Show the impact of the following transactions on the accounting equation: a. Started business with capital in the form of cash Rs. 200000, building Rs. 250000 b. Purchased machiner... Show the impact of the following transactions on the accounting equation: a. Started business with capital in the form of cash Rs. 200000, building Rs. 250000 b. Purchased machinery for Rs. 75000 c. Purchased goods on credit Rs. 85000 d. Loan from bank for Rs. 100000
Understand the Problem
The question requires you to demonstrate the impact of several business transactions on the accounting equation. The transactions include starting a business with cash and buildings, purchasing machinery, purchasing goods on credit, and obtaining a loan from a bank. You need to show how each transaction affects assets, liabilities, and capital to maintain the balance of the accounting equation (Assets = Liabilities + Capital).
Answer
The accounting equation (Assets = Liabilities + Capital) is impacted by the changes in cash, building, machinery, goods, accounts payable and bank loan according to the transactions.
The accounting equation (Assets = Liabilities + Capital) is impacted as follows:
a. Cash increases by Rs. 200,000 and Building increases by Rs. 250,000. Capital increases by Rs. 450,000. b. Machinery increases by Rs. 75,000 and Cash decreases by Rs. 75,000. c. Goods (inventory) increase by Rs. 85,000 and Accounts Payable (a liability) increases by Rs. 85,000. d. Cash increases by Rs. 100,000 and Loan from Bank (a liability) increases by Rs. 100,000.
Answer for screen readers
The accounting equation (Assets = Liabilities + Capital) is impacted as follows:
a. Cash increases by Rs. 200,000 and Building increases by Rs. 250,000. Capital increases by Rs. 450,000. b. Machinery increases by Rs. 75,000 and Cash decreases by Rs. 75,000. c. Goods (inventory) increase by Rs. 85,000 and Accounts Payable (a liability) increases by Rs. 85,000. d. Cash increases by Rs. 100,000 and Loan from Bank (a liability) increases by Rs. 100,000.
More Information
The Accounting Equation is used to keep track of business transactions and ensure the books are balanced. Assets will always equal the sum of liabilities plus equity.
Tips
Mistakes can happen by not correctly identifying which accounts are impacted (e.g., confusing accounts payable with accounts receivable) or by not understanding the basic accounting equation.
Sources
AI-generated content may contain errors. Please verify critical information
