(₹)

(i) Manu started business with cash 50,000

(ii) Bought furniture for 500

(iii) Purchased goods on credit 4,000

(iv) Sold goods on cash (cost ₹ 500) for 700

(v) Received rent 200

(vi) Purchased goods for cash 1,000

(vii) Withdrew for personal use 700

(viii) Paid to creditors 400

(ix) Paid for salaries 200

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Furniture + Stock = Creditors

(i) Manu started business with cash +50,000 +50,000

50,000 = + 50,000

(ii) Purchased Furniture –500 +500

49,500 + 500 + 50,000

(iii) Purchased goods on credit +4,000 +4,000

49,500 + 500 + 4,000 = 4,000 + 50,000

(iv) Sold goods costing Rs 500 for Rs +700 –500 +200 (Profit)
700

50,200 + 500 + 3,500 = 4,000 + 50,200

(v) Rent received +200 +200 (Income)

50,400 + 500 + 3,500 = 4,000 + 50,400

(vi) Purchased goods for cash –1,000 +1,000

49,400 + 500 + 4,500 = 4,000 + 50,400

(vii) Withdrew for personal use –700 –700

(Drawings)

48,700 + 500 + 4,500 = 4,000 + 49,700

(viii) Paid to creditors –400 –400

48,300 + 500 + 4,500 = 3,600 + 49,700

(ix) Salaries paid –200 -200

48,100 + 500 + 4,500 = 3,600 + 49,500

Balance Sheet
as on ……

2/27
 Liabilities Amount (Rs) Assets Amount (Rs)

Creditors 3,600 Cash 48,100

Capital 49,500 Furniture 500

Stock 4,500

53,100 53,100

Page No 6.24:

Question 2(B):

Prove that the Accounting Equation is satisfied in all the following transactions of Rajaram. Also prepare a Balance Sheet:−
1. Started business with Cash ₹ 1,20,000.
2. Purchased a typewriter for Cash for ₹ 8,000 for office use.
3. Purchased goods for ₹ 50,000 for cash.
4. Purchased goods for ₹ 40,000 on credit.
5. Goods costing ₹ 60,000 sold for ₹ 80,000 on credit.
6. Paid for Rent ₹ 1,500 and for salaries ₹ 2,000.
7. Received ₹ 800 for Commission.
8. Withdrew for private use ₹ 5,000 in cash.

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Typewriter + Stock + Debtors = Creditors

(i) Started business with +1,20,000 + 1,20,000

cash

1,20,000 = 1,20,000

(ii) Purchased typewriter –8,000 + 8,000

for office use

1,12,000 + 8,000 = 1,20,000

(iii) Purchased goods for –50,000 +50,000

cash

62,000 + 8,000 + 50,000 = 1,20,000

(iv) Purchased goods on +40,000 40,000

credit

62,000 + 8,000 + 90,000 = 40,000 + 1,20,000

(v) Goods costing Rs –60,000 +80,000 +20,000

60,000 sold for Rs (Profit)
80,000 on credit

62,000 + 8,000 + 30,000 + 80,000 = 40,000 + 1,40,000

(vi) Paid rent Rs 1,500 and –3,500 –3,500

salaries Rs 2,000 (Expenses)

58,500 + 8,000 + 30,000 + 80,000 = 40,000 + 1,36,500

(vii) Commission received +800 +800

(Income)

59,300 + 8,000 + 30,000 + 80,000 = 40,000 + 1,37,300

(viii) Withdrew cash for –5,000 –5,000

private use (Drawings)

54,300 + 8,000 + 30,000 + 80,000 = 40,000 + 1,32,300

3/27
 Balance Sheet of Rajaram
as on ……

Liabilities Amount (Rs) Assets Amount (Rs)

Creditors 40,000 Cash 54,300

Capital 1,32,300 Typewriter 8,000

Stock 30,000

Debtors 80,000

1,72,300 1,72,300

Page No 6.25:

Question 3:

Prepare Accounting Equation from the following:

(a) Started business with Cash ₹ 2,00,000.
(b) Purchased goods for Cash ₹ 60,000 and on Credit ₹ 1,50,000.
(c) Sold goods for Cash costing ₹ 40,000 at a profit of 20% and on Credit costing ₹ 72,000 at a profit of 25%.
(d) Paid for Rent ₹ 5,000.

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Debtors = Creditors

(i) Started business with cash +2,00,000 +2,00,000

2,00,000 = 2,00,000

(ii) Purchased Goods for Cash Rs 60,000 –60,000 +2,10,000 +1,50,000

and on credit Rs 1,50,000

+1,40,000 + 2,10,000 = 1,50,000 + 2,00,000

(iii) Sold goods for cash costing Rs 40,000 +48,000 –1,12,000 +90,000 +26,000
at a profit of 20% and on credit Rs (Profit)
72,000 at a profit of 25%

+1,88,000 + 98,000 + 90,000 = 1,50,000 + 2,26,000

(iv) Rent paid –5,000 –5,000

(Expenses)

+1,83,000 + 98,000 + 90,000 = 1,50,000 + 2,21,000

Working Note:

WN1Calculation of Selling Price of Goods Sold

Total Cost of Goods Sold = 40,000 + 72,000 = Rs 1,12,000

4/27
Page No 6.25:

Question 4:

Prepare Accounting Equation from the following:

(₹)

