CHAPTER

5
Accounting Equation
LEARNINGOBJECTIVES
This chapter would enable students to understand:
DMeaning of an Accounting Equation
nEffect of Transactions on ACCounting Equation
OProcess of Preparing Accounting Equation
ORules for Accounting Equations
DEfect of Adjustment Transactions on Accounting Equation

MEANINGOF AN ACCOUNTING EQUATION

Accounting Equation is a mathematical expression based on Dual Aspect Concept
of Accounting.
Accounting Equation is based on the Dual Aspect Concept of accounting It meansevery
transaction has dual aspect or twO aspects-debit and credit. It holds that for every
debit there is a credit of equal amount and vice versa. It means, total claims (those of
outsiders and of the proprietors) will always be equal to the total assets of the frm. The
claims, also known as equities, are of two types:
1. Owner's equity or capital and
2. Liabilities or amounts due to outsiders (i.e., Outsiders' Equity).
We can express it mathematically as follows:
Assets = Equities (Total Claims) Or Assets = Liabilities + Capital
Or Liabilities = Assets -Capital Or Capital = Assets - Liabilities
The above relationship is known as the Accounting Equation or the Balance
Sheet Equation.
An Accounting Equation always holds true with every change that occurs due to a
transaction entered into. It is because of the reason that it is based on the Dual Aspect
Concept of accounting.
EFFECT OF TRANSACTIONS ON ACCOUNTING EQUATION
Atransaction may affect either both sides of the equation by the same amount or one
Side of the equation only, by both increasing or decreasing it by equal amounts.
Transactions from the Accounting Equation viewpoint, can be divided into two, i.e.,
1. Transactions Affecting Two Items, and
2. Transactions Affecting More Than Two Items.
Let us discuss them in detail.
S.2
Double Entry Book Keeping--CBSE Y
1. Transactions Affecting T°o ltems
As the title suggests. these are those transactionsthat affect two items of the:
equation or Balance Sheet. accounting
Transactions affecting opposite sides are:
() Increase in Asset, Increase in Liability
Transaction such as credit purchases increase asset (stock) and also increase
(creditor). Similarly, Loan from bank increases asset (cash or bank) and also liability
liability (Bank Loan). increases
(i) Decrease in Liability, Decrease in Asset
Transaction of pavment to a creditor decreases liability (creditor) and also reduces
asset (cash or bank).
(ii) Increase in Asset, Increase in Owner's Capital
Introduction of capital by the proprietor increases asset (cash or bank) and also liability
(owner s capital).
(iv) Decrease in Owner's Capital, Decrease in Asset
Drawings by the proprietor decrease liability (owner's capital) and also asset (cash or bank.
Transactions affecting same side but in opposite direction are:
(i) Increase in Asset, Decrease in Another Asset
Transactions such as cash purchases or receipt from debtors increase one asset (goods
and cash or bank, respectively) and decrease another asset (cash or bank and debtors).
(ii) Decrease in Liability, Increase in Another Liability
Settlement of creditor by issue of shares or debentures decreases a liability (creditor)
and increases another liability shares or debentures.
2. Transactions Affecting More Than Two Items
Some transactions affect more than two items of the accounting equation or a
Sheet. For example, when a sale is made in cash for 30,000, it is made Balance at cost
25,000) plus profit 5,000). Cost of goods ( 25,000) reduces asset (stock of goods);
cash increases by 30,000 and the owner's capital increases by the profit (
should be noted that profit increases the owner's capital and loss decreases 5,000). It
it.
PROCESS OF PREPARING ACCOUNTING EQUATION
The process of Accounting Equations begins with:
1. Ascertaining Assets, Liabilities or Capital effected by a transaction.
2. Deciding the effect (in terms of increase or decrease) of a
transaction on Assets,
Liabilities or Capital.
3. Recording the effect on the relevant side of the equation.
Let us take few transactions to understand the accounting equation.
Suppose,Rakesh starts business and the following successive transactions are entered into:
(1) He commences his business with 20,000 as Capital.
Effect: It means that the firm has assetstotalling 20,000 in the form of cash and
claims against the firm are also 20,000 in the form of capital.
AcCounting Equation 5.3

The equation stands as follows:

Assets Liabilities Capital
Cash Rakesh's

Capital Introduced 20,000 0 20,000

Purchases furniture for 500 in cash.

Effect:It means cash in hand is reduced by 500 but a new asset (furniture) of the
same amount has been purchased. Thus, total of assets remains unchanged.
The equation willnow appear as follows:
Assets Liabilities + Capital
Cash Furniture Rakesh's

Old Balance 20,000 0 20,000

New Transaction - 500 500
New Balance 19,500 + 500 0 20,000

It may be noted that the total assets remain equal to liabilities plus capital.
3) Purchases goods for ? 1,000 in cash.
Effect: It means cash in hand is reduced by 1,000and another asset, i.e., stock
has come into existence. However, total of assets remains unchanged.
The equation now will be as follows:
Assets Liabilities Capital
Cash Furniture + Stock Rakesh's

Old Balance 19,500 + 500 + + 20,000

0
New Transaction -1,000 1,000
New Balance 18,500 + 500 + 1,000 0 20,000

(4) Purchases goods for 2,000 on credit.

Effect: It means the stock has increased by ? 2,000 increasing the total assets to
722,000. A liability of T2,000 to the supplier of the goods (creditor) has arisen. The
equation now will be as follows:
Assets Liabilities Capital
Furniture Stock Creditors + Rakesh's
Cash +

Old Balance 18,500 + 500 + 1,000 20,000

New Transaction 0 + 2,000 2,000 0

New Balance 18,500 500 + 3,000 2,000 + 20,000

(5) Sold goods costing 2,500 on credit for 4,000.

Effect: It means a debtor has come into existence to the extent of? 4,000. The stock
1s reduced only by 2,500, being the cost of goods sold. Net increase in assets,
? 1,500(i.e., 7 4,000 2,500) (profit) will be added to the capital.
5.4 Double Entry Book Keeping-CBSE Y

The equation now will appear as follows:

Liabilities
Assets Capitl
Cash Furniture Stock 4 Debtors Creditors Rakesh's
Old Balance 18,500 500 4 3,000 2,000 20,000
New Transaction 2,500 4,000 1,500
New Balance 18,500 + 500 500 4,000 2,000 21,500
(6) PaidR 1,000 for rent and 5,000 for salaries.
Effect: It means cash in hand has reduced by6,000: these are expenses and no asset
comes intoexistence. Hence, capital will be reduced by this amount, as shown below:
Assets Liabilities + Capital
Cash Furniture Stock Debtors Creditors Rakesh's
Old Balance 18,500 500 500 4,000 2,000 21,500
New Transaction -6,000 0 0 6,000
New Balance 12,500 S00 S00 4,000 2,000 15,000
(7) Rakesh withdraws 2,000for his personal use.
Effect: Cash in hand is reduced by 2,000 and capital will also reduce by the same
amount. The new Accounting Equation will be as follows:
Assets Liabilities + Capital
Cash Furniture + Stock Debtors Creditors Rakesh's

