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ACCOUNTING EQUATION
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Chapter -1
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Deepak Nagar

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

ACCOUNTING EQUATION

Welcome to the family of accounts

Asset Liabilities Capital
Cash Bills payable Owner equity or
Bank Creditors Proprietor’s
Stock or purchase of goods Bank Loan account or
Debtors Outstanding Capital
Bills receivable Expenses
Land & building Unaccrued income
Plant & machinery
Furniture
Accrued income
Prepaid expenses
Motor car
Expenses Income
Salary Interest received
Rent Commission
Wages received
Power Rent received
Electricity Dividend received
Printing & Stationery

Note :-
1. We have to prepare the accounts for the business and not for the
businessman
2. Position of the businessman is like an outsider who have given his money
as capital to business

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Accounting equation

Asset =Capital + liability

An accounting Equation is a formula of accounting which
shows that the assets of the business are always equal to
capital and liability

Basic entries
1. Started business with cash Rs. 50,000
Assets = Capital + liability
Cash
(+) 50,000 (+) 50,000

2. Started business with cash 50,000; furniture

25,000; Debtors 35,000
Assets = Capital + liability
Cash + Furniture +debtor
(+) 50,000 +25,000 + 35,000 (+) 1,10,000

3. Started business by depositing cash of 10,000 in

the bank .
Assets = Capital + liability
Bank
(+) 10,000 (+) 10,000
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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

4. Purchase goods for cash Rs. 7,000

Assets = Capital + liability
Cash + Stock
(-) 7,000 (+)7,000

5. Purchase goods on credit from Rohit Rs. 17,000.

Assets = Capital + liability
Stock Creditor
(+)17,000 (+) 17,000

6. Sale of good for cash Rs. 7,600 (Costing Rs.

7,600)
Assets = Capital + liability
Cash + Stock
(+) 7,600 (-)7,600

7. Sale of good for cash Rs. 10,000 (Costing Rs.

8,000)
Assets = Capital + liability
Cash + Stock Capital
(+) 10,000 (-)8,000 (+) 2,000

8. Sale of good for cash Rs. 6,000 (Costing Rs.

10,000)
Assets = Capital + liability
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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Cash + Stock Capital

(+) 6,000 (-)10,000 (-) 4,000

9. Sale of goods costing Rs. 15,000 for Rs. 15,000

on credit.
Assets = Capital + liability
Debtor + Stock
(+) 15,000 (-)15,000

10. Sale of goods costing Rs. 25,000 for Rs. 35,000

on credit.
Assets = Capital + liability
Debtor + Stock Capital
(+) 35,000 (-)25,000 (+)10,000

11. Sale of goods costing Rs. 25,000 for Rs. 15,000

on credit.
Assets = Capital + liability
Debtor + Stock Capital
(+) 15,000 (-)25,000 (-)10,000

12. Any expense like carriage, rent, salary, rent

paid.
Assets = Capital + liability
Cash
(-) 5,000 (-) 5,000

13. Any income received like Commission, Interest

etc. received
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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Or
Received Rs 5000 as Interest
Assets = Capital + liability
Cash
(+) 5,000 (+) 5,000

14. PURCHASE RETURN Rs 5,000

Assets = Capital + lia.
Stock (+) Creditor
(-)5,000 (-) 5,000

15. SALE RETURN of those goods which are sold at

par
Assets = Capital + lia.
Stock (+)Debtor Capital
(+)Cost of (-)sale Value ()
goods of goods sold

16. SALE RETURN of those goods which are sold at

profit
Assets = Capital + lia.
Stock (+)Debtor Capital
(+)Cost of (-)sale Value (-)value
goods of goods sold of profit

17. SALE RETURN of those goods which are sold at

loss
Assets = Capital + lia.
Stock (+)Debtor Capital
(+)Cost of (-)sale Value (+)value
goods of goods sold of loss

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Some question based on the above

5 Easy Questions

Que-1 Prepare the accounting equation , from the following information

Sr. no. Particular Rs.
1 Mohan started business with cash 50,000
2 Purchased goods on credit 4,000
3 Purchased goods for cash 1,000
4 Paid rent 200
5 Received interest 100
6 Sold goods on credit (Cost Rs. 500) 300
7 Paid salaries 200