(a) Kunal started business with cash 2,50,000

(b) He purchased furniture for cash 35,000

(c) He paid commission 2,000

(d) He purchased goods on credit 40,000

(e) He sold goods (Costing ₹ 20,000) for cash 26,000

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Furniture + Stock = Creditors

(i) Kunal started business with cash +2,50,000 + 2,50,000

2,50,000 = 2,50,000

(ii) Purchased furniture for cash –35,000 +35,000

2,15,000 + 35,000 = 2,50,000

(iii) Commission paid –2,000 -2,000

(Expense)

2,13,000 + 35,000 = + 2,48,000

(iv) Purchased goods on credit +40,000 +40,000

2,13,000 + 35,000 + 40,000 = 40,000 + 2,48,000

(iv) Sold goods costing Rs 20,000 for Rs +26,000 –20,000 +6,000

26,000 (Profit)

2,39,000 + 35,000 + 20,000 = 40,000 + 2,54,000

Page No 6.25:

Question 5:

Mohit has the following transactions, prepare Accounting Equation:

(₹)

(a) Business started with cash 1,75,000

(b) Purchased goods from Rohit 50,000

5/27
 (c) Sold goods on credit to Manish (costing ₹ 17,500) 20,000

(d) Purchased furniture for office use 10,000

(e) Cash paid to Rohit in full settlement 48,500

(f) Cash received from Manish 20,000

(g) Rent paid 1,000

(h) Cash withdrew for personal use 3,000

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Debtors Furniture = Creditors

(i) Started business with +1,75,000 + 1,75,000

cash

1,75,000 = + 1,75,000

(ii) Purchased goods from +50,000 +50,000

Rohit

1,75,000 + 50,000 = 50,000 + 1,75,000

(iii) Sold goods costing Rs –17,500 +20,000 +2,500

17,500 for Rs 20,000 to (Profit)
Manish

1,75,000 + 32,500 + 20,000 = 50,000 + 1,77,500

(iv) Purchased furniture for –10,000 +10,000

office use

1,65,000 + 32,500 + 20,000 + 10,000 = 50,000 + 1,77,500

(v) Cash paid in full –48,500 –50,000 +1,500

settlement to Rohit (Gain)

1,16,500 + 32,500 + 20,000 + 10,000 = 0 + 1,79,000

(vi) Cash received from +20,000 –20,000

Manish

1,36,500 + 32,500 + 0 + 10,000 = + 1,79,000

(vii) Rent paid –1,000 –1,000

(Expense)

1,35,500 + 32,500 + + 10,000 = + 1,78,000

(viii) Withdrew cash for private –3,000 –3,000

use (Drawings)

1,32,500 + 32,500 + + 10,000 = + 1,75,000

Page No 6.25:

Question 6:

What will be the effect of the following on the Accounting Equation?

(i) Harish started business with cash ₹ 1,80,000.
(ii) Purchased goods for cash ₹ 60,000 and on credit ₹ 30,000.
(iii) Sold goods for cash ₹ 40,000; costing ₹ 24,000.

6/27
(iv) Rent paid ₹ 5,000; and rent outstanding ₹ 2,000.
(v) Sold goods on credit ₹ 50,000 (costing ₹ 38,000).
(vi) Salary paid in advance ₹ 3,000.

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Debtors Prepaid = Creditors + Outstanding
Salary Rent

(i) Harish +1,80,000 + 1,80,000

started
business
with cash

1,80,000 = 1,80,000

(ii) Purchased –60,000 +90,000 +30,000

goods for
cash Rs
60,000 and
on credit Rs
30,000

1,20,000 + 90,000 = 30,000 + 1,80,000

(iii) Sold goods +40,000 –24,000 +16,000

costing Rs (Profit)
24,000 for
Rs 40,000

1,60,000 + 66,000 = 30,000 + 1,96,000

(iv) Rent paid –5,000 +2,000 –7,000

Rs 5,000 (Expense)
and
outstanding
Rs 2,000

1,55,000 + 66,000 = 30,000 + 2,000 + 1,89,000

(v) Goods –38,000 +50,000 +12,000

costing Rs (Profit)
38,000 sold
on credit for
Rs 50,000

1,55,000 + 28,000 + 50,000 = 30,000 + 2,000 + 2,01,000

(vi) Salary paid –3,000 +3,000

in advance

1,52,000 + 28,000 + 50,000 + 3,000 = 30,000 + 2,000 + 2,01,000

Page No 6.25:

Question 7:

Use Accounting Equation to show the effect of the following transactions of M/s Royal Traders :Prepare

(₹)

(a) Started Business with Cash 1,20,000

(b) Purchased goods for cash 10,000

(c) Rent received 5,000

(d) Salary Outstanding 2,000

7/27
 (e) Prepaid insurance 1,000

(f) Received interest 700

(g) Sold goods for cash (costing ₹5,000) 7,000

(h) Goods destroyed by fire 500

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Prepaid = Outstanding
Insurance Salary

(i) Started business with cash +1,20,000 + 1,20,000

1,20,000 = 1,20,000

(ii) Purchased goods for cash –10,000 +10,000

1,10,000 + 10,000 = 1,20,000

(iii) Rent received +5,000 +5,000

(Income)

1,15,000 + 10,000 = 1,25,000

(iv) Outstanding salary +2,000 –2,000

(Expense)

1,15,000 + 10,000 = 2,000 + 1,23,000

(iv) Prepaid insurance –1,000 +1,000

1,14,000 + 10,000 + 1,000 = 2,000 + 1,23,000

(iv) Interest received +700 +700

(Income)

