Q.Prove that the accounting equation is satisfied in all the following transactions of Sita Ram house by preparing the analysis table. Also record the transactions in Journal.
Prepare the analysis table and the journal. The cash sale gives a ₹20,000 profit (raises capital); outstanding salary ₹5,500 is a liability (reduces capital). Final equation: Assets ₹6,27,500 = Liabilities ₹50,500 + Capital ₹5,77,000. Journal total ₹17,08,000.
Concept
Every transaction keeps A = L + C in balance. A profit on sale and any income increase capital; drawings, expenses and losses (including an outstanding expense) decrease it. An amount still owing — the plant supplier's balance, the outstanding salary — is a liability until paid.
Statement showing the effect on the accounting equation
(Figures in ₹; Non-trade creditors = balance owed for Plant and Machinery; Trade creditors = amount owed for goods; the ₹5,500 outstanding salary is shown under Non-trade creditors.)
| No. | Cash | Bank | Stock | Furniture | Plant & Machinery | Total | Non-trade Creditors | Trade Creditors | Capital | Total |
|---|---|---|---|---|---|---|---|---|---|---|
| 1 | 6,00,000 | — | — | — | — | 6,00,000 | — | — | 6,00,000 | 6,00,000 |
| 2 | 1,50,000 | 4,50,000 | — | — | — | 6,00,000 | — | — | 6,00,000 | 6,00,000 |
| 3 | 1,20,000 | 4,50,000 | — | — | 2,30,000 | 8,00,000 | 2,00,000 | — | 6,00,000 | 8,00,000 |
| 4 | 80,000 | 4,50,000 | 85,000 | — | 2,30,000 | 8,45,000 | 2,00,000 | 45,000 | 6,00,000 | 8,45,000 |
| 5 | 80,000 | 2,50,000 | 85,000 | — | 2,30,000 | 6,45,000 | — | 45,000 | 6,00,000 | 6,45,000 |
| 6 | 1,50,000 | 2,50,000 | 35,000 | — | 2,30,000 | 6,65,000 | — | 45,000 | 6,20,000 | 6,65,000 |
| 7 | 1,15,000 | 2,50,000 | 35,000 | — | 2,30,000 | 6,30,000 | — | 45,000 | 5,85,000 | 6,30,000 |
| 8 | 1,15,000 | 2,47,500 | 35,000 | — | 2,30,000 | 6,27,500 | — | 45,000 | 5,82,500 | 6,27,500 |
| 9 | 1,15,000 | 2,47,500 | 35,000 | — | 2,30,000 | 6,27,500 | 5,500 | 45,000 | 5,77,000 | 6,27,500 |
| 10 | 85,000 | 2,47,500 | 35,000 | 30,000 | 2,30,000 | 6,27,500 | 5,500 | 45,000 | 5,77,000 | 6,27,500 |
Solution — Journal
| No. | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| (i) | Cash A/c Dr. | 6,00,000 | ||
| To Capital A/c | 6,00,000 | |||
| (Business started with cash) | ||||
| (ii) | Bank A/c Dr. | 4,50,000 | ||
| To Cash A/c | 4,50,000 | |||
| (Cash deposited into the bank) | ||||
| (iii) | Plant and Machinery A/c Dr. | 2,30,000 | ||
| To Cash A/c | 30,000 | |||
| To Creditors A/c | 2,00,000 | |||
| (Purchase of plant and machinery by paying ₹30,000 cash and balance on a later date) | ||||
| (iv) | Purchases A/c Dr. | 85,000 | ||
| To Cash A/c | 40,000 | |||
| To Creditors A/c | 45,000 | |||
| (Bought goods for cash as well as on credit) | ||||
| (v) | Creditor's A/c Dr. | 2,00,000 | ||
| To Bank A/c | 2,00,000 | |||
| (Payment made to the supplier of plant and machinery) | ||||
| (vi) | Cash A/c Dr. | 70,000 | ||
| To Sales A/c | 70,000 | |||
| (Sold goods on profit) | ||||
| (vii) | Drawings A/c Dr. | 35,000 | ||
| To Cash A/c | 35,000 | |||
| (Withdrew cash for personal use) | ||||
| (viii) | Insurance A/c Dr. | 2,500 | ||
| To Bank A/c | 2,500 | |||
| (Paid insurance by cheque) | ||||
| (ix) | Salary A/c Dr. | 5,500 | ||
| To Outstanding salary A/c | 5,500 | |||
| (Salary outstanding) | ||||
| (x) | Furniture A/c Dr. | 30,000 | ||
| To Cash A/c | 30,000 | |||
| (Furniture purchased for cash) | ||||
| Total | 17,08,000 | 17,08,000 |
The equation is satisfied throughout: Assets ₹6,27,500 = Liabilities ₹50,500 (Trade creditors ₹45,000 + Outstanding salary ₹5,500) + Capital ₹5,77,000. The journal totals ₹17,08,000 on each side.
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