Question

Goods costing RS. 20,000 have been sold for cash at 25% profit. How will you show the transactions in the accounting equation?





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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

Solution

Stock (Asset) will decrease by 10000 Cash (Asset) will increase by 12500 Capital (profit) will increase by 2500

Answer 2

The Basic Accounting Equation is: Assets = Liabilities + Capital (Owner’s Equity)

Furthermore, it can be expanded as Assets = Liabilities + Capital + Revenues – Expenses

Also, Profit = Revenues – Expenses

The Accounting Equation should remain balanced every time. Because we know that each transaction has a Dual aspect. Thus, each transaction will either affect the debit side and credit side. Also, a transaction may affect two accounts on the debit side or two accounts on the credit side.

Also, the profits will increase the Capital and losses will decrease it.