Solution

ACCOUNTING EQUATION WORK -SHEET

Class 11 - Accountancy
1. (a) 40,00,000 + (40,00,000) = 0 + 0
Explanation: Cash decreases and land increases by the same amount. Both are assets which are affected and either
liabilities or capital is not affected.
2. (b) unchanged, unchanged, unchanged
Explanation: The accounting equation is
(2,50,000) + 1,25,000 + 1,25,000 = 0 + 0
i.e. Goods decreased + Cash increased + Debtors increased = Liabilities unchanged + Capital unchanged
3. (a) (50,000) + 50,000 = 0 + 0
Explanation: Amount of goods returned = 10,000 × 5 = ₹ 50,000
So, debtors decreased (assets decreased) and stock of goods is increased (assets increased).
4. (c) ₹ 70,000
Explanation: Assets = Liabilities + Capital
1,00,000 = 20,000 + 10,000 + Capital
So, Capital = ₹ 70,000
5. (d) Expense, Income
Explanation: Salary is expense for employer because Employer pays salary to employee and For Employee it will an
income as he receives this amount.
6. (b) Assets = Rs 7,85,000, Liabilities = Rs 1,25,000, Capital = Rs 6,60,000
Explanation: Assets = Capital-Liabilities
Assets - Liabilities = Capitall
7,85,000 - 1,25,000 = 6,60,000
7. (a) None of these
Explanation: The correct equation will be
Assets = Liabilities + Capital
₹ 5,000 = 0 + ₹ 5,000
∵ Cash would increase by ₹ 15,000 and goods would decrease by ₹ 10,000 leading to total assets increasing by ₹ 5,000.

Since, company gets a profit (₹ 15,000 - ₹ 10,000) by selling goods at more than cost thus the profit would increase the
capital.
8. (b) Drawings
Explanation: Drawing is amount withdrawn out of business for personal purpose which ultimately affects capital
balance. As much as Drawing increases then capital Decreases.
9. (b) Rs.35000
Explanation: The basic accounting equation says:-
Assets = Liabilities + capital
60000 =25000+ Capital
Capital = 60000-25000
Capital =Rs. 35000
10. (b) Balance sheet
Explanation: Accounting equation depicts the fundamental relationship among the components of balance sheet.
11. (c) Rs.3200 Loss
Explanation: Profit/ Loss = Closing Capital + Drawing - opening Capital - Additional capital
Profit/Loss = 73,800 + 16,300 - 75,600 - 17,700
Profit/Loss = 90,100 - 93,300
Profit/loss = -3,200
Loss = Rs. 3,200
12. (c) A is true but R is false.
Explanation: As a result of any transaction, the change in assets and liabilities/capital will be equal. Therefore, the
total of assets will be equal to total of liabilities and capital.
13. (a) Both A and R are true and R is the correct explanation of A.
Explanation: Both A and R are true and R is the correct explanation of A.

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14. (c) A is true but R is false.
Explanation: In the accounting equation, a transaction may affect only one side, for instance, goods purchased for
cash will simultaneously increase and decrease the asset side by the same amount.
15. The accounting equation is an accounting formula expressing the equivalence of assets (resources) and liabilities and
capital (funds).
16. Cash decreases and on liability side creditor's balance also decreases. Based on the 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.
17. 1,30,000 - 80,000
= ₹50,000 (Outside Liabilities = Total Assets - Capital)
18. It will result in cash being reduced and Machinery (asset) Account being increased.
19. Receipt from debtors.
20. Voucher, which records transactions with multiple debits/credits and one credit/debit are called compound vouchers. A
compound journal entry is an accounting entry which effects more than two account heads. A simple journal entry has
one debit and one credit whereas a compound journal entries includes one or more debits and/or credits than a simple
journal entry.
21. Owner's equity represents the owner's investment in the business minus the owner's drawings or withdrawals from the
business plus the net income (or minus the net loss) since the business began.
22. It is an outstanding expense. It will be shown in the accounting equation as a deduction from the capital and as an
Outstanding Expense (outstanding repair) on the Liabilities side.

