Question No 4 Chapter No 5
4. What will be the effect of the following on the Accounting Equation?
(i) Harish Started Business with cash Rs 18,000
(ii) Purchased goods for cash Rs 5,000 and Credit 2,000
(iii) Sold goods for cash Rs 4,000(costing Rs 2,400)
(iv) Rent paid Rs 1,000 and rent outstanding Rs 200.
Solution of Question No 4 Chapter No 5: –
|(i)||Harish Started Business with cash Rs 18,000||+18,000||–||–||+18,000|
|(ii)||Purchased goods for cash Rs 5,000 and Credit 2,000||-5,000||+7,000||+2,000||–|
|(iii)||Sold goods for cash Rs 4,000(costing Rs 2,400).||+4,000||-2,400||–||+1,600|
|(iv)||Rent paid Rs 1,000 and rent outstanding Rs 200.||-1,000||–||–||+200||-1200|
Assets: Cash 16,000 + Stock 4,600 = 20,600/-
Liabilities : Creditors 2,000 + Wages Outstanding 200 = 2,200/-
2,200 + 18,400 = 20,600/-
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, 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 due amount in cash.
Creditor : – Because Business did not pay some part of 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 effected i.e. Stock(Sale), Cash and Capital(Profit):
Stock a/c (Sale):- Because business giving(selling) its goods.
Cash : – Because Business received cash from customer.
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) 4000-2400 = 1600(Profit)
Transaction No. 4
In this transaction, as shown in the above image two accounts effected i.e. O/S wages and capital
Cash a/s: – Part of the payment is made in cash.
O/s Rent A/c: – Business did not pay any cash yet but has to pay in, that’s why it becomes a liability for the business.
Capital a/c:- Business get services from its worker. So this is expenses for the business. “ All expenses and losses are deducted from the amount of capital”
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