Question

Due to the following transactions, the total of accounting equation will be: (a) Commenced business with cash Rs.4,00,000 (b) Purchased goods on credit Rs.75,000 (c) Goods costing Rs.1,00,000 sold at a profit of 20% for cash (d) Rent paid Rs.5000

Answer 1

Explanation:

Capital = 40,000

Asset = Debtor = 1,20,000 (20% profit added)

Liability = Creditor + Rent = 75000 + 5000

= 80,000

Accounting equation,

Asset = Liability + Capital

1,20,000= 80,000+ 40,000

1,20,000=1,20,000

Answer 2

Answer:

Below is the required accounting equation.

Explanation:

What we know:

Capital = 40,000

Debtor = 1,20,000 (20% profit added)

Liability = Creditor + Rent

= 75000 + 5000

= 80,000

So, the accounting equation will be:

Asset = Liability + Capital

1,20,000= 80,000 + 40,000

1,20,000 = 1,20,000

The Accounting Equation: What Is It?

The entire assets of a corporation are equal to the sum of its liabilities and shareholders' equity, according to the accounting equation. The basic idea behind the double-entry accounting system is that assets, liabilities, and equity have a clear relationship with one another. The fundamental accounting formula and the cornerstone of the double-entry accounting system is asset = liabilities + equity. Transactions are recorded using the double-entry method as debits and credits. It implies that the total monetary value of all a company's assets equals the sum of its claims from both owners and outside parties. The value of capital and liabilities can be calculated using this equation.

Thus, an essential component of the balance sheet and a fundamental accounting principle is the accounting equation.