Question

Rohit has the following transactions:

(a)	Commenced business with cash	₹ 1,50,000
(b)	Purchased machinery on credit	₹ 40,000
(c)	Purchased goods for cash	₹ 20,000
(d)	Purchased car for personal use	₹ 80,000
(e)	Paid to creditors in full settlement	₹ 38,000
(f)	Sold goods for cash costing ₹ 5,000	₹ 4,500
(g)	Paid rent	₹ 1,000
(h)	Commission received in advance	₹ 2,000

Prepare the accounting equation to show the effect of the above transactions on the assets, liabilities and capital.

Answer 1

No.	Transaction	Assets						Liabilities			+	Capital
		Cash	+	Machinery	+	Stock	=	Creditors	+	Unaccrued Income
(a)	Increase in cash	1,50,000
	Increase in capital											1,50,000
		1,50,000	+	0	+	0	=	Nil	+	0	+	1,50,000
(b)	Increase in machinery			40,000
	Increase in creditors						=	40,000
		1,50,000	+	40,000	+	0	=	40,000	+	0	+	1,50,000
(c)	Increase in stock					20,000
	Decrease in cash	(20,000)
		1,30,000	+	40,000	+	20,000	=	40,000	+	0	+	1,50,000
(d)	Decrease in cash	(80,000)
	Decrease in capital (Drawing)											(80,000)
		50,000	+	40,000	+	20,000	=	40,000	+	0	+	70,000
(e)	Decrease in creditors							(40,000)
	Decrease in cash	(38,000)
	Increase in capital											2,000
	(Discount received)
		12,000	+	40,000	+	20,000	=	Nil	+	0	+	72,000
(f)	Increase in cash	4,500
	Decrease in stock					(5,000)
	Decrease in capital (Loss)											(500)
		16,500	+	40,000	+	15,000	=	Nil	+	0	+	71,500
(g)	Decrease in cash	(1,000)
	Decrease in capital (Expense)											(1,000)
		15,500	+	40,000	+	15,000	=	Nil	+	0	+	70,500
(h)	Increase in cash	2,000
	Increase in unaccrrued income									2,000
		17,500	+	40,000	+	15,000	=	Nil	+	2,000	+	70,500
	Total	72,500					=	72,500