8. Purchase return 1,200

Ans:-
Balance sheet
Liability Amount Assets Amounts
Capital 49,500 Cash 48,700
Creditor 2,800 Stock 3,300
Debtor 300
Total 52,300 Total 52,300

Que-2 Anil had the following transactions:

S.no Particular
i. Commenced business with cash Rs. 50,000
ii. Purchased goods for cash Rs. 20,000 and credit Rs. 30,000
iii. Sold goods for cash Rs. 40,000( costing Rs. 30,000)
iv. Rent paid Rs. 500.
v. Received Interest Rs 350
vi. Sold goods costing Rs 2,000 at a profit of 20% on credit
vii. Goods of sale value 480 were return by debtor from above

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

sale
viii. Goods purchase on credit return 1,500 to creditor
ix. Cash
c sale Rs 2,500

Use accounting equation to show the effect of the above transactions on his
assets, liabilities and capital and also show his balance sheet.

Ans:-
Balance sheet
Liability Amount Assets Amounts
Capital 60,170 Cash 72,350
Creditor 28,500 Stock 14,400
Debtor 1,920
Total 88,670 Total 88,750

Que-3 Show the accounting equation on the basis of the following

transactions and present a balance sheet of the last new equation
balance:
Particular Rs.
1. Mohan commenced business with 70,000
2. Paid wages 300
3. Purchase Goods for Credit 17,000
4. Goods purchase on credit return to creditor 2,000
5. Cash Purchase 10,000
6. Purchased Goods on Credit 15,000
7. Sold 40% of the above goods on credit at a 15,000
profit of 40%
8. Goods of cost value Rs 600 were return by the
customer As not upto the mark.(from the above
sale)
9. Sold goods for cash (cost price was Rs. 15,000) 20,000
10. Paid for Rent 5,000
11. Received commission 450

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Ans:-
Balance sheet
Liability Amount Assets Amounts
Capital 72,310 Cash 75,150
Creditor 30,000 Stock 19,600
Debtor 7,560
Total 1,02,310 Total 1,02,310

Que-4 Prove that the accounting equation is satisfied in the following

transactions:

1 Deepak Nagar commenced business with cash – Rs.

5,00,000
2 Deposit 4,00,000 in bank account
3 Bought goods for cash – Rs. 60,000
4 1/3rd of the above goods sold at a profit of 20% on
cost. Half the payment received in cash
5 Goods costing 5,000 were return by the customer from
the above sale
6 Purchased goods on credit from X – Rs. 25,000
7 Purchase return Rs 500
8 Paid salary – Rs. 3,000
9 Received commission – Rs. 500
10 Sold goods for credit (cost Rs. 50,000) – Rs. 60,000
11 Customer return goods worth Rs 5,000(cost) from the
above sale
Ans:-
Balance sheet
Liability Amount Assets Amounts
Capital 5,09,500 Cash 49,500
Creditor 24,500 Stock 24,500
Bank 4,00,000
Debtor 60,000
Total 5,34,000 Total 5,34,000

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Que-5 Show the accounting equation on the basis of the following

transaction and also show the balance sheet: -

a. Started business with cash Rs. 60,000 and goods Rs. 30,000
b. Purchased goods for cash Rs. 40,000 and on credit Rs. 25,000
c. Goods
G of value 1500 is not upto the mark so they are returned
d. Goods costing Rs. 48,000 sold at a profit of 33.33%. Three fourth
payment received in cash.
e. Goods costing Rs. 20,000 sold at a loss of 5%, out of which Rs.
12,000 received in cash.
f. 2,000
2 from the above goods are return by the customer.
g. Paid rent Rs. 4,000 and salary Rs. 6,000
h. Received Dividend Rs 800.