Old Balance 12,500 + 500 500 4,000 2,000 + 15,500

New Transaction - 2,000 0 2,000
New Balance 10,500 + 500 + 500 + 4,000 2,000 + 13,500

It will be observed from above that the total of assets will always be equal to the total
of liabilities and the capital. The last equation stated above can also be presented in
the form of a statement, i.e., Balance Sheet as given below:
BALANCE SHEET OF RAKESH as at...
Liabilities Assets
Creditors 2,000 Cash 10,500
Capital 15,500 Stock S00
Less: Dravwings 2,000 13,500 Debtors 4,000
Furniture 500
15,500 15,500

The Balance Sheet shows the sources from which funds have been obtainedthe left
hand side does that; in the above case, 2,000 have been obtained from outsiders and
13,500 have been contributed by the proprietor. The other side known as assets side
shows how the funds stand invested.
A conclusion apparentfrom the transactions given above is that every transaction has
two sided effect. In other words, the Dual Aspect Concept will always hold good. A
reduction or increase in an asset will have a corresponding effect on liabilities or capital.
This is because of the rule that every receiver is a giver and every giver is a receiver.
Accounting Equation 5.5

[llustration 1.
show Accounting Equation on the basis of the following transactions:
1. Gurman started business with cash 1.00,000.
, Purchased goods in cash 50,000.
Purchased furniture trom M/s Samrat Furnitures 20,000.
,Sold goods costing 25.000 for 35,000against cash.
Ms Samrat Furnitures was paid in cash.
Solution:

S Na. Transactions Assets Liabilities Capital

Gurman started business with cash 1,00,000 1.00,000

2 Purchased goods in cash + 50,000
- 50,000
New Equation 1,00.000
1,00,000
Purchased fumiture from Ms Samrat Furnitures (Note 1) + 20,000 20,000
New Equation 1,20,000 20,000 1,00,000
Sold goods costing ? 25,000 - 25,000
for 35,000 (Note 2) +35,000 10,000
New Equation 1,30,000 20,000 1,10,000

5. Paid to M/s Samrat Furnitures - 20,000 -20,000

New Equation 1,10,000 1,10,000

Notes: 1. The transaction with M/s Samrat Furnitures 20,000) is acredit transactionsince it isnot stated to
be cash payment.
2. Sale of goods has resulted in a profit of ?10,000. It has been added to capital because net profit at
the year end is transferred to Capital Account.
Illustration 2.
Prepare the Accounting Equation on the basis of the following:
1. Started business with cash 70,000.
2. Credit purchases of goods 18,000.
3. Payment made to creditors in full settlement 17,500.
4. Purchase of machinery for cash 20,000. (KVS)

Solution:
S. Na Transactions Assets Liabilities Capital
Cash () + Stock() + Machinery = Creditors ) + Capital
Started business with cash 70.000 70,000 + 0 0 70,000
Credit Purchases of goods 18,000 18,000 =
18,000
70,000 18,000 18,000 70,000
New Equation
3. Payment made to creditors in
-17,500 0 -18,000 500
fullsettiement =

New Equation 52,500 + 18.000 0 70,500

4. Purchase of machinery for cash -20,000 + 20,000 +

32,500 + 18,000 20,000 0 70,500

New Equation 4
S6 Double Entry Book Keeping-CBsEr
Illustration 3.
Prepare the Accounting Equation on the basis of the following.
1. Rakesh commenced business with cash. 1.3).055,
2. Furniture purchased for cash. 20.00
3. Purchased goods from Mahesh on credit. 25.006
4. Sold goods (costing 10.000) to Mohan for cash. 14.006)
5. Additionalcapital introduced. 20.000
6. Commission received in advance. 2.00
7. Paid to creditor (Mahesh) in full settlement. 22.3504)
6. Sold goods (costing ? 15.000) for 18.000 out of which 5.000
received in cash.
9. Depreciation on furniture provided @10%.
Solution:
S. Transactions Assets Liabilities + Capital
No. Cash + Furniture + Stock Debtors Creditors + Commin. + Capita
Recd in
Advance
1. Rakesh Commenced
business with cash 1,50,000 + 0+ 0 + 150.00
2. Furntiure purchased
for cash -20,000 20,000 + 0 + 0 = 0+
New Equation 1.30,000 + 20,000 + 0 = 0 + 1,50.000
3. Purchased goods from
Mahesh 0 + 25,000 + 25,000 0+
New Equation 130,000 + 20,000 + 25,000 + 0 = 25,000 0 + 1.50.000
4 Cash Sales
(Proft 14D09- 10,000) 14,000 + 0 - 10,000 + 0 = 0+ 4,000
New Equation 144,000 + 20,000 + 15,000 + 0 25,000 1.34.000
5. Additional capital
introduced 20,000 + 0 + 0 + 0+ 0 20,000
New Equation 1,64,000 + 20,000 + 15,000 + 0 = 25,000 0 + 1,74,000
6 Comnissíon received
in advance 2,000 + 0 + 0 = 2,000 +
New Equation 1,66,000 + 20,000 + 15,000 + 0 = 25,000 + 2,000 +t 1,74,000
7. Paid to creditor Mahesh
22,500 in full settlement -22,500 + 0 + 0 + 0 -25,000 2.500
New Equation 143,500 + 20,000 t 15,000 + 0 2.000 + 1,76,500
8. Sold goods (costing
? 15,000) for 18,000
out which 5,000
received in cash 5,000 + 15,000 t 13,000 0 + 3.000
New Equation 148,500 + 20,000 + 0 + 13,000 2,000 + 1,79,500
9. Depreciation on furniture
@ 10% on?20,000 2,000 0 + 0 2,000
New Equation 148,500 + 18,000 0 + 13,000 2.000 + 1,77,500
ACCOUntingEquation
5.7

[llustration 4.
Present the following transactions in the Accounting Equation:

200
, Gauman started bUsiness with cash?25.000 and 6. Paid rent
100
chegue of 25,000 to open a Bank AccoUnt 7. Received interest from Bank
700
Purchased goods on credit 4,000 8. Sold goods on credit (cost 500)
2
400
Purchased goods for cash 1,000 9. Paid to creditors
3.
200
A Purchased furniture for cash 500 10. Paid Petty Expenses
t Withdrew cash for personal use from Bank 700

Solution:

Capital + Liabilities
S. Transactions Assets
Cash + Bank Stock + Furniture + Debtors = Capital 4 Creditors
No.

