Accounting Equation

Overview:

Simply accounting equation means balancing of accounts of company.

Assets = Owner’s Equity + Liabilities

In simple ‘we can say that equation by which we can check company financial position at glance is called accounting equation’.

Transaction:

In our daily life we exchange different values for example Mr A has 500 Rs and he want to purchase a book when he purchase book its means he exchange value of Rs 500 to book. Same business has lot of transaction in one day for example a company purchase machinery for cash Rs 100000 its means that before the transaction company has a value of Rs 100,000 after transaction company has value of machinery.

Now question is how transaction affects on accounting equation? Answer is simple every transaction has minimum two effect we understand this concept in one question.

Q:

Mr. Richard started business with cash Rs 200,000 in Lahore during month following transaction occur mentioned below

a)      Purchase machinery with cash Rs 50,000.

b)      Wages paid for instalment of machinery Rs 5,000.

c)      Purchase building for Rs 100,000.

d)     Purchase raw material for Rs 50,000.

e)      Raw material use in manufacturing Rs 20,000.

f)       Sale goods for cash Rs 10,000 with trade discount 10 %.

g)      Sale goods to Moshin on account Rs 5,000.

h)      Sale goods to Raheem  for Rs 6,500 costing Rs 5,000.

i)        Rs 100,000 received for Akmal on credit.

j)        Raw material use in Production 30,000.

k)      Goods lost by fire Rs 2,000.

l)        Sale goods Rs 40,000 costing 28,000.

m)    Depreciation charge on machinery 10%.

n)      Salaries Paid Rs 20,000.

Require:

Prepare business Accounting equation.