1,14,700 + 10,000 + 1,000 = 2,000 + 1,23,700

(iv) Sold goods costing Rs 5,000 for +7,000 –5,000 +2,000

Rs 7,000 (Profit)

1,21,700 + 5,000 + 1,000 = 2,000 + 1,25,700

(iv) Goods destroyed by fire –500 –500

1,21,700 + 4,500 + 1,000 = 2,000 + 1,25,200

Page No 6.26:

Question 8(A):

Prepare Accounting Equation from the following :−

1. Started business with cash ₹ 75,000 and goods ₹ 25,000.
2. Paid for Rent ₹ 2,000.
3. Bought goods for cash ₹ 30,000 and on credit for ₹ 44,000.
4. Goods costing ₹ 50,000 sold at a profit of 25%, out of which ₹ 27,500 received in Cash.
5. Purchased a Motor-cycle for personal use ₹ 20,000.

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Debtors = Creditors

8/27
 (i) Started business with cash and goods +75,000 + 25,000 = + 1,00,000

75,000 + 25,000 = 1,00,000

(ii) Rent paid –2,000 –2,000

(Expense)

73,000 + 25,000 = 98,000

(iii) Bought goods for cash and on credit –30,000 +74,000 +44,000

43,000 + 99,000 = 44,000 + 98,000

(iv) Goods costing Rs 50,000 sold at a profit of +27,500 –50,000 +35,000 +12,500
25% out of which Rs 27,500 received in (Profit)
cash

70,500 + 49,000 + 35,000 = 44,000 + 1,10,500

(v) Purchased motor cycle for personal use –20,000 –20,000

(Drawings)

50,500 + 49,000 + 35,000 = 44,000 + 90,500

Working Note:

WN1 Calculation of Selling Price

Page No 6.26:

Question 8(B):

Prepare Accounting Equation from the following and also prepare a Balance Sheet:-
1. Raghu started business with Cash ₹1,50,000.
2. Bought goods for cash ₹80,000 and on credit for ₹40,000.
3. Goods costing ₹75,000 sold at a profit of 331313%. Half the payment received in cash.
4. Goods costing ₹10,000 sold for ₹12,000 on credit.
5. Paid for Rent ₹2,000 and for salaries ₹4,000.
6. Goods costing ₹20,000 sold for ₹18,500 for Cash.

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Debtors = Creditors

(i) Raghu started business with cash +1,50,000 + 1,50,000

1,50,000 = + 1,50,000

(ii) Purchase goods for cash and on credit –80,000 +1,20,000 +40,000

70,000 + 1,20,000 = 40,000 + 1,50,000

(iii) Goods costing Rs 75,000 sold at a profit +50,000 –75,000 +50,000 +25,000
of 3313%3313%. Half amount was (Profit)
received in cash.

1,20,000 + 45,000 + 50,000 = 40,000 + 1,75,000

(iv) Goods costing Rs 10,000 sold for Rs –10,000 +12,000 +2,000

12,000 on credit (Profit)

1,20,000 + 35,000 + 62,000 = 40,000 + 1,77,000

(v) Rent and salaries paid –6,000 –6,000

(Expense)

9/27
 1,14,000 + 35,000 + 62,000 = 40,000 + 1,71,000

(vi) Goods costing Rs 20,000 sold for Rs +18,500 –20,000 –1,500

18,500 cash (Loss)

1,32,500 + 15,000 + 62,000 = 40,000 + 1,69,500

Working Note:

WN1 Calculation of Selling Price

Balance Sheet of Raghu

as on ……

Liabilities Amount (Rs) Assets Amount (Rs)

Creditors 40,000 Cash 1,32,500

Capital 1,69,500 Stock 15,000

Debtors 62,000

2,09,500 2,09,500

Page No 6.26:

Question 9:

If the Capital of a business is ₹ 1,20,000 and Outside liabilities are ₹ 20,000, calculate total assets of the business.

Answer:

Assets = Liabilities + Capital

= 20,000 + 1,20,000

= Rs 1,40,000

Page No 6.26:

Question 10:

If total assets of a business are ₹ 1,30,000 and capital is ₹ 80,000, calculate creditors.

Answer:

Assets = Liabilities + Capital

1,30,000 = Liabilities + 80,000

Liabilities = 1,30,000 – 80,000

= Rs 50,000

It is assumed that creditors are the only liability of the organisation, thus, Rs 50,000 are the creditors.

Page No 6.27:

Question 11:

'A' commenced his cloth business on 1st April, 2011 with a capital of ₹ 3,00,000. On 31st March, 2012 his assets were worth ₹
5,00,000 and liabilities ₹ 1,00,000. Find out his closing capital and profits earned during the year.

Answer:

10/27
Opening Capital (Capital as on March 31, 2011) = Rs 3,00,000

Page No 6.27:

Question 12(A):

Yogesh commenced business on 1st April, 2011 with a Capital of ₹ 5,00,000 and a loan of ₹ 1,00,000 borrowed from Citi Bank.
On 31st March, 2012, his assets were ₹ 8,00,000. Calculate his closing capital and profits earned during the year.

Answer:

Opening Capital (Capital as on 1st April, 2011) = Rs 5,00,000

*It is assumed that loan borrowed from Citi Bank has not been paid till the end of the accounting year.