Ans:-
Balance sheet
Liability Amount Assets Amounts
Capital 95,900 Cash 70,800
Creditor 23,500 Stock 27,500
Debtor 21,100
Total 1,19,400 Total 1,19,400

Advance -1
18. Purchase of assets like building rs 15,000,
furniture rs 25,000, and motorcar rs 35,000
For cash
Assets = Capital + lia.
Cash (+)building (+)furniture (+)motorcar
(-)75,000 (+) 15,000 (+)25,000 (+)35,000

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

19. Sale of asset like furniture for cash

Assets = Capital + lia.
Cash (+)furniture
(+)15,000 (-) 15,000

20. Cash paid to ram (creditor) Rs300

Assets = Capital + liability
cash Creditor
(-)300 (-) 300

21. Rs 250 is paid to a creditor in cash in full

settlement of his claim of 300 Rs
Assets = Capital + liability
cash capital Creditor
(-)250 (+)50 (-) 300

22. Received Rs 300 from sohan (debtor)

Assets = Capital + liability
Debtor + cash
(-) 300 (+)300

23. Received Rs 3800 from ram a (debtor ) in full

settlement of his account of 4,000.
Assets = Capital + liability
Debtor + cash Capital
(-) 4,000 (+)3,800 (-)200

24. Withdrew Goods for private use rs 700

Assets = Capital + liability

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Stock capital
(-)700 (-)700

25. Withdrew cash for private use rs 17,000

Assets = Capital + liability

Cash capital
(-) 17,000 (-) 17,000

26. Introduced fresh or additional capital rs

15,000
Assets = Capital + liability
Cash capital
(+) 15,000 (+) 15,000

Some question based on the above

Que-6 Show the effect of following transactions on accounting equation

a. Started business with cash Rs. 50,000

b. Rent paid Rs. 2,000
c. Purchase goods for cash Rs 25,000
d. Sold goods for cash Rs 5,000 (costing Rs 3,500)
e. Purchase building For Rs 5,800
f. Purchase Furniture For Rs 2,000
g. Received commission Rs 3,800
h. Sold goods costing Rs 2,500 at a profit of Rs 1000 to
Mohan

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

i. Salary paid Rs 1,200

j. Withdrew goods for personal use costing Rs 2,500
k. Invested Rs 25,000 as additional capital
l. Mohan paid Rs 3,250 in full settlement of his claim

Ans:-
Balance sheet
Liability Amount Assets Amounts
Capital 75,350 Cash 51,050
Creditor Stock 16,500
Building 5,800
Furniture 2,000
Total 75,350 Total 75,350

Que-7 Show the accounting equation on the basis of the following

transactions:

Sunil started business with cash Rs. 1,50,000

a.
He purchased a building Rs 25,000 and furniture for Rs. 5,000
b.
He purchased goods from Ram on credit Rs. 50,000
c.
He paid carriage Rs. 500
d.
He sold to Shyam on credit goods costing Rs. 6,000 for Rs. 9,000
e.
Received rent from tenants Rs. 1,000
f.
Received Rs 8750 in full settlement from Shyam
g.
Received security deposit from tenants Rs. 1,500
h.
Purchased stationery for cash Rs. 100
i.
Invested in shares (personal) Rs. 50,000
j.
Received interest in cash Rs. 200
k.
Introduced fresh capital Rs. 25,000
l.
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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Withdrew cash for personal use Rs 4,800

m.
Paid Rs 48,000 in full settlement to Ram
n.
Ans:-

Balance sheet
Liability Amount Assets Amounts
Capital 127050 Cash 53,050
Stock 44,000
Building 25,000
furniture 5,000
Total 1,27,050 Total 1,27,050

Que-8 Arvind started a investment company and had the following

transactions. Use accounting equation to show their effect on his
assets, liabilities and capital:

a. Invested Rs. 15,000 in cash

b. Purchased securities for cash Rs. 7,500
c. Purchased a building for Rs. 15,000, giving Rs. 5,000 in cash
and balance through a loan.
d. Sold securities costing Rs. 1,000 for Rs. 5,000
e. Purchased an old car for Rs. 2,800 cash.
f. Received cash as Commission Rs. 3,600.
g. Paid cash Rs. 500 for loan and Rs. 300 for interest
h. Paid cash for household expenses Rs. 300.
i. Received cash for dividend on securities Rs. 200.
j. Purchase the shares of reliance company for Rs 3,000

