Question

Use accounting equation to show the effect of the following transactions of M/s Royal Traders:

		Rs
(a)	Started business with cash	1,20,000
(b)	Purchased goods for cash	10,000
(c)	Rent received	5,000
(d)	Salary outstanding	2,000
(e)	Prepaid Insurance	1,000
(f)	Received interest	700
(g)	Sold goods for cash (costing Rs 5,000)	7,000
(h)	Goods destroyed by fire	500

Answer 1

S.No.	Explanation	Assets					=	Liabilities	+	Capital
		Cash	+	Stock	+	Prepaid Expenses		Outstanding Expenses
(a)	Increase in cash	1,20,000
	Increase in capital									1,20,000
		1,20,000					=	NIL	+	1,20,000
(b)	Increase in stock			10,000
	Increase in cash	(10,000)					=
		1,10,000	+	10,000			=	NIL	+	1,20,000
(c)	Increase in cash	5,000
	Increase in capital (Profit)									5,000
		1,15,000	+	10,000			=	NIL	+	1,25,000
(d)	Increase in outstanding expenses						=	2,000
	Decrease in capital (Expense)									(2,000)
		1,15,000	+	10,000			=	2,000	+	1,23,000
(e)	Increase in prepaid expenses					1,000
	Decrease in cash	(1,000)
		1,14,000	+	10,000	+	1,000	=	2,000	+	1,23,000
(f)	Increase in cash	700
	Increase in capital (Profit)									700
		1,14,700	+	10,000	+	1,000	=	2,000	+	1,23,700
(g)	Increase in cash	7,000
	Decrease in stock			(5,000)
	Increase in capital (Profit)									2,000
		1,21,700	+	5,000	+	1,000	=	2,000	+	1,25,700
(h)	Decrease in stock			(500)
	Decrease in capital (Loss)						=			(500)
		1,21,700	+	4,500	+	1,000	=	2,000	+	1,25,200