Page No 6.27:

Question 12(B):

If in the above case, the proprietor had introduced fresh capital of ₹ 40,000 and had withdrawn ₹ 10,000 for personal
purposes, calculate his profits.

Answer:

Opening Capital (Capital as on 1st April, 2011) = Rs 5,00,000

Page No 6.27:

Question 13:

Give one example of each of the following transactions:

(i) Increase in an asset and a liability.
(ii) Decrease in an asset and a liability.
(iii) Increase in assets and capital.
(iv) Decrease in assets and capital.

Answer:

Effect of Transaction Example

(i) Increase in an asset and a liability Goods purchased on credit

(ii) Decrease in an asset and a liability Cash paid to creditors

(iii) Increase in assets and capital Additional capital brought in by the proprietor

(iv) Decrease in assets and capital Salary paid in Cash

Page No 6.27:

Question 14:

On which side the increase in the following accounts will be recorded? Also mention the nature of account:−

1. Furniture 5. Proprietor's Account

2. Rent Paid 6. Debtor

3. Commission Received 7. Creditor

4. Salary Paid

Answer:

Accounts Increase Recorded at Side Nature

11/27
 1. Furniture Debit Asset

2. Rent Paid Debit Expense

3. Commission Received Credit Income

4. Salary Paid Debit Expense

5. Proprietor’s Account Credit Capital

6. Debtor Debit Asset

7. Creditor Credit Liability

Page No 6.27:

Question 15:

On which side the decrease in the following accounts will be recorded? Also mention the nature of account:−

1. Cash 4. Outstanding Rent

2. Bank Overdraft 5. Prepaid Insurance

3. Rent Paid 6. Manoj, Proprietor of the business

Answer:

Accounts Decrease Recorded at Side Nature

1. Cash Credit Asset

2. Bank Overdraft Debit Liability

3. Rent Paid Credit Expense

4. Outstanding Rent Debit Liability

5. Prepaid Insurance Credit Asset

6. Manoj, Proprietor of the business Debit Capital

Page No 6.27:

Question 16:

Open 'T' shape account for Machinery and write the following on the proper side:

(₹)

1. Machinery purchased for 5,00,000

2. Machinery sold 1,20,000

3. Machinery discarded 50,000

4. New Machinery purchased 2,00,000

5. Machinery destroyed 40,000

Answer:

As we know, Machinery Account is an asset, so, increase in machinery will be recorded on the debit side while decrease in
machinery will be recorded on the credit side of the Machinery Account.

Machinery Account

Dr. Cr.

12/27
 Particulars Amount (Rs) Particulars Amount (Rs)

Record increase in Machinery on this side- Record decrease in Machinery on this side-

1. Machinery purchased for 5,00,000 2. Machinery sold 1,20,000

4. New Machinery purchased 2,00,000 3. Machinery discarded 50,000

5. Machinery destroyed 40,000

Total 7,00,000 Total 2,10,000

Balance 4,90,000

7,00,000 7,00,000

Page No 6.28:

Question 17(A):

Open 'T' shape account of our creditor 'Raghubir' and write the following transactions on the proper side:−
1. Purchased goods from Raghubir on credit for ₹ 50,000.
2. Returned goods to Raghubir for ₹ 5,000.
3. Paid to Raghubir ₹ 30,000.
4. Purchased goods from Raghubir on credit for ₹ 16,000.
5. Paid to Raghubir ₹ 20,000.

Answer:

Raghubir is a creditor, which means, it is a liability for the business. As we know, increase in liability is recorded on the credit
side while decrease in liability will be shown on the debit side of the concerned liability account.

Raghubir Account (Creditors)

Dr. Cr.

Particulars Amount Particulars Amount

(Rs) (Rs)

Record decrease in Creditors on this side- Record increase in Creditors

on this side-

2. Returned goods to Raghubir 5,000 1. Purchased goods on credit from Raghubir 50,000

3. Paid to Raghubir 30,000 4. Purchased goods on credit from Raghubir 16,000

5. Paid to Raghubir 20,000

Total 55,000 Total 66,000

Balance 11,000

66,000 66,000

Page No 6.28:

Question 17(B):

Question

Answer:

Commission can be an expense as well as an income. So, when commission is paid, it is shown on the debit side of the
Commission Account while commission received (being an income) will be shown on the credit side of the Commission
Account.

Commission Account

13/27
 Dr. Cr.

Particulars Amount (Rs) Particulars Amount

(Rs)

Record Expenses on this side- Record Income on this side-

2. Commission Paid 2,000 1. Commission Received 5,000

3. Commission Received 1,500

Total 2,000 Total 6,500

Balance 4,500

6,500 6,500

Page No 6.28:

Question 18:

Put the following on the proper side of Cash account, Debtor's account and Creditor's account:
(a) Sold goods for cash ₹ 60,000.
(b) Sold goods to Hari on credit ₹ 20,000.
(c) Purchased goods from Krishan on credit ₹ 36,000.
(d) Purchased goods from Krishan for cash ₹ 10,000.
(e) Cash received from Hari ₹ 15,000.
(f) Cash paid to Krishan ₹ 28,000.

Answer:

Increase in Cash (being an asset) will be shown on the debit side and decrease in cash will be recorded on the credit side of the
Cash Account.

Cash Account

Dr. Cr.