Ans:-

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Balance sheet
Liability Amount Assets Amounts
Capital 22,200 Cash 4,400
Loan 9,500 Investment 9,500
Building 15,000
Car 2,800
Total 31,700 Total 31,700

Que-9 Onkar Nath starts a real agency business with a cash investment of
Rs. 35,000. The following business transactions have been recorded:

a. Paid rent for office accommodation Rs. 2,100

b. Bought office car for Rs. 21,000

c. Purchased office furniture for Rs. 7,000 on credit
d. Bought office typewriter from Standard Supply Company
for Rs. 3,000
e. Sold extra office furniture to Amar for cash Rs. 1,000 (
cost price is 1800 )
f. Onkar Nath paid half the amount he owed to Standard
Supply Company.
g. Collected Rs. 6,000 as commission.
h. Paid telephone bill amounting to Rs. 150.
i. Invested Rs 30,000 as additional capital

Use the following headings in a tabular form and work out the effect
of the foregoing transactions on the equity of Onkar Nath through the
Accounting equation. Finally show his balance sheet also.
Ans:-
Balance sheet
Liability Amount Assets Amounts
Capital 67,950 Cash 47250
Loan 8,500 Car 21,000
Furniture 5,200
Typewriter 3,000
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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Total 76,450 Total 76,450

Que-10 Show the accounting equation on the basis of the following

transactions:

a. Commenced business with cash Rs. 50,000; goods Rs.

30,000 and furniture Rs. 20,000
b. Sold goods to Ajay on credit costing Rs. 4,000 for Rs.
5,000
c. Received 4,900 in full settlement from Ajay
d. Sold goods for cash costing Rs. 12,000 for Rs. 16,000
e. Purchased goods for cash Rs. 40,000
f. Purchased goods on credit for Rs. 20,000 from adesh
g. Paid Rs 19,800 in full settlement to adesh
h. Paid salaries Rs. 2,000
i. Sold goods costing Rs. 8,000 for Rs. 10,000 to Sohan
j. Received Rs 9,800 in full settlement

Ans:-

Balance sheet
Liability Amount Assets Amounts
Capital 1,04,900 Cash 18,900
Stock 66,000
furniture 20,000
Total 1,04,900 Total 1,04,900

Advance -2
27. Depreciation written off / charged during the year.
The loss in the value of any asset due to its use or passage of time is
called depreciation.
Depreciation charged on furniture Rs 1,500
Assets = Capital + liability

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Furniture Capital
(-) 1,500 (-) 1,500

28. Accrued Income

Income earned but not received rs 2,500
Assets = Capital + liability
Accrued Income Capital
(+) 2,500 (+) 2,500

29. Unaccrued Income

That income which is received, but not earned Rs 3,500
Assets = Capital + liability
cash Unaccrued Income
(+) 3,500 (+) 3,500

30. Outstanding expense

(Those expenses, which are still to be paid or still unpaid, are called
outstanding expenses. )
Salary for the month of march is still payable or salary outstanding
Rs 350

Assets = Capital + liability

Capital Outstanding salary
(-) 350 (+) 350

31. Prepaid expense

(Any expenses paid in advance for next year is called prepaid
expenses.)
Salary prepaid Rs 450

Assets = Capital + liability

Prepaid Expenses (+) Cash
(+)450 (-) 450

32. Interest charged on capital Rs 500

Assets = Capital + liability
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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Capital
(-) 500
(+) 500

33. Interest charged on Drawing Rs 300

Assets = Capital + liability
Capital
(-) 300
(+) 300

34. Loss by fire /theft

Fire broke out in the godown and goods costing rs 5,000 were
destroyed having sale value of 6,500
Or
Goods Loss by fire Rs 5,000

Assets = Capital + liability

stock capital
(-) 5,000 (-)5,000

35. goods given as free sample

for example goods of value 500 is given as free sample

Assets = Capital + liability

stock capital
(-) 5,000 (-)5,000

36. goods given as charity

for example goods of value 600 is given as charity

Assets = Capital + liability

stock capital
(-) 5,000 (-)5,000

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Note :- goods given as free sample ,charity , loss by

fire / theft are recorded at cost price and not on
sale price

Some question based on the above

Que-11 Show the effect of the following transactions on assets,

liabilities and capital using accounting equation. Also prepare
balance sheet.

