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Fundamental Accounting Equation - Problems and Solutions

 BAP
 Notes
 Problems

Prb 1

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

1. Started business with capital 1,00,000

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 Withdrawn from bank 10,000

Solution hide
1.

Capital + Liabilities = Assets

1,00,00 + 0 = 1,00,000 (Cash)
0

2.

Capital + Liabilities = Assets

1,00,00 + 0 = 75,000 (Cash)

0 + 25,000 (Furniture)

3.

Capital + Liabilities = Assets

1,00,00 + 0 = 55,000 (Cash)

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

4.

Capital + Liabilities = Assets

1,00,00 + 5,000 (Ram) = 55,000 (Cash)

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

5.

Capital + Liabilities = Assets

1,00,00 + 5,000 (Ram) = 70,000 (Cash)

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

6.

Capital + Liabilities = Assets

1,00,00 + 5,000 (Ram) = 70,000 (Cash)

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

7.

Capital + Liabilities = Assets

1,00,00 + 1,000 (Ram) = 66,000 (Cash)

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

8.

Capital + Liabilities = Assets

1,00,00 + 1,000 (Ram) = 71,000 (Cash)

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

9.

Capital + Liabilities = Assets

1,00,00 + 1,000 (Ram) = 46,000 (Cash)

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

10.

Capital + Liabilities = Assets

1,00,00 + 1,000 (Ram) = 56,000 (Cash)

0 + 25,000 (Furniture)
+ 2,000 (Goods)
+ 3,000 (Shyam)
+ 15,000 (Bank)

This solution differs from the next only in the way the data is presented. Data here is presented in
the form of a statement while in the next it is presented in the form of a mathematical equation.
Problem 2
Following are the accounting transactions relating to Mr. P'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

Solution hide
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.

Capital + Liabilities = Assets

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

2.

Capital + Liabilities = Assets

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

3.

Capital + Liabilities = Assets

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

4.

Capital + Liabilities = Assets

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

5.

Capital + Liabilities = Assets

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

6.

Capital + Liabilities = Assets

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

7.

Capital + Liabilities = Assets

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

8.

Capital + Liabilities = Assets

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

9.

Capital + Liabilities = Assets

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

10.

Capital + Liabilities = Assets

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

This solution differs from the next only in the way the data is presented. Data here is
presented in the form of a statement while in the next it is presented in the form of a
mathematical equation.

Problem 2
Following are the accounting transactions relating to Mr. P'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

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.

Capital + Liabilities = Assets

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

2.

Capital + Liabilities = Assets

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

3.

Capital + Liabilities = Assets

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

4.

Capital + Liabilities = Assets

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

5.

Capital + Liabilities = Assets

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

6.
Capital + Liabilities = Assets

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

7.

Capital + Liabilities = Assets

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

8.

Capital + Liabilities = Assets

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

9.

Capital + Liabilities = Assets

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

10.

Capital + Liabilities = Assets

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