23. No. Transaction Assets (Rs) = Liabilities (Rs) + Capital (Rs)

Started with cash 50,000 + 50,000

(i)
Started with goods + 30,000 + 30,000

New equation 80,000 + 80,000

(ii) Paid Salary in cash (-) 5,000 (-) 5,000

New equation 75,000 + 75,000

(iii) Purchases goods for cash (+) 10,000 - 10,000 +0

New equation 75,000 + 75,000

(iv) Purchases goods on Credit (+) 20,000 = + 20,000 +0

New equation 95,000 = 20,000 + 75,000

(+ 30,000)
(v) Sold Goods (+ 5,000)
(- 25,000)

New equation 1,00,000 = 20,000 + 80,000

(+ 10,000)
(vi) Cash Received on from debtors.
(- 10,000)

New equation 1,00,000 = 20,000 + 80,000

24. 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

25. Calculation of Closing Capital (Capital as on March 31, 2014)
Assets = Liabilities + Capital
1,75,000 = 50,000 + Capital
Capital = ₹1,25,000

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 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
26. Accounting Equation
Assets = Liabilities + Capital
S.No. Transaction
Cash + Stock = Outstanding Salary

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

1,20,000 1,20,000

(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.
27. "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
Assets = Liabilities + Capital
Stock = Creditors + Capital
₹ 5,500 = ₹ 2,000 + ₹ 3,500
ii. Stock taken by the proprietor for private use ₹ 500
Assets = Liabilities + Capital
Stock = Creditors + Capital
(₹ 5,500 - ₹ 500) = ₹ 2,000 + (₹ 3,500 - ₹500)
₹ 5,000 = ₹ 2,000 + ₹ 3,000
₹ 5,000 = ₹ 5,000
28. If a business transaction is analyzed in terms of its effect on assets, liabilities, and capital, it must confirm to the
aforesaid accounting equation. When a transaction occurs, it can be expressed in terms of the accounting equation.
While preparing accounting equation following points are to be kept in mind:
Effect of Income or Profit: If there is a profit or gain, it will increase the capital on the one hand and on the other hand
it will increase the assets.
Effect of Expense or Loss: Any expense incurred is a loss to the firm. On the one hand, it either decreases assets or
increases liabilities (when not paid in cash immediately) and on the other hand, capital is decreased.
Prepaid Expenses:- Prepaid expenses are shown on the assets side and deducted from cash.
Outstanding Expenses:- Outstanding Expenses are shown on the liability side and deducted from capital.
Accrued Income: Accrued Income is shown on assets sides and added to capital.
Income Received in Advance:- Income received in advance is shown on the liability sides and added to cash.
29. i. Calculation of Closing Capital (Capital as on March 31, 2012)
Assets = Liabilities + Capital
8,00,000 = 1,00,000 + Capital
Capital = ₹7,00,000
Caluculation of Profit Earned during the Year
Closing Capital = Opening Capital + Addition Capital + Profit - Drawings

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 7,00,000 = 5,00,000 + 0 + Profit - 0
Profit = 7,00,000 - 5,00,000
= ₹2,00,000
ii. Calculation of Closing Capital (Capital as on March 31, 2012)
Assets = Liabilities + Capital
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
30. Accounting Equation
=
Assets + Capital
S.No. Transaction Liabilities

Cash + Stock + Bank = Creditors

+ +
(i) Started business with cash and goods + 3,90,000
1,40,000 2,50,000

+
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
31. Calculation of Closing Capital (Capital as on March 31, 2014)
Assets = Liabilities + Capital
3,80,000 = 75,000 + Capital
Capital = ₹3,05,000
Calculation of Profit Earned during the Year
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
Assets Liabilities

32. 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

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 (iv) New Equation 3,00,000 5,00,000 2,00,000 + 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

33. The steps involved in the process of accounting are as follows:
i. Identifying the financial transactions.
ii. Recording these transactions in the books of accounts.
iii. Classifying the recorded entries in separate accounts.
34. Machinery Account
Dr. Cr.

