Identify Increase or Decrease in Assets/Liabilities

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Step 2 - Identify Increase or Decrease in Assets/Liabilities Are the following Increase or Decrease in Assets or Liabilties? Transactions Assets/ Liability Increase/ Decrease Capital Introduced Liabilty Increase Loan taken Liabilty Increase Loan Repaid Liabilty Decrease Furniture Purchased Asset Increase Computer Sold Asset Increase Cash Received Asset Increase Cheque Paid Liabilty Decrease Loan Given Asset Increase Loan Given Repaid by Other Person Asset Decrease Drawings Made(Reduction of capital) Liabilty Decrease Note All the above Transactions have a Dual Aspect (double effect) Example 1 (A)Capital Introduced Proprietor Introduced Cash Rs 10000 as Capital In this case there are 2 things Capital it is a liability which increase by 10000 Cash it is an asset (Asset Increase by 10000) Balance sheet will now appear as follows Liabilities Amount Assets Amount Capital 10000 Cash 10000 TOTAL 10000 TOTAL 10000 (B) Loan Taken Loan taken from Father Rs 40000 in Cash In this case there are 2 things Loan It is a liability which increase by 40000 Cash It is an asset (Asset Increase by 40000) Balance sheet will now appear as follows Liabilities Amt Assets Amt Capital 10000 Cash 50000 loan 40000 TOTAL 50000 TOTAL 50000 Note:- Balance sheet total is Same for Assets and Liabilities In the above cases, Assets = 50000 Liability (External) = 40000 Capital = 10000 Hence, we can say Assets = Liability + Capital 50000 = 40000 + 10000 This is called Accounting Equation