Show the effect of the following transactions on the accounting equation: (a) Business started with cash ₹50,000 (b) Purchased goods for cash ₹20,000 (c) Purchased furniture ₹25,00... Show the effect of the following transactions on the accounting equation: (a) Business started with cash ₹50,000 (b) Purchased goods for cash ₹20,000 (c) Purchased furniture ₹25,000
Understand the Problem
The question requires to analyze the impact of given transactions on the accounting equation. The accounting equation dictates that Assets = Liabilities + Equity. We must show how each transaction affects the components of this equation, ensuring it remains balanced.
Answer
The accounting equation is affected as follows: (a) Cash +50,000 = Capital +50,000 (b) Cash -20,000 + Stock +20,000 = Capital +50,000 (c) Cash -25,000 + Stock +20,000 + Furniture +25,000 = Capital +50,000
Accounting Equation Assets = Liabilities + Owner's Equity
(a) Business started with cash ₹ 50,000 Cash +50,000 = Capital +50,000
(b) Purchased goods for cash ₹ 20,000 Cash -20,000 + Stock +20,000 = Capital +50,000
(c) Purchased furniture ₹ 25,000 Cash -25,000 + Stock +20,000 + Furniture +25,000 = Capital +50,000
Answer for screen readers
Accounting Equation Assets = Liabilities + Owner's Equity
(a) Business started with cash ₹ 50,000 Cash +50,000 = Capital +50,000
(b) Purchased goods for cash ₹ 20,000 Cash -20,000 + Stock +20,000 = Capital +50,000
(c) Purchased furniture ₹ 25,000 Cash -25,000 + Stock +20,000 + Furniture +25,000 = Capital +50,000
More Information
Understanding the effects of business transactions on the accounting equation (Assets = Liabilities + Owner's Equity) is paramount for accurate financial reporting and decision-making. This equation highlights the balance between what a company owns (assets) and what it owes to others (liabilities) and its owners (equity).
Tips
A common mistake is not understanding the basic accounting equation. Always remember: Assets = Liabilities + Owner's Equity. Each transaction affects at least two accounts to keep the equation balanced.
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