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Question

Prove that accounting equation is satisfied in all the following cases:
(a) Commenced business with cash ₹ 50,000.
(b) Paid rent ₹ 4,000 including ₹ 1,000 as advance.
(c) Bought goods for cash ₹ 30,000 and on credit ₹ 20,000.
(d) Sold the goods bought on credit for ₹ 25,000.
(e) Purchased furniture worth ₹ 10,000 for office use and for ₹ 5,000 for domestic use.

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Solution

ACCOUNTING EQUATION
S. No. Transaction Assets = Liabilities + Capital
Cash + Prepaid
Rent
+ Stock Furniture = Creditors
(i) Started business with cash +50,000 +50,000
50,000 = + 50,000
(ii) Paid rent Rs 4,000 including Rs 1,000 as advance –4,000 +1,000 –3,000 (Expense)
46,000 + 1,000 = + 47,000
(iii) Purchased goods for cash Rs 30,000 and on credit Rs 20,000 –30,000 +50,000 +20,000
16,000 + 1,000 + 50,000 = 20,000 + 47,000
(iv) Sold goods (costing Rs 20,000) for Rs 25,000 +25,000 –20,000 +5,000 (Profit)
41,000 + 1,000 + 30,000 = 20,000 + 52,000
(v) Purchased furniture Rs 10,000 for office use and Rs 5,000 for domestic use –15,000 +10,000 –5,000 (Drawings)
26,000 + 1,000 + 30,000 + 10,000 = 20,000 + 47,000

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