Accounting Equation for Different Assets

Transcript

Accounting Equation for Different Assets What are Assets We have already studied that Assets are properties owned by a business or firm Example Funiture Computer Machinery Cash Bank Note Sometimes we exchange One asset for another Example 1 Furniture Purchased for Cash In this case Here,There are 2 Assets -Cash and Furniture One asset increases,one decreases in our case,Furniture Increases and Cash Decreases Example 2 Cash Withdrawn from Bank ATM In this case Here,There are 2 Assets -Cash and Bank One asset increases,one decreases in our case,Cash Increases and Bank Decreases Note Sometimes Asset Purchased on Credit Example 3 Furniture Purchased from A for 10000 on 10 Feb Payment not yet made In this case Furnitue is our asset which increases A is our Creditor (Liability) which also increases Example 3 continued Suppose Payment made to A Rs 10000 on 13 Feb by cash in this case' A is our Creditor (Liability) which decreases Cash is out Asset which also decreases Assets Purchased I I I For Cash On Credit On Loan I I I It means payment It means It means for Asset payment for loan taken made Immediately Asset at later date to pay Asset Example Example Example Machine Machine Machine Purchased Purchased Purchased For Cash/bank from A 50000 from A 50000 Amount paid to A by cash 10000 Balance loan Rs 40000 from bank I I I Effect on Effect on Effect on Accounting Equation Accounting Equation Accounting Equation Furniture (Asset) increases Furniture (Asset) increases Furniture (Asset) increases 50000 Cash (Asset) A (Creditor-Liability) increases Cash/Bank (Asset) Decreases 10000 decreases Loan (Liability( increases 40000 Question Ali started business with Rs 150000 cash He deposited 80000 Cash in Bank He Purchased a Computer for Rs 30000 by paying cash He also purchased a Machine from B of Rs 40000 (Amount not yet paid) Amount paid to B Rs 30000 by cheque (Remaining pending) He Purchased a Car for Rs 300000 from Honda Cash Paid to Honda 20000 Remaining Loan taken frm ICICI Bank 280000 Prepare Accounting Equation Transaction 1 Ali started business with Rs 150000 cash Effect Cash is an Asset which Increases by 150000 Capital also increases by 150000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Started business with Rs 150000 cash 150000 0 150000 Transaction 2 He deposited 80000 Cash in Bank Effect Cash is an Asset which Decreases by 80000 Bank is an Asset which Increases by 80000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Bank Old Balance 150000 = 0 + 150000 He deposited 80000 Cash in Bank -80000 +80000 = + New Balance 70000 + 80000 = 0 + 150000 Transaction 3 He Purchased a Computer for Rs 30000 by paying cash Effect Computer 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 Bank Computer Old Balance 70000 + 80000 = 0 + 150000 Purchased a Computer for Rs 30000 by paying cash -30000 +30000 = 0 + New Balance 40000 + 80000 + 30000 = 0 + 150000 Transaction 4 He also purchased a Machine from B of Rs 40000 (Amount not yet paid) Effect Machine is an Asset which Increases by 40000 Creditor is a liabilty which Increases by 40000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Bank Debtors Machine Creditor B Old Balance 40000 + 80000 + 30000 = 0 + 150000 He also purchased a Machine from B of Rs 40000 40000 = 40000 + New Balance 40000 + 80000 + 30000 + 40000 = 40000 + 150000 Transaction 5 Amount paid to B Rs 30000 by cheque (Remaining pending) Effect Bank is an Asset which Decreases by 30000 Creditor is a liabilty which Decreases by 30000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Bank Debtors Machine Creditors New Balance 40000 + 80000 + 30000 + 40000 = 40000 + 150000 Amount paid to B Rs 30000 by cheque (Remaining pending) -30000 = -30000 + New Balance 40000 + 50000 + 30000 + 40000 = 10000 + 150000 Transaction 6 He Purchased a Car for Rs 300000 from Honda Cash Paid to Honda 20000 Remaining Loan taken frm ICICI Bank 280000 Effect Car is an Asset which Increases by 300000 Cash is an Asset which Decreases by 20000 Loan is a liabilty which Increases by 280000 So Accounting Equation appears as follows Assets = Liability + Capital Cash Bank Debtors Machine Car Creditors + Loan New Balance 40000 + 50000 + 30000 + 40000 = 10000 + 150000 He Purchased a Car for Rs 300000 from Honda -20000 300000 = 280000 + New Balance 20000 + 50000 + 30000 + 40000 + 300000 = 10000 + 280000 + 150000