Gurman started business

with cash? 25,000and
cheque of 25,000 25,000 + 25,000 + + 50,000 +

2. Purchased goods on 4,000

credit for 4,000 + 0 + 4,000 + +

New Equation 25,000 + 25,000 + 4,000 + 0 50,000 + 4,000

3. Purchased goods for

cash for 1,000 -1,000 + 0+ 1,000 + + 0

24,000 + 25,000 + 5,000 + 0 50,000 + 4,000

New Equation
4. Purchased furniture for
cash for 500 -500 + 0 + + 500 + 0 +

23,500 + 25,000 + 5,000 + 500 + 0 50,000 4,000

New Equation
5. Withdrew cash for
personal use 700
from Bank 0 - 700 + + + -700 +

New Equation 23,500 + 24,300 + 5,000 500 + 49,300 4,000

6. Paid rent 200 (Note 1) -200 + 0 + + + 0 -200 +

23,300 + 24,300 + 5,000 + 500 + 0 49,100 + 4,000

New Equation
7. Received interest 100 +
0+ 100 + + + 0 100
(Note 2) +

New Equation 23,300 + 24,400 + 5,000 + 500 0 49,200 4,000

8. Sold goods costing

500 for?700 on
0- 500 + 700 200 + 0
credit (Note 3) 0+
New Equation 23,300 t 24,400 + 4,500 + 500 + 700 49,400 4,000

9. Paid to creditors 400 -400 + 0 + + 0 + 0 400

New Equation 22,900 + 24,400 + 4,500 + 500 + 700 49,400 + 3,600

10. Paid Petty Expenses

200 (Note 4) -200 + 0+ 0 + + -200
New Equation 22,700 + 24,400 + 4,500 500 + 700 49,200 + 3,600
5.8 Double Entry Book Keeping--CBsE Y
Notes:
1. Rent paid will reduce cash by ? 200. Rent being an expense will reduce profit by ? 200. Thus, capital will
reduced by ? 200.
2. Interest received from Bank will increase Bank Balance. It being an income will increase profi
{ 100. Thus, capital will be increased.
3. Stock will be reduced by 500 and Debtors will be increased by ?700. Capital will be increased by
0
(i.e., 7 700- 500)being profit.
4. As explained in Note 1.
Effect of Adjustment Transactions on Accounting Equation
1. Outstanding Expenses are those expenses which have
not been paid.
been incurred but have
Treatment in Accounting Equation:
" Deduct from Capital as it is an expense
and will reduce profit for the current
accounting period.
" Make a new column on the Liabilities side in
the name of Outstanding
Expenses' as the amount is still to be paid.
2. Prepaid Expenses are those expenses which have
been paid in advance, i.e., they
are not yet due but paid.
Treatment in Accounting Equation:
" Deduct fromn Cash as there is an outflow of
cash.
Make a new column on the Assets side in the name of
Prepaid Expenses' as
the amount is paid in advance.
3. Accrued Income is that income which has been
earned but not received during
the current accounting period.
Treatment in Accounting Equation:
" Add in Capital as it is an income and will
increase profit for the current
accounting period.
" Make a new column on the Assets side in the name of
'Accrued Income' as the
amount is still to be received.
4. Unearned Income or Income Received in
Advance is that income which has
been received but not earned during the current accounting
period.
Treatment in Accounting Equation:
" Add in Cash as there is inflow of cash,
" Make a new column on the Liabilities side in the name of
Unearned Income'
as the amount is received in advance.
Illustration 5.
Howare the following items dealt in Accounting Equation?
(i) Interest due but not received 5,000
(iü) Rent received in advance 10,000
(iii) Insurance premium paid in advance 15,000
(iv) Salaries due but not paid 20,000
ACCOuntingEquation 5.9

Solution:

() Interest
due but not received shall be addedto assets on one side and to the capital
onother side.
(i1) It willincrease cash on the assets side and increase the liabilities.

(i)
It will decrease one asset (cash) and increase another asset (Prepaid insurance).
Salary being an expense will be deducted from the capital andbeing unpaid will
be added to liabilities.

Illustration 6.
Anil had the following transactions:
1 Commenced business with cash 50.000.
9. Purchased goods for cash 20,000 and credit 30,000.
3. Sold goods for cash 40,000, costing 30,000.
4 Rent paid ? 500, Salaries 5,000.
5. Rent outstanding? 100, Salaries Outstanding ? 1,000.
6 Bought furniture for ? 5,000 on credit.
7, Bought refrigerator for personal use 5,000.
8. Purchased computer for cash 20,000.
9. Cash withdrawn for personal use 10,000.
10. Interest on drawings charged 500 and the interest on Capital ? 1,000.
Use Accounting Bquation to show the effect of the above transactions on his assets,
liabilities and capital and also show his Balance Sheet.
Solution: Solution on Page No. 5.10.
Illustration 7.
Prepare Accounting Equation of the following transactions and also the Balance Sheet:

1. Manu started business with cash. 1,00,000

Opened a Bank Account and transferred 4,00,000 from his
Savings Account.
2. Purchased a building from Sohan for 12,00,000 paid by
taking a loan from SBI. 10,00,000
3. Paid interest on loan 20,000 and instalment of ? 1,00,000.
4. Purchased goods from Rohan on credit. 1,00,000
5. Goods returned to Rohan costing 20,000
6. Sold goods costing 40,000for 50,000 on credit to Ram.
7. Took goods from business for personal use. 10,000
8. Accrued interest. 5,000
9. Commission received in advance. 20,000
10. Cash received from Ram. 10,000
Solution: Solution on Page No. 5.11.
5.10 Double Entry Book Keeping-CBSE Y

Solution: (llustration 6, Page No. 5.9)

S. Transactions Assets Liabilities + Capital
No Cash + Stock + Furniture + Computer = Creditors* + Expenses + Capita|
Outstanding

1. Commenced business
with cash 50,000 50,000 + 0 + 0 + + 50,000
2. Purchased goods for
cash 20,000 and
credit 30,000 -20,000 + 50,000 + + 30,000 + +

New Equation 30,000 + 50,000 + + 30,000 + 50,000

3. Sold goods for cash
40,000 costing
30,000 40,000 - 30,000 + 0 0 0 + 10,000
New Equation 70,000 + 20,000 + 0 +|
+ 30,000 0 + 60,000
4 Rent paid -500 + 0 + + 0 0 0 500
Salaries paid -5,000 5,000
New Equation 64,500 + 20,000 + + 30,000 0 + 54,500
5 Rent Outstanding 100 100
Salaries Outstanding 0 + 0 + + 0 1,000 1,000
New Equation 64,500 + 20,000 + + 30,000 1,100 + 53,400
6. Bought furniture for
5,000 on credit 0+ 0 + 5,000 + 5,000 + 0
New Equation 64,500 + 20,000 + 5,000 + 35,000 1,100 + 53,400
7. Bought refrigerator
for personal use
5,000 -5,000 + 0 + 0 + 0 5,000
New Equation 59,500 + 20,000 + 5,000 + 35,000 1,100 + 48,400
8. Purchased computer
-20,000 + 0+ + 20,000 0 0
for cash ? 20,000
New Equation 39,500 + 20,000 + 5,000 + 20,000 35,000 1,100 + 48,400
9. Cash withdrawn for
-10,000 + 0+ 0 + 0 0 10,000
personal use
New Equation 29,500 + 20,000 + 5,000 + 20,000 35,000 1,100 + 38,400
10. Interest on drawings 0+ 0 + + 500
500
Interest on Capital 1,000
+ 1000
New Equation 29,500 +t 20,000 + 5,000 20,000 35,000 1,100 + 38,400

*Including creditors for furniture 5,000.

