Explain the two fold effects of the following transactions: (i) A started business with cash Rs 60,000 (ii) Opened bank account in SBI with Rs 50,000 (iii) Purchased goods from A m... Explain the two fold effects of the following transactions: (i) A started business with cash Rs 60,000 (ii) Opened bank account in SBI with Rs 50,000 (iii) Purchased goods from A mart Rs 40,000 (iv) Gave cheque to A mart on account Rs 20,000 (v) Sold goods Rs 30,000 (vi) Sold goods to J for Rs 10,000 (vii) Paid shop rent Rs 2,000 (viii) Cheque of Rs 4,000 received from J (ix) Purchased stationery Rs 1,000 (x) Received order for supplying goods from B.
Understand the Problem
The question is asking to explain the two-fold effects of various business transactions. This involves understanding how each transaction impacts both assets and liabilities or equity in accounting terms.
Answer
Transactions adjust cash, inventory, liabilities, and owner's equity using the accounting equation.
The dual effects of each transaction are determined by applying the accounting equation:
(i) Assets increase by Rs 60,000 (Cash), and Owner's Equity increases by Rs 60,000 (Capital). (ii) Assets decrease Rs 50,000 (Cash) and increase Rs 50,000 (Bank balance). (iii) Liabilities increase by Rs 40,000 (Creditors), and Inventory (Assets) increases by Rs 40,000. (iv) Bank account decreases by Rs 20,000 (Asset), Creditors decrease by Rs 20,000 (Liability). (v) Cash increases by Rs 30,000 (Asset), Inventory decreases (if cost of goods sold is accounted separately in detail). (vi) Debtors increase by Rs 10,000 (Asset), Inventory decreases. (vii) Cash decreases by Rs 2,000 (Asset), Owner's Equity decreases (Rent Expense). (viii) Bank increases by Rs 4,000 (Asset), Debtors decrease by Rs 4,000 (Asset). (ix) Cash decreases by Rs 1,000 (Asset), Office Supplies (Expense/Asset) increase. (x) No immediate effect on the accounting equation until goods are delivered.
Answer for screen readers
The dual effects of each transaction are determined by applying the accounting equation:
(i) Assets increase by Rs 60,000 (Cash), and Owner's Equity increases by Rs 60,000 (Capital). (ii) Assets decrease Rs 50,000 (Cash) and increase Rs 50,000 (Bank balance). (iii) Liabilities increase by Rs 40,000 (Creditors), and Inventory (Assets) increases by Rs 40,000. (iv) Bank account decreases by Rs 20,000 (Asset), Creditors decrease by Rs 20,000 (Liability). (v) Cash increases by Rs 30,000 (Asset), Inventory decreases (if cost of goods sold is accounted separately in detail). (vi) Debtors increase by Rs 10,000 (Asset), Inventory decreases. (vii) Cash decreases by Rs 2,000 (Asset), Owner's Equity decreases (Rent Expense). (viii) Bank increases by Rs 4,000 (Asset), Debtors decrease by Rs 4,000 (Asset). (ix) Cash decreases by Rs 1,000 (Asset), Office Supplies (Expense/Asset) increase. (x) No immediate effect on the accounting equation until goods are delivered.
More Information
The dual effect principle ensures that every transaction balances the accounting equation, maintaining financial accuracy.
Tips
A common mistake is forgetting to record both sides of a transaction, which leads to incorrect balances.
Sources
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