Question 18.
Show the accounting equation on the basis of following transactions:
(a) Ram started business with ₹ 25,000.
(b) Purchased goods from Shyam ₹ 10,000.
(c) Sold goods to Sohan costing ₹ 1,500 for ₹ 1,800.
Answers
The answer is stated below:
Explanation:
Accounting equation of the accounts is as:
Assets = Liabilities + Shareholders equity
Using this equation, the transactions will be stated as:
1. As the business is started by Ram, so, this will have a impact on the assets under the cash account and the shareholders equity under the capital account.
The cash account will increase by Rs 25,000 as well as the capital account will increase by the same amount.
2. As business bought goods from Shyam, then this transaction will have a impact on Assets under the stock account and the liabilities under the creditors account.
The stock account will increase by Rs 10,000 and the creditors will be also increase as purchased on credit.
3. As the business sold the goods to Sohan, this transaction will impact the Assets under the stock account and debtors account. It will also result in profit as the goods cost Rs1,500, that are sold for Rs1,800 (So, Rs1800 - Rs 1500 = Rs 300).
The stock will decrease by the amount of Rs 1,500 and debtors will increase by Rs 1,800. And also there is profit of Rs 300, which is to be recorded under the capital account of the shareholders equity.
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