BALANCE SHEET OF ANIL as at...
Liabilities Assets
Creditors 35,000 Cash in Hand 29,500
(including vendor for furniture 5,000) Stock 20,000
Expenses Outstanding 1,100 Furniture 5,000

38,400 Computer 20,000

Capital
74,500 74,500
Solution: (Illustration 7, Page No. 5.9)
S. No. Transactions Assets Liabilities Capital
Cash + Bank + Building + Stock Debtors + Accrued = Loan + Creditors Comm. 4 Capital
Interest from SBI Recd. in AcEouqntiag
Advance

Started business with cash

and Opened Bank Account
with 4,00,000 1,00,000 + 4,00,000 0 + 0 = 0 + 5,00,000
2 Building Purchased
on loan from SBI - 2,00,000 + 12,00,000 + 0 = 10,00,000
New Equation 1,00,000 + 2,00,000 + 12,00,000 + + 0 = 10,00,000 + 0 + 5,00,000
3. Paid Interest on Loan
?20,000 and Instalment of
1,00,000 - 1,20,000 + 0 + 0 = -1,00,000 20,000
New Equation 1,00,000 80,000 + 12,00,000 + 0 = 9,00,000 + + 4,80,000
4 Purchased Goods from Rohan + + 0+ 1,00,000 + 0 = + 1,00,000 0+
New Equation 1,00,000 + 80,000 + 12,00,000 + 1,00,000 + 0 ++ 0 = 9,00,000 1,00,000 0 + 4,80,000
5 Goods Returned to Rohan ,

Costing 20,000 + + 20,000 + 0 + 0 = 20,000 0 +

New Equation 1,00,000 + 80,000 + 12,00,000 + +80,000 + + 0 = 9,00,000 80,000 0 + 4,30,000
6. Sold Goods worth 50,000
(Costing 40,000) on credit
to Ram (Profit = 50,000
+ 0 0 - 40,000 + 50,000 0 = + 0 +
40,000=10,000) 10,000
New Equation 1,00,000 + 80,000 + 12,00,000 + 40,000 + 50,000 0= 9,00,000 80,000 0 + 4,90,000
7 Took Goods of 10,000
for Personal Use + + 10,000 0 = + 0 10,000
1,00,000 + 80,000 + 12,00,000 + 30,000 + 50,000 0 = 9,00,000 + 80,000 +
New Equation 0 + 4,30,000
8 Accrued interest + 0 + 0 + 5,000 = + 0 + 0 + S,000
New Equation 1,00,000 80,000 + 12,00,000 + 30,000 50,000 5,000 = 9,00,000 80,000 + 0 + 4,85,000
9 Commission Received in
Advance?20,000 20,000 + + 0 + + 0 = + 20,000 t
New Equation 1,20,000 80,000 + 12,00,000 + 30,000 50,000 5,000 9,00,000 + 80,000 20,000 t 4,35,000
10. Cash Received from Ram 10,000 + 0 + 10,000 0 = 0 t

New Equation 1,30,000 80,000 + 12,00,000 + 30,000 40,000 5,000 = 9,00,000 80,000 20,000 + 4,85,000
5.1
5.12 Double Entry Book Keeping-CBSE Y
BALANCE SHEET OF MANU as at ..
Liabilities Assets
Capital 4,85,000 Cash in Hand
Loan from SBI
130,000
9,00,000Cash at Bank 80,000
Creditors 80,000 Stock
Commission Received in Advance
30,000
20,000| Debtors 40,000
Accrued lnterest
S,000
Building 12,00,000
14,85,000 14,85,000
Illustration 8.
Give an example for each of the following types of transactions:
1. Increase in one asset, decrease in another asset.
2. Increase in asset, increase in lhability.
3. Increase in asset, increase in owner scapital.
4. Decrease in asset, decrease in liability.
5. Decrease in asset, decrease in owners capital.
6. Decrease in liabilities, increase in owner's capital.
7. Increase in liabilities, decrease in owner's capital.

Solution:
1. Purchase of furniture for cash-Increase in furniture and decrease in cash.
2. Purchase of furniture on credit-Increase in furniture and increase in liability.
3. Capital introduced by proprietorIncrease in cash and increase in capital.
4. Payment to creditors- Decrease in cash and decrease in creditors,
5. Cash withdrawn by proprietor-Decrease in cash and decrease in capital.
6. Conversion of partner's loan into capital-ncrease in capital and decrease in loan.
7. Outstanding expenses provided-Increase in creditors for outstanding expenses
and decrease in capital.

Calculation of Total Assets, Capital and Other Variables

Illustration 9.
If the capital of a business is 70,000 and liabilities are of 40,000, calculate the
total assets.

Solution:
Total Assets =Capital + Liabilities = 70,000 + 40,000 = 1,10,000.
AccOunting Equation 5.13

llustration10.
Fromthe following information, calculate the total assets of the business:
Capital? 4.00,000; Creditors 3,00,000; Revenue earned during the period 7,50,000:
Expenses incurred during the period 2,00,000; Value of unsold stock 2.00,000.

Solution:

Total Assets = Liabilities (Creditors) + Capital + Profit

= 3,00,000+*4,00,000 +75,50,000(i.e.,37,50,000-2,00,000)
=R 12,50,000(including2,00,000 Closing Stock).
Illustration 11.
Curman commenced his cloth business on lst April. 2022 with a capital of 30,000. On
g1st March, 2023 his assets were 50,000 and liabilities were 10,000. Find out his
closing capital and profits earned during the year.
Solution:
Total Assets = Capital + Liabilities
50,000 = Capital + 10,000
Closing Capital = 50,000 10,000 =40,000
Profit = Closing Capital - Opening Capital
=40,00030,000 = 10,000.
Illustration 12.

Calculate total liability if:

1. Owner's capital in the beginning is 60,000. 2. Creditors at the end is 50,000.
3. Revenue during the period is 70,000. 4. Expenses during the period are 65,000.
Also calculate amount of owner's capital at the end.
Solution:
Total Liability = Owner's Capital at the end + Creditors
=65,000 + 50,000 = 1,15,000.
Owner's Capital at the end = Owner's Capital in the beginning +Revenue -Expenses
=60,000 + 70,000 65,000 = 65,000.
Illustration 13.
Xstarted a business on lst April, 2022 with a capital of ? 50,000 and a loan of 25,000
taken from Y. During 2022-23, he had introduced additional capital ofB 25,000 and had
withdrawn 15,000 for personal use. On 31st March, 2023 his assets were ? 1,50,000.
Find his capital as on 31st March, 2023 and profit made or loss incurred during the
year 2022-23.
 S.14
Double Entry EBook Keeping- -CBSEX
Solution:
Closing Capital= Closing Assets -Closing Liabilities (i.e., Y'sLoan)
= 1,50,000 25,000 = 1,25,000.
Profit = Closing Capital + Drawings - Additional Capital -Opening
= 1,25,000 + 15,000-25.000 - 50,000 = 65,000. Capital
Illustration 14.
On 3lst March, 2023. the total assets and external liabilities were ? 1,00,000 .
?3,000 respectively. During the year, the proprietor had introduced additional.
of capital
10,000and had withdrawn 6,000 for personal use. He made a profit of ? 10.000
during the year. Calculate the capitalas on lst April, 2022.
Solution: Closing Capital = Closing Assets -Closing External Liabilities
=71,00,000 3,000=97,000.
Opening Capital = Closing Capital +Drawings - Additional Capital -Profts
=797,000 +6,000 - 10,000 10,000 = 83.000
Illustration 15.
Calculate the amount of External Liabilities as on 31st March, 2023 in each of
the following cases:
(i) On 31st March, 2023. total assets and capital were l5,00,000 and 8,50.000
respectively.
(ii) On lst April, 2022, Anil started business with a capital of 2,00,000 and a loan
of ? 50,000 borrowed from a friend. During 2022--23, he earned profit of 50,000.
On 31st March, 2023, the total assets were 6,00,000.
(iii) On lst April, 2022, Sohan started a business with a capital of 5,00,000 and a
loan of 2,50,000 borrowed from a friend. During 2022-23, he earned a proit
of 2,50,000, introduced an additional capital of 3,00,000 and had withdrawn
?1,50,000for his personal use. On 3lst March, 2023, the total assets were 20,00,000.
Solution:
(i) External Liabilities = Assets - Capital
=715,00,000 8,50,000=76,50,000.
(ii) Closing Capital = Opening Capital + Additional Capital + Profit Drawings
=72,00,000 +0 + 50,000 0 = 2,50,000.
External Liabilities = Assets - Closing Capital
=6,00,000 2,50,000 = 3,50,000.
(iii) Closing Capital =5,00,000+ 3,00,000 +*2,50,000 - 1,50,000 =9,00,000
External Liabilities =? 20,00,000-9,00,000 = 11,00.000.

Scan QR Code for Additional Illustration

Accounting Equation 5.15

QUESTIONS
uiaher Order Thinking Skills (HOTS)Questions
Q. 1. Do you think that a transaction can break the Accounting Equation?
Ans. No, a transaction can only change the Accounting Equation but cannot break it.
o2. Goods costing ? 10,000 have been sold for cash at 25% profit. How will the transaction
be shown in the Accounting Equation?
Ans. Increase cash by ?12,500; Decrease stock by ? 10,000; and Increase capital by 2,500.
o.3. The capital of abusiness is 2,00,000 and outside liabilities are 1,50,000. Calculate
the total assets of the business.
Ans. 3,50,000 (Capital +Outside Liabilities = Assets).
9.4. If total assets of a business are ? 1,30,000 and capital is ? 80,000, calculate the outside
liabilities.
Ans. 50,000 (Outside Liabilities = Total Assets - Capital).
o.5. If total assets of the business are 4,50,000 and outside liabilities are 2,00,000.
calculate owner'sequity. (MSE Chandigarh)
Ans. Assets = Owner's Equity + Liabilities
4,50,000= Owner's Equity +72,00,000
Owner's Equity = 2,50,000.
Q. 6. Jaspal has purchased a car for 5,00,000 which he got financed from a Bank to the
extent of 4,00,000. How will it be shown in the accounting equation?
Ans. ? 1,00,000 will be deducted from Asset (Cash/Bank); Asset (Car) will be shown at
5,00,000 and Bank Loan (on the Liabilities side) will be shown at 4,00,000.
Q.7. Amit has incurred an expense of 5,000 towards repairs. However, the amount is yet
tobe paid. How will it be shown in the accounting equation?
Ans. It is an outstanding expense. It will be shown in the accounting equation as deduction
from capital and as an Outstanding Expense on the Liabilities side.
Q. 8. Show the accounting equation if there are no liabilities.
Ans. Assets = Capital.

Multiple Choice Questions (MCQs)

Select the correct alternative:
(i) Which of the following equation is correct?
(a) Assets + Capital = Liabilities (b) Assets - Liabilities = Capital
(c) Assets + Liabilities = Capital () None of these.
(ii) Which of the following is correct?
Assets Liabilities Capital
(a) ?7,85,000 71,25,000 ? 6,60,000
(6) 8,20,000 2,80,000 ?11,00,000
(c) 9,55,000 71,15,000 7 8,20,000
(d) ?5,42,000 I6,54,000 1,12,000
5.16 Double Entry Bosk Keepirgce#,
(ii) Amount withdrawn by proprictor or personal use will... Cash and Capital.
(a) Increase (b) Decrease
(c) Not Change (d) None of thee.
(0) Which accounting equation is incorrect out of the following?
(a) Liabilities = Assets -- Capital (b) Assets = Liahilities Capital
(c) Capit.al = Assets - Liabilities (d) Assets = Liabilities + Capital
(V) The liabilities of a firm are 3.000: the capital of the proprietr 1s ? 7,00. The tre
assets are
(a) 7,000. (6) 10,000.
(c) 4,000. (d) None of these.
()) X commenced business on 1st April, 2013 with a capital of 6,00,000. On 31st March
2014, his assets were worth8,00,000 and liabilities 50,000. Findout his closing capital
(a) ? 7,50,000 (b) 2,00,000
(c) 5,50,000 (d) None of these. (KVS
(vii) An increase in one asset is accompanied by
(a) Decrease in another asset. (b) increase in a liability.
(c) Increase in capital. (d) All of these.
(viii) Decrease in one liability may lead to
(a) Decrease in an asset. (b) Increase in another liability.
(c) Either (a) or (6). (d) None of these.
(ix) Purchase of machine by cash means
(a) Decrease in asset and decrease in liability.
(6) Increase in asset and decrease in asset.
(c) Increase in asset and decrease in liability.
(d) Decrease in asset and increase in capital.
(x) Payment to a creditor means
(a) Increase in asset and decrease in liability.
(6) Decrease in asset and decrease in liability.
(c) Decrease in asset and increase in liability.
(d) Increase in asset and increase in liability.
[Ans.: (i) (b): (i) (a); (ü)) (6); (iv) (6): (u) (b): (v) (o:
(vii) (d): (vi)(c): (ix) (b): () (b).)
(Objective Type Questions
1. State whether the following statements are True or False:
(i) Decrease in one liability may lead to decrease in another
liability.
(i) Difference between Total Assets and External Liabilities is
Net Worth.
(iii) Purchase of goods on credit means increase in asset and
increase in liability.
(iv) Purchase of computer for office use will decrease the
amount of capital,.
(v) Sale of machinery at loss will decrease the amount of
total assets.
[Ans.: (i) False: (ii) True: (iii) True: (iv) False: (v) True.)
AccOuntingE q u a t i o n S17

Fil-in-the blanks with appropriate uords

2
i) An Accounting bquation is based on the principle.
i) The equity ot the owner is cal)ed
() Assets =

(i) Goods purchased on credit will lead to in stock and creditors.

