Answer :

Final Answer:

When a car is purchased for personal use, it affects the Accounting Equation by decreasing Cash (Assets) and increasing Personal Use Car (Assets) by the amount of Rs 10,000.

Explanation:

When you purchase a car for personal use, it impacts the fundamental accounting equation, which is Assets = Liabilities + Equity. This equation reflects the company's financial position, showing how its resources are financed.

1. Impact on Assets;

The car purchase involves a cash outflow of Rs 10,000, reducing the Cash (an asset) component on the balance sheet. This reduction in Cash reflects the decreased availability of liquid funds due to the purchase.

2. Increase in Personal Use Car (Asset):

Simultaneously, a new asset account called "Personal Use Car" is created to represent the value of the car acquired. This asset account is increased by Rs 10,000, representing the cost of the car.

3. Equity and Liabilities:

Since the car was purchased for personal use, there is no impact on liabilities or equity. These remain unchanged as this transaction doesn't involve borrowing money or affecting the owner's equity.

In summary, when a car is bought for personal use, the cash asset decreases due to the expenditure, and a new asset account (Personal Use Car) is created to represent the value of the car. This maintains the balance of the accounting equation.

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