*Analysis of Transactions* Transactions of M/s Vipin Traders are given below. Show the effects on Assets, Liabilities and Capital with the help of accounting Equation. | | Transaction | ₹ | |---|---|---| | (a) | Business started with cash | 1,25,000 | | (b) | Purchased goods for cash | 50,000 | | (c) | Purchase furniture from R.K. Furniture | 10,000 | | (d) | Sold goods to Parul Traders (Costing ₹7,000 vide bill no. 5674) | 9,000 | | (e) | Paid cartage | 100 | | (f) | Cash Paid to R.K. furniture in full settlement | 9,700 | | (g) | Cash sales (costing ₹10,000) | 12,000 | | (h) | Rent received | 4,000 | | (i) | Cash withdrew for personal use | 3,000 |

> [!TLDR] > M/s Vipin Traders' transactions leave **Assets ₹1,30,200 (Cash 78,200 + Goods 33,000 + Furniture 10,000 + Debtors 9,000) = Capital ₹1,30,200**, R.K. Furniture fully paid. **Treatment.** (c) furniture on credit raises Furniture and Creditors. (d) credit sale to Parul: Debtors ↑ ₹9,000, Goods ↓ cost ₹7,000, profit ₹2,000 → Capital. (e) cartage is an expense → Capital ↓. (f) paying ₹9,700 against ₹10,000 owed gives **discount received ₹300**. (g) cash sale above cost → profit. (h) rent received is income. (i) drawings reduce Capital. **Accounting Equation** | # | Transaction | Cash (₹) | Goods (₹) | Furniture (₹) | Debtors (₹) | Total Assets (₹) | = | Creditors (₹) | + | Capital (₹) | |---|---|---|---|---|---|---|---|---|---|---| | (a) | Started with cash | 1,25,000 | — | — | — | 1,25,000 | = | — | + | 1,25,000 | | (b) | Goods for cash ₹50,000 | 75,000 | 50,000 | — | — | 1,25,000 | = | — | + | 1,25,000 | | (c) | Furniture from R.K. (credit) | 75,000 | 50,000 | 10,000 | — | 1,35,000 | = | 10,000 | + | 1,25,000 | | (d) | Sold to Parul (cost 7,000) ₹9,000 | 75,000 | 43,000 | 10,000 | 9,000 | 1,37,000 | = | 10,000 | + | 1,27,000 | | (e) | Cartage paid ₹100 | 74,900 | 43,000 | 10,000 | 9,000 | 1,36,900 | = | 10,000 | + | 1,26,900 | | (f) | Paid R.K. in full ₹9,700 | 65,200 | 43,000 | 10,000 | 9,000 | 1,27,200 | = | — | + | 1,27,200 | | (g) | Cash sales (cost 10,000) ₹12,000 | 77,200 | 33,000 | 10,000 | 9,000 | 1,29,200 | = | — | + | 1,29,200 | | (h) | Rent received ₹4,000 | 81,200 | 33,000 | 10,000 | 9,000 | 1,33,200 | = | — | + | 1,33,200 | | (i) | Drawings ₹3,000 | 78,200 | 33,000 | 10,000 | 9,000 | 1,30,200 | = | — | + | 1,30,200 | …

*Analysis of Transactions* Transactions of M/s Vipin Traders are given below. Show the effects on Assets, Liab

Numerical Questions · Q9

Analysis of Transactions

Transactions of M/s Vipin Traders are given below. Show the effects on Assets, Liabilities and Capital with the help of accounting Equation.

	Transaction	₹
(a)	Business started with cash	1,25,000
(b)	Purchased goods for cash	50,000
(c)	Purchase furniture from R.K. Furniture	10,000
(d)	Sold goods to Parul Traders (Costing ₹7,000 vide bill no. 5674)	9,000
(e)	Paid cartage	100
(f)	Cash Paid to R.K. furniture in full settlement	9,700
(g)	Cash sales (costing ₹10,000)	12,000
(h)	Rent received	4,000
(i)	Cash withdrew for personal use	3,000

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Concept understanding — Accounting Equation

The Accounting Equation: The Foundation of Double-Entry Bookkeeping

Imagine you start a small business. You put in ₹1,00,000 of your own money. The business now has ₹1,00,000 in cash. But where did that cash come from? It came from you, the owner. So the business owes you ₹1,00,000. That's the core idea: everything the business owns (assets) is matched by a claim against it (liabilities or owner's equity).

The Precise Meaning

The accounting equation states:

Assets = Liabilities + Owner's Equity

This is not a suggestion — it is an identity. It must always hold true, after every single transaction, without exception. Let's break it down:

Assets are resources the business controls (cash, inventory, machinery, buildings, debtors).
Liabilities are claims of outsiders (creditors, bank loans, outstanding expenses).
Owner's Equity (also called Capital) is the owner's claim on the business. It equals the amount the owner originally invested plus any profits retained, minus any withdrawals.

Important

The equation is always in balance. Every transaction affects at least two accounts, and the equation remains true. This is the entire point of double-entry bookkeeping.

Why It Matters

The accounting equation is not just a theory — it is the practical tool that tells you whether a transaction has been recorded correctly. If you ever prepare a trial balance and it doesn't tally, the equation is the first place you look. It also helps you understand the financial position of a business at a glance.

