Question

Use Accounting Equation to show the effect of the following transactions of M/s Royal Traders :Prepare

		(₹)
(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 ₹5,000)	7,000
(h)	Goods destroyed by fire	500

Answer 1

ACCOUNTING EQUATION
S. No.	Transaction	Assets					=	Liabilities	+	Capital
		Cash	+	Stock	+	Prepaid Insurance	=	Outstanding Salary
(i)	Started business with cash	+1,20,000							+	1,20,000
		1,20,000					=			1,20,000
(ii)	Purchased goods for cash	–10,000		+10,000
		1,10,000	+	10,000			=			1,20,000
(iii)	Rent received	+5,000								+5,000 (Income)
		1,15,000	+	10,000			=			1,25,000
(iv)	Outstanding salary							+2,000		–2,000 (Expense)
		1,15,000	+	10,000			=	2,000	+	1,23,000
(iv)	Prepaid insurance	–1,000				+1,000
		1,14,000	+	10,000	+	1,000	=	2,000	+	1,23,000
(iv)	Interest received	+700								+700 (Income)
		1,14,700	+	10,000	+	1,000	=	2,000	+	1,23,700
(iv)	Sold goods costing Rs 5,000 for Rs 7,000	+7,000		–5,000						+2,000 (Profit)
		1,21,700	+	5,000	+	1,000	=	2,000	+	1,25,700
(iv)	Goods destroyed by fire			–500						–500
		1,21,700	+	4,500	+	1,000	=	2,000	+	1,25,200