i) Amount withdrawn by proprietor for personal use vill decrease Cash and
)Goods sold on credit costing 20,000 for 24.000 will increase total assets by

oi) The liabilities of a firm are ? 1.50,000; the capital of the proprietor is 7.00,000. Income
earned 80.000, the totalassets are
oöi) If the Owner's Equity is 2.40,000 and other liabilities are 1.20,000, cash in hand is
F60.000, total assets of the firm will be
ir) If closing capital is 2,50,000 and drawings during the vear were 40.000, protits
780.000, the opening capital was
[Ans.: () Dual Aspect; (ii) Capital; (ii) Capital, Liabilities; (iv) increase:
(v) Capital; (vi) T4,000: (vi) ? 9,30,000: (vii) B3,60,000: (ix) 2,10,000.]
Very Short Answer Type Questions
Q.1. Briefly explain the Accounting Equation.
Ans. The accounting equation is a mathematical eguation which shows that the assets and
liabilities of a firm are equal, i.e.. Assets = Liabilities + Capital. It is based on Dual
Aspect Concept of Accounting.
Q. 2. What is meant by owner's capital?
Ans. Owner's capital means balance standing to the credit of Capital Account of the proprietor.
Q. 3. Give an example of decrease in an asset and decrease in a liability.
Ans. Cash paid to a creditor.
Q. 4. Give an example of a transaction where an asset will increase and also the liability.
Ans. Goods purchased on credit.
Q. 5. Give an example of a transaction where an asset and owner's capital will increase.

Ans. Capital introduced by the proprietor.

Q. 6. Give an example of a transaction due to which owner's capital and an asset will decrease.
Ans. Goods taken by the proprietor for personal use.
another asset?
. 7. Which transaction decreases one asset and increases
Ans. Amount received from a debtor.
side.
Q. 8. Give an example of a transaction which has effect on two items on the assets
Ans. Sales of goods on credit.
2.9. Indicate how Accounting Equation is affected if machinery is purchased for cash?
Ans. It will result in cash being reduced and Machinery Account being increased.
2. 10. Indicate how Accounting Equation is affected if cash is received against services rendered?
Ans. Cash increases and so does the capital.
1. ndicate how Accounting Equation is affected if payment is made to a creditor?
Ans. Cash decreases and so does the liability (ereditor).
5.18 Double Entry Book Keeping-CBSE

Short Answer Type Questions

1. Explain in short the meaning of an Accounting Equation.
2. "Accounting Equation (A =L+C) always holds good under all circumstances." Explain wit,
the help of two examples. (Delhi
3. What is owner's equity? Give an equation for caleulating owner's equity. Give two examplea
at least. Ans.: Capital =Assets - Liabilities
4. From the following information find the capital. of Vijay: Total Assets 5,00,000; Creditors
7 1,00,000; Loan from Bank 1,50,000. [Ans.: 2,50,000.)
5. lf the Capital is 2,60,000 and Assets are 5,00,000, what is the amount of Liabilities?
JAns.: 2,40, 000.)
6. If the Capital is 1,00,000 and Outside Liabilities are 2,50,000, find the Total Assets,
[Ans.: 3,50,000.)
7. Ram started business on lst April, 2022 with a Capital of 25,000 and a loan of
R12,500. On 31st March, 2023, his assets were 50,000. Find his capital as on 31st March.
2023 and the profit earned during the year. Ans.: Capital ? 37,500; Profit 12,500.)
8. Calculate total assets if:
Capital is ? 2,00,000; CreditorsT50,000; Revenue during the year? 5,00,000; and Expenses
during the year 4,00,000. [Ans.: 3,50,000.]
9. (a) A starts a business and invests 50,000 on lst April, 2022. On 31st March, 2023
his assets are 65,000 and liabilities are 6,000. Find out the amnount of capital on
31st March, 2023 and his profit.
(6) In the above case, if the proprietor had invested 5,000 as additional capital and
withdrawn 2,000, what will be your answer?
(c) IfA had withdrawn from his business 3,000 for personal use, find out the profit in this case.
[Ans.: (a) Capital 59,000, Profit 9,000; (6) Profit 6,000; (c) Profi! 12,000.]
10. Determine themissing amounts on the basis of the Accounting Equation:
Assets Liabilities + Capital
(i) 20,000 = 7 15,000
(ii) ? 5,000 + 10,000
(iüi) ? 10,000 = + 8,000 [Ans.: () 5,000: (ii) 15,000: (iii) ? 2,000.]

PRACTICAL PROBLEMS

1. What will be effect of the following on the Accounting Equation?

(i) Started business with cash 45,000
(i)) Opened a Bank Account with a deposit of 4,500
(iii) Bought goods from M/s. Sun & Co. for 11,200 (KVS)

[Assets: Cash 40,500 + Bank 4,500 + Stock 11,200 =

Liabilities: Creditors l1,200 + Capital: 45,000.)
2. Show the Accounting Equation for the following transactions:
() Gopinath started business with cash 25,000

