Prepare accounting equation from the following transactions sumit

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prepare accounting equation from the following transactions sumit

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Prepare Accounting Equation from the Following Transactions (Sumit)

To solve such problems, the accounting equation is used, which is expressed as:

Assets = Liabilities + Owner’s Equity

Every transaction affects this equation, either on the assets side or the combination of liabilities and owner’s equity, ensuring that the equation remains balanced at all times. Below, I’ll illustrate how to systematically construct the accounting equation step by step based on common types of transactions.

Transactions:

Assume the following transactions are provided (modify as per your specific problem):

  1. Sumit started a business with ₹1,00,000 as capital.
  2. Borrowed ₹50,000 from a bank.
  3. Purchased furniture for ₹20,000 (paid in cash).
  4. Bought goods for ₹30,000 on credit.
  5. Sold goods costing ₹15,000 for ₹25,000 in cash.
  6. Paid ₹10,000 off from the loan taken earlier.
  7. Paid ₹5,000 for office rent.
  8. Sumit withdrew ₹8,000 for personal use.

We will now analyze each transaction and update the accounting equation step by step.

Step 1: Create an Initial Table for the Accounting Equation

Let’s create a table structured as follows:

Transactions Assets (Cash, Furniture, etc.) Liabilities (Loan, Creditors) Owner’s Equity (Capital + Profit, Drawings)
Opening Balance (₹) 0 0 0

Step 2: Record Each Transaction Step-by-Step in the Accounting Equation

Transaction 1: Sumit started a business with ₹1,00,000 as capital.

  • This increases Cash (an asset) and increases Owner’s Equity.
  • Updated accounting equation:
Transactions Assets (Cash) Liabilities Owner’s Equity
Business started (Capital added) +1,00,000 0 +1,00,000

Transaction 2: Borrowed ₹50,000 from a bank.

  • This increases Cash (an asset) and also adds to Liabilities.
  • Updated accounting equation:
Transactions Assets (Cash) Liabilities Owner’s Equity
Capital Added (₹1,00,000) ₹1,00,000 0 ₹1,00,000
Loan Borrowed (₹50,000) +₹50,000 +₹50,000 0

Transaction 3: Purchased furniture for ₹20,000 (paid in cash).

  • This decreases Cash by ₹20,000 and increases Furniture (another asset). Total assets remain the same, and there is no effect on liabilities or owner’s equity.
  • Updated accounting equation:
Transactions Assets (Cash + Furniture) Liabilities Owner’s Equity
Capital Added (₹1,00,000) ₹1,00,000 (Cash) 0 ₹1,00,000
Loan Borrowed (₹50,000) +₹50,000 +₹50,000 0
Furniture Purchase ₹1,30,000 - ₹20,000 (Cash) + ₹20,000 (Furniture) — —