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Question
Write a brief note on accounting equation approach of recording transactions.
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Solution
The relationship of assets with that of liabilities to outsiders and to owners in the equation form is known as the accounting equation.
Under the double entry system of book keeping, every transaction has a two-fold effect, which causes the changes in assets and liabilities or capital in such a way that an accounting equation is completed and equated.
Capital + Liabilities = Assets
Capital can also be called as owner’s equity and liabilities as outsider’s equity.
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RELATED QUESTIONS
Accounting equation signifies ___________.
A firm has assets of ₹ 1,00,000 and the external liabilities of ₹ 60,000. Its capital would be ___________.
The incorrect accounting equation is _____________.
Real account deals with ____________.
Which one of the following is representative personal account?
How are personal accounts classified?
What is an Account?
Complete the accounting equation.
Assets = Capital + Liabilities
₹ 2,00,000 = ? + ₹ 40,000
For the following transactions, show the effect on the accounting equation.
- Raj started business with cash - ₹ 40,000
- Opened bank account with a deposit of - ₹ 30,000
- Bought goods from Hari on credit for - ₹ 12,000
- Raj withdrew cash for personal use - ₹ 1,000
- Bought furniture by using debit card for - ₹ 10,000
- Sold goods to Murugan and cash received - ₹ 6,000
- Money withdrawn from bank for office use - ₹ 1,000
Create an accounting equation on the basis of the following transactions:
- Rakesh started business with a capital of ₹ 1,50,000
- Deposited money with the bank ₹ 80,000
- Purchased goods from Mahesh and paid through debit card ₹ 25,000
- Sold goods (costing ₹ 10,000) to Mohan for ₹ 14,000 who pays through debit card
- Commission received by cheque and deposited the same in the bank ₹ 2,000
- Paid office rent through ECS ₹ 6,000
- Sold goods to Raman for ₹ 15,000 of which ₹ 5,000 was received at once