Particulars Amount (₹) Particulars Amount (₹)

Record increase in Machinery on this side- Record decrease in Machinery on this side-

1. Machinery purchased for 5,00,000 2. Machinery sold 1,20,000

4. New Machinery purchased 2,00,000 3. Machinery discarded 50,000

5. Machinery destroyed 40,000

Total 2,10,000

Balance 4,90,000

7,00,000 7,00,000
35. 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)
= 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.
36. Accounting Equation
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.
Assets (Rs) Liabilities

Creditor
37. No. Transactions Cash Stock Machinery + Capital (Rs)
(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

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 (iii) New Equation 80,000 28,000 0 = 28,000 80,000
Payment made to creditors in full settlement of (27,000) + 0 +0 = (28,000) + 1,000
27,000

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

38. Accounting Equation
=
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 %. 3/4th payment + -
1

+ 16,000
received in cash 48,000 64,000

+
68,000 + 16,000 25,000 + 90,000
31,000
(iv)
Goods costing ₹20,000 sold at a loss of 5% out of which ₹12,000 + - - 1,000
+ 7,000
were received in cash 12,000 20,000 (Loss)

+
80,000 + 23,000 25,000 + 89,000
11,000
(v)
- - 10,000
Paid rent and salary
10,000 (Expense)

+
70,000 + 23,000 25,000 + 79,000
11,000
(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
Calculation of Selling Price
Cost of Goods Sold = 48,000
1
Add: Profit 33 % of ₹48,000 = 16,000
3

Selling Price = 64,000

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

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 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

=
Assets + Capital
39. No. Particulars Liabilities

M/s Vinod & Sons started business

Transaction Effect of Cash
and invested Rs 3,00,000 as his = =+3,00,000
1 transaction 3,00,000
capital

New Balance 3,00,000 =3,00,000

+
=
Cash Good + Capital
Transaction Old Balance Liabilities
Purchased goods for cash 3,00,000+ + 3,00,000
2 Effect of =0
(90,000) + +0
Transaction =0
90,000

+
New Balance 2,10,000 =0 + 3,00,000
90,000

+
+
Cash Good = Creditor + Capital
Transaction Old Balance Machinery
Purchased Machinery on credit 2,10,000+ + =0 + 3,00,000
3 Effect of +0
0 90,000 = 1,25,000 + 0
Transaction + 1,25,000
+0

+
New Balance 2,10,000 + 1,25,000 = 1,25,000 + 3,00,000
90,000

+
+ = + Capital
Cash Good
Transaction Old Balance Machinery Liabilities + 3,00,000
Purchased old car for personal use 2,10,000+ +
4 Effect of + 1,25,000 = 1,25,000 +
(1,00,000) 90,000
Transaction +0 =0 (1,00,000)
+0

+
New Balance 1,10,000 + 1,25,000 = 1,25,000 + 2,00,000
90,000
Drwaings are deducted from capital of business
Liabilities
S.No. Transaction Assets = Capital
40. +

=
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 +26,000

(iii) + 48,000 -1,12,000 +90,000
credit at 25% profit (Profit)

+1,88,000 98,000 90,000 1,50,000 2,26,000

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

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 (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)
Debtors value = Rs.90,000
41. 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:
Assets = Liabilities + Capital

50,000

(50,000)

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.
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:
Assets = Liabilities + Capital

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.
42. 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
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
Transaction Assets = Liabilties + Capital

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 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. 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) 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

45. ACCOUNTING EQUATION
= +
S.No. Transaction Assets
Liabilities Capital

+ + + = +
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 (-) +
+0 +0 = 10,000 +0
₹10,000 15,000 25,000

