Rs 1,000 - 1,000+1,000+0 =0 +0

RK
New equation 49,000+5,000+0 = 4,000 + 50,000
(iv) Purchase furniture for cash for Rs 500 - 500+0+500 =0 +0
New equation 48,500+5,000+500 = 4,000 + 50,000
(v) Withdraw cash for private use Rs 700 -700+0+0 =0 (-) 700
New equation 47,800+5,000+500 = 4,000 + 49,300
(vi) Paid for rent Rs 200 - 200+0+0 =0 (-) 200
New equation 47,600+5,000+500 = 4,000 49,100
(vii) Received interest Rs 100 (+) 100+0+0 =0 (+) 100
New equation 47,700+5,000+500 = 4,000 49,200
(viii) Sold goods costing Rs 500 for Rs 700 on credit +700- 500+0 =0 (+) 200
New equation 48,400+4,500+500 = 4,000 49,400
(ix) Paid to creditors Rs 400 -400+0+0 = (-) 400 +0
New equation 48,000+4,500+500 = 3,600 49,400
(x) Paid for salaries Rs 200 (-) 200+0+0 =0 (-) 200
New equation 47,800+4,500+500 = 3,600 + 49,200

S.No. Transaction =
Assets + Capital
Liabilities
Cash + + + =
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Stock Typewriter Debtors Creditors
+ +
(i) Started business with cash
1,00,000 1,00,000
1,00,000 1,00,000
+
(ii) Purchased goods for cash - 60,000
60,000
+ +
40,000
60,000 1,00,000
(iii)
1/3rd of the goods sold at a profit of 20% on cost. Half + - + 4,000
+12,000
payment received in cash 12,000 20,000 (Profit)
+ + +
52,000
(iv) 40,000 12,000 1,04,000
Purchased typewriter for office use - 15,000 + 15,000
+ + +
37,000 + 15,000
40,000 12,000 1,04,000
(v)
+
Purchased goods on credit from X +25,000
25,000
+ + +
37,000 + 15,000 25,000
(vi) 65,000 12,000 1,04,000
CE
Paid to X - 15,000 - 15,000
+ + +
22,000 + 15,000 10,000
65,000 12,000 1,04,000
(vii)
RK
- 3,000
Paid salary - 3,000
(Expense)
+ + +
19,000 + 15,000 10,000
(viii) 65,000 12,000 1,01,000
Received commission + 500 + 500
+ + +
19,500 + 15,000 10,000
65,000 12,000 1,01,500
(ix)
+ - + 10,000
Sold goods (costing ₹50,000) for cash
60,000 50,000 (Profit)
+ + +
79,500 + 15,000 10,000
15,000 12,000 1,11,500
Cost of Goods Sold = 60,000 × 1
3
= 20,000
Add: Profit 20% of ₹20,000 = 4,000
Sales = 24,000
Cash Sales (50%) = 12,000
Credit Sales = 12,000
(i)Business started with cash 1,75,000 + 0 + 0 + 0 = 0 + 1,75,000
New equation 1,75,000 + 0 + 0 + 0 = 0 + 1,75,000
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(ii) Purchased goods from Rohit 0 + 50,000 + 0 + 0 = 50,000 + 0
New equation 1,75,000 + 50,000 + 0 + 0 = 50,000 + 1,75,000
(iii) Sold goods on credit to Manish(costing Rs

0 + (17,500) + 20,000 + 0 = 0 + 2,500
17,500)
New Equation 1,75,000 + 32,500 + 20,000 + 0 = 50,000 + 1,77,500
(iv) Purchased furniture for office use (10,000) + 0 + 0 + 10,000 = 0 + 0
New equation 1,65,000 + 32,500 + 20,000 + 10,000 = 50,000 + 1,77,500
(v) Cash paid to Rohit in full settlement (48,500) + 0 0 + 0 = (50,000) + 1,500
New equation 1,16,500 + 32,500 + 20,000 + 10,000 = 0 + 1,79,000
(vi) Cash received from Manish 20,000 + 0 (20,000) + 0 = 0 + 0
New equation 1,36,500 + 32,500 Nil + 10,000 = 0 + 1,79,000
(vii) Rent paid (1,000) + 0 0 + 0 = 0 + (1,000)
New equation 1,35,500 + 32,500 Nil + 10,000 = 0 + 1,78,000
(vii) Cash withdrew for personal use (3,000) + 0 0 + 0 = 0 + (3,000)
Final equation 1,32,500 + 32,500 Nil + 10,000 = 0 + 1,75,000

=
Liabilities+Capital
CE
+ + =
Cash
Stock Debtors Creditors+Capital
+ +
i. Started business with cash and goods +0+1,00,000
RK
75,000 25,000
+
75,000 =0+1,00,000
25,000
ii. Rent paid - 2,000 =0-2,000
+
73,000 =0+98,000
25,000
- +
iii. Bought goods for cash and credit =+ 44,000+0
30,000 74,000
+
43,000 =44,000+98,000
99,000
Goods costing ₹50,000 sold at a profit of 25% out of which ₹27,500 + +

iv. -50,000 =0+12,500(profit)
received in cash 27,500 35,000
+ +
70,500 =44,000+1,10,500
49,000 35,000
-
v. Purchased motorcycle for personal use =0-20,000
20,000
+ +
50,500 =44,000+90,500
49,000 35,000
Cost of Goods Sold 50,000
Add: Profit 25% of ₹50,000 12,500
20 / 38
RKCe
Selling Price 62,500
Less: Cash Received 27,500
Credit Sales 35,000

=
Assets + Capital
Liabilities
S.No. Transaction
+ =
Cash + Stock
Debtors Creditors
+
i. Raghu started business with Cash ₹1,50,000 + 1,50,000
1,50,000
1,50,000 + 1,50,000
ii. +
Bought goods for cash ₹80,000 and on credit for ₹40,000 - 80,000 + 40,000
1,20,000
+
70,000 40,000 + 1,50,000
1,20,000
iii.
Goods costing ₹75,000 sold at a profit of 33 %. Half the
1
+ + + 25,000
3
- 75,000
payment received in cash 50,000 50,000 (Profit)
+ +
1,20,000 40,000 + 1,75,000
45,000 50,000
iv.
CE
+ + 2,000
Goods costing ₹10,000 sold for ₹12,000 on credit - 10,000
12,000 (Profit)
+ +
1,20,000 40,000 + 1,77,000
35,000 62,000
RK
v.
- 6,000
Rent and salaries paid (2,000+4,000) - 6,000
(Expense)
+ +
1,14,000 40,000 + 1,71,000
35,000 62,000
vi.
+ - 1,500
Goods costing ₹20,000 sold for ₹18,500 cash - 20,000
18,500 (Loss)
+ +
1,32,500 40,000 + 1,69,500
15,000 62,000
Calculating of Selling Price
Cost of Goods sold = 75,000
Add: Profit 33 % of ₹75,000 = 25,000
1
Selling Price = 1,00,000

