Ravi Sir and Sanjeev Sirs Nimble Education for Commerce ICSE,ISC,CBSE,IGCSE,AS & A,IBDP

Contact 9033311500, 8866611600

ACCOUNTING EQUATIONS
Definition
An accounting equation builds the foundation for all accounting system. The double entry accounting
system is based on basic accounting equation only. A simple accounting equation illustrates two simple
facts about a company: what it owns and what it owes.
Elements of an accounting equation
Assets (what it owns) (for example, cash, accounts receivable, inventory, prepaid insurance,
and investments)
Liabilities (what it owes to others) (notes or loans payable, account payable, salaries and wages
payable and interest payable)
Capital Amount of money invested by the owner of business or the difference between assets
and liabilities

Accounting Equation
Capital (Internal liability) + Liability (external) = Assets (Tangible + Intangible + Current Assets)

Problems
1.(a)Mr. A started business with capital Rs 100,000
(b)Purchased goods on credit Rs 30,000
(c)Purchased Machinery Rs 55,000
(d)Paid creditors in full settlement Rs 28,000
(e)Depreciate Machinery @ 10%.
Prepare accounting equation from above details and prepare a Balance sheet

2.(a)B started business with cash Rs 200,000.

(b)Purchased goods on credit from C Rs 30,000
(c)Sold goods costing 20,000 to D for Rs 35,000
(d)Additional capital introduced into business Rs 25,000.
(e)Salary paid in advance Rs 2,000 in cash
(f)Received advance interest Rs 5,000 in cash
(g)Sold goods costing Rs 6,000 for 15,000
(g)D paid Rs 33,000 in full and final settlement
(h)Goods worth Rs 4,000 were damaged and claim received in cash Rs 2,500.
(i)Purchased goods from E Rs 50,000
(j)Gave goods worth Rs 2,500 as free samples.
(k)Sold goods costing Rs 27,500 for Rs 40,000
(l)Settled Es account with a (cash) discount of 5%.
Prepare accounting equation from above details and prepare a Balance sheet

3.(a)C started business with Cash Rs 50,000, Bank Balance Rs 100,000 and Machinery Rs 300,000
(b)Purchased goods Rs 10,000 paying by cheque and Rs 15,000 on credit from D.

Ravi Sir and Sanjeev Sirs Nimble Education for Commerce ICSE,ISC,CBSE,IGCSE,AS & A,IBDP
Contact 9033311500, 8866611600
Ravi Sir and Sanjeev Sirs Nimble Education for Commerce ICSE,ISC,CBSE,IGCSE,AS & A,IBDP
Contact 9033311500, 8866611600
(c)Received goods as free samples Rs 2,000
(d)Purchased a land for Rs 250,000 paying Rs 70,000 by cheque and promising to pay balance in 2
months.
(e)Sold goods costing 20,000 for Rs 75,000 to E
(f)Paid Rs 14,000 to D in full and final settlement for goods purchased on credit.
(g)Rent outstanding Rs 5,000
(h)E paid Rs 70,000 in cash
(i)Balance due from is considered to be bad.
Prepare accounting equation from above details and prepare a Balance sheet

4.(a)Mr X commenced business with Rs 500,000 cash, Goods Rs 100,000 and Furniture Rs 10,000
(b)Sold goods to Y costing RS 4,000 for Rs 5,000.
(c)Paid advance rent Rs 5,000
(d)Salary outstanding Rs 1,000
(e)Depreciate furniture @ Rs 1,000
(f)Goods lost by theft Rs 5,000
(g)Purchased household goods for Rs 150,000, giving Rs 50,000 in cash and balance through a
business loan
(h)Accrued interest Rs 5,000
(i)Commission received in advance Rs 10,000
(j)Interest due but not paid Rs 1,000
(k)Prepaid insurance Rs 7,000
(l)Creditors accepted bills for Rs 15,000
(m)Interest on capital Rs 10,000
(n)Transfer from capital to loan Rs 50,000
Prepare accounting equation from above details and prepare a Balance sheet.

5.(a)Biber started with Cash Rs 300,000.

(b)Open a bank account and deposited Rs 50,000
(c)Purchased a machinery Rs 50,000 and paid by cash
(d)Purchased goods for Cash RS 70,000
(e)Returned goods costing Rs 10,000
(f)Sold goods costing Rs 30,000 for 65,000.
(g)Goods costing RS 5,000 were damaged by fire and insurance claim received Rs 4,000.
(h)Sold personal scooter and deposited money into current account Rs 50,000.
(i)Distributed goods as free samples Rs 2,500
(j)Purchased investments and paid by cheque Rs 30,000
(k)Sold investments for Rs 38,000
(l)Took a bank loan Rs 60,000
(m)Paid interest on loan Rs 2,000
(n)Withdrew goods for personal use Rs 500
(o)Salary due Rs 1,000

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Ravi Sir and Sanjeev Sirs Nimble Education for Commerce ICSE,ISC,CBSE,IGCSE,AS & A,IBDP
Contact 9033311500, 8866611600