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Prepare the accounting equation from the following transactions:

a) Started Business with cash Rs. 90000.

b) Sold goods worth Rs. 60000 on cash and Rs. 30000.

c) Salary paid Rs. 8000.

d) Purchased goods on credit Rs. 100000.

Answer :

To prepare the accounting equation from the given transactions, we need to understand the basic accounting equation:

[tex]\text{Assets} = \text{Liabilities} + \text{Equity}[/tex]

Let's analyze the given transactions step-by-step:

  1. Started Business with cash Rs. 90000.

    • Effect: Increase in cash, an asset.
    • Accounting Equation Impact:
      • Assets increase by Rs. 90,000.
      • Equity increases by Rs. 90,000 (as this cash is the owner’s investment in the business).
    • So, the equation becomes:
      • [tex]\text{Assets} = \text{Liabilities} + \text{Equity}[/tex]
      • [tex]90000 = 0 + 90000[/tex]

  2. Sold goods worth Rs. 60000 on cash and Rs. 30000 on credit.

    • Effect: Increase in cash (asset) by Rs. 60,000 and increase in accounts receivable (asset) by Rs. 30,000. Revenue increases equity.
    • Accounting Equation Impact:
      • Assets increase by Rs. 60,000 (in cash) + Rs. 30,000 (in accounts receivable) = Rs. 90,000.
      • Equity increases by Rs. 90,000 (assuming all sales are profit).
    • So, the equation becomes:
      • [tex]180000 = 0 + 180000[/tex]

  3. Salary paid Rs. 8000.

    • Effect: Decrease in cash by Rs. 8,000.
    • Accounting Equation Impact:
      • Assets decrease by Rs. 8,000.
      • Equity decreases by Rs. 8,000 (as salary is an expense reducing equity).
    • So, the equation becomes:
      • [tex](180000 - 8000) = 0 + (180000 - 8000)[/tex]
      • [tex]172000 = 0 + 172000[/tex]

  4. Purchased goods on credit Rs. 100000.

    • Effect: Increase in inventory (asset) by Rs. 100,000 and increase in liabilities by Rs. 100,000.
    • Accounting Equation Impact:
      • Assets increase by Rs. 100,000 (in inventory).
      • Liabilities increase by Rs. 100,000 as the purchase is on credit.
    • So, the final equation becomes:
      • [tex](172000 + 100000) = 100000 + 172000[/tex]
      • [tex]272000 = 100000 + 172000[/tex]

This revised equation takes into account all the transactions and balances out the two sides of the accounting equation, showing the relationship between assets, liabilities, and equity for the business.

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Rewritten by : Barada