Less: Cash Received (50%) = 50,000
Credit Sales = 50,000
Balance Sheet of Raghu
Liabilites Amount (₹) Assets Amount (₹)
Creditors 40,000 Cash 1,32,500
Capital 1,69,500 Stock 15,000
Debtors 62,000
2,09,500 2,09,500
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53. Accounting equation (Assets = liabilities + owners' equity) describes that the total value of assets of a business is always equal to
its liabilities plus owner’s equity. This equation is the foundation of modern double entry system of accounting being used by
small proprietors to large multinational corporations. Other names used for accounting equation are balance sheet equation and
fundamental or basic accounting equation.
S.no. Particulars Assets = Liabilities + Capital
Cash +Stock Debtors Furniture = Creditors + Capital
1 Kartik started a business with cash 1,40,000 +0 +0 +0 = 0 + 1,40,000
2 Purchased goods on Credit 0 +28,000 +0 +0 = 28,000 + 0
New Equation 1,40,000 +28,000 +0 +0 = 28,000 + 1,40,000
3 Withdrew for private use (3,400) +0 +0 +0 = 0 (3,400)
New Equation 1,36,600 +28,000 +0 +0 = 28,000 + 1,36,600
4 Goods purchased for cash (20,000) +20,000 +0 +0 = 0 + 0
New Equation 1,16,600 +48,000 +0 +0 = 28,000 + 1,36,600
5 Paid wages (600) +0 +0 +0 = 0 + (600)
New Equation 1,16,000 +48,000 +0 +0 = 28,000 + 1,36,000
6 Paid to creditors (20,000) +0 +0 +0 = (20,000) + 0
New Equation 96,000 +48,000 +0 +0 = 8,000 + 1,36,000
7 Sold goods on credit 0 (30,000) +30,000 +0 = 0 + 0

CE
New Equation 96,000 +18,000 +30,000 +0 = 8,000 + 1,36,000
Sold goods for cash Rs 8,000(cost price was Rs

8 8,000 (6,000) +0 +0 = 0 + 2,000
6,000)
RK
New Equation 1,04,000 +12,000 +30,000 +0 = 8,000 + 1,38,000
9 Purchased furniture (1,000) +0 +0 +1,000 = 0 + 0
New Equation 1,03,000 +12,000 +30,000 +1,000 = 8,000 + 1,38,000

Assets (Rs)
No. Transaction = Liabilities + Capital
Cash+Stock+Furniture
1. Mannu started business with Cash Rs 50,000 50,000+0+0 =0 + 50,000
2. Purchases goods on credit for Rs 4,000 0+4,000+0 = 4,000 +
= 4,000 + 50,000
New Equation 50,000+4,000+0
3.
Purchases goods for cash Rs 1,000 (+) 1,000-1,000+0
=0 +0
= 4,000 + 50,000
New Equation 51,000+3,000+0
4.
Purchases furniture for cash for Rs 500 - 500+0+500
=0 +0
New Equation 50,500+3,000+500 = 4,000 + 50,000

5.
Withdraw cash for private use Rs 700 -700+0+0 =0 + (-) 700
New Equation 49,800+3,000+500 = 4,000 + 49,300

6.
Paid for rent Rs 200 (-) 200+0+0 =0 + (-) 200
New Equation 48,600+3,000+500 = 4,000 + 49,100

7.
Received interest Rs 100 (+) 100+0+0 =0 + 100
8. New Equation 48,700+3,000+500 = 4,000 + 49,200
22 / 38
RKCe
Sold goods on costing % 500 for Rs 700 in cash (+) 700-500+0
=0 + 200
New Equation 48,000+2,500+500 = 4,000 + 49,400

9.
Paid to creditors Rs 400 (-) 400+0+0 = (-) 400 +0
New Equation 47,600+2,500+500 = 3,600 + 49,400

10.
Paid for salaries Rs 200 (-) 200+0+0 =0 + (-) 200
New Equation 47,400+2,500+500 = 3,600 + 49,200

Cash + Typewriter + Stock + Debtors = Creditors
i Started business with cash +1,20,000 +1,20,000
1,20,000 1,20,000
ii. Purchased a typewriter -8,000 + 8,000
1,12,000 8,000 1,20,000
iii. Purchased goods on cash -50,000 +50,000
62,000 8,000 50,000 1,20,000
iv. Purchased goods on credit +40,000 +40,000
62,000 8,000 90,000 40,000 1,20,000

CE
v. Goods costing -60,000 +80,000 + 20,000 (profit)
₹ 60,000 sold for ₹ 80,000 on credit
62,000 8,000 30,000 80,000 40,000 1,40,000

RK
vi. Paid for rent and salary (1,500+2,000) -3,500 -3,500 (Expenses)
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. Cash withdrawal for private use -5,000 -5,000 (withdrawal)
54,300 8,000 30,000 80,000 40,000 1,32,300

Rajaram's Balance Sheet
Liabilities Amount Assets Amount
Creditor 40,000 Cash 54,300
Capital 1,32,300 Typewriter 8,000
Stock 30,000
Debtor 80,000
TOTAL 1,72,300 TOTAL 1,72,300