S.no. Particular Amount

a. Started business with cash Rs. 60,000
b. Rent received Rs. 2,000
c. Purchase goods for Rs 30,000
d. Accrued interest Rs. 500
e. Commission received in advance Rs. 1,000
f. Electricity charges outstanding Rs 500
g. Goods of value Rs 500 were given as
free sample

Que-12 Show the effect of following transactions on accounting

equation and also prepare a balance sheet:

S.no Particular Amount

a. Started business with cash

amounting to Rs. 35,000 and goods
Rs. 15,000
b. Salaries outstanding Rs. 2,000
c. Wages outstanding Rs. 200
d. Prepaid insurance Rs. 700
e. Interest due but not paid Rs. 100
f. Rent paid in advance Rs. 150.
g. Introduced fresh capital Rs 30,000
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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

h. Withdraw goods for Rs 3,000

personal use
i. Purchase furniture for 25,000
from Pooja furniture house

j. Charge depreciation @20%

k. Goods were given as charity 2,000

Que-13 Show the effect of following transactions on accounting

equation and prepare the balance sheet

S.no Particular Amount

a. Started business with cash, Rs. 50,000

Machinery Rs 1,00,000
b. Salaries paid Rs. 2,500
c. Wages outstanding Rs. 2000
d. Prepaid insurance Rs. 1,700
e. Interest due but not paid Rs. 1,000
f. Rent paid in advance Rs. 1,200
g. Rent received but not earned Rs 1,500
h. Charged depreciation on
machinery @15%

Que-14 Show the accounting equation on the basis of the following

transactions and prepare the balance sheet

a. Sunil started business with cash Rs. 1,50,000

b. salary for 3 months is outstanding @ 2,000 pm
c. He purchased goods from Ram on credit Rs. 50,000
d. 50% of Goods purchase from ram sold to sita for Rs
35,000
e. Sita founds 10% of above goods sold to them as
defective so
return to us
f. We return the good received from sita to ram

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

g. Paid 2 months rent in advance Rs 3000

h. Purchase a machinery for 75,000 paid 15,000 in cash and
rest from bank loan taken from ICICI bank

Que-15 prepare the accounting equation on the basis of the following

transactions

a. Sehaj started business with cash Rs 50,000 and stock Rs 15000

b. Purchase motor car for 10,000 for personal use
c. Commission Rs 2,500 is to be received from customer
d. Received security deposit from tenants Rs. 1,500
e. Purchased stationery for cash Rs. 100
f. Received interest in cash Rs. 200
g. Introduced fresh capital Rs. 25,000
h. Goods destroyed by fire Rs. 500(cost) having sale value Rs 650
i. Charge depreciation @15% on Machinery

Que-16 Prove that the accounting equation is satisfied in all the

following transactions.
a. Ganesh started business with: Cash Rs. 20,000,Goods Rs.
12,000, Machine Rs. 8,000
b. He purchased goods from Nimesh on credit Rs. 6,000.
c. Sold 25% of above goods to jitesh at a profit of 100%
d. Jitesh found 10% goods as defective so return them to us .
e. We return them to Nimesh
f. Jitesh clear his account by paying us Rs 2,650
g. We paid the amount due to Nimesh after deducting a
discount of 10%
h. Sold personal shares in reliance company for Rs 60,000 and
invest ¾ amount in business
i. Salaries paid Rs. 4,000

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Que-17 prepare the accounting equation on the basis of the following

transactions

a. Started business by depositing cash in bank account Rs 25,000

b. Wages outstanding Rs. 400
c. Purchase a machinery for 50,000 and 20,000 in paid via
cheque drawn on personal account and for the rest loan is taken from
Punjab National Bank
d. Prepaid insurance Rs. 1,500
e. Rent received Rs. 300
f. Rent receivable Rs 1,000
g. Interest on drawing Rs. 2,000
h. Depreciation on machinery Rs. 800

