Question

Accounting equation remains intact under all circumstances. Justify the statement with the help of an example

Answer 1

The double entry accounting system states that or every debit there is an equal amount of credit. 

Hence there is unlikely to be the equality of the total assets with the total claims of the business and the accounting equation will persist to be Assets = Liabilities + Capital,

Hence this equation will remain intact under all the circumstances.

The example for the same are as follows:

a. Mr. A started a business with cash Rs. 100000

Assets = Liabilities + Capital

Cash increases by 100000

100000 = 0 + 100000

b. Purchasdgoods on credit for Rs. 30000

Assets (Inventory) = 30000

Creditors = 30000

Assets = Liabilities + Capital

30000 = 30000 + 0