All incomes are added in capital balance and expenses are reduced from capital balance.
56. The accounting equation is a basic principle of accounting and a fundamental element of the balance sheet. The equation is as
follows:
Assets = Liabilities + Shareholder’s Equity
This equation sets the foundation of double-entry accounting and highlights the structure of the balance sheet. Double-entry
accounting is a system where every transaction affects both sides of the accounting equation. For every change to an asset
account, there must be an equal change to a related liability or shareholder’s equity account. The balance sheet is broken down
into three major sections and its various underlying items: Assets, Liabilities, and Shareholder’s Equity.
23 / 38
RKCe
Accounting equation
Transaction Outstanding Unaccrued
Cash + Stock + Building + Debtors = Creditors + + + Capital
Expenses Income
(i)Uditi
Started
5,00,000 + 1,00,000 + 0 + 0 = 0 + 0 + 0 + 6,00,000
business
with cash
New
5,00,000 + 1,00,000 0 + 0 = 0 + 0 + 0 + 6,00,000
equation
(ii)Purchased
building for (2,00,000) + 0 + 2,00,000 + 0 = 0 + 0 + 0 + 0
cash
New
3,00,000 + 1,00,000 + 2,00,000 + 0 = 0 + 0 + 0 + 6,00,000
equation
(iii)
Purchased
0 + 50,000 0 + 0 = 50,000 + 0 + 0 + 0
goods from
Himani
New
3,00,000 + 1,50,000 + 2,00,000 + 0 = 50,000 + 0 + 0 + 6,00,000
Equation
CE
(iv) Sold
goods to
0 + (25,000) + 0 + 36,000 = 0 + 0 + 0 + 11,000
Ashu(cost Rs
RK
25,000)
New
3,00,000 + 1,25,000 + 2,00,000 + 36,000 = 50,000 + 0 + 0 + 6,11,000
equation
(v) Paid
insurance (3,000) + 0 + 0 + 0 = 0 + 0 + 0 + (3,000)
Premium
New
2,97,000 + 1,25,000 + 2,00,000 + 36,000 = 50,000 + 0 + 0 + 6,08,000
equation
(vi) Rent
0 + 0 + 0 + 0 = 0 + 5,000 + 0 + (5,000)
Outstanding
New
2,97,000 + 1,25,000 + 2,00,000 + 36,000 = 50,000 + 5,000 + 0 + 6,03,000
equation
(vii)
Depreciation 0 + 0 + (8,000) + 0 = 0 + 0 + 0 + (8,000)
on Building
New
2,97,000 + 1,25,000 + 1,92,000 + 36,000 = 50,000 + 5,000 + 0 + 6,03,000
equation
(viii) Cash
withdrawn
(20,000) + 0 + 0 + 0 = 0 + 0 + 0 + (20,000)
for personal
use
New 2,77,000 + 1,25,000 + 1,92,000 + 36,000 = 50,000 + 5,000 + 0 + 5,75,000
24 / 38
RKCe
equation
(ix) Rent
received in 5,000 + 0 + 0 + 0 = 0 + 0 + 5,000 + 0
advance
New
2,82,000 + 1,25,000 + 1,92,000 + 36,000 = 50,000 + 5,000 + 5,000 + 5,75,000
equation
(x) Cash
paid to
(20,000) + 0 + 0 + 0 = (20,000) + 0 + 0 + 0
Himani on
account
New
2,62,000 + 1,25,000 + 1,92,000 + 36,000 = 30,000 + 5,000 + 5,000 + 5,75,000
equation
(xi) Cash
received 30,000 + 0 + 0 + (30,000) = 0 + 0 + 0 + 0
from Ashu
Final
2,92,000 + 1,25,000 1,92,000 + 6,000 = 30,000 + 5,000 + 5,000 + 5,75,000
equation
57. Cash Account
Dr. Cr.
Particulars Amount (₹) Particulars Amount (₹)

CE
Record increase in Cash on this side- Record decrease in Cash on this side-
(i) To Sold goods for cash 60,000 (iv) By Purchased goods for cash 10,000
(v) To Cash received from Hari 15,000 (vi) By Cash paid to Krishan 28,000
RK
By Balance (b/f) 37,000

Debtors Account
Dr. Cr.
Record increase in Debtors on this side- Record decrease in Debtors on this side-
(ii) To Sold goods on credit 20,000 (v) By Cash received from debtor 15,000
By Balance (b/f) 5,000

Creditors Account
Dr. Cr.
Record decrease in Creditors on this side- Record increase in Creditors on this side-
(vi) To Cash paid to creditor 28,000 (iii) By Purchased goods on credit 36,000
To Balance (b/f) 8,000
25 / 38
RKCe
Creditor account is a liability so an increase in liability is recorded on the credit side and vice versa. Similarly, cash and debtors
account is an asset so an increase in the asset is recorded in the debit side and decrease in the asset on the credit side.
58. Accounting Equation:
S.No Particulars Assets = Liabilities + Capital
Cash +Stock +Debtors +Furniture = Creditors + Capital
Started business with Capital 3,60,000 +0 +0 +0 = 0 + 3,60,000
1 Timber Purchased (1,20,000) +1,20,000 +0 +0 = 0 + 0
New Equation 2,40,000 +1,20,000 +0 +0 = 0 + 3,60,000
2 wages paid to carpenters (90,000) +0 +0 +0 = 0 + (90,000)
New Equation 1,50,000 +1,20,000 +0 +0 = 0 + 2,70,000
Furniture sold for ₹ 1,50,000 Costing ₹

3 1,50,000 +0 +0 +0 = 0 + 1,50,000
1,20,000 in Cash
New Equation 3,00,000 +1,20,000 +0 +0 = 0 + 4,20,000
Furniture sold on credit for ₹ 30,000 Costing

4 0 +0 +30,000 +0 = 0 + 30,000
₹ 27,000
New Equation 3,00,000 +1,20,000 +30,000 +0 = 0 + 4,50,000
Amount received from debtors ₹ 29,700 &

5 29,700 +0 (30,000) +0 = 0 + (300)
discount allowed ₹ 300
New Equation 3,29,700 +1,20,000 +0 +0 = 0 + 4,49,700

CE
6 Timber purchased on Credit 0 +18,000 +0 +0 = 18,000 + 0
New Equation 3,29,700 +1,38,000 +0 +0 = 18,000 + 4,49,700

RK
7 Furniture purchased (15,000) 0 +0 +15,000 = 0 + 0
New Equation 3,14,700 +1,38,000 +0 +15,000 = 18,000 + 4,49,700
Amount paid to creditors ₹ 17,850 in full

8 (17,850) 0 +0 0 = (18,000) + 150
settlement
New Equation 2,96,850 +1,38,000 +0 +15,000 = 0 + 4,49,850
Amount withdrawn by Varun & Tarun (6,000

9 (9,000) +0 +0 +0 = 0 + (9,000)
+ 3,000)
New Equation 2,87,850 +1,38,000 +0 +15,000 = 0 + 4,40,850
59. CASH ACCOUNT
Dr. Cr.
₹ ₹
(a) To Sales a/c 25,000 (e) By Purchases a/c 8,000
(c) To X a/c 28,000 (f) By Y a/c 15,000
By Balance c/d (b/f) 30,000

X (Debtor's Account)
Dr. Cr.
₹ ₹
(b) To Sales a/c 40,000 (c) By Cash a/c 28,000
By Balance c/d (b/f) 12,000
26 / 38
RKCe
Y (Creditor's Account)
Dr. Cr.
₹ ₹
(f) To Cash a/c 15,000 (d) By Purchases A/c 22,000
To Balance c/d (b/f) 7,000