Particulars Amount Particulars Amount

(Rs) (Rs)

Record increase in Cash on this side- Record decrease in Cash on this side-

(a) Sold goods for cash 60,000 (d) Purchased goods for cash 10,000

(e) Cash received from Hari 15,000 (f) Cash paid to Krishan 28,000

Total 75,000 Total 38,000

Balance 37,000

75,000 75,000

Increase in Debtors (being an asset) will be shown on the debit side and decrease in them will be recorded on the credit side of
the Debtors Account.

Debtors Account

Dr. Cr.

Particulars Amount (Rs) Particulars Amount (Rs)

14/27
 Record increase in Debtors on this side- Record decrease in Debtors on this side-

(b) Sold goods on credit 20,000 (e) Cash received from debtor 15,000

Total 20,000 Total 15,000

Balance 5,000

20,000 20,000

Increase in Creditors (being a liability) will be shown on the credit side and decrease in the creditors will be recorded on the
debit side of the Creditors Account.

Creditors Account

Dr. Cr.

Particulars Amount (Rs) Particulars Amount (Rs)

Record decrease in Creditors on this side- Record increase in Creditors on this side-

(f) Cash paid to creditor 28,000 (c) Purchased goods on credit 36,000

Total 28,000 Total 36,000

Balance 8,000

36,000 36,000

Page No 6.28:

Question 19:

From the following transactions prepare the Proprietor's Account in 'T' shape:

2013 (₹)

April 1 Commenced business with Cash 5,00,000

August 1 Introduced additional Capital 1,00,000

Dec. 31 Drawings 40,000

2014

Feb. 28 Drawings 20,000

March 31 Net Profit shown by Profit & Loss A/c 1,25,000

Answer:

Capital Account

Dr. Cr.

Particulars Amount (Rs) Particulars Amount (Rs)

Record decrease in Capital on this side- Record increase in Capital on this side-

Dec. 31: Drawings 40,000 April 01: Commenced business 5,00,000

Feb. 28: Drawings 20,000 Aug. 01: Introduced additional capital 1,00,000

March 31: Profit earned 1,25,000

15/27
 Total 60,000 Total 7,25,000

Balance 6,65,000

7,25,000 7,25,000

Page No 6.29:

Question 20:

Prepare the Accounting Equation on the basis of the following:

(a) Started business with cash ₹ 1,40,000 and Stock ₹ 2,50,000.
(b) Sold goods (costing ₹ 50,000) at a profit of 25% on the cost.
(c) Deposited into bank account ₹ 1,80,000.
(d) Purchased goods from Mohan ₹ 80,000.

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Bank = Creditors

(i) Started business with cash and goods +1,40,000 +2,50,000 +3,90,000

1,40,000 + 2,50,000 = 3,90,000

(ii) Goods (costing Rs 50,000) sold at a +62,500 –50,000 +12,500

profit of 25% on cost (Profit)

2,02,500 + 2,00,000 = 4,02,500

(iii) Deposited into bank –1,80,000 +1,80,000

22,500 + 2,00,000 + 1,80,000 = 4,02,500

(iv) Purchased goods from Mohan +80,000 +80,000

22,500 + 2,80,000 + 1,80,000 = 80,000 + 4,02,500

Working Note:

WN1Calculation of Selling Price

Page No 6.29:

Question 21:

Prepare Accounting Equation on the basis of the following transactions:

(a) Started business with cash ₹ 70,000.
(b) Credit purchase of goods ₹ 18,000.
(c) Payment made to creditors in full settlement ₹ 17,500.
(d) Purchase of machinery for cash ₹ 20,000.

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Machinery = Creditors

(i) Started business with cash +70,000 +70,000

70,000 = 70,000

16/27
 (ii) Purchased goods on credit +18,000 +18,000

70,000 + 18,000 = 18,000 + 70,000

(iii) Payment to creditors in full –17,500 –18,000 +500 (Gain)

settlement

52,500 + 18,000 = 0 + 70,500

(iv) Purchased machinery for cash –20,000 + 20,000

32,500 + 18,000 + 20,000 = 0 + 70,500

Page No 6.29:

Question 22:

Prepare accounting equation from the following:

(a) Started business with cash ₹ 50,000 and goods ₹ 30,000.
(b) Purchased goods for cash ₹ 30,000 and on credit from Karan ₹ 20,000.
(c) Goods costing ₹ 40,000 were sold for ₹ 55,000 for cash.
(d) Withdrew cash for personal use ₹ 10,000.
(e) Rent outstanding ₹ 2,000.

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock = Creditors + Outstanding
Rent

(i) Started business with cash and goods +50,000 +30,000 +80,000

50,000 + 30,000 = + 80,000

(ii) Purchased goods for cash and on –30,000 +50,000 +20,000

credit from Karan

20,000 + 80,000 = 20,000 + 80,000

(iii) Goods costing Rs 40,000 sold for Rs +55,000 –40,000 +15,000

55,000 (Profit)

75,000 + 40,000 = 20,000 + 95,000

(iv) Withdrew cash for personal use –10,000 –10,000

(Drawings)

65,000 + 40,000 = 20,000 + 85,000

(v) Outstanding Rent +2,000 –2,000

(Expense)

65,000 + 40,000 = 20,000 + 2,000 + 83,000

Page No 6.29:

Question 23:

Show the accounting equation on the basis of the following transactions and present a Balance Sheet of the last new equation
balance:

(₹)

(i) Mohan commenced business with 70,000

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(ii) Purchased goods on Credit 14,000

