Inrtoduction
The 'basic accounting equation' is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits.
Equity: - Equity is the all the money comes to the business.
Capital: - Capital is the person contribution money in the business.
Total Assets = Total Equity
Total Equity = External Equity + Internal Equity
Total Assets = Capital + Liability
Liability = Share, Debenture, Bank Lone, Unsecured Loan, Creditor.
Note:-
1. Cash purchase, Cash sale and all transaction where the word paid is mentioned are too treated as Cash transaction.
2. When Name of the person like, Mr. X, Shyam, Hari etc or the Name of the firm mentioned in the transaction it is treated as credit transaction.
3. When both the cash, and Person Name are mentioned in the transaction. It will be treated as cash transaction.
Example:-
1. Ram comments (starts) business with cash Rs. 100000. Cash Transaction
2. Mr. X sold goods to Mr. Y Rs. 40000. Credit Transaction
3. Brought goods from Mr. X Rs. 20000. Credit Transaction
4. Paid rent Rs. 4000. Cash Transaction
5. Paid salary Rs. 5000. Cash Transaction
Methods of Calculating Accounting Equation
1. Assertion the Variable.
2. To find out the increased or Decreased in the particular Variable.
3. Show the effect on both side of the equation.
A. Started business with cash Rs. 100000.
· Assets & Capital
· Increase in Assets & Increase in Capital
· +100000 = + 100000 + 0
B. BorrowedRs. 10000 from Raj Company.
· Assets & Liability
· Increase in Assets & Increase in Liability
· +10000 = 0 +10000
C. Purchase furniture for cashRs. 10000.
· Assets
· Increase in Fixed Assets & Decrease in Current Assets
· +10000 – 10000 = 0 + 0
D. Purchase goods from Mr. Moon on credit for Rs. 30000.
· Assets & Liability
· Increase in Assets & Increase in Liability
· +30000 = 0 + 30000
E. Sold goods cost for Rs. 10000 for cash Rs. 12000.
· Assets & Capital
· Decrease in Assets, Increase in Assets & Increase in Capital
· -10000 + 12000 = +12000 + 0
F. Sold goods costing Rs. 20000 to Star Limited on Credit for Rs. 25000.
· Assets & Capital
· Increase in Fixed Assets, Decrease in Current Assets & Increase in Capital
· + 25000 – 20000 = +5000 + 0
G. Return goods costing Rs. 5000 to suppliers of goods.
· Assets & Liability
· Decrease in Assets & Decrease in Liability
· -5000 = o -5000
H. Received cash from customer Rs. 20000.
· Assets
· Increase in Assets & Decrease in Assets
· -20000 + 20000 = 0 + 0
I. Paid cash to suppliers of goods Rs. 15000.
· Assets & Liability
· Decrease in Assets & Decrease in Liability
· -15000 = 0 - 15000
J. Furniture costing Rs. 10000 in Valued at Rs. 9000.
· Assets & Capital
· Decrease in Assets & Decrease in Capital
· 10000-9000 = -1000 + 0
· -1000 = -1000 + 0
K. Rent due but not paid Rs. 2000.
· Liabilities & Capital
· Decrease in Capital & Increase in Liability
· 0 = -2000 + 20000
L. Repaid loan of Rs. 10000 along with the interestof Rs. 100.
· Assets, Capital, & Liability
· Decrease in Assets, Decrease in Capital, & Decrease in Liability
· -10100 = -100 – 10000
M. Paid rent in Advance Rs. 2000.
· Assets
· Decrease in Assets & Increase in Assets
· -2000 + 2000 = 0 + 0
· 0 = 0 + 0
N. Brought goods from Mr. Rajesh Rs. 20000.
· Assets & Liabilities
· Increase in Assets & Increase in Liability
· +20000 = 0 + 20000
O. Purchased household goods for Rs. 15000 giving Rs. 5000 in cash and balance through a loan.
· Assets, Capital, & Liabilities
· Decrease in Assets, Decrease in Capital, & Increase in Liabilities
· -5000 = -15000 + 10000
P. Goods destroyed by fire (cost Rs. 500, sales Rs. 600)
· Assets & Capital
· Decrease in Assets & Decrease in Capital
· -500 = -500 + 0
Q. Paid cash Rs. 500 loan & Rs. 300 for interest.
· Assets, Capital, & Liability
· Decrease in Assets, Decrease in Capital, & Decrease in Liability
· -800 = -300 – 500
R. Withdraw goods for personal use(cost Rs.500, sales Rs. 600)
· Assets & Capital
· Decrease in Assets & Decrease in Capital
· -500 = -500 + 0
S. Withdraw goods costing Rs. 3000 for personal use.
· Assets & Capital
· Decrease in Assets & Decrease in Capital
· -3000 = -3000 + 0
T. Paid salary Rs. 500 & outstanding salary Rs. 100.
· Assets, Capital, & Liabilities
· Decrease in Assets, Decrease in Capital, & Increase in Liabilities
· -500 = -600 + 100
U. Charge Depreciation of Rs. 300 on furniture & Rs. 200 on machinery.
· Assets & capital
· Decrease in Assets & Decrease in Capital
· -500 = -500 + 0
Show the accounting equation on the basis of the forming transaction and prepare balance sheet on the basis of last transaction.
1. Mr. Maharaja comments business with cash Rs. 100000.
2. Purchased goods for cash Rs. 70000.
3. Purchased goods on credit Rs. 80000.
4. Purchased furniture Rs. 3000.
5. Paid rentRs.2000.
6. Sold goods for cash costing Rs. 45000 at Rs. 60000.
7. Paid to creditors Rs. 20000.
8. Withdraw cash for private use Rs. 10000.
9. Paid salaryRs. 5000.
10. Sold goods on credit costingRs. 60000 at Rs. 80000.
Show the accounting equation on the basis of the forming transaction and prepare balance sheet on the basis of last transaction.
1. Mr. Ram comments business with cash Rs. 30000.
2. Paid rent in Advance Rs. 1200.
3. Purchased typewriter for Rs. 4200.
4. Bought furniture from M/s Mohan furniture on credit for Rs. 1800.
5. Purchased goods from Sohan for cash Rs. 21000.
6. Sold goods to Shyam for cash Rs. 24000 (costing Rs. 18000)
7. Brought goods from Ramesh for Rs. 18000.
8. Sold goods to shyam costing Rs. 18000 for Rs. 30000.
9. Purchased household goods for Rs. 9000 giving Rs. 3000 in cash and the balance through a loan.
10. Goods destroyed by fire (cost Rs. 300, sales price Rs. 360)
11. Paid half of the amount owned to Mohan furniture.
12. Paid cash Rs. 300 for loan & Rs. 180 for interest.
13. Withdraw goods for personal use(cost Rs. 300, sales price Rs. 360)
14. Received Rs. 29700 from shyam in full settlement.
15. Paid Rs. 17820 to Ramesh in full settlement.
16. Paid salary Rs. 300 & salary outstanding Rs. 60.
17. Charged depreciation of Rs. 180 on furnitureand Rs. 60 on typewriter.
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