How to Make an Accounting Equation?

Transcript

How to Make Accounting Equation Accounting Equation is based on Dual Aspects of Accounting It means that Every Transaction has a double affect Lets understand how to make accounting equation with the help of example Example 1 Suppose Cash Introdued into business as Capital Rs 80000 Cash Deposit in Bank Rs 10000 In this case,there are 2 transactions Transaction 1 Cash Introdued into business as Capital Rs 80000 In this case there are 2 things Cash -->it is a assets which increase by 80000 Capital -->it will also increase by 80000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Introdued into Cash business as Capital Rs 80000 80000 80000 Transaction 2 Cash Deposit in Bank Rs 10000 Effect Bank is an Asset which Increases by 10000 Cash is an Asset which decreases by 10000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Bank Old Balance 80000 = 0 + 80000 Cash Deposit in Bank Rs 10000 -10000 10000 = 0 + 0 New Balance 70000 10000 = 0 + 80000 Example 2 New Business Started Proprietor Introduced Own Cash Rs 50000 Proprietor took loan from girlfriend Rs 100000 Furniture Purchased for Paying Cash Rs 30000 Transaction 1 Proprietor Introduced Own Cash Rs 50000 Effect Cash is an Asset which Increases by 50000 Capital also increases by 50000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Introdued into business as Capital Rs 50000 Cash 50000 0 50000 = Transaction 2 Proprietor took loan from girlfriend Rs 100000 Effect Loan is a liabilty which Increases by 100000 Cash is an Asset which increases by 100000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Loan Old Balance 50000 = 0 + 50000 Proprietor took loan from girlfriend 100000 = 100000 + 0 New Balance 150000 = 100000 + 50000 Transaction 3 Furniture Purchased for Paying Cash Rs 30000 Effect Furniture is an asset which Increases by 30000 Cash is an Asset which decreases by 30000 So Accounting Equation appears as follows Assets = Liability + Capital Cash + Furniture Loan Old Balance 150000 = 100000 + 50000 Furniture Purchased for Paying Cash -30000 30000 = 0 + 0 New Balance 120000 + 30000 = 100000 + 50000