S.No. Transaction
Cash + Stock + Debtors + Furniture = Creditors
+
(i) Started business with cash + 70,000
70,000
70,000 70,000
(ii)
Purchased goods on credit +14,000 + 14,000
+
70,000 = 14,000 + 70,000
(iii) 14,000
Withdrew for private use - 1,700 - 1,700 (Drawings)
+
68,300 =14,000 68,300
CE
14,000
(iv)
+
Purchased goods for cash - 10,000
10,000
RK
+
58,300 = 14,000 + 68,300
(v) 24,000
Wages paid - 300 - 300 (Expense)
+
58,000 = 14,000 + 68,000
(vi) 24,000
Paid to creditors - 10,000 - 10,000
+
48,000 = 4,000 + 68,000
(vii) 24,000
Sold goods on credit at par - 15,000 + 15,000
48,000 + 9,000 + 15,000 = 4,000 + 68,000

(viii) Sold goods (costing ₹3,000) for
+ 4,000 - 3,000 + 1,000 (Profit)
₹4,000
52,000 + 6,000 + 15,000 = 4,000 + 69,000

(ix)
Furniture purchased - 500 + 500
51,500 + 6,000 + 15,000 + 500 = 4,000 + 69,000

Balance Sheet
as on ....
27 / 38
RKCe
Debtors 15,000
Furniture 500
73,000 73,000
S.
No.
Cash + Shares + Stock + Bank = Creditors + Capital
(a) Started business with Cash ₹1,20,000 1,20,000 +0 +0 +0 =0 + 1,20,000
Equation 1,20,000 +0 +0 +0 =0 + 1,20,000

(b)
Rent received ₹10,000 + 10,000 +0 +0 +0 =0 + 10,000
New Equation 1,30,000 +0 +0 +0 =0 + 1,30,000

(c) +
Invested in shares ₹50,000 (-) 50,000 +0 +0 =0 +0
50,000
+
New Equation 80,000 +0 +0 =0 + 1,30,000
(d) 50,000
Received Dividend ₹5,000 (+) 5,000 +0 +0 +0 =0 + 5,000
+
New Equation 85,000 +0 +0 =0 + 1,35,000
(e) 50,000
Purchased goods on credit ₹35,000 0 +0 + 35,000 + 0 = 35,000 +0

CE
+
New Equation 85,000 + 35,000 + 0 = 35,000 + 1,35,000
(f) 50,000
Paid cash for household expenses ₹7,000 (-) 7,000 +0 +0 +0 =0 (-) 7,000
RK
+
New Equation 78,000 + 35,000 + 0 =0 + 1,28,000
50,000
(g)
Sold goods for cash (Costing ₹10,000) for (+) (-)
+0 +0 =0 + 4, 000
₹14,000 14,000 10,000
+
New Equation 92,000 + 25,000 + 0 = 35,000 + 1,32,000
(h) 50,000
Cash paid to Ragani ₹35,000 (-) 35,000 + 0 +0 +0 = (-) 35,000 + 0
+
New Equation 57,000 + 25,000 + 0 =0 + 1,32,000
50,000
(i)
+
Deposited into bank ₹20,000 (-) 20,000 + 0 +0 =0 +0
20,000
+ +
Final Equation 37,000 + 25,000 =0 + 1,32,000
50,000 20,000
62. The fundamental accounting equation seeks to explain the relationship between the assets constituting a business and the funds
that have been used to finance their purchase. Also known as the balance sheet equation, it forms the basis of double entry system
of bookkeeping.As per the Fundamental Accounting Equation,
Assets = Liabilities + Owners Equity (Capital)
Sl.No. Particulars Cash +Purchase +Debtors = Creditors + Capital
1. Raghu started a business with cash 4,50,000 +0 +0 = 0 + 4,50,000
2. Bought goods for cash Rs 2,40,000 and on credit for Rs (2,40,000) +3,60,000 +0 = 1,20,000 + 0
28 / 38
RKCe
1,20,000.
New Equation 2,10,000 +3,60,000 +0 = 1,20,000 + 4,50,000
Goods costing Rs 2,25,000 sold at a profit of 33 1/3%. +

3. 1,50,000 +1,50,000 = 0 + 75,000
Half the payment received in cash. (2,25,000)
New Equation 3,60,000 +1,35,000 +1,50,000 = 1,20,000 + 5,25,000
4. Goods costing Rs 30,000 sold for Rs 36,000 on credit. 0 +(30,000) +36,000 = 0 + 6,000
New Equation 3,60,000 +1,05,000 +1,86,000 = 1,20,000 + 5,31,000
5. Paid for rent Rs 6,000 and for salaries Rs 12,000. (18,000) +0 +0 = 0 + (18,000)
New Equation 3,42,000 +1,05,000 +1,86,000 = 1,20,000 + 5,13,000
6. Goods costing Rs 60,000 sold for Rs 55,500 for cash. 55,500 +(60,000) +0 = 0 + (4,500)
New Equation 3,97,500 +45,000 +1,86,000 = 1,20,000 + 5,08,500

63. The accounting equation is a basic principle of accounting and a fundamental element of the balance sheet. The equation is as
follows:
Assets = Liabilities + Shareholder’s Equity
This equation sets the foundation of double-entry accounting and highlights the structure of the balance sheet. Double-entry
accounting is a system where every transaction affects both sides of the accounting equation. For every change to an asset
account, there must be an equal change to a related liability or shareholder’s equity account.
Accounting equation
CE
Unassured
Cash + Machinery + Stock = Creditors + + Capital
Income
(i)Commenced business with cash 1,50,000 + 0 + 0 = 0 + 0 + 1,50,000

RK
New equation 1,50,000 + 0 + 0 = 0 + 0 + 1,50,000
(ii)Purchased machiinery on credit 0 + 40,000 + 0 = 40,000 + 0 + 0
New equation 1,50,000 + 40,000 + 0 = 40,000 + 0 + 1,50,000
(iii) Purchased goods for cash (20,000) + 0 + 20,000 = 0 + 0 + 0
New Equation 1,30,000 + 40,000 + 20,000 = 40,000 + 0 + 1,50,000
(iv) Purchased Car for personal Use (80,000) + 0 + 0 = 0 + 0 + (80,000)
New equation 50,000 + 40,000 + 20,000 = 40,000 + 0 + 70,000
(v) Paid to creditors in full settlement (38,000) + 0 + 0 = (40,000) + 0 + 2,000
New equation 12,000 + 40,000 + 20,000 = 0 + 0 + 72,000
(vi) Sold goods for cash costing Rs