(ii) Purchased goods from Shyam 10,000

(iii) Sold goods to Sohan cOsting 1,800 1,500

(iv) Gopinath withdrew from business 5,000

[Assets: Cash 20,000 + Stock 8,200 + Debtors 1,5002

Liabilities: Creditors 10,000 + Capital: 19,700.]
AccountingEquation
5.19

3. Prepare an Accounting Equation and Balance Sheet on the following basis:

Gurman started business with cash 20.000.
(i) He purchased furniture for 2,000.
(iii) He paid rent of 200.
(iv) He purchased goods on credit 3,000.
(u) He sold goods (cost price 2,000) for 5,000 on cash.
|Assets: Cash 22, 800 + Furniture 2.000 + Stock ? 1,000 =
Liabilities: Creditors 3.000 + Capital: 22,800.]
4. Prepare Accounting Equation from the following:
Started business with cash ? 1,00,000 and Goods
20,000.
i) Sold goods worth 10,000 for cash 12,000.
i) Purchased furniture on credit for 30.000. (Delhi)
(Assets: Cash 1,12.000+ Stock 10.000+ Furniture 30,000 =
Liabilities: Creditors for Furniture ? 30,000 + Capital: * 1,22, 000.]
: Develop an Accounting Equation from the following
() Mohan commenced business with cash
transactions:
50,000
(i) Purchased goods for cash 30,000
(ii) Purchased goods on credit 20,000
(iv) Sold goods (costing 10,000) for 12,000
(w) Bought furniture on credit 2,000
(vi) Paid cash to a creditor 15,000
(vii) Salary paid 1,000
[Assets: Cash 16,000 +Stock 40,000 + Furniture 2,000 =
Liabilities: Creditors 5,000+ Vendor for Furniture 2,000 + Capital: ? 51,000.]
6. Prepare an Accounting Equation on the basis of the following transactions:
() Started business with cash 70,000.
(ü) Credit purchase of goods 18,000.
(iüi) Payment made to creditors in full settlement 17.500.
(iv) Purchase of machinery for cash 20,000.
() Depreciation on machinery 7 2,000. (Delhi)
Assets: Cash 32,500 + Stock 18,000 + Machinery 18,000=
Liabilities: Nil + Capital: 68,500.]
7. Show the effect of the following transactions on the Accounting Equation:
() Started business with cash 50,000.
(ü) Salaries paid 2,000.
(üi) Wages outstanding ? 200.
(iv) Interest due but not paid 100.
(u) Rent paid in advance 150.
[Assets: Cash 47, 850 + Prepaid Rent 150 =
Liabilities: Outstanding Expenses 300 + Capital: 47,700.]
8. What will be the effect of the following on the Accounting Dquation?
(0) Harish started business with cash ? 18,000
() Purchased goods for cash ? 5,000 and on credit ? 2,000
(ui) Sold goods for cash 4,000 (costing ? 2,400)
(20) Rent paid 1.000 and rent outstanding ? 200 (Delhi)
[Assets: Cash 16,000 + Stock 4,600=
Liabilities: Outstanding Rent 200 + Creditors 2,000 + Capital: 18,400.1
5.20 Double Entry Book Keeping-CBE
9. Use accounting equation to showthe effect of the following transactions of M/s Royal
(a) Started business with cash 1,20,000. Traders
(6) Purchased goods for cash 10,000.
(c) Rent received 5,000.
(d) Salary outstanding ?2,000.
(e) Sold goods for cash (costing 5,000) 7,000.
) Goods destroyed by fire 500.
[Assets: Cash
(KVS,
1.22, 000 + Stock 4.500= Liabilities: Outstanding Expensan
72.000 +Capital: 1,24,5001
10. Prove that the Accounting Equation is satisfied in all the following transactions of Suresh
Also prepare a Balance Sheet.
() Commenced business with cash 60,000.
(iü) Paid rent in advance 500.
(u) Purchased goods for cash 30,000 and credit 20,000.
(iv) Sold goods for cash 30,000 costing 20,000.
() Paid salary 500 and salary outstanding being?100.
(vi) Bought motorcycle for personal use 5,000.
[Assets: Cash 54,000 + PrepaidRent 500 + Stock ? 30,000 =
Liabilities: Creditors 20,000 +Outstanding Salary 100 + Capital: 64,400)
11. Show the effect of the following transactions and also prepare a Balance Sheet:
() Started business with cash 60,000.
(ii) Rent received 2,000.
(iüi) Accrued interest 500.
(iv) Commission received in advance 1,000.
(u) Amount withdrawn 5,000.
[Assets: Cash 58,000 + Accruedinterest 500 =Liabilities: Commission
Received in Advance 1,000+ Capital: 57,500.]
[Hint: Capital = Opening Capital ? 60,000 + Rent Received 2,000 + Accrued Interest
500 - Drawings 5,000 =* 57,500.]
12. Raghunath had the following transactions in an accounting year:
(i) Commenced business with cash 50,000.
(ii) Paid into bank? 10,000.
(iüi) Purchased goods for cash 20,000 and credit 30,000.
(iv) Sold goods for cash 40,000 costing 30,000.
(u) Rent paid 500.
(vi) Rent outstanding 100.
(vii) Bought furniture 5,000 on credit.
(vii) Bought refrigerator for personal use 5,000.
(ix) Purchased motorcycle for cash 20,000.
Create an Accounting Equation to show the effect of the above and also show his Balance Shet.
[Assets: Cash 34,500 + Bank 10,000 + Stock 20,000
+Furniture 5,000 + Motorcycle 20,000 = Liabilities: Creditors 30,000
+ Outstanding Rent 100+ Vendor for Furniture 5,000+ Capital: 54,400.]
13. Prepare an Accounting Equation from the following:
() Started business with cash 50,000 and goods 30,000.
(ii) Purchased goods for cash 30,000 and on credit from Karan 20,000.
(iii) Goods costing 40,000 were sold for?55,000.
(iv) Withdrew cash for personal use 10,000.
(v) Rent outstanding ? 2,000. (MSE Chandigarh)
[Assets: Cash 65,000 + Stock 40,000 =Liabilities: Outstanding Rent 2,000
Creditors 20,000+ Capital: 83,000.]
Accounting Equation 521

14 Prepare Accounting Equation from the following.

Started business with cash ? 1,00,000.
k Purchased goods for cash ? 20,000and on credit 30.000.
ic Sold goods for cash costing ? 10,000 andon creditcosting F 15,.000 both at aprofit of 20.
(d) Paid salaries ? 8,000. (Delhi)

|Capilal: *97,00) + Liabilities: Creditors I 30. 000= Aagets: Cagh 84,7M")

+ Stock 25.000 + Dehtorg 18,000
15. Show an Accounting Equation for the following transactions:
) D.Mahapatra commenced businesswith cash 50.000 and 1.00,000 by cheque; goods
E60,000; machinery ?1,00,000 and furniture 50,000.
(ii) 1/3rd of the above goods sold at a profit of 10% on cost and half of the payment is
received in cash.
(i) Depreciation on machinery provided a 10%.
(iv) Cash withdrawn for personal use 10,000.
(p) Interest on drawings charged @5%.
(vi) Sold goods for Cash ? 10,000 at par.
[Assets: Cash 61,000 + Bank 1,00.000 + Stock (goods) 30,000 + Machinery
z90,000 +Furnilure 50,000 + Debtors 11,000 = Liabilities: Nil + Capital: ?3,42,000.]
JHints: 1. Opening Capital 3,60,000 =Cash 50,000+ Bank 1,00,000 +Stock 60,000
+ Machinery 1,00,000 + Furniture 50,000.
2. Liabilities: Nil.]
16 Show an Accounting Equation on the basis of thefollowing transactions:
() Sunilstarted businesswith cash 1,50,000
25,000
(ii) Opened a Bank Account by depositing cash
(iii) He sold his personal car and deposited the amount
in the firm's Bank Account 50,000
(iv) He purchased a building and furniture for 1,00,000
(u) He purchased goods from Ram on credit 50,000
(vi) He paid cartage 500
(vii) Hesold to Shyam on credit goods costing ? 6,000for 9,000
(viüi) Received rent from tenants 1,000
(ix) Received security deposit from tenants 1,500
(x) Purchased stationery,for cash 100
(xi) Invested in shares (personal) 50,000
(xii) Received interest in cash 200
(zii) Introduced fresh capital 25,000
(ziv) Goods destroyed by fire 500
[Assets: 2,29,600 = Liabilities: ? 51,500 + Capital:1,78,100.]
Caleulation of TotalAssets, Opening and Closing Capital, Profit and Loss and External Equities
17. If the capital of abusiness is ? 3,00,000 and liabilities are? 50,000, loss 70,000, caleulate
the total assets of the business. R 2,80,000.]
18. If total assets of a business are ? 1,30,000 and net worth is 80,000, calculate the creditors.
R 50,000.)
|Hint: Net Worth = Assets - Liabilities.]
19, A commenced his cloth business on 1st April, 2022 with a capital of ? 30,000. On
318t March 2023, his assets were worth 50,000and liabilities of 10,000. Find out his
closing capital and profits earned during the year. [Capital 40,000; Profit ? 10,000.]
 22

