Question

Goods costing ₹10,000 have been sold for cash at 25% profit. How will the transaction be shown in the accounting equation?

Answer 1

Meaning of accounting equation

Accounting equation, also called the balance sheet equation, represents the relationship between the assets, liabilities, and owner's equity of a business.

It is the foundation for the double-entry bookkeeping system.

For each transaction, the total debits equal the total credits

Accounting equation

Asset = capital + liabilities  

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Solution

Stock (Asset) will decrease by 10000

Cash (Asset) will increase by  12500

Capital (profit ) will increase by 2500

Answer 2

Answer:

Stock will decrease by Rs 10000, Cash will increase by Rs 12500, and Capital will increase by Rs 2500

Explanation:

Concept of Accounting Equation:

Accounting Equation says that a company's total assets is the resultant sum of its total liabilities and shareholder's funds, i.e., Equity.
It serves as the building block for double entry system in accountancy.

Accounting equation:

⇒ Total assets of a firm= Total liabilities of a firm+ Shareholder's Fund (Equity) of a firm.

Now, according to the question, the transaction will have a dual effect:

Stock will decrease by Rs 10000
Cash will increase by Rs 12500
Capital (Profit) will increase by 2500

Dual Effect:

Assets increased by Rs.2500
Capital increased by Rs.2500