4,500 + 0 + (5,000) = 0 + 0 + (500)
5,000
New equation 16,500 + 40,000 + 15,000 = 0 + 0 + 71,500
(vii) Paid rent (1,000) + 0 + 0 = 0 + 0 + (1,000)
New equation 15,500 + 40,000 + 15,000 = 0 + 0 + 70,500
(viii) Commission Received in

2,000 + 0 + 0 = 0 + 2,000 + 0
advance
Final equation 17,500 + 40,000 + 15,000 = 0 + 2,000 + 70,500

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RKCe
Cash + Furniture + Stock = Creditors
(i) Manu began his company with cash +50,000 +50,000
50,000 50,000
(ii) Bought furniture -500 + 500
49,500 500 50,000
(iii) Bought goods on credit + 4,000 + 4,000
49,500 500 4,000 4,000 50,000
(iv) Sold goods on cash (cost ₹ 500) for +700 -500 (+200 profit)
50,200 500 3,500 4,000 50,200
(v) Received rent +200 (+200 Income)
50,400 500 3,500 4,000 50,400
(vi) Bought goods for cash -1,000 +1,000
49,400 500 4,500 4,000 50,400
(vii) Withdrew for personal use -700 -700(withdrew)
48,700 500 4,500 4,000 49,700
(viii) Paid to creditors -400 -400
48,300 500 4,500 3,600 49,700

CE
(ix) Salaries paid -200 -200
48,100 500 4,500 3,600 49,500

Balance Sheet
RK
Capital 49,500 Furniture 500
Stock 4,500

All the expenses are reduced from the capital and all the incomes are added to capital.
Accounting equation
Prepaid Outstanding
Cash + Stock + = Creditors + + Capital
Expenses Expenses
(i)Started with cash Rs 3,00,000 3,00,000 + 0 + 0 = 0 + 0 + 3,00,000
New equation 3,00,000 + 0 + 0 = 0 + 0 + 3,00,000
(ii)Paid rent in advance Rs 9,000 (9,000) + 0 + 9,000 = 0 + 0 + 0
New equation 2,91,000 + 0 + 9,000 = 0 + 0 + 3,00,000
(iii) Purchased goods for cash Rs

(1,50,000) + 2,10,000 + 0 = 60,000 + 0 + 0
1,50,000 and credit Rs 6,000
New Equation 1,41,000 + 2,10,000 + 9,000 = 60,000 + 0 + 3,00,000
30 / 38
RKCe
(iv) Sold goods for cashg Rs 2,40,000
2,40,000 + (1,20,000) + 0 = 0 + 0 + 1,20,000
costing Rs 1,20,000
New equation 3,81,000 + 90,000 + 9,000 = 60,000 + 0 + 4,20,000
(v) Paid salary in cash Rs 13,500 and

(13,500) + 0 + 0 = 0 + 3,000 + (16,500)
salary outstanding Rs 3,000
New equation 3,67,500 + 90,000 + 9,000 = 60,000 + 3,000 + 4,03,500
(vi) Bought motor cycle for personal

(90,000) + 0 + 0 = 0 + 0 + (90,000)
use Rs 90,000
Final equation 2,77,500 + 90,000 + 90,000 = 60,000 + 3,000 + 3,13,500

66. The accounting equation is considered to be the foundation of the double-entry accounting system. The accounting equation
shows on a company's balance sheet whereby the total of all the company's assets equals to the sum of the company's liabilities
and shareholders' equity.
Based on this double-entry system, the accounting equation ensures that the balance sheet remains “balanced,” and each entry
made on the debit side should have a corresponding entry (or coverage) on the credit side.
The formula by which an Accounting Equation is solved is Assets = Liabilities + Owner's Capital, where A liability is defined as
a company's legal financial debts or obligations that arise during the course of business operations. Liabilities are settled over time
through the transfer of economic benefits including money, goods or services.
And this account shows the how much of the company assets are owned by the owners instead of creditors. Typically, the
owner's capital account is only used for sole proprietorship.
So the above question is solved as follows:-
Accounting equation
CE
Prepaid Outstanding
Cash + Stock + Building + Debtors + = Creditors + + Capital
Expenses Expenses
RK
(i) Manoj
started business
with Cash, 2,30,000 + 1,00,000 + 2,00,000 + 0 + 0 = 0 + 0 + 5,30,000
Goods and
Building
New equation 2,30,000 + 1,00,000 + 2,00,000 + 0 + 0 = 0 + 0 + 5,30,000
(ii) He
purchased goods (50,000) + 50,000 + 0 + 0 + 0 = 0 + 0 + 0
for cash
New equation 1,80,000 + 1,50,000 + 2,00,000 + 0 + 0 = 0 + 0 + 5,30,000
(iii) He sold
goods (costing 35,000 + (20,000) + 0 + 0 + 0 = 0 + 0 + 15,000
Rs 20,000)
New Equation 2,15,000 + 1,30,000 + 2,00,000 + 0 + 0 = 0 + 0 + 5,45,000
(iv) He
purchased goods 0 + 55,000 + 0 + 0 + 0 = 55,000 + 0 + 0
from Rahul
New equation 2,15,000 + 1,85,000 + 2,00,000 + 0 + 0 = 55,000 + 0 + 5,45,000
(v) He sold
goods to Varun
0 + (52,000) + 0 + 60,000 + 0 = 0 + 0 + 8,000
(costing Rs
52,000)
31 / 38
RKCe
New equation 2,15,000 + 1,33,000 + 2,00,000 + 60,000 + 0 = 55,000 + 0 + 5,53,000
(vi) He paid
cash to Rahul in (53,000) + 0 + 0 + 0 + 0 = (55,000) + 0 + 2,000
full settlement
New equation 1,62,000 + 1,33,000 + 2,00,000 + 60,000 + 0 = 0 + 0 + 5,55,00
(vii) Salary paid

