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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
Question No 10 Chapter No 5
10. Prove that the Accounting Equation is satisfied in all the following transactions of Suresh. Also prepare a balance sheet :
(i) Commenced Business with cash Rs 60,000
(ii) Paid rent in advance Rs 500.
(iii) Purchased goods for cash Rs 30,000 and Credit 20,000
(v) Paid Salary Rs 500 and Salary Outstanding Being Rs 100
(vi) Bought motorcycle for personal use Rs 5,000
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| S. No. | Particulars | Assets |
Liabilities |
Capital | |||
|---|---|---|---|---|---|---|---|
| Cash | +Prepaid Rent | +Stock | +Creditors | + O/S Salary |
|||
| (i) | Commenced business with cash Rs 60,000 | +60,000 | +60,000 | ||||
| 60,000 | +60,000 | ||||||
| (ii) | Paid rent in advance Rs 500. | -500 | +500 | ||||
| 59,500 | +500 | +60,000 | |||||
| (iii) | Purchased goods for cash Rs 30,000 and Credit 20,000 | -30,000 | +50,000 | +20,000 | |||
| 29,500 | +500 | +50,000 | 20,000 | +60,000 | |||
| (iv) | Paid Salary Rs 500 and Salary Outstanding Being Rs 100 | +30,000 | -20,000 | +10,000 | |||
| 59,500 | +500 | +30,000 | 20,000 | +70,000 | |||
| (v) | Paid Salary Rs 500 and Salary Outstanding Being Rs 100 | -500 | +100 | -600 | |||
| 59,000 | +500 | +30,000 | 20,000 | +100 | 69,400 | ||
| (vi) | Bought motorcycle for personal use Rs 5,000 | -5,000 | -5,000 | ||||
| Total | 54,000 | +500 | +30,000 | 20,000 | +100 | +64,400 | |
Answer: -
Assets = Cash 16,000 + Stock 18,000 + Machine 18,000 = 68,500/-
Liabilities = Nil
Capital = 68,500/-
Liabilities +Capital
0 + 68,500 = 68,500/-
This is not a part of the solution, So you don't have to write it in the exam. So why we explained if it is not needed. Because This explanation will help you to understand all transactions with logic so don't need to remember all the transactions but just understand and remember the logic use behind it.
As we discuss in the previous topic, A owner and a business both have a separate identity in the eye of law. So, the business will be treated as an Artificial Person and anything invested by the owner into the business will be treated as capital.
So, In this transaction, as shown in the above image owner investing her cash into the business, this will be treated as capital of the business. The business receiving an asset i.e. cash.
In this transaction, as shown in the above image two accounts are involved i.e. Advance Rent and Cash
Advance Rent a/c: - Business paid rent in advance so to date this expense is not due, so till it becomes due business will treat it as an asset of the business.
Cash a/c:- Business paying cash so it will be deducted.
In this transaction, as shown in the above image three accounts are involved Stock(Purchase), Cash, and Creditors.
Stock a/c (Purchase):- Because business receiving goods.
Cash a/c: - Because business paying some part of the due amount in cash.
Creditor: - Because the Business did not pay some part of the due amount yet, But it has to pay in the future, so that’s why the account of creditors is created.
In this transaction, as shown in the above image three accounts are affected i.e. Stock(Sale), Cash, and Capital(Profit):
Stock a/c (Sale):- Because business giving(selling) its goods.
Cash: - Because Business received cash from the customer.
Capital(Profit): Because the owner has the right to all profit of the business so the amount of the profit will be added in the capital a/c. (Profit = sale price – cost price) 30,000-20,000 = 10,000(Profit)
In this transaction, as shown in the above image two accounts are involved i.e. O/S wages and capital
Cash a/s: - Part of the payment is made in cash.
O/s Salary A/c: - Business did not pay some amount of salary yet, but has to pay in, So that’s why it becomes a liability for the business.
Capital a/c:- Business get services from its worker. So these is expenses for the business. “ All expenses and losses are deducted from the amount of capital"
In this transaction, as shown in the above image two accounts are involved i.e.Cash and Capital
Cash a/c: - payment is made in cash.
Capital a/c:- cash withdrawal by the owner
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