Question No 18 Chapter No 5
18. Show the accounting equation on the basis of following transactions:
(a) Ram started business with cash Rs 25,000.
(b) Purchased goods from Shyam Rs 10,000.
(c) Sold goods to Sohan costing Rs 1,500 for Rs 1,800.
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Solution of Question No 18 Chapter No 5: –
|(a)||Ram started business with cash Rs 25,000.||+25,000||+25,000|
|(b)||Purchased goods from Shyam Rs 10,000.||–||+10,000||–||+10,000||–|
|(c)||Sold goods to Sohan costing Rs 1,500 for Rs 1,800.||–||-1,500||+1,800||–||+300|
Assets: – Cash 25,000 + Stock 8,500 + Debtors 1,800 = 35,300/-
Liabilities: – Creditors 10,000 = 10,000/-
Capital = 25,300/-
10,000 + 25,300 = 35,300/-
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 assets i.e. cash, bank, stock, machine and Furniture.
Transaction No. 2
In this transaction, as shown in the above image two accounts are involved i.e. Stock(Purchase) and Creditors.
- Stock a/c (Purchase):- Because business receiving goods.
- Creditor : – Because Business did not pay due amount yet, But it has to pay in future, so that’s why account of creditors is created.
Transaction No. 3
In this transaction, as shown in the above image three accounts are involved i.e. Stock(Sale), Debtors and Capital(Profit):
- Stock a/c (Sale):- Because business giving(selling) its goods.
- Debtors: – Because half of the payment is yet not received. It will be our new asset.
- Capital(Profit): Because owner has right on all profit of the business so the amount of the profit will be added in the capital a/c. (Profit = sale price – cost price) 1800-1500 = 300(Profit)
Transaction No. 4
In this transaction, as shown in the above image two accounts are involved i.e. cash and capital
- Cash A/c: – Because business cash goes out from the business.
- Capital a/c:- because business get services from its employees and paid them for it. So this is expenses for the business. “ All expenses and losses are deducted from the amount of capital
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