Que-18 Show the accounting equation on the basis of the following

transactions
a. Shri Ram commenced business with Rs. 3,00,000.
b. Paid rent in advance Rs. 1,200
c. Purchased a typewriter for Rs. 4,200.
d. Bought furniture from M/s Mohan Furniture on credit for
Rs. 1,800
e. Purchased goods from Sohan for cash Rs. 21,000.
f. Sold goods to Shyam for cash Rs. 24,000 (costing Rs.
18,000)
g. Bought goods from Ramesh for Rs. 18,000.
h. Sold goods to Shyam costing Rs. 18,000 for Rs.
30,000 for cash

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Formula Based Questions

Total Asset = Internal Equities +External Equities
Or
Total assets =Capital +Outside liabilities
Unsolved Questions
Que: 19 Fill in the blanks
Case Total Assets
(Rs). Internal External Total
(Rs.) (Rs.) Equities
i. 50, 000 - - ?
ii. . ? 25, 000 30, 000 ?
iii. . 60, 000 25, 000 ? ?
iv. . 70, 000 ? 25, 000 ?
v. ? ? 35, 000 50, 000
Ans: (i) 50, 000, (ii) 55, 000 (iii) 35, 000 (iv) 45, 000 (v) 15, 000

How to calculate profit

Particular Amount
Closing capital XXX

(+)Drawing XXX

(–)Opening capital XXX

(–)additional capital XXX

=Profit XXX

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Deepak Nagar Accounts 9811752801
Accounting Equation- class -11th

Que: 20. Fill in the blanks

Case Capital as Capital as Profit-Loss Drawings Fresh
on on 1.1.2021 during 2021 during capital
31.12.2021 (Rs.) (Rs.) 2021 introduced
(Rs.) (Rs.) during
2021 (Rs.)
i. . ? 10, 000 5, 000 2, 000 1, 000
ii. . 20, 000 ? (1, 000) 3, 000 4, 000
iii. . 21, 000 10, 000 ? 2, 000 10, 000
iv. . 10, 000 20, 000 5, 000 ? 1, 000
v. 15, 000 30, 000 (8, 000) 7, 000 ?
Ans: (i) 14, 000; (ii) 20, 000 (iii) Profit 3, 000 (iv) 16, 000 drawings (v) Nil

Que: 21 Fill in the blanks:

Case Capital as Fresh Drawings Profit- Capital as

on Capital during 1998 Loss on
1.1.1998 introduced (Rs.) during 31.12.1998
(Rs.) during 1998 1998(Rs.) (Rs.)
(Rs.)
i. . 50, 000 10, 000 8, 000 30, 000 ?
ii. . 60, 000 15, 000 12, 000 ? 80, 000
iii. . 80, 000 20, 000 ? 12, 000 87, 000
iv. . 70, 000 ? 20, 000 8, 000 73, 000
v. ? 10, 000 15, 000 (6, 000) 54, 000
Ans (1) 82, 000 (2) 17, 000 (3) 25, 000 (4) 15, 000 (5) 65, 000

Que: 22. If the capital of a business is Rs.10, 000 and outstanding liabilities
are Rs.15, 000. Calculate total assets of the business.
Ans: 25, 000

Que: 23. If the total assets of a business are Rs.1, 30,000 and the net
worth is Rs.80, 000. Calculate creditors.
Ans: 50, 000
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NOTE :- NET WORTH =CAPITAL EMPLOYED

Que: 24. Mr. X commenced his cloth business on 1 jan.2021 with capital of
Rs.30, 000. On 31 Dec.2021 his assets were worth Rs.50, 000 and
liabilities of Rs.10, 000. Find out his closing capital and profits earned
during the year.
Ans: 10, 000

Que: 25 Calculate total equity if:

