Question

Vivek started business with a capital of $Rs.20,000$ and purchased goods worth $Rs.2,000$ on credit. These transactions may be expressed in the form of an accounting equation such as __________.

• A. $Rs.22,000=Rs.20,000+Rs.2,000$
• B. $Rs.20,000=Rs.22,000-Rs.2,000$
• C. $Rs.22,000=Rs.22,000+Rs.0$
• D. $Rs.22,000=Rs.0+Rs.22,000$

Answer 1

The correct option is A $Rs.22,000=Rs.20,000+Rs.2,000$

Accounting Equation may be defined as:

Share Capital+Liabilities=Fixed Assets+Current Assets

Here , Vivek has contributed $Rs.20000$ as Capital, this will result an increase in cash by $Rs.20000$. Goods purchased on credit for $Rs.2000$ result in an increase in stock by $Rs.2000$ and increase in current liabilities.

Therefore equation will be:

Capital+ Current Liabilities = Cash+Goods

$Rs.20000$+$Rs.2000$ = $Rs.20000$+$Rs.2000$.