+ +
New Equation 35,000 +0 +0 = 10,000
45,000 70,000
3.
1
Goods Costing ₹24,000 sold at a profit of 33 3 %. Half the + - +
+0 =0 + 8,000
payment received in Cash 16,000 24,000 16,000

4. + + +
New Equation 51,000 +0 = 10,000
21,000 16,000 78,000

Purchased furniture for office use ₹6,000 and for (-) +0 +0 + 6,000 =0 (-)

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 household 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
46. Accounting Equation
=
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.
1
Goods costing ₹75,000 sold at a profit of 33 3 %. Half the + 25,000
+ 50,000 - 75,000 + 50,000
payment received in cash (Profit)

1,20,000 + 45,000 + 50,000 40,000 + 1,75,000

iv. + 2,000
Goods costing ₹10,000 sold for ₹12,000 on credit - 10,000 + 12,000
(Profit)

1,20,000 + 35,000 + 62,000 40,000 + 1,77,000

v. - 6,000
Rent and salaries paid (2,000+4,000) - 6,000
(Expense)

1,14,000 + 35,000 + 62,000 40,000 + 1,71,000

vi. - 1,500
Goods costing ₹20,000 sold for ₹18,500 cash + 18,500 - 20,000
(Loss)

1,32,500 + 15,000 + 62,000 40,000 + 1,69,500

Calculating of Selling Price
Cost of Goods sold = 75,000
1
Add: Profit 33 3 % of ₹75,000 = 25,000
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
47. 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 = Liabilities + Capital

Prepaid Outstanding
Cash + Stock + = Creditors + + Capital
Expenses Expenses

10 / 27
(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

(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

OR
Cash Account
Dr. Cr.

Particulars Amount (₹) Particulars Amount (₹)

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

Total 75,000 Total 38,000

By Balance (b/f) 37,000

TOTAL 75,000 TOTAL 75,000

Debtors Account
Dr. Cr.

Particulars Amount (₹) Particulars Amount (₹)

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

Total 20,000 Total 15,000

By Balance (b/f) 5,000

TOTAL 20,000 TOTAL 20,000

Creditors Account
Dr. Cr.

Particulars Amount (₹) Particulars Amount (₹)

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

Total 28,000 Total 36,000

To Balance (b/f) 8,000

TOTAL 36,000 TOTAL 36,000

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.

11 / 27
48. Accounting Equation
=
Assets + Capital
Liabilities
S.No. Transaction
+ +
Cash + Stock = Creditors
Debtors Furniture

+
(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
14,000
(iii)
- 1,700
Withdrew for private use - 1,700
(Drawings)

+
68,300 =14,000 68,300
14,000
(iv)
+
Purchased goods for cash - 10,000
10,000

+
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 ....
Liabilities Amount (₹) Assets Amount (₹)

Creditors 4,000 Cash 51,500

Capital 69,000 Stock 6,000

Debtors 15,000

Furniture 500

73,000 73,000
OR
Accounting Equation
=
Assets + Capital
Liabilities
S.No. Transaction
+ + =
Cash Debtors
Stock Furniture Creditors

(i) Started business with cash, goods and + + + 30,000 + 1,00,000

12 / 27
 furniture 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 -
+ 65,000 + 15,000 (Profit)
₹65,000 50,000

+
60,000 + 30,000 + 65,000 40,000 + 1,25,000
10,000
(v)
- 5,000
Goods withdrawn for personal use - 5,000
(Drawings)

+
Purchased typewriter for personal use 60,000 + 30,000 + 65,000 40,000 + 1,20,000
5,000
(vi)
- - 20,000
+ 10,000
20,000 (Drawings)

+
40,000 + 30,000 + 65,000 40,000 + 1,00,000
5,000
(vii)
-
Purchased chairs for office use + 10,000
10,000