(iii) Withdrew for private use 1,700

(iv) Purchased goods for Cash 10,000

(v) Paid wages 300

(vi) Paid to Creditors 10,000

(vii) Sold goods on Credit at par 15,000

(viii) Sold goods for Cash (cost price was ₹ 3,000) 4,000

(ix) Purchased furniture for cash 500

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Debtors + Furniture = Creditors

(i) Started business with cash +70,000 + 70,000

70,000 = 70,000

(ii) Purchased goods on credit +14,000 +14,000

70,000 + 14,000 = 14,000 + 70,000

(iii) Withdrew for private use –1,700 –1,700

(Drawings)

68,300 + 14,000 = 14,000 + 68,300

(iv) Purchased goods for cash –10,000 +10,000

58,300 + 24,000 = 14,000 + 68,300

(v) Wages paid –300 –300

(Expense)

58,000 + 24,000 = 14,000 + 68,000

(vi) Paid to creditors –10,000 –10,000

48,000 + 24,000 = 4,000 + 68,000

(vii) Sold goods on credit at par –15,000 +15,000

48,000 + 9,000 + 15,000 = 4,000 + 68,000

(viii) Sold goods (costing Rs +4,000 –3,000 +1,000

3,000) for Rs 4,000 (Profit)

52,000 + 6,000 + 15,000 = 4,000 + 69,000

(ix) Furniture purchased –500 +500

51,500 + 6,000 + 15,000 + 500 = 4,000 + 69,000

Balance Sheet
as on ……

Liabilities Amount (Rs) Assets Amount (Rs)

Creditors 4,000 Cash 51,500

Capital 69,000 Stock 6,000

Debtors 15,000

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 Furniture 500

73,000 73,000

Page No 6.29:

Question 24:

Prove that the accounting equation is satisfied in the following transactions:−

(₹)

(a) Brij Mohan commenced business with Cash 1,00,000

(b) Bought goods for Cash 60,000

(c) 1313rd of the above goods sold at a profit of 20% on cost. Half the payment recieved in Cash

(d) Purchased typewritter for office use 15,000

(e) Purchased goods on Credit from X 25,000

(f) Paid to X 15,000

(g) Paid Salary 3,000

(h) Received commission 500

(i) Sold goods for Cash (Cost ₹ 50,000) 60,000

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Typewriter + Debtors = Creditors

(i) Started business with +1,00,000 + 1,00,000

cash

1,00,000 = 1,00,000

(ii) Purchased goods for –60,000 +60,000

cash

40,000 + 60,000 = 1,00,000

(iii) 1/3rdof the goods sold at +12,000 –20,000 +12,000 +4,000

a profit of 20% on cost. (Profit)
Half payment received in
cash

52,000 + 40,000 + 12,000 = + 1,04,000

(iv) Purchased typewriter for –15,000 +15,000

office use

37,000 + 40,000 + 15,000 + 12,000 = + 1,04,000

(v) Purchased goods on +25,000 +25,000

credit from X

37,000 + 65,000 + 15,000 + 12,000 = 25,000 + 1,04,000

(vi) Paid to X –15,000 –15,000

22,000 + 65,000 + 15,000 + 12,000 = 10,000 + 1,04,000

(vii) Paid salary –3,000 –3,000

(Expense)

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 19,000 + 65,000 + 15,000 + 12,000 = 10,000 + 1,01,000

(viii) Received commission +500 +500

19,500 + 65,000 + 15,000 + 12,000 = 10,000 + 1,01,500

(ix) Sold goods (costing Rs +60,000 –50,000 +10,000

50,000) for cash (Profit)

79,500 + 15,000 + 15,000 + 12,000 = 10,000 + 1,11,500

Working Note:

WN1 Calculation of Selling Price

Page No 6.30:

Question 25:

Show the accounting equation on the basis of the following transactions and also show the Balance Sheet:
(i) Started business with Cash ₹ 60,000 and Goods ₹ 30,000.
(ii) Purchased goods for Cash ₹ 40,000 and on Credit ₹ 25,000.
(iii) Goods costing ₹ 48,000 sold at a profit of 331313%. Three-fourth payment received in Cash
(iv) Goods costing ₹ 20,000 sold at a loss of 5%, out of which ₹ 12,000 received in Cash.
(v) Paid Rent ₹ 4,000 and Salary ₹ 6,000.
(vi) Received Cash from Debtors ₹ 15,000.
(vii) Paid telephone bill amounting to ₹ 800.

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Debtors = Creditors

(i) Started business with cash and goods +60,000 +30,000 +90,000

60,000 + 30,000 = 90,000

(ii) Purchased goods for cash and credit –40,000 +65,000 +25,000

20,000 + 95,000 = 25,000 + 90,000

(iii) Goods costing Rs 48,000 sold at a profit of +48,000 –48,000 +16,000 +16,000
3313%3313%. 3/4th payment received in
cash

68,000 + 47,000 + 16,000 = 25,000 + 1,06,000

(iv) Goods costing Rs 20,000 sold at a loss of +12,000 –20,000 +7,000 –1,000
5% out of which Rs 12,000 were received in (Loss)
cash

80,000 + 27,000 + 23,000 = 25,000 + 1,05,000

(v) Paid rent and salary –10,000 –10,000

(Expense)

