Question

X 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 from of '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+0
• D. Rs.22,000=0+Rs. 22,000

Answer 1

Answer: (A)

Rs. 22,000= Rs. 20,000+Rs. 2,000

Accounting equation:

Capital +Liabilities=Fixed Assets+Current Assets

Capital contribution of Rs.20000 increase capital and cash

Purchase of goods of Rs.2000 on credit increases goods by Rs.2000 and current liabilities by Rs.2000

Hence

Capital (Rs.20000)+Creditors (Rs.2000)=Cash (Rs.20000)+Goods (Rs.2000).