For example, if a business has total assets of ₹5,00,000 and liabilities of ₹2,00,000, then the owner's equity must be ₹3,00,000. That tells you the net worth of the business from the owner's perspective.

Accounting Treatment: Debit and Credit

Every transaction affects the equation. The rules are simple:

Increase in an asset → Debit that asset account
Decrease in an asset → Credit that asset account
Increase in a liability → Credit that liability account
Decrease in a liability → Debit that liability account
Increase in owner's equity → Credit the capital account
Decrease in owner's equity → Debit the capital account

Let's see this with a few common transactions.

Transaction 1: Owner invests cash into the business

The business receives cash (asset increases) and owes the owner more (capital increases).

Account	Debit (₹)	Credit (₹)
Cash A/c	1,00,000
To Capital A/c		1,00,000

Effect on equation: Assets (+₹1,00,000) = Liabilities (no change) + Owner's Equity (+₹1,00,000). Balanced.

Transaction 2: Purchase machinery on credit

The business gets machinery (asset increases) and creates a liability to the supplier.

Account	Debit (₹)	Credit (₹)
Machinery A/c	50,000
To Creditors A/c		50,000

Effect on equation: Assets (+₹50,000) = Liabilities (+₹50,000) + Owner's Equity (no change). Balanced.

Transaction 3: Pay rent in cash

The business pays rent (expense), which reduces owner's equity (profit decreases). Cash also decreases.

Account	Debit (₹)	Credit (₹)
Rent A/c	10,000
To Cash A/c		10,000

Effect on equation: Assets (-₹10,000) = Liabilities (no change) + Owner's Equity (-₹10,000). Balanced.

Note

Expenses and drawings reduce owner's equity. Revenues and gains increase owner's equity. That is why expenses are debited (they reduce equity, which is normally credited) and revenues are credited.

The Expanded Accounting Equation

For a more complete picture, especially when dealing with revenues, expenses, and drawings, the equation expands to:

Assets = Liabilities + (Owner's Capital – Drawings + Revenues – Expenses)

This is the same equation, just unpacked. It shows that profit (Revenue – Expense) increases owner's equity, and drawings decrease it.

A Practical Example: The Full Cycle …

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Transaction	Cash	+ Goods	+ Furniture	+ Debtors	= Creditors	+ Capital
(a) Cash 1,25,000	1,25,000	—	—	—	—	1,25,000
(b) Goods for cash 50,000	75,000	50,000	—	—	—	1,25,000
(c) Furniture from R.K. 10,000	75,000	50,000	10,000	—	10,000	1,25,000
(d) Sold to Parul (cost 7,000) 9,000	75,000	43,000	10,000	9,000	10,000	1,27,000
(e) Cartage paid 100	74,900	43,000	10,000	9,000	10,000	1,26,900
(f) Paid R.K. in full 9,700	65,200	43,000	10,000	9,000	0	1,27,200
(g) Cash sales (cost 10,000) 12,000	77,200	33,000	10,000	9,000	0	1,29,200
(h) Rent received 4,000	81,200	33,000	10,000	9,000	0	1,33,200
(i) Drawings 3,000	78,200	33,000	10,000	9,000	0	1,30,200

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M/s Vipin Traders' transactions leave Assets ₹1,30,200 (Cash 78,200 + Goods 33,000 + Furniture 10,000 + Debtors 9,000) = Capital ₹1,30,200, R.K. Furniture fully paid.

Treatment. (c) furniture on credit raises Furniture and Creditors. (d) credit sale to Parul: Debtors ↑ ₹9,000, Goods ↓ cost ₹7,000, profit ₹2,000 → Capital. (e) cartage is an expense → Capital ↓. (f) paying ₹9,700 against ₹10,000 owed gives discount received ₹300. (g) cash sale above cost → profit. (h) rent received is income. (i) drawings reduce Capital.

Accounting Equation

#	Transaction	Cash (₹)	Goods (₹)	Furniture (₹)	Debtors (₹)	Total Assets (₹)	=	Creditors (₹)	+	Capital (₹)
(a)	Started with cash	1,25,000	—	—	—	1,25,000	=	—	+	1,25,000
(b)	Goods for cash ₹50,000	75,000	50,000	—	—	1,25,000	=	—	+	1,25,000
(c)	Furniture from R.K. (credit)	75,000	50,000	10,000	—	1,35,000	=	10,000	+	1,25,000
(d)	Sold to Parul (cost 7,000) ₹9,000	75,000	43,000	10,000	9,000	1,37,000	=	10,000	+	1,27,000
(e)	Cartage paid ₹100	74,900	43,000	10,000	9,000	1,36,900	=	10,000	+	1,26,900
(f)	Paid R.K. in full ₹9,700	65,200	43,000	10,000	9,000	1,27,200	=	—	+	1,27,200
(g)	Cash sales (cost 10,000) ₹12,000	77,200	33,000	10,000	9,000	1,29,200	=	—	+	1,29,200
(h)	Rent received ₹4,000	81,200	33,000	10,000	9,000	1,33,200	=	—	+	1,33,200
(i)	Drawings ₹3,000	78,200	33,000	10,000	9,000	1,30,200	=	—	+	1,30,200

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