ACADEMY OF COMMERCE
ACCOUNTING EQUATION
1. What will be the effect of the following on the Accounting Equation:
(a) Harish started business with cash Rs. 18,000.
(b) Purchased goods for cash Rs. 5,000 and on credit Rs. 2,000.
(c) Sold goods for cash Rs. 4,000 (costing Rs. 2,400).
(d) Rent paid Rs. 1,000 and rent outstanding Rs. 200.
Answer:
Assets: Cash Rs. 16,000 + Stock Rs. 4,600 = Liabilities: Creditors Rs. 2,000 + Outstanding Rent Rs.
200 + Capital Rs. 18,400.
2. Prepare an Accounting Equation on the basis of the following transactions:
(a) Started business with cash Rs. 70,000.
(b) Credit purchase of goods Rs. 18,000.
(c) Payment made to creditors in full settlement Rs. 17,500.
(d) Purchase of machinery for cash Rs. 20,000.
(e) Depreciation on machinery Rs. 2,000.
Answer:
Cash Rs. 32,500 + Stock Rs. 18,000 + Machinery Rs. 18,000 = Liabilities: Creditors Nil + Capital
Rs. 68,500.
3. Prepare an Accounting Equation from the following:
(a) Started business with cash Rs. 50,000 and Goods Rs. 30,000
(b) Purchased goods for cash Rs. 30,000 and on credit from Karan Rs. 20,000.
(c) Goods costing Rs. 40,000 were sold for Rs. 55,000.
(d) Withdrew cash for personal use Rs. 10,000.
(e) Rent outstanding Rs. 2,000.
Answer:
Assets: Cash Rs. 65,000 + Stock Rs. 40,000 = Liabilities: Creditors Rs. 20,000 + Outstanding Rent
Rs. 2,000 + Capital Rs. 83,000.
4. Prepare an Accounting Equation from the following:
(a) Started business with cash Rs. 1,00,000.
(b) Purchased goods for cash Rs. 20,000 and on credit Rs. 30,000.
(c) Sold goods for cash costing Rs. 10,000 and on credit costing Rs. 15,000 both at a profit 20%.
(d) Paid salaries Rs. 8,000.
Answer:
Assets: Cash Rs. 84,000 + Stock Rs. 25,000 + Debtors Rs. 18,000 = Liabilities: Creditors Rs. 30,000
+ Capital Rs. 97,000.
5. Prepare the Accounting Equation on the basis of the following:
(a) Started business with cash Rs. 1,40,000 and Stock Rs. 2,50,000.
(b) Sold goods (Costing Rs. 50,000) at a profit of 25% on cost.
(c) Deposited into bank account Rs. 1,80,000.
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ACADEMY OF COMMERCE
(d) Purchase goods from Mohan Rs. 80,000.
Answer:
Assets: Cash Rs. 22,500 + Bank Rs. 1,80,000 + Stock Rs. 2,80,000 = Liabilities: Creditors Rs.
80,000 + Capital Rs. 4,02,500.
6. Prove that the Accounting Equation is satisfied in all the following transactions of Ramesh:
(a) Commenced business with cash Rs. 60,000.
(b) Rent paid in advance Rs. 500.
(c) Purchased goods for cash Rs. 30,000 and for credit Rs. 20,000.
(d) Sold goods costing Rs. 20,000 for cash Rs. 30,000.
(e) Paid salary Rs. 500 and salary outstanding Rs. 100.
(f) Bought Motorcycle for personal use Rs. 5,000.
Answer:
Assets: Cash Rs. 54,000; Stock Rs. 30,000; Prepaid Rent Rs. 500 = Liabilities: Creditors Rs.
20,000; Outstanding Salary Rs. 100; Capital Rs. 64,400.
7. Sunil had the following transactions. Use Accounting Equation to show their effects on his
assets, liabilities and capital:
(a) Commenced business with cash Rs. 50,000.
(b) Purchased goods for cash Rs. 20,000 and for credit Rs. 30,000.
(c) Sold goods costing Rs. 30,000 for cash Rs. 40,000.
(d) Rent paid Rs. 500.
(e) Rent outstanding Rs. 100.
(f) Bought furniture Rs. 5,000 on credit.
(g) Bought refrigerator for personal use of Sunil Rs. 5,000.
(h) Purchased building for cash Rs. 20,000.
Answer:
Assets: Cash Rs. 44,500; Stock Rs. 20,000; Furniture Rs. 5,000; Building Rs. 20,000 = Liabilities:
Creditors Rs. 35,000; Outstanding Rent Rs. 100; Capital Rs. 54,400.
8. R had the following transactions. Use Accounting Equation to show their effects on his Assets,
Liabilities and Capital:
(a) Investment Rs. 15,000 in cash;
(b) Purchase securities for cash Rs. 7,500;
(c) Purchased a building for Rs. 15,000 giving Rs. 5,000 in cash and the balance being treated as
loan;
(d) Sold securities costing Rs. 1,000 for Rs. 1,500;
(e) Purchased an old car for Rs. 2,800 in cash;
(f) Received cash as salary Rs. 3,600;
(g) Paid cash Rs. 500 for loan and Rs. 300 for interest;
(h) Paid cash for household expenses Rs. 300;
(i) Received cash for dividend on securities Rs. 200.
Answer:
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ACADEMY OF COMMERCE
Assets: Cash Rs. 3,900; Securities Rs. 6,500; Building Rs. 15,000; Car Rs. 2,800 = Liabilities: Loan
Rs. 9,500; Capital Rs. 18,700.
9. Provide that Accounting Equation is satisfied in all the following cases:
(a) Commenced business with cash Rs. 50,000.
(b) Paid rent Rs. 4,000 including Rs. 1,000 as advance.
(c) Bought goods for cash Rs. 30,000 and on credit Rs. 20,000.
(d) Sold the goods bought on credit for Rs. 25,000.
(e) Purchased furniture worth Rs. 10,000 for office use for Rs. 5,000 for domestic use.
Answer:
Assets: Cash Rs. 26,000 + Prepaid expenses Rs. 1,000 + Stock Rs. 30,000 + Furniture Rs. 10,000 =
Liabilities: Creditors Rs. 20,000 + Capital Rs. 47,000.