(20,000) + 0 + 0 + 0 + 0 = 0 + 0 + (20,000)
by him
New equation 1,42,000 + 1,33,000 + 2,00,000 + 60,000 + 0 = 0 + 0 + 5,35,000
(viii) Received
cash from Varun
59,000 + 0 + 0 + (60,000) + 0 = 0 + 0 + (1,000)
in full
settlement
New equation 2,01,000 + 1,33,000 + 2,00,000 + 0 + 0 = 0 + 0 + 5,34,000
(ix) Rent
0 + 0 + 0 + 0 + 0 = 0 + 3,000 + (3,000)
Outstanding
New equation 2,01,000 + 1,33,000 + 2,00,000 + 0 + 0 = 0 + 3,000 + 5,31,000
(x) Prepaid
(2,000) + 0 + 0 + 0 + 2,000 = 0 + 0 + 0
insurance
New equation 1,99,000 + 1,33,000 + 2,00,000 + 0 + 2,000 = 0 + 3,000 + 5,31,000

CE
(xi)Commission
13,000 + 0 + 0 + 0 + 0 = 0 + 0 + 13,000
received by him
New equation 2,12,000 + 1,33,000 + 2,00,000 + 0 + 2,000 = 0 + 3,000 + 5,44,000
(xii) Amount
RK
withdrawn by
(20,000) + 0 + 0 + 0 + 0 = 0 + 0 + (20,000)
him for personal
use
New equation 1,92,000 + 1,33,000 + 2,00,000 + 0 + 2,000 = 0 + 0 + 5,24,000
(xiii)
Depreciation
0 + 0 + (10,000) + 0 + 0 = 0 + 0 + (10,000)
charged on
building
New equation 1,92,000 + 1,33,000 + 1,90,000 + 0 + 2,000 = 0 + 0 + 5,14,000
(xiv) Fresh
50,000 + 0 + 0 + 0 + 0 = 0 + 0 + 50,000
capital invested
New equation 2,42,000 + 1,33,000 + 1,90,000 + 0 + 2,000 = 0 + 3,000 + 5,64,000
(xv) Purchased
0 + 10,000 + 0 + 0 + 0 = 6,000 + 0 + 0
goods for Rakhi
Final equation 2,42,000 + 1,43,000 + 1,90,000 + 0 + 2,000 = 10,000 + 3,000 + 5,64,000

=
S.No. Transaction Assets + Capital
Liabilities
+ + =
Cash Stock + Capital
Furniture+ Debtors Creditors
(i) Business started with cash ₹1,25,000 1,25,000 +0 +0 +0 =0 +
32 / 38
RKCe
1,25,000
+
Equation 1,25,000 +0 +0 +0 =0
1,25,000
(ii)
(-)
Purchased goods for cash ₹50,000 + 50,000 +0 +0 =0 +0
50,000
+
New equation 75,000 + 50,000 +0 +0 =0
(iii) 1,25,000
Purchase furniture from RK furniture ₹10,000 0 +0 + 10,000 +0 = 10,000 +0
+
New Equation 75,000 + 50,000 + 10,000 +0 = 10,000
1,25,000
(iv)
Sold goods to Parul traders (costing ₹7,000 for
0 (-) 7,000 +0 + 9,000 =0 + 2,000
₹9,000
+
New Equation 75,000 + 43,000 + 10,000 + 9,000 = 10,000
(v) 1,27,000
Paid Cartage ₹100 (-) 100 +0 +0 +0 =0 (-) 100
+
New Equation 74,900 + 43,000 + 10,000 + 9,000 = 10,000
1,26,900
(vi)
Cash paid to RK furniture in full settlement = (-)
(-) 9,700 +0 +0 +0 + 300
₹9,700 10,000
CE
+
New Equation 65,200 + 43,000 + 10,000 + 9,000 =0
1,27,200
(vii)
(+) (-)
Cash sales (costing ₹10,000) for ₹12,000 +0 +0 =0 + 2,000
12,000 10,000
RK
+
New Equation 77,200 + 33,000 + 10,000 + 9,000 =0
(viii) 1,29,200
Rent Received ₹4,000 4,000 +0 +0 +0 =0 + 4,000
+
New Equation 81,200 + 33,000 + 10,000 + 9,000 =0
(ix) 1,33,200
Cash withdrew for personal use ₹3,000 (-) 3,000 +0 +0 +0 =0 (-) 3,000
+
Final Equation 78,200 + 33,000 + 10,000 + 9,000 =0
1,30,200
Nature of Effect on
S.No. Transactions Accounts Involved Debit ₹ Credit ₹
68. Account Account
Sahdev started business with Cash ₹5,00,000 Cash, Capital Asset Increase 5,00,000
i.
Capital Increase 5,00,000
Purchased goods for Cash ₹20,000 Purchases, Cash Expense Increase 20,000
ii.
Asset Decrease 20,000
Purchased goods from Raghubir on credit for

Purchases, Raghubir Expense Increase 25,000
iii. ₹25,000
Liability Increase 25,000
Purchased furniture from Fancy Furniture Furniture, Fancy

Asset Increase 1,50,000
iv. House for ₹1,50,000 on credit Furniture House
Liability Increase 1,50,000
33 / 38
RKCe
v. Sold goods for cash ₹30,000 Cash, Sales Asset Increase 30,000
Revenue Increase 30,000
Sold goods to Yuvraj on credit ₹50,000 Yuvraj, Sales Asset Increase 50,000
vi.
Revenue Increase 50,000
Cash paid to Raghubir ₹20,000 Raghubir, Cash Liability Decrease 20,000

vii.
Cash received from Yuvraj ₹15,000 Cash, Yuvraj Asset Increase 15,000
viii.
Paid rent ₹10,000 Rent, Cash Expense Increase 10,000

ix.
All expenses will lead to a decrease in capital and incomes will lead to an increase in capital. Purchase and sales deal with the
stock of the business.
Assets (Rs)
No. Transaction = Liabilities (Rs) + Capital (Rs)
69. Cash+Building+Stock+Furniture
(i) Started with cash,building 40,000+90,000+0+0 + 1.30,000
New equation 1,30,000 1,30,000
(ii) Purchase goods for cash - 15,000+0+15000+0
New equation 1,30,000 1,30,000

CE
(ii) Purchases goods on credit 0+0+20,000+0 = (+) 20,000
New equation 1,50,000 = 20,000 1,30,000
(iii) Sold Goods + 50,000+0- 20,000+0 (+ 30,000)

RK
New equation 1,80,000 = 20,000 1,60,000
(iv) Bought office furniture - 10,000+0+0+10,000
New equation 1,80,000 = 20,000 1,60,000

