0% found this document useful (0 votes)
250 views3 pages

Accounting Equation

Jane Lee started a bookshop business with $2,000 of personal savings. During the first month of operations, she purchased a building for $500, furniture on credit for $200, deposited $500 in the business bank account, repaid the $200 furniture credit, and withdrew $100 for personal use. The accounting equation is provided to record each transaction and show the impact on assets, capital, and liabilities.

Uploaded by

anika anwar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
250 views3 pages

Accounting Equation

Jane Lee started a bookshop business with $2,000 of personal savings. During the first month of operations, she purchased a building for $500, furniture on credit for $200, deposited $500 in the business bank account, repaid the $200 furniture credit, and withdrew $100 for personal use. The accounting equation is provided to record each transaction and show the impact on assets, capital, and liabilities.

Uploaded by

anika anwar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Illustration # 1

Jane Lee started business on 1 January, 20X9 and decides to set up a bookshop. She decides to invest
all her personal savings $2,000 to start her business. During the first month of her business following
transactions took place:
1. Invested cash $2,000 in business.
2. Purchased building for business use for $500 paying by cash.
3. Purchased furniture on credit from Wood shop for $200.
4. Opened a business bank account and deposited $500 cash.
5. Repaid the amount due to Wood shop by cheque$200.
6. Withdrew cash $100 from business for her personal use.
Required:
Enter the above transaction in an accounting equation.
SOLUTION
Invested cash $2,000 in business
Sr # ASSETS = CAPITAL + LIABILITIES
Cash
$ $
1. 2,000 2,000
Purchased building for business use for $500 paying by cash.
Sr # ASSETS = CAPITAL + LIABILITIES
Cash Building
$ $ $
1. 2,000 2,000
2. (500) 500 -
1,500 500 2,000
Purchased furniture on credit from Wood shop for $200.
Sr # ASSETS = CAPITAL + LIABILITIES
Cash Building Furniture Wood shop
$ $ $ $
1. 2,000 2,000
2. (500) 500 -
1,500 500 2,000
3. - - 200 - 200
1,500 500 200 2,000 200
Opened a business bank account and deposited $500 cash.
Sr # ASSETS = CAPITAL + LIABILITIES
Cash Building Furniture Bank Wood shop
$ $ $ $ $
1. 2,000 2,000
2. (500) 500 -
1,500 500 2,000
3. - - 200 - 200
1,500 500 200 2,000 200
4. (500) 500
1,000 500 200 500 2,000 200
Repaid the amount due to Wood shop by cheque$200.
Sr # ASSETS = CAPITAL + LIABILITIES
Cash Building Furniture Bank Wood shop
$ $ $ $ $
1. 2,000 2,000
2. (500) 500 -
1,500 500 2,000
3. - - 200 - 200
1,500 500 200 2,000 200
4. (500) 500
1,000 500 200 500 2,000 200
5. - - - (200) - (200)
1,000 500 200 300 2,000 -
Withdrew cash $100 from business for her personal use.
Sr # ASSETS = CAPITAL + LIABILITIES
Cash Building Furniture Bank Wood shop
$ $ $ $ $
1. 2,000 2,000
2. (500) 500 -
1,500 500 2,000
3. - - 200 - 200
1,500 500 200 2,000 200
4. (500) 500
1,000 500 200 500 2,000 200
5. - - - (200) - (200)
1,000 500 200 300 2,000 -
6. (100) - - - (100)
900 500 200 300 1,900

CLASS PRACTICE
Question No. 1
Peter Reid decides he is going to open a bookshop called Easyread, which he does by investing $5,000
on 1st January 20X7. During the first month of Easyread’s existence, the following transactions occur:
(a) Bookshelves are purchased for $1,800
(b) Books are purchased for $2,000
(c) Half of the books are sold for $1,500 cash
(d) Peter draws $200 out of the business for himself
(e) Carpets are purchased for $1,000 on credit (to be paid in two month’s time)
(f) A bulk order of books worth $400 is sold on credit (to be paid in one month’s time) for $600
Required: Write down the accounting equation after each transaction has occurred.
Question No. 2
Explain the dual effects of each of the following transactions:
(a) A business receives a loan of $5,000 from its bank
(b) A business pays $800 cash to purchase goods for resale
(c) The proprietor of a business removes $50 from the till to buy her husband a birthday present
(d) A business sells goods costing $300 at a profit of $140
(e) A business repays a $5,000 bank loan, plus interest of $270
Question No. 3
Neelam decides to open up a flower stall in the market, to sell flowers and potted plants. Determine the
accounting equation after each of the following transactions:
(a) She puts $2,500 into her business
(b) She purchases a market stall for $1,800
(c) She purchases flowers and potted plants from a trader in the new garden wholesale market, at a
cost of $650.
(d) She sells her plants and flowers for $900 cash
(e) She pays herself $180 as wages
Question No. 4
Draw up the accounting equation for Albert after each of the following transactions:
(a) Started business with $10,000
(b) Bought a motor van on credit for $500
(c) Took a loan of $150 from P
(d) Puts a further $5,000 cash into the business
(e) Bought stock for $2,000
(f) Sold stock worth $500 for $900 for cash
(g) Bought goods on credit $220
(h) The owner takes out $100 cash for his personal use
(i) Repaid P
Question No. 5
Show the effect of each of the following on the accounting equation:
(a) Bought a motor van on credit $500
(b) Repaid by cash a loan owed to P Smith $200
(c) Bought goods for $150 paying by cheque
(d) The owner puts a further $5,000 cash into the business
(e) A debtor pays us $400
(f) Bought goods on credit $220
(g) The owner takes out $100 cash for his personal use
(h) We pay a creditor $190 by cheque

You might also like