(I) Owner’s equity in he beginning Rs.60, 000
(II) Equity of creditors at the end Rs.50, 000
(III) Revenue during the period is Rs.70, 000
(IV) Expenses during the same period are Rs.65, 000
Also calculate amount of owner’s equity at the end.
Ans: 65, 000

Que: 26. (a) Ram started a business on 1.1.2021 with a capital of Rs.10, 000
and a loan of Rs.5, 000 borrowed from Bharat. On 31 December
2021 his assets were Rs.30, 000. Find out his capital as on
31.12.2021 and profits made or losses incurred during the year
2021.
(b) If in the above problems (a) during he 2021 the proprietor had
introduced additional capital of 5, 000 and had withdrawn Rs.3, 000
for personal purposes, find out the profit.
(c) If in the above problem (a) on 31.12.2021 apart from loan, Ram
owes Rs.2, 500 to a supplier of goods find out his capital as on
31.12.2021 and profit.
Ans: (a) 15, 000 (b) 13, 000 (c) 12, 500

Que: 27. Calculate the amount of total assets and capital as on

31.12.2021 in each of the following cases:
(a) Shyam started a business on 1.1.2021 with a capital of Rs.10, 000
and a loan of Rs.5,000 borrowed from Charat. During the year he
made a profit of Rs.5, 000.
(b) If in the preceding case the proprietor had introduced additional
capital of Rs.5,000 And had withdrawn Rs.3,000 for personal use.
(c) If in the preceding case, a part from loan Shyam owes 2, 500 to a
supplier of goods on 31.12.2021.

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Ans: (a) 20, 000 (b) 22, 000 (c) 24, 500

Que: 28. Calculate the amount of external equities as on 31.12.2021 in

each of the following alternative cases:
(a) On 31.12.2021 total assets and capital were Rs.50, 000 and Rs.35, 000
respectively.
(b) On 1.1.2021 Ram starts business with a capital of Rs.10, 000 and a
loan of Rs.5, 000 borrowed from a friend. During 2021 he earned a
profit of Rs.5, 000 on 31.12.2021 the total assets were Rs.50, 000.
(c) On1.1.2021, Shyam starts business with a capital of Rs.10, 000 and a
loan of Rs.5, 000 borrowed from a friend. During 2021 he earned a
profit of Rs.5, 000 introduced an additional capital of Rs.6, 000 and
had withdrawn Rs.3, 000 for his personal use. On 31.12.2021 the total
assets were Rs.50, 000.
Ans: (a) 15, 000 (b) 35, 000 (c) 32, 000

Que: 29. (a) Surrender Mohan started business on 1st Jan. 1998 with a
capital of Rs.1, 50,000 and a loan of Rs.40, 000 taken from
Punjab national bank. On 31st Dec. 1998 his assets were Rs.3,
00,000. Find out his capital on 31st De. 1998 and Profits made or
losses incurred during the year 1998.
(b) If in the above Illustration the
proprietor had introduced additional capital of Rs.25, 000 and had
withdrawn Rs.8, 000 for personal purposes, find out he profit.
Ans: (a) 1, 10,000 (b) 93, 000

Que: 30. Calculate the amount of total assets and closing capital in
each of the following cases:
(a) Arun started business on 1st Jan. 1998 with a capital of Rs.50, 000 and
a loan of Rs.20 000 taken from Central bank. During the yea he made
a profit of Rs.18, 000.
(b) If in the above Illustration the proprietor had introduced additional
capital of Rs.15, 000 and had withdrawn Rs.6, 000 for personal
purposes.
Ans: (a) 88, 000 (b) 93, 000
st
Que: 31. Calculate capital as on 1 April 1998 in each of the following
cases:

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(a) Total assets and total outstanding liabilities as on 31st March1999 were
Rs.2, 35,000 and Rs.65, 000 respectively.
(b) Additional capital introduced during the year Rs.60, 000.
(c) Drawing during the year Rs.50, 000.
(d) Profit during the year Rs.70, 000.
Ans: 90, 000

Que:-32 Give an example for each of the following type of transaction:-

(a) Increase in one asset ,decrease in another asset
(b) Increase in asset , increase in liability
(c) Increase in asset , increase in owners capital
(d) Decrease in asset , decrease in liability
(e) Decrease in asset , Decrease in owners capital

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Meaning of Debit and Credit

All accounts are divided into two sides .the left side of the account is called as
debit side and the right side of the account is called as credit side .Debit is
written as Dr and Credit is written as Cr
The transaction relating to
furniture are recorded in furniture account and its format is given below :-

Furniture Account
Amt. Amt.