+
30,000 + 40,000 + 65,000 40,000 + 1,00,000
5,000

Paid for printing ₹500 and received

(viii) - 500 - 500 (Expense)
commission ₹1,200

+
+ 1,200 (Income)
1,200

+
30,700 + 40,000 + 65,000 40,000 + 1,00,700
5,000
(ix)
+ + 40,000 (Fresh
Introduced additional capital
40,000 Capital)

+
70,700 + 40,000 + 65,000 40,000 + 1,40,700
5,000
(x)
-
Paid to Gopal - 30,000
30,000

+
New equation 40,700 + 40,000 + 65,000 10,000 + 1,40,700
5,000
49. 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

13 / 27
 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

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)

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

OR
Accounting equation
Transaction Assets = Liabilities + Capital

Cash + Stock + Debtors + Furniture = Creditors + Capital

(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

(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

0 + (17,500) + 20,000 + 0 = 0 + 2,500
Rs 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

50. Accounting Equation
Liabilities
S.No. Transaction Assets = Capital
+

Typewriter
Cash + Stock + Debtors = Creditors
+

i Started business with cash +1,20,000 +1,20,000

1,20,000 1,20,000

14 / 27
 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

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

Paid for rent and salary

vi. -3,500 -3,500 (Expenses)
(1,500+2,000)

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

-5,000
viii. Cash withdrawal for private use -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.
OR
Assets (Rs)
No. Transaction = Liabilities (Rs) + Capital (Rs)
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

(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)

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

51. Accounting Equation
S.No. Transaction Assets = Liabilities + Capital

Cash + Furniture + Stock = Creditors

(i) Manu began his company with cash +50,000 +50,000

50,000 50,000

(ii) Bought furniture -500 + 500

15 / 27
 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

(ix) Salaries paid -200 -200

48,100 500 4,500 3,600 49,500

Balance Sheet
Liabilities Amount (₹) Assets Amount (₹)

Creditors 3,600 Cash 48,100

Capital 49,500 Furniture 500

Stock 4,500

TOTAL 53,100 TOTAL 53,100

All the expenses are reduced from the capital and all the incomes are added to capital.
OR
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.
Accounting equation
Assets = Liabilities + Capital
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) 0 + 50,000 0 + 0 = 50,000 + 0 + 0 + 0

Purchased

16 / 27
 goods from
Himani

New
3,00,000 + 1,50,000 + 2,00,000 + 0 = 50,000 + 0 + 0 + 6,00,000
Equation

(iv) Sold
goods to
0 + (25,000) + 0 + 36,000 = 0 + 0 + 0 + 11,000
Ashu(cost Rs
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
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 Himani on (20,000) + 0 + 0 + 0 = (20,000) + 0 + 0 + 0
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
52. ACCOUNTING EQUATION
=
S.No. Transaction Assets + Capital
Liabilities

+ + + =
Cash + Capital
Stocks Furniture Debtors Creditors

1. Mukesh started business with ₹80,000 80,000 +0 +0 +0 =0 + 80,000

17 / 27
 Equation 80,000 +0 +0 +0 =0 + 80,000
2. (-) +
Purchased goods for cash ₹28,000 +0 +0 =0 +0
28,000 28,000

+
New Equations 52,000 +0 +0 =0 + 80,000
28,000
3.
+
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 + 40,000 = 0
₹30,000) 30,000 sale)

+
New Equations 41,500 + 6,000 + 40,000 = 20,000 + 85,500
18,000
9.
(-)
Paid to Creditors ₹15,000 +0 +0 +0 = (-) 15,000 + 0
15,000

+
Final Equation 26,500 + 6,000 + 40,000 = 5,000 + 85,500
18,000

BALANCE SHEET OF MUKESH

as at ..............
Liabilities + Capital Amount Assets Amount

₹ ₹

Creditors 5,000 Cash 26,500

Capital 85,500 Stock 18,000

Furniture 6,000

Debtors 40,000

90,500 90,500
OR
CASH ACCOUNT
Dr. Cr.