70. In the books of Shri. Nimesh
JOURNAL
Debit Credit
Date Particulars L/F Amount Amount
(Rs) (Rs)
Cash A/c
Discount Allowed A/c Dr 8,550
9,000
To Sales A/c Dr 450
(Being goods of list priced 10,000 sold at 10% trade discount and 5% cash discount)
Cash A/c
Bad Debts A/c Dr 3,250
5,000
To Manu A/c Dr 1,750
(Being cash received and bad debts written-off)
Salaries A/c
To Outstanding Salaries A/c Dr 15,000 15,000
(Being salaries due)
Rent A/c Dr 2,000 2,000

To Outstanding Rent A/c
(Being rent due)
34 / 38
RKCe
31,000 31,000
Total
====== ======
71. The accounting formula serves as the foundation of double entry book keeping. Also called the accounting equation or balance
sheet equation, this formula represents the relationship between the assets, liabilities, and owners' equity of a business. The
equation shows that the value of a company's assets always equals the sum of its liabilities and owners' equity. The accounting
formula essentially shows what the firm owns (its assets) as purchased with either the money it owes to creditors (its liabilities) or
by money its owners invest in the business (its owner's equity or capital). This relationship can be expressed in the form of a
simple equation:
Assets = Liabilities + Owners' Equity
S.No. Particulars Cash +Stock +Plant +Bank +Furniture +Debtors = Creditors + Capital
Started business with

1 Rs 4,00,000 as cash 4,00,000 +25,000 +0 +0 +0 +0 = 0 + 4,25,000
and Rs 25,000 by stock
Purchased plant for Rs

1,50,000 by paying Rs
2 (7,500) +0 +1,50,000 +0 +0 +0 = 1,42,500 + 0
7,500 in cash and
balance at a later date.
New Equation 3,92,500 +25,000 +1,50,000 +0 +0 +0 = 1,42,500 + 4,25,000
Deposited cash into the

3 (3,00,000) +0 +0 +3,00,000 +0 +0 = 0 + 0
bank.
CE
New Equation 92,500 +25,000 +1,50,000 +3,00,000 +0 +0 = 1,42,500 + 4,25,000
Purchased office
furniture for Rs 50,000
4 0 +0 +0 (50,000) +50,000 +0 = 0 + 0
RK
and made payment by

cheque.
New Equation 92,500 +25,000 +1,50,000 +2,50,000 +50,000 +0 = 1,42,500 + 4,25,000
Purchased goods worth

Rs 40,000 for cash and
5 (40,000) +57,500 +0 +0 +0 +0 = 17,500 + 0
for Rs 17,500 on
credit.
New Equation 52,500 +82,500 +1,50,000 +2,50,000 +50,000 +0 = 1,60,000 + 4,25,000
Goods amounting to
Rs 22,500 was sold for
6 30,000 (22,500) +0 +0 +0 +0 = 0 + 7,500
Rs 30,000 on cash
basis.
New Equation 82,500 +60,000 +1,50,000 +2,50,000 +50,000 +0 = 1,60,000 + 4,32,500
Goods costing Rs
7 40,000 was sold for Rs 0 (40,000) +0 +0 +0 +62,500 = 0 + 22,500
62,500 on credit basis.
New Equation 82,500 +20,000 +1,50,000 +2,50,000 +50,000 +62,500 = 1,60,000 + 4,55,000
Cheque issued to the

8 supplier of goods 0 +0 +0 (17,500) +0 +0 = (17,500) + 0
worth Rs 17,500.
New Equation 82,500 +20,000 +1,50,000 +2,32,500 +50,000 +62,500 = 1,42,500 + 4,55,500
9 Cheque received from 0 +0 +0 +37,500 +0 (37,500) = 0 + 0
35 / 38
RKCe
customer amounting to
Rs 37,500.
New Equation 82,500 +20,000 +1,50,000 +2,69,500 +50,000 +15,000 = 1,42,500 + 4,55,500
Withdrawn by owner
10 for personal use Rs (12,500) +0 +0 +0 +0 +0 = 0 + (17,500)
12,500.
New Equation 70,000 +20,000 +1,50,000 +2,69,500 +50,000 +15,000 = 1,42,500 + 4,38,000
Accounting equation
Cash + Machinery + Stock = Outstanding Expenses + Capital
(i)Started business with cash 1,20,000 + 0 + 0 = 0 + 1,20,000
New equation 1,20,000 + 0 + 0 = 0 + 1,20,000
(ii)Purchased goods for cash (10,000) + 10,000 + 0 = 0 + 0
New equation 1,10,000 + 10,000 + 0 = 0 + 1,20,000
(iii) Rent received 5,000 + 0 + 0 = 0 + 5,000

CE
New Equation 1,15,000 + 10,000 + 0 = 0 + 1,25,000
(iv) Salary Outstanding 0 + 0 + 0 = 2,000 + (2,000)
New equation 1,15,000 + 10,000 + 0 = 2,000 + 1,23,000

RK
(v) Prepaid insurance (1,000) + 0 + 1,000 = 0 + 0
New equation 1,14,000 + 10,000 + 1,000 = 0 + 0
(vi) Received Interest 700 + 0 + 0 = 0 + 700
New equation 1,14,700 + 10,000 + 1,000 = 2,000 + 1,23,700
(vii) Sold goods for cash(costing Rs 5,000) 7,000 + (5,000) + 0 = 0 + 2,000
New equation 1,21,700 + 5,000 + 1,000 = 2,000 + 1,25,700
(viii) Goods destroyed by fire 0 + (500) + 0 = 0 + (500)
Final equation 1,21,700 + 4,500 + 1,000 = 2,000 + 1,25,200

73. The fundamental accounting equation, also called the balance sheet equation, represents the relationship between the assets,
liabilities, and owner's equity of a person or business. It is the foundation for the double entry book keeping system. The
accounting equation offers us a simple way to understand how these three amounts relate to each other. The accounting equation
is:
Assets=Liabilities+Capital
Sl.no Particulars Assets = Liabilities + Capital
Cash Furniture Building Car = Loan + Capital
1. Started business with cash 30,000 0 0 0 = 0 + 30,000
2. Purchased furniture for cash (15,000) 15000 0 0 = 0 + 0
New Equation 15,000 15,000 0 0 = 0 + 30,000
Purchased building for Rs.30,000 paid 10,000 in cash

