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Problem 1 Accounting Equation

The document shows the accounting equation for Mr. Padilla's business as it relates to 10 business transactions. For each transaction, the accounting equation is used to show the effect on assets, liabilities, and capital. The transactions include starting the business, purchasing assets, buying and selling inventory for cash and credit, paying liabilities, and depositing and withdrawing from the bank. The accounting equation is balanced for each transaction to show that assets equal the sum of liabilities and capital.

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Marjon Dimafilis
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2K views8 pages

Problem 1 Accounting Equation

The document shows the accounting equation for Mr. Padilla's business as it relates to 10 business transactions. For each transaction, the accounting equation is used to show the effect on assets, liabilities, and capital. The transactions include starting the business, purchasing assets, buying and selling inventory for cash and credit, paying liabilities, and depositing and withdrawing from the bank. The accounting equation is balanced for each transaction to show that assets equal the sum of liabilities and capital.

Uploaded by

Marjon Dimafilis
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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com/accounting-process/problems-solutions/fundamental-accounting-
equation.php#.XxErIShKjIU

COMPUTATIONS – ACCOUNTING EQUATION


Problem 1
Show that the accounting equation is satisfied after taking into consideration
each of the following transactions in the books of Mr. Padilla.

1. Started business with capital 100,000


2. Bought furniture 25,000
3. Bought goods for cash 20,000
4. Bought goods from Melgar on Credit 5,000
5. Sold goods for cash for 15,000
6. Sold goods to Ritz on credit 8,000
7. Paid cash to Melgar 4,000
8. Received cash from Ritz 5,000
9. Paid Cash into Bank 25,000
10. Withdrawn from bank 10,000

Following are the accounting transactions relating to Mr. Padilla's business. Use
the accounting equation to show their effect on his assets, liabilities and capital.

1. Commenced business with a Capital of 50,000


2. Bought Machinery for cash 10,000
3. Purchased goods for cash 15,000
4. Purchased goods from A on credit 5,000
5. Sold goods for cash 10,000
6. Paid to A 2,000
7. Sold goods to B on credit 3,000
8. Paid into Bank 6,000
9. Paid to A by cheque 1,000
10. Received from B a cheque for 2,000
1.
Liabilitie
Capital + s
= Assets

100,000 + 0 = 100,000 (Cash)

2.
Capital + Liabilities = Assets

100,00 + 0 =    75,000 (Cash)


0 + 25,000 (Furniture)

3.
Capital + Liabilities = Assets

100,00 + 0 =    55,000 (Cash)


0 + 25,000 (Furniture)
+ 20,000 (Goods)

4.
Capital + Liabilities = Assets

100,00 + 5,000 (Melgar) =    55,000 (Cash)


0 + 25,000 (Furniture)
+ 25,000 (Goods)

5.
Capital + Liabilities = Assets

100,00 + 5,000 (Melgar) =    70,000 (Cash)


0 + 25,000 (Furniture)
+ 10,000 (Goods)

6.
Capital + Liabilities = Assets

100,00 + 5,000 (Melgar) =    70,000 (Cash)


0 + 25,000 (Furniture)
+ 2,000 (Goods)
+ 8,000 (Ritz)

7.
Capital + Liabilities = Assets

100,00 + 1,000 (Melgar) =    66,000 (Cash)


0 + 25,000 (Furniture)
+ 2,000 (Goods)
+ 8,000 (Ritz)

8.
Capital + Liabilities = Assets

100,00 + 1,000 (Melgar) =    71,000 (Cash)


0 + 25,000 (Furniture)
+ 2,000 (Goods)
+ 3,000 (Ritz)

9.
Capital + Liabilities = Assets

100,00 + 1,000 (Melgar) =    46,000 (Cash)


0 + 25,000 (Furniture)
+ 2,000 (Goods)
+ 3,000 (Ritz)
+ 25,000 (Bank)

10.
Capital + Liabilities = Assets

100,00 + 1,000 (Melgar) =    56,000 (Cash)


0 + 25,000 (Furniture)
+ 2,000 (Goods)
+ 3,000 (Ritz)
+ 15,000 (Bank)
This solution differs from the first only in the way the data is presented. Data
here is presented in the form of a mathematical equation while in the previous it
is presented in the form of a statement.

1.

Capita
l
+ Liabilities = Assets

50,000 + 0 = 50,000 (Cash)

2.

Capita Liabilitie
l + s = Assets

50,000 + 0 = 40,000 (Cash) + 10,000 (Machinery)

3.

Capita
l
+ Liabilities = Assets

50,000 + 0 = 25,000 (Cash) + 10,000 (Machinery) + 15,000 (Goods)

4.

Capita
l + Liabilities = Assets

50,000 + 5,000 = 25,000 (Cash) + 10,000 (Machinery) + 20,000 (Goods)


(A)

5.
Capita
l
+ Liabilities = Assets

50,000 + 5,000 = 35,000 (Cash) + 10,000 (Machinery) + 10,000 (Goods)


(A)

6.

Capita
l + Liabilities = Assets

50,000 + 3,000 = 33,000 (Cash) + 10,000 (Machinery) + 10,000 (Goods)


(A)

7.

Capita
l
+ Liabilities = Assets

50,000 + 3,000 = 33,000 (Cash) + 10,000 (Machinery) + 7,000 (Goods) + 3,000 (B)
(A)

8.

Capita
l + Liabilities = Assets

50,000 + 3,000 = 27,000 (Cash) + 10,000 (Machinery) + 7,000 (Goods) + 3,000 (B)
(A) + 6,000 (Bank)

9.

Capita
l
+ Liabilities = Assets

50,000 + 2,000 = 27,000 (Cash) + 10,000 (Machinery) + 7,000 (Goods) + 3,000 (B)
(A) + 5,000 (Bank)
10.

Capita
l
+ Liabilities = Assets

50,000 + 2,000 = 27,000 (Cash) + 10,000 (Machinery) + 7,000 (Goods) + 1,000 (B)
(A) + 7,000 (Bank)

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