₹ ₹

(a) To Sales a/c 25,000 (e) By Purchases a/c 8,000

18 / 27
 (c) To X a/c 28,000 (f) By Y a/c 15,000

By Balance c/d (b/f) 30,000

TOTAL 53,000 TOTAL 53,000

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

TOTAL 40,000 TOTAL 40,000

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

TOTAL 22,000 TOTAL 22,000

53. 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)
Assets = Liabilities + 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

Bought goods for cash Rs 2,40,000 and on credit for

2. (2,40,000) +3,60,000 +0 = 1,20,000 + 0
Rs 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 +

3. 1,50,000 +1,50,000 = 0 + 75,000
1/3%. 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

Goods costing Rs 30,000 sold for Rs 36,000 on

4. 0 +(30,000) +36,000 = 0 + 6,000
credit.

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

OR
Raghubir is a creditor, which means, it is a liability for the business. As we know, an increase in liability is recorded on
the credit side while a decrease in liability will be shown on the debit side of the concerned liability account. So increase
in liability record on the credit side and decrease in debit side.
Raghubir Account (Creditors)
Dr. Cr.

Particulars Amount (₹) Particulars Amount (₹)

Record decrease in Creditors on this side- Record increase in Creditors on this side-

ii. To Returned goods to Raghubir 5,000 i.By Purchased goods on credit from Raghubit 50,000

iii.To Paid to Raghubir 30,000 iv. By Purchase goods on credit from Raghubir 16,000

v.To Paid to Raghubir 20,000

19 / 27
 55,000 66,000

To Balance c/d (b/f) 11,000

Total 66,000 Total 66,000

54. 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
To Outstanding Rent A/c Dr 2,000 2,000
(Being rent due)

31,000 31,000
Total
====== ======
OR
Accounting equation
S. =
Transaction Assets + Capital
No. Liabilities

+
Cash + Stock + Bank = Creditors + Capital
Shares

(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 + 50,000 + 0 +0 =0 +0

New Equation 80,000 + 50,000 + 0 +0 =0 + 1,30,000

(d)
Received Dividend ₹5,000 (+) 5,000 +0 +0 +0 =0 + 5,000

New Equation 85,000 + 50,000 + 0 +0 =0 + 1,35,000

(e)
Purchased goods on credit ₹35,000 0 +0 + 35,000 + 0 = 35,000 +0

New Equation 85,000 + 50,000 + 35,000 + 0 = 35,000 + 1,35,000

(f)
Paid cash for household expenses ₹7,000 (-) 7,000 +0 +0 +0 =0 (-) 7,000

New Equation 78,000 + 50,000 + 35,000 + 0 =0 + 1,28,000

(g) Sold goods for cash (Costing ₹10,000) for (+) (-)
+0 +0 =0 + 4, 000
₹14,000 14,000 10,000

New Equation 92,000 + 50,000 + 25,000 + 0 = 35,000 + 1,32,000

(h)
Cash paid to Ragani ₹35,000 (-) 35,000 + 0 +0 +0 = (-) 35,000 +0

(i) New Equation 57,000 + 50,000 + 25,000 + 0 =0 + 1,32,000

20 / 27
 Deposited into bank ₹20,000 (-) 20,000 + 0 +0 + =0 +0
20,000

+
Final Equation 37,000 + 50,000 + 25,000 =0 + 1,32,000
20,000
55. Accounting Equation
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

= 4,000 + 49,200
New Equation 48,700+3,000+500
8.
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

OR
= +
S.No. Transaction Assets
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
(2) 1,00,000 2,00,000 5,30,000