The above account resemble English capital letter ‘T’ so it is also called as
‘T’ shaped account .

In order to decide when to write on the debit side of an account and when to
write on the credit side of an account . There are two approaches
(1) American or Modern Approach
(2) English approach or Traditional Approach

(English approach is also called as double entry system ,which will be

discussed in the next chapter )

American Approach :- The rules of debit and credit depends on the

nature of accounts . For this Purpose , all the accounts are classified into the
following five categories in the American approach :-
(1) Assets Accounts
(2) Liability Accounts
(3) Capital Accounts or owner’s equity Account
(4) Revenue or Income Accounts
(5) Losses Or Expenses Accounts

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Nature of accounts

Debit Balances Credit Balances

1. Asset A/c
2. Expenses A/c 1. Liability Accounts
2. Capital Accounts
3. Revenue Accounts

Dr. Asset and Expenses Account Cr.

Amount Amount
Record increase in these Record decrease in these
account on this side account on this side

Dr. Liability , Capital and Revenue Account Cr.

Amount Amount
Record decrease in these Record increase in these
account on this side account on this side

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Que:-31 On which side the increase in the following account will be

recoded ? Also mention the nature of the account
1. Furniture
2. Rent paid
3. Rent received
4. Debtors
5. Creditor
6. Machinery
7. Proprietor’s Account
8. Outstanding expenses
9. Prepaid Expenses
10. Bank loan
11. Salary
12. Building
13. Audit fees
14. Stock
15. Typewriter
16. Accrued income
17. Unaccrued Income
18. Cash
19. Bank
20. Bank Overdraft

Que:-32 On which side the Decrease in the following account will be

recoded ? Also mention the nature of the account
1. Furniture
2. Rent paid
3. Rent received
4. Debtors
5. Creditor
6. Machinery
7. Proprietor’s Account
8. Outstanding expenses
9. Prepaid Expenses
10. Bank loan

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11. Salary
12. Building
13. Audit fees
14. Stock
15. Typewriter
16. Accrued income
17. Unaccrued Income
18. Cash
19. Bank
20. Bank Overdraft

Que:-33 Open ‘T’ shape account for machinery and write the following
on the proper side
1.Machinery purchased for Rs 25,000
2.Machinery sold for 5,000
3. Machinery again purchase for Rs 8,000
4.Old machinery discarded for Rs 2,000
5.Depreciation charged on machinery Rs 500

Que:-34 Open ‘T’ shape account for Creditor and write the following on
the proper side
1. Purchase Goods from Adesh on credit for Rs 4,00,000
2. Paid to Adesh Rs 2,50,000
3. Cash purchase from Adesh Rs 1,00,000
4. Purchase goods from adesh on credit Rs 50,000
5. Paid cash to adesh Rs 50,000

Que:-35 Open ‘T’ shape account for Capital A/c and write the following
on the proper side
1. Started business for cash Rs 50,000
2. Withdrawn goods for personal use Rs 3,000
3. Introduced cash Rs 5,000 as additional Capital
4. Withdraw cash for diamond ring for his wife Rs 5,000
5. Paid life insurance premium Rs 500
6.Sold personal Investment worth Rs 15,000 at a profit of 20% and
invest it in business

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7.loss for the year Rs 500

Que:-36 Open ‘T’ shape account for Debtor’s A/c, Creditor’s A/c and
Cash Account and write the following on the proper side
1. Sold goods for cash Rs 2,50,000
2. Sold goods to X on credit Rs 4,00,000
3. Received cash from X 2,80,000
4.Purchased Goods from Y on credit Rs 2,20,000
5.Purchase goods from Y for Cash Rs 80,000
6.Paid to Y Rs 1,50,000

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