Final Thoughts It is understood that the double-entry book-entry accounting system is followed globally and adheres to the rules of debit and credit … Let us understand the accounting equation with the help of an example. Prepare an Accounting Equation from the following: (i) Started business with cash ₹ 1,00,000. (ii) He purchased furniture for ₹ 2,000. Issued invoice 001. Prove that the Accounting Equation is satisfied in all the following transactions of Sameer Goel: (i) Started business with cash ₹ 10,000. Answer: 2 question Sold goods costing $1000 on credit at 25% profit. 1.If it is a Credit Sale Hari A/c (under Sundry Debtor) Dr To Sales A/c (Direct Income) 2. In transaction #5 we paid him 3,000 of the 5,000 so he had a balance of 2,000 that we owed him (credit balance). The accounting equation shows the relationship between these items. (iv) He purchase goods on credit ₹ 3,000. Overview of Accounts Receivable. Accounting interpretation of the transaction . Solved Example on Accounting Equation. October 1 Started the business with RM10,000 cash. Rearranging the Accounting Equation. Since 10,000 worth of goods have been sold on credit, The value of Goods/Stock decreases from 15,000 to 5,000. Use accounting equation to show the effect of following transactions on assets, liabilities and capital: a)Started business with cash Rs 70,000 b)Purchased goods on credit Rs 18,000 c)Purchased machinery Rs 20,000 d)Payment made to creditors in full settlement Rs 17,500. e)Depreciation on machinery Rs 2,000 please explain this sum. Dec 22,2020 - Prepare Accounting Equation. Credit A sale of inventory or services is made increasing sales revenue. 1.A credit note for R35700 issued to a debtor. 8,000 for Rs. (iii) Purchased goods for cash ₹ 5,000 and credit ₹ 2,000. Show it in accounting equation form ) Outline two ways VKW might be affected by increased import controls. In this form, it is easier to highlight the … 13 Banked in cash RM1,000. However, if the customer pays within 10 days, a 2% discount will be applied. (i) Commenced business with cash ₹ 60,000. (iii) Sold goods for cash costing ₹ 10,000 and on credit costing ₹ 15,000 both at a profit of 20%. Q.15 Prepare an Accounting Equation from the following: (i) Started business with cash 50,000 and goods 30,000. Create an accounting equation on the basis of the following transactions: (5 Marks) Started business with cash ₹ 80,000 and goods ₹ 75,000; Sold goods to Shanmugam on credit for ₹ 50,000; Received cash from Shanmugam in full settlement ₹ 49,000 He purchases goods on credit: Rs. This means that the amount is due in 30 days (net 30). Jan 2 Purchased goods on credit from Das & Co. for 2,000 Indonesian Rupiah. (iii) Sold goods for cash costing Rs 10,000 and on credit costing Rs 15,000 both at a profit of 20%. The Accounting Equation. Solution: Question 7. The Accounting Equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the equity of the business. The accounting equation can also be rearranged into the following form: Shareholder’s Equity = Assets – Liabilities. (c) Bought goods for cash ₹ 30,000 and on credit ₹ 20,000. The effect is that Liabilities will increase by R55,000. Accounting Equation for a Sole Proprietorship: Transactions 1-2. Prepare an Accounting Equation from the following: (i) Started business with cash ₹ 1,00,000. Show it in accounting equation form - the answers to estudyassistant.com 500 (iv) Withdrew in cash for private use … (iii) He paid rent of ₹ 200. Manohar is a creditor from transaction #2 - we bought the goods on credit for 5,000. (ii) Paid rent in advance ₹ 500. The goods were delivered together with an invoice for R25,000. When a seller offers credit terms of net 30 days, the net amount for the sales transaction is due 30 days after the sales invoice date.. To illustrate the meaning of net, assume that Gem Merchandise Co. sells $1,000 of goods to a customer.Upon receiving the goods the customer finds that $100 of the goods are not acceptable. Prove that the Accounting Equation is satisfied in all the following transactions of Suresh. Analyze the following transactions under the Accounting Equation Approach. Mohit has the following transactions, prepare the accounting equation: Business started with cash ₹ 1,75,000; Purchased goods from Rohit ₹ 50,000; Sold goods on credit to Manish (Costing ₹ 17,500)₹ 20,000; Purchased furniture for office use ₹ 10,000; Cash paid to Rohit in full settlement ₹ 48,500; Cash received from Manish ₹ 20,000 When a company records a business transaction, it is not entered into an accounting equation, per se. This is true at any time and applies to each transaction. 40,000 (e) He sold goods (Costing Rs.20,000) for cash: Rs. An accounting transaction is a business activity or event that causes a measurable change in the accounting equation. 3. The cost price of these goods was R21000 2.Cash received for service rendered according to cash register roll, R8250. Sold goods to Raman for ₹ 15,000 of which ₹ 5,000 was received at once; Answer: Question 6. Solution: (v) He sold goods (cost price ₹ 2,000) for ₹ 5,000 on cash. Commenced business with cash ₹500000; Purchased goods ₹25000; Paid salary ₹10000; Sold goods costing ₹20000 at a profit of 25% on the cost (ii) Purchased goods for cash Rs 20,000 and on credit Rs 30,000. The income statement includes the accounts which directly refer to a company’s income or expense like Cost of Goods Sold, Tax expenses, and Interest Payable expenses. Prepare the Accounting Equation to show the effect of the above transactions on the assets, liabilities and capital. (ii) Paid rent in Advance ₹ 300. ₹ ₹ (ii) Purchased goods for cash 30,000 and on credit from Karan 20,000. 