15,000 hrh he had purchased am credit and tàe paTTd t ee te

ut the value ® the total ass4t4 of the hI=ne
(b) After a perind f one month. he came to kroa that be ad fred a ss É
He withdrew 8) for his personal use. Find out his captal ani aset ot e T

22. (a) Mohan starteda business on 1st April. 2022 with a capital od? 10.900 2mdbN0
from a friend. He earned a profit o I 5.000 during the year ended 3st Msra 22
withdrew cash ?4.000 for personal use. What is hiscapital on31st Mart 2123* RN
(b) Mahesh started a business withacavital of? 15.000on lst Apri. 202 Irn e Teg
he made a profit of T3,000. He owes T2.500 to suppiers of gods What is the ora
assets in his business on 31st March. 2023?
23. On 31st March, 2023, the total assets and external liabilities were 20000 a;
t6.000 respectively. During the year. the proprietor had introdued capital oft 0.000
withdrawn B12,000 for personal use. He made aprofit of *20.000 during the year. Caicuiate
the capital as on lst April. 2022. [Opening Capital .A
24. Mohan started a business on lst April. 2022 with a capital of ? 25.000 and a loan i
712,500 borrowed from Shvam. During 2022-23. he had introdued aaitional aital
12,500 and had withdrawn7.500 for personal use. On 3lst Marh, 2023. his a WE
*75,000. Find out his capital as on 31st March, 2023 and proñt made or ls incuTd durtng
the year 2022-23. [Closing Capital 62, 500: ProR
25. Calculate the amount of External Equities as on 3lst Míarrh. 2023 in the tollowing K
(i) On 31st March,2023, total assets and capital were 1.00,000 and 10.30.000tivei
(i) On 1st April, 2022, Mukesh started business with acapital of *3.00,000 and akan
I 3,00,000 borrowed from a friend. During the year, he earned a prit of l.0.0
On 31st March, 2023, the total assets were l5,00,000.
(iii) On 1st April, 2022, Ramesh started business with a capital ot 300,000 and a loan ot
73,00,000 borrowed from a friend. During the year, he eaned a proit of 1.30000.
introduced an additional capital of 1,80,000 and had withdrawn 0.000 or his
personal use. On 31st March, 2023 total assets were 15,00,000.
[() 4,50,000: () R10,50,000Ø:()960.
26. Pranav started business on lst April, 2022 with capital of 5,0,000, On Slst Manh. 023
his total assets were 10,75,000and liabilities were2,92,500. Caleulate the amount by
which his capital has increased as on 31st March, 2023.

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ACCountingEquation 5.23

EVALUATION QUESTIONS: QUESTIONS WITH MISSING VALUES

1. Complete the following Accounting Equation by filling the missing amounts:
Accounting Equation
S, No. Transactions
Assets () Liabilities () 4 Capital ()
Manu started business with cash 50.000
1 50,000
Purchased goods on credit ? 4,000
New Equation 54,000 4,000
Purchased goods for cash 1,000 0
3.
New Equation 4,000 50,000
Purchased furniture for 500 0
4.
New Equation 50,000
Paid Rent 200
5
New Equation 4,000 +

6
Withdrew for personal use 700 0 700
New Equation 53,100 4,000
7
Received interest? 100 100
New Equation 4,000
8 Sold qoods on credit for 700 costing ? 500 0 200
New Equation 53,400 4,000
Paid to creditors 400
New Equation 49400
10 Paid salary? 200 0 ...

New Equation 52,800

Solution: Accounting Equation

S. No. Transactions Assets ) Liabilities () + Capital ()
1. Manu started business with cash50,000 50,000 0 50,000
2. Purchased goods on credit 4,000 4,000 4,000 +

New Equation 54,000 4,000 50,000

3 Purchased goods for cash 1,000 -1,000 0
+1,000 + 0

New Equation 54,000 4,000 50,000

4. Purchased furniture for500 -500 + 0
+500
New Equation 54,000 4,000 + 50,000
5 Paid Rent 200 -200 200
New Equation 53,800 4,000 + 49,800
6. Withdrew for personal use 700 -700 700
New Equation 53,100 4,000 + 49,100
7. Received interest 100 100 100

8
New Equation 53,200 4,000 ++49,200
Sold goods on credit +700 +

for 700costing 500 -500 200

New Equation 53,400 4,000 ++49,400
9 Paid to creditors 400 -400 -400
New Equation 53,000 3,600 49,400
10.
Paid salary 200 -200 200
New Equation 52,800 3,600 49,200
S.24
Double Entry Book Keeping-CBSEY
e Complete the following Accounting Eauation by filling the missing amounts:

Accounting Equation
S. No. Transactions Liabilities )
Assets () Capital ()
commenced business withcash 50,000
A .(1). ..2).
(i Purchased goods for cash 20,000 and credit ?30,000 ...4).
.3)...
New Equation 80,000 ..5). +
..6)..
(n) Sold goods for cash 40,000 costing ? 30,000 .7). ..8).
New Equation 90,000 ..(9). ..(10).
(iv)Rent paid 500 ..(11). .(12)..
New Equation ..(13).. .(14)... 59,500
(v) Rent outstanding ? 500 0 .(15). .(16).
New Equation 89,500 .(17)... .(18)..
(vi) Bought furniture for 5,000 on credit ..(19)... ..20).. +

New Equation ..21).. 35,500 .(22).

(vii) Bought refrigerator for personal use for* 5,000 .23). 0 ..24)..
New Equation ..25)... 35,500 ..26)..
(vii) Purchased building for cash 20,000 ..(27).. ..28).. + 0

New Equation 89,500 ..29).. ..30).

[1:* 50,000; 2: * 50,000; 3: 30, 000; 4: 30,000; 5: 30,000; 6: 50,000; 7: 10,000; 8: 10,000
9: 30,000; 10: 60,000; 11: 500): 12: (* 500); 13: 89, 500; 14: 30,000,: 15; 500:
16: (R 500); 17:* 30,500; 18:* 59,000; 19:* 5,000; 20:* 5,000; 21:*94,500; 22:* 59,000; 23: (R5,000):
24: (* 5,000); 25: 89, 500; 26: 54,000; 27: 0; 28: 0; 29: 7 35,500; 30:7 54,000.]
3. Calculate the missing values in the following cases:
Case Opening Additional Drawing Profit or Loss Closing Total Assets Liabilities
Capital () Capital () Capital ()
() 1,25,000 15,000 20,000 5,00,000 1,20,000
137,500 12,500 -17,500 145,000 1,87,500
(ii) 2,50,000 28,000 ? 20,000 2,82,000 ? 7,800
(iv) 5,00,000 67,000 18,000 ? 7,00,000 2,42,000
(V) 2,50,000 37,500 ? 33,750 3,01,250 75,750
I() 2,50,000, 3,80,000; (ü) 37,500, 42,500; (üi) 16,000, 2,89,800;
(iv) 7,000, 7 4,58,000; (v)R 20,000, 3,77,000.]

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