70,000 + 27,000 + 23,000 = 25,000 + 95,000

(vi) Received cash from debtors +15,000 –15,000

85,000 + 27,000 + 8,000 = 25,000 + 95,000

(vii) Paid telephone bill –800 –800

(Expense)

84,200 + 27,000 + 8,000 = 25,000 + 94,200

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Working Note:

WN1 Calculation of Selling Price

WN2 Calculation of Selling Price

Balance Sheet
as on ……

Liabilities Amount (Rs) Assets Amount (Rs)

Creditors 25,000 Cash 84,200

Capital 94,200 Stock 27,000

Debtors 8,000

1,19,200 1,19,200

Page No 6.30:

Question 26:

Show the accounting equation on the basis of following transactions:

(i) Commenced business with Cash ₹ 20,000; Goods ₹ 50,000 and Furniture ₹ 30,000.
(ii) Purchased goods from Gopal on Credit ₹ 40,000.
(iii) Sold goods for Cash ₹ 40,000 (costing ₹ 30,000).
(iv) Sold goods to Ram on Credit ₹ 65,000 (costing ₹ 50,000).
(v) Withdrew for personal use goods costing ₹ 5,000.
(vi) Purchased typewriter for personal use of the proprietor ₹ 20,000.
(vii) Purchased chairs for office use for Cash ₹ 10,000.
(viii) Paid for printing ₹ 500 and received Commission ₹ 1,200.
(ix) Introduced fresh Capital ₹ 40,000.
(x) Paid to Gopal ₹ 30,000.

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Stock + Furniture Debtors = Creditors

(i) Started business with cash, +20,000 +50,000 +30,000 + 1,00,000

goods and furniture

20,000 + 50,000 + 30,000 = 1,00,000

(ii) Purchased goods on credit +40,000 +40,000

from Gopal

20,000 + 90,000 + 30,000 = 40,000 + 1,00,000

(iii) Sold goods (costing Rs +40,000 –30,000 +10,000

30,000) for cash Rs 40,000 (Profit)

60,000 + 60,000 + 30,000 = 40,000 + 1,10,000

(iv) Sold goods (costing Rs –50,000 +65,000 +15,000

50,000) to Ram for Rs (Profit)
65,000

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 60,000 + 10,000 + 30,000 + 65,000 = 40,000 + 1,25,000

(v) Goods withdrawn for –5,000 –5,000

personal use (Drawings)

60,000 + 5,000 + 30,000 + 65,000 = 40,000 + 1,20,000

(vi) Purchased typewriter for –20,000 –20,000

personal use (Drawings)

40,000 + 5,000 + 30,000 + 65,000 = 40,000 + 1,00,000

(vii) Purchased chairs for office –10,000 +10,000

use

30,000 + 5,000 + 40,000 + 65,000 = 40,000 + 1,00,000

(viii) Paid for printing Rs 500 –500 –500

and received commission +1,200 (Expense)
Rs 1,200 +1,200
(Income)

30,700 + 5,000 + 40,000 + 65,000 = 40,000 + 1,00,700

(ix) Introduced additional +40,000 +40,000

capital (Fresh
Capital)

70,700 + 5,000 + 40,000 + 65,000 = 40,000 + 1,40,700

(x) Paid to Gopal –30,000 –30,000

40,700 + 5,000 + 40,000 + 65,000 = 10,000 + 1,40,700

Page No 6.31:

Question 27:

X started a business on 1st April, 2013 with a Capital of ₹ 1,00,000 and a loan of ₹ 50,000 from the bank. On 31st March, 2014,
his assets were ₹ 1,75,000. Find out his Capital as on 31st March, 2014 and profit earned during the year 2013-14.

Answer:

Opening Capital (Capital as on 1st April, 2013) = Rs 1,00,000

Page No 6.31:

Question 28:

Y started a business on 1st April, 2013 with a Capital of ₹ 2,00,000 and a loan of ₹ 75,000 from the bank. During the year, he
had introduced additional capital of ₹ 60,000 and had withdrawn ₹ 36,000 for personal purposes. On 31st March, 2014 his
assets were ₹ 3,80,000. Find out his Capital as on 31st March, 2014 and profit earned during the year 2013-14.

Answer:

Opening Capital (Capital as on 1st April, 2013) = Rs 2,00,000

Page No 6.31:

Question 29:

On which side will the increase in the following accounts be recorded? Also mention the nature of account:

1. Furniture 5. Proprietor's Account

2. Wages paid 6. Debtor

3. Rent Received 7. Prepaid Insurance

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 4. Cash 8. Outstanding Salary

Answer:

Accounts Increase Recorded at Side Nature

1. Furniture Debit Asset

2. Wages Paid Debit Expense

3. Rent Received Credit Income

4. Cash Debit Asset

5. Proprietor’s Account Credit Capital

6. Debtor Debit Asset

7. Prepaid Insurance Debit Asset

8. Outstanding Salary Credit Liability

Page No 6.31:

Question 30:

Open 'T' shape account for Furniture and write the following on the proper side∶−

1. Furniture purchased for ₹ 50,000

2. Furniture sold costing ₹ 20,000

3. Furniture destroyed by fire ₹ 16,000

4. Furniture again purchased ₹ 32,000

5. Old furniture discarded ₹ 2,000

6. Value of furniture was reduced by ₹ 5,000

Answer:

As we know, Furniture is an asset, so, increase in furniture will be recorded on the debit side while decrease in furniture will be
recorded on the credit side of the Furniture Account.

