Question No 9 Chapter No 5
9. Prepare an Accounting Equation on the basis of the following transactions:
(i) Started business with cash Rs 70,000.
(ii) Credit Purchase of goods Rs 18,000
(iii) Payment made to creditors in full settlement Rs 17,500
(iv) Purchase of machinery for cash Rs 20,000
(v) Depreciation on machinery Rs 2,000.
Solution of Question No 9 Chapter No 5: –
|(i)||Started business with cash Rs 70,000.||+70,000||+70,000|
|(ii)||Credit Purchase of goods Rs 18,000||–||+18,000||+18,000||–|
|(iii)||Payment made to creditors in full settlement Rs 17,500||–17,500||–||–18,000||+500|
|(iv)||Purchase of machinery for cash Rs 20,000||–20,000||–||+20,000||–||–|
|(v)||Depreciation on machinery Rs 2,000.||–||–||-2,000||–||-2,000|
Assets = Cash 16,000 + Stock 18,000 + Machine 18,000 = 68,500/-
Liabilities = Nil
Capital = 68,500/-
0 + 68,500 = 68,500/-
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 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 Cash, Capital and Creditors.
Cash a/c :- Because, payment made to creditors.
Capital a/c: – Business getting discount on cash payment. Discount is our gain so it will be added in the capital account. Because All income and gains are added in the capital accounts.
Creditors a/c : – Because, Due amount paid to creditors and creditors received payment.
Transaction No. 4
In this transaction, as shown in the above image two accounts are involved Machine and Cash:
Machine a/c (Purchase):- Because business receiving Machine.
Cash a/c : – Because payment made in cash.
Transaction No. 5
In this transaction, as shown in the above image two accounts are involved Machine and Capital:
Machine a/c :- Amount of Depreciation deducted from the Machine account, Because book value of machine of reduced.
Capital a/c : – Amount of Depreciation deducted from the capital account, Because all expenses and losses are wear by the owner.
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