3 (10,000) 0 30,000 0 = 20,000 + 0
& balance through loan
36 / 38
RKCe
New Equation 5,000 15,000 30,000 0 = 20,000 + 30,000
4 Furniture sold costing Rs 2,000 for Rs. 3,000 3,000 (2,000) 0 0 = 0 + 1000
New Equation 8,000 13,000 30,000 0 = 20,000 + 31,000
5 Purchased old car (5,600) 0 0 5,600 = 0 + 0
New Equation 2,400 13,000 30,000 5,600 = 20,000 + 31,000
6 Received rent 7,200 0 0 0 = 0 + 7,200
New Equation 9,600 13,000 30,000 5,600 = 20,000 + 38,200
7 Paid Rs 1,000 for loan & 600 as interest (1,600) 0 0 0 = (1,000) + (600)
New Equation 8,000 13,000 30,000 5,600 = 19,000 + 37,600
8 Paid for household expenses (600) 0 0 0 = 0 + (600)
New Equation 7,400 13,000 30,000 5,600 = 19,000 + 37,000
9 Receive dividend on securities 400 0 0 0 = 0 + 400
New Equation 7,800 13,000 30,000 5,600 = 19,000 + 37,400

74. Accounting Equation is based on the double entry book keeping system, which means that all assets should be equal to all
liabilities in the book of accounts. All the entries which are made to the debit side of a balance sheet should have a corresponding
credit entry in the balance sheet. Thus the basic accounting equation which is also known as balance sheet equation.
Accounting Equation
Assets = Liabilities Capital
CE
Outstanding
S.No. Particulars Cash Stock Furniture Building = Creditors + Capital
Rent
1 Commenced business with cash 60,000 0 0 0 = 0 0 + 60,000

RK
Purchased goods for cash Rs 24,000

2 (24,000) 60,000 0 0 = 36,000 0 + 0
and credit Rs 36,000.
New Equation 36,000 60,000 0 0 = 36,000 0 + 60,000
Sold goods for cash Rs 48,000, costing

3 48,000 (36,000) 0 0 = 0 0 + 12,000
Rs 36,000.
New Equation 84,000 24,000 0 0 = 36,000 0 + 72,000
4 Rent paid (600) 0 0 0 = 0 0 + (600)
New Equation 83,400 24,000 0 0 = 36,000 0 + 71,400
5 Rent outstanding 0 0 0 0 = 0 120 + (120)
New Equation 83,400 24,000 0 0 = 36,000 120 + 71,280
6 Bought furniture on credit. 0 0 6,000 0 = 6,000 0 + 0
New Equation 83,400 24,000 6,000 0 = 42,000 120 + 71,280
7 Bought refrigerator for personal use (6,000) 0 0 0 = 0 0 + (6,000)
New Equation 77,400 24,000 6,000 0 = 42,000 120 + 65,280
8 Purchased building for cash (24,000) 0 0 24,000 = 0 0 + 0
New Equation 53,400 24,000 6,000 24,000 = 42,000 120 + 65,280

Balance Sheet
as at 31 March, 20XX
Amount Amount
Liabilities Assets
(Rs) (Rs)
37 / 38
RKCe
Capital 65,280 Building 24,000
Creditors 42,000 Furniture 6,000
Outstanding rent 120 Stock 24,000
Cash 53,400
1,07,400 1,07,400
Total Total
======= =======
CE
RK
38 / 38
RKCe

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Solution

= Rs 3,00,000 - Rs 50,000 = Rs 2,50,000

5. Cash Stock Debtors Liabilities Capital

(ii) Sold goods on credit (20000 × 50%)+2000 0 - 10,000 + 12,000 + 2,000

New Balance 1,00,000 + 10,0000 + 12,000 + 1,22,000

(iii) Rent paid - 5,000 - 5,000

New Balance 95,000 + 10,000 + 12,000 1,17,000

(iv) Ram paid cash (12000 × 50%) + 6,000 - 6,000

Assets = Liabilities + Capital

(ii) withdraw cash for personal use Rs 20,000 (20,000) 0 0 =0 (20,000)

New Equation 60,000 70,000 0 =0 1,30,000

Bought furniture for Rs 15,000 on credit and paid salaries

New Final Equation 52,000 70,000 15,000 = 15,000 1,22,000

Goods (costing ₹50,000) sold at a profit of 25% on + 12,500

(iv) Purchased goods from Mohan + 80,000 + 80,000

(a) Started business with cash + 1,20,000 + 1,20,000

1,10,000 + 10,000 1,20,000

(c) Rent received + 5,000 + 5000 (Income)

1,15,000 + 10,000 1,25,000

(d) Outstanding salary + 2,000 - 2,000 (Expense)

1,15,000 + 10,000 2,000 + 1,23,000

(e) Interest received + 700 + 700 (Income)

1,15,000 + 10,000 2,000 + 1,23,700

1,22,700 + 5,000 2,000 1,25,700

(g) Goods destroyed by fire - 500 - 500

1,22,700 + 4,500 2,000 + 1,25,200

13. Dr. SANJAY (Creditor's A/c) Cr.

Record decrease on this side Record increase on this side

ii. To Cash 25,000 i. By Purchases 40,000

iv. To Good Returned 2,000 iii. By Purchases 16,000

Balance c/d (b/f) 9,000

TOTAL 56,000 TOTAL 56,000

15. No. Particulars Cash Bank Stock Machinery Capital Liabilities

(ii) Cash deposited into bank (5,00,000) 5,00,000 - - - -

New Equation 3,00,000 2,00,000

New Equation 2,20,000 10,000

New Equation 5,00,000 = 10,00,000

Final New Equation 2,10,000 4,80,000 2,80,000 10,000 = 9,80,000 Nil

16. i. Calculation of Closing Capital (Capital as on March 31, 2012)

ii. Calculation of Closing Capital (Capital as on March 31, 2012)

Cash + Stock + Debtors Prepaid = Outstanding

(i) Harish started business with cash +1,80,000 +1,80,000

Purchased goods for ₹ 60,000 cash

1,20,000 90,000 30,000 1,80,000

Sold goods for ₹40,000 cash

1,60,000 66,000 30,000 1,96,000

Rent paid ₹5,000 Rent outstanding

1,55,000 66,000 30,000 2,000 1,89,000

Sold goods on ₹ 50,000 credit

1,55,000 28,000 50,000 30,000 2,000 2,01,000

(vi) Salary paid in advance -3,000 +3,000

Final Equation 1,52,000 28,000 50,000 3,000 30,000 2,000 2,01,000

New Equation 1,00,000 =0 1,00,000

New Equation 97,000 3,000 =0 1,00,000

New Equation 47,000 70,000 3,000 20,000 1,00,000

New Equation 1,27,000 30,000 3,000 = 20,000 1,40,000

New Equation 1,22,500 30,000 3,000 = 20,000 1,000 1,34,500

Final Equation 92,500 30,000 3,000 = 20,000 1,000 1,04,500