Question No 11 Chapter No 5
11. Show the effect of the following transactions on assets, liabilities and capital using the Accounting Equation. Also prepare a Balance sheet:
(i) Started business with cash Rs 60,000
(ii) Rent received Rs 2,000
(iii) Accrued interest Rs 500
(iv) Commission received in advance Rs 1,000
(v) Amount withdrawn Rs 5,000
Solution of Question No 11 Chapter No 5: –
|(i)||Started business with cash Rs 60,000||60,000||+60,000|
|(ii)||Rent received Rs 2,000.||
|(iii)||Accrued interest Rs 500||–||+500||–||+500|
|(iv)||Commission received in advance Rs 1,000||+1,000||–||+1,000||–|
|(v)||Amount withdrawn Rs 5,000||+5,000||–||-5,000|
Assets = Cash 58,000 + Accrued Interest 500 = 58,500/-
Liabilities = 1,000/-
Capital = 57,500/-
1,000 + 57,500 = 58,500/-
Explanation of All Transactions with images: –
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.
Transaction No. 1
As we discuss in the previous topic, A owner and the 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.
Transaction No. 2
In this transaction, as shown in the above image two accounts are involved Cash and Capital
Cash a/c:- Business paying cash so it will deducted.
Capital a/c:- Business received rent from tenant, So this is income of the business. “ All income and gains are added to the capital“.
Transaction No. 3
In this transaction, as shown in the above image three accounts are involved Accrued Interest and capital
Accrued Interest A/c: – Business did not received any cash yet, but it will received this amount in future, So that’s why it will become our assets.
Capital a/c:- Business earned interest on investment, So this is income of the business. “ All income and gains are added to the capital“.
Transaction No. 4
In this transaction, as shown in the above image two accounts are involved i.e. Cash and Advance Commission
Cash a/c:- Business Receiving cash from their selling partner.
Advance Commission A/c : – Business receiving cash against commission which is not yet earned, So this amount is not belonging to us yet, So, if business could not earned it in future then it has to pay back. That’s why it become our liability.
Transaction No. 5
In this transaction, as shown in the above image two accounts are involved i.e. one is cash and another is capital.
Cash a/c: – payment is made in cash.
Capital a/c:- cash withdrawal by the owner
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