Question

Prepare an accounting equation from the following transactions:

(i) Kunal started a business with cash ₹ 5,00,000
(ii) He purchased furniture for cash ₹ 35,000
(iii) He paid commission ₹ 2,000
(iv) He purchased goods on credit from Ravi ₹ 40,000
(v) He sold goods (costing ₹ 20,000) for cash ₹ 26,000
(vii) Prepaid rent ₹ 6,000
(viii) Paid salaries ₹ 12,000 and Outstanding salaries ₹ 12,000
(ix) Ravi’s Account fully settled at ₹ 39,000
(x) Purchase goods for cash from Pat ₹ 25,000

A. Assets = ₹ 5,00,000 + ₹ 35,000 + ₹ 40,000 + ₹ 26,000 + ₹ 6,000 + ₹ 25,000
B. Assets = ₹ 5,00,000 + ₹ 35,000 + ₹ 40,000 + ₹ 20,000 + ₹ 6,000 - ₹ 12,000
C. Assets = ₹ 5,00,000 + ₹ 35,000 - ₹ 2,000 + ₹ 40,000 + ₹ 26,000 + ₹ 6,000 - ₹ 12,000
D. Assets = ₹ 5,00,000 + ₹ 35,000 + ₹ 2,000 + ₹ 40,000 + ₹ 26,000 - ₹ 12,000

Answer 1

The accounting equation for the given transactions is Assets = ₹ 5,00,000 + ₹ 35,000 + ₹ 40,000 + ₹ 26,000 + ₹ 6,000 - ₹ 12,000.

THe correct answer is none of all.

Step-by-step explanation:

To prepare an accounting equation, we need to identify the assets, liabilities, and owner's equity involved in each transaction. Here is the step-by-step calculation of the accounting equation:

Kunal started a business with cash ₹ 5,00,000. This increases the assets (cash) and owner's equity. Accounting equation: Assets = ₹ 5,00,000, Owner's Equity = ₹ 5,00,000.

He purchased furniture for cash ₹ 35,000. This decreases cash and increases assets (furniture). Accounting equation: Assets = ₹ 5,35,000, Owner's Equity = ₹ 5,00,000.

He paid commission ₹ 2,000. This decreases cash and owner's equity. Accounting equation: Assets = ₹ 5,33,000, Owner's Equity = ₹ 4,98,000.

He purchased goods on credit from Ravi ₹ 40,000. This increases assets (goods) and liabilities (accounts payable). Accounting equation: Assets = ₹ 5,73,000, Liabilities = ₹ 40,000, Owner's Equity = ₹ 4,98,000.

He sold goods (costing ₹ 20,000) for cash ₹ 26,000. This decreases assets (goods) and increases cash. Accounting equation: Assets = ₹ 5,53,000, Liabilities = ₹ 40,000, Owner's Equity = ₹ 4,98,000.

Prepaid rent ₹ 6,000. This decreases assets (cash) and increases assets (prepaid rent). Accounting equation: Assets = ₹ 5,47,000, Liabilities = ₹ 40,000, Owner's Equity = ₹ 4,98,000.

Paid salaries ₹ 12,000 and outstanding salaries ₹ 12,000. This decreases assets (cash) and decreases liabilities (outstanding salaries). Accounting equation: Assets = ₹ 5,23,000, Liabilities = ₹ 28,000, Owner's Equity = ₹ 4,98,000.

Ravi's Account fully settled at ₹ 39,000. This decreases liabilities (accounts payable). Accounting equation: Assets = ₹ 5,23,000, Liabilities = ₹ 0, Owner's Equity = ₹ 4,98,000.

Purchase goods for cash from Pat ₹ 25,000. This decreases assets (cash) and increases assets (goods). Accounting equation: Assets = ₹ 4,98,000, Liabilities = ₹ 0, Owner's Equity = ₹ 4,98,000.

The correct accounting equation from these transactions is:

Assets = ₹ 4,98,000, Liabilities = ₹ 0, Owner's Equity = ₹ 4,98,000.