20,000 form Mahesh on credit (ii) Sold goods to Suresh costing Rs. Question 7. (R = Rands, South African currency) A: The above is a typical example of a sale on credit. ₹ ₹ (iv) Withdrew cash for personal use 10,000. Company A offers credit terms 5/10, net 30. (iv) He purchase goods on credit ₹ 3,000. Below are the transactions of Warisan Trading for the month of October 2020. On 1 st August 2019, when the goods were sold on credit to the buyer of the goods, then the account receivable account will be debited with the corresponding credit to the Sales account. ₹ (v) Rent outstanding 2,000. Class Exercises – Accounting Equation 2 Question 1 Warisan Trading is a stationary store and owned by Ameena. 26,000: Answer. Jan 1 Invested Capital of 20,000 Indonesian Rupiah. When goods or services are sold to a customer, and the customer is allowed to pay at a later date, this is known as selling on credit, and creates a liability for the customer to pay the seller. Mr Ram, a sole proprietor has the following transactions in his books of accounts for the year 2019. (iii) Purchased goods for cash ₹ 30,000 and credit ₹ 20,000. (iii) Purchased goods for cash ₹ 5,000 and credit ₹ 2,000. Prepare an Accounting Equation from the following: (i) Started business with cash Rs 1,00,000. Accounting Equation Examples. Assets = Liabilities + Capital. Purchased goods on credit: 4,000 (iv) Sold goods on cash (cost ₹ 500) for: 700 (v) Received rent: 200 (vi) Purchased goods for cash: 1,000 (vii) Withdrew for personal use: 700 (viii) Paid to … 12 Sold goods on credit to Halim RM500. 3. Sold Goods on credit to M/s Bharat & Co., for 10,000. Example 3 - Purchased goods from a supplier on credit. sold goods costing $1000 on credit at 25% profit. Thus, each debit has an equal credit. (ii) Purchased goods for cash ₹ 20,000 and on credit ₹ 30,000. In other words, this is the amount of money the company spent on labor, materials, and overhead to manufacture or purchase products that were sold to customers during the year. (Delhi 2010) A nswer 7: The following table is showing the accounting equation. Sold goods to R. Botha on credit of R242,39. Also prepare a Balance Sheet. If it is a Cash Sale Cash/Bank A/c (Under Current Asset) Dr To Sale A/c 3. Q.12 Prove that the Accounting Equation is satisfied in all the following transactions of Sameer Goel: (i) Started business with cash ₹ 10,000. Solution: Question 8. We present nine transactions to illustrate how a company's accounting equation stays in balance. These goods will be sold to customers at a profit. (d) Sold the goods bought on credit for ₹ 25,000. The accounting equation is a mathematical expression that shows the relationship among the different elements of accounting, i.e. 10,000 in cash (iii) Paid wages Rs. In #12 he is giving us a discount of 100 off the 2,000 and we pay him the rest (1,900). (b) Paid rent ₹ 4,000 including ₹ 1,000 as advance. ₹ ₹ (iii) Goods costing 40,000 were sold for 55,000. An exchange of cash for merchandise is a transaction. Because of the two-fold effect of transactions, the equation always stays in balance. Even though this is a relatively straightforward transaction, a sale on credit, there are actually two possibilities for the journal entries we record. Credit Terms with Discounts. Solution: Cost of goods sold (COGS) = Beginning inventory + Purchases – Closing inventory = $600,000 + $1,200,000 – $500,000 = $1,300,000 Prepare an Accounting Equation and Balance Sheet on the following basis: (i) Ajeet started business ₹ 20,000. Cost of goods sold, often abbreviated COGS, is a managerial calculation that measures the direct costs incurred in producing products that were sold during a period. (ii) Paid rent in advance ₹ 300. He then sold some goods on credit to M/s Bharat & Co., for 10,000. Show that the accounting equation is satisfied after taking into consideration each of the following transactions in the books of Mr. N . Required: Compute cost of goods sold for the year 2016 assuming the company uses a periodic inventory system. What will be the effect of the following on the accounting equation-(i) Purchased goods for Rs. (iv) Sold goods for … For example, the credit terms for credit sales may be 2/10, net 30. Ques 35: Prove that accounting equation is satisfied in all the following cases: (a) Commenced business with cash ₹ 50,000. 3.Sold goods on Credit to J.Mali for R5880 ( cost price R3920)? (iv) Sold goods for cash ₹ 8,000 costing ₹ 4,000. Started business with capital 1,00,000 ; Bought furniture 25,000 ; Bought goods for cash 20,000 ; Bought goods from Ram on Credit 5,000 ; Sold goods for cash for 15,000 ; Sold goods to Shyam on credit 8,000 Delete (ii) Purchased goods for cash ₹ 20,000 and on credit ₹ 30,000. (iv) Sold goods for cash ₹ 8,000 costing ₹ 4,000. (v) He sold goods (cost price ₹ 2,000) for ₹ 5,000 on cash. Merely placing an order for goods is not a recordable transaction because no exchange has taken place. As we know that each transaction has a Dual aspect. Assume Company A sold $10,000 worth of goods to Michael. assets, liabilities, and capital (or "equity"). | EduRev Commerce Question is disucussed on EduRev Study Group by 142 Commerce Students. Now that company has a new delivery vehicle, Assets increase by the same amount, keeping the equation in balance. 4 Purchased Canon printer RM400 by cheque for office use. 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