Purchased goods for Cash - 50,000 + 50,000 + 0 +0

+ + +
New Equation 1,80,000
(3) 1,50,000 2,00,000 5,30,000

Sold goods costing ₹20,000 for ₹35,000 + 35,000 - 20,000 + 0 + 15,000

+ +
New Equation 2,15,000 5,45,000
(4) 1,30,000 2,00,000

Purchased goods from Rahul 0 + 55,000 + 0 = +55,000 +0

(5) + + +
New Equation 2,15,000 = 55,000
1,85,000 2,00,000 5,45,000

Sold goods to Varun costing ₹52,000 0 - 52,000 + 0 + =0 + 8,000

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 for ₹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
(7) 1,33,000 2,00,000 60,000 5,55,000

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 - 60,000 = 0 - 1,000
settlement ₹59,000

+ +
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

+ + +
New Equation 2,01,000 +0 =0 + 3,000
(10) 1,33,000 2,00,000 5,31,000

Commission received + 13,000 +0 +0 +0 =0 +0 + 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.
56. 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

(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

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

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(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

OR
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
Transaction Assets = Liabilities + Capital

Prepaid Outstanding
Cash + Stock + Building + Debtors + = Creditors + + Capital
Expenses Expenses

(i) Manoj
started
business with 2,30,000 + 1,00,000 + 2,00,000 + 0 + 0 = 0 + 0 + 5,30,000
Cash, Goods
and Building

New equation 2,30,000 + 1,00,000 + 2,00,000 + 0 + 0 = 0 + 0 + 5,30,000

(ii) He
purchased (50,000) + 50,000 + 0 + 0 + 0 = 0 + 0 + 0
goods 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
0 + 55,000 + 0 + 0 + 0 = 55,000 + 0 + 0
goods 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)

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
(53,000) + 0 + 0 + 0 + 0 = (55,000) + 0 + 2,000
in full
settlement

New equation 1,62,000 + 1,33,000 + 2,00,000 + 60,000 + 0 = 0 + 0 + 5,55,00

(vii) Salary
(20,000) + 0 + 0 + 0 + 0 = 0 + 0 + (20,000)
paid by him

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 New equation 1,42,000 + 1,33,000 + 2,00,000 + 60,000 + 0 = 0 + 0 + 5,35,000

(viii) Received
cash from
59,000 + 0 + 0 + (60,000) + 0 = 0 + 0 + (1,000)
Varun 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

(xi)Commission
received by 13,000 + 0 + 0 + 0 + 0 = 0 + 0 + 13,000
him

New equation 2,12,000 + 1,33,000 + 2,00,000 + 0 + 2,000 = 0 + 3,000 + 5,44,000

(xii) Amount
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
capital 50,000 + 0 + 0 + 0 + 0 = 0 + 0 + 50,000
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

57. 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 = Liabilities + Capital

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

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

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 (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

58. 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

3 (10,000) 0 30,000 0 = 20,000 + 0
cash & balance through loan

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

59. 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
Assets = Liabilities + Capital

S.No. Particulars Cash +Stock +Plant +Bank +Furniture +Debtors = Creditors + Capital

Started business with

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

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 2 Purchased plant for (7,500) +0 +1,50,000 +0 +0 +0 = 1,42,500 + 0
Rs 1,50,000 by paying
Rs 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

3 (3,00,000) +0 +0 +3,00,000 +0 +0 = 0 + 0
the bank.

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
4 0 +0 +0 (50,000) +50,000 +0 = 0 + 0
50,000 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
5 (40,000) +57,500 +0 +0 +0 +0 = 17,500 + 0
cash and 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

Cheque received from

9 customer amounting 0 +0 +0 +37,500 +0 (37,500) = 0 + 0
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
60. 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

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

2 Purchased goods for cash Rs 24,000 (24,000) 60,000 0 0 = 36,000 0 + 0

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 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,

3 48,000 (36,000) 0 0 = 0 0 + 12,000
costing 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

Bought refrigerator for personal

7 (6,000) 0 0 0 = 0 0 + (6,000)
use

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)

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
======= =======

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