Question

Show the effect of following transactions on the accounting

equation :-

i) Sonia started business with cash Rs.40,000, Stock Rs.30,000

and machinery Rs.60,000

ii) Goods costing Rs.25,000 sold for Rs.28,000 on credit

iii) Purchased goods on credit Rs.35,000

iv) Depreciate machinery by Rs.5,000

v) Cash received Rs.11,500 in full settlement of account of a

customer Rs.12,000

vi) Bad Debts return of Rs.2,000 (6)​

Answer 1

Answer:

The amount of prepaid insurance will be credited from assets and debited in liability thus, the equation will be 5000 +1000 = 2000+4000-1000. The same way commission of Rs. 2800 will be added to assets and liability because there's an increase in cash and also an increase in capital (Income).