Furniture Account

Dr. Cr.

Particulars Amount (Rs) Particulars Amount (Rs)

Record increase in Furniture on this side- Record decrease in Furniture on this side-

1. Furniture purchased 50,000 2. Furniture sold 20,000

4. Furniture purchased 32,000 3. Furniture destroyed by fire 16,000

5. Old furniture discarded 2,000

6. Value reduced 5,000

Total 82,000 Total 43,000

Balance 39,000

82,000 82,000

Page No 6.31:

Question 31:

23/27
Open 'T' shape account of our Creditor 'X' and write the following transactions on the proper side:

(₹)

(i) Purchased goods from X on Credit 40,000

(ii) Paid to X 30,000

(iii) Returned goods to X 6,000

(iv) Purchased goods from X for Cash 20,000

(v) Purchased goods from X on Credit 50,000

(vi) Paid to X 45,000

Answer:

Increase in Creditors (being a liability) will be shown on the credit side and decrease in the creditors will be recorded on the
debit side of the Creditors Account.

X’s Account (Creditor)

Dr. Cr.

Particulars Amount (Rs) Particulars Amount (Rs)

Record decrease in Creditors on this side- Record increase in Creditors on this side-

2. Paid to X 30,000 1. Purchased goods from X on credit 40,000

3. Returned goods to X 6,000 5. Purchased goods from X on credit 50,000

6. Paid to X 45,000

Total 81,000 Total 90,000

Balance 9,000

90,000 90,000

Note: Transaction Number (iv) will not be recorded in Creditors Account as goods are purchased for cash. Thus, there will be
no impact on Creditors Account.

Page No 6.32:

Question 32:

Open 'T' shape account of our Debtor 'Ram' and write the following transactions on proper side:−

(₹)

(i) Sold goods to Ram on Credit 20,000

(ii) Received from Ram 15,000

(iii) Ram returned goods to us 3,000

(iv) Again sold goods to Ram on Credit 10,000

(v) Ram returned goods to us 1,000

Answer:

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Increase in Debtors (being an asset) will be shown on the debit side and decrease in them will be recorded on the credit side of
the Debtors Account.

Ram’s (Debtor) Account

Dr. Cr.

Particulars Amount (Rs) Particulars Amount (Rs)

Record increase in Debtors on this side- Record decrease in Debtors on this side-

1. Sold goods to Ram on credit 20,000 2. Received from Ram 15,000

4. Sold goods to Ram on credit 10,000 3. Ram returned goods 3,000

5. Ram returned goods 1,000

Total 30,000 Total 19,000

Balance c/d Balance 11,000

30,000 30,000

Page No 6.32:

Question 33:

Put the following on the proper side of Cash Account, Debtors's Account and Creditor's Account:-

(₹)

(a) Sold goods to Shankar on Credit 50,000

(b) Sold goods to Ghanshyam for Cash 30,000

(c) Purchased goods from Mohan on Credit 25,000

(d) Received from Shankar 29,000

(e) Shankar returned goods 1,000

(f) Sold goods to Shankar for Cash 5,000

(g) Returned goods to Mohan 2,000

(h) Paid Rent 4,000

Answer:

(I) Increase in Cash (being an asset) will be shown on the debit side and decrease in cash will be recorded on the credit side of
the Cash Account.

Cash Account

Dr. Cr.

Particulars Amount (Rs) Particulars Amount (Rs)

Record increase in Cash on this side- Record decrease in Cash on this side-

(b) Sold goods for cash 30,000 (h) Paid rent 4,000

(d) Received from Shankar 29,000

(f) Sold goods for cash 5,000

Total 64,000 Total 4,000

Balance 60,000

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 64,000 64,000

(II) Increase in Debtors (being an asset) will be shown on the debit side and decrease in them will be recorded on the credit side
of the Debtors Account.

Shankar’s (Debtor) Account

Dr. Cr.

Particulars Amount (Rs) Particulars Amount (Rs)

Record increase in Debtors Record decrease in Debtors on this side-

on this side-

(a) Sold goods to Shankar on credit 50,000 (d) Shankar paid 29,000

(e) Shankar returned goods 1,000

Total 50,000 Total 30,000

Balance 20,000

50,000 50,000

(III) Increase in Creditors (being a liability) will be shown on the credit side and decrease in the creditors will be recorded on
the debit side of the Creditors Account.

Mohan’s (Creditor) Account

Dr. Cr.

Particulars Amount (Rs) Particulars Amount (Rs)

Record decrease in Creditors on this side- Record increase in Creditors on this side-

(g) Returned goods to Mohan 2,000 (c) Purchased goods 25,000

fromMohan on credit

Total 2,000 Total 25,000

Balance 23,000

25,000 25,000

Page No 6.32:

Question 34:

Prove that accounting equation is satisfied in all the following cases:

(a) Commenced business with cash ₹ 50,000.
(b) Paid rent ₹ 4,000 including ₹ 1,000 as advance.
(c) Bought goods for cash ₹ 30,000 and on credit ₹ 20,000.
(d) Sold the goods bought on credit for ₹ 25,000.
(e) Purchased furniture worth ₹ 10,000 for office use and for ₹ 5,000 for domestic use.

Answer:

ACCOUNTING EQUATION

S. Transaction Assets = Liabilities + Capital

No.
Cash + Prepaid + Stock Furniture = Creditors
Rent

(i) Started business with cash +50,000 +50,000

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