Prepare Accounting equation from the followings. (a) Started business ...
**Accounting Equation:**
The accounting equation is a fundamental principle in accounting that shows the relationship between a company's assets, liabilities, and equity. It can be expressed as:
Assets = Liabilities + Equity
**Transaction Analysis:**
(a) Started business with cash 360,000:
- Increase in cash (asset) by 360,000
- Increase in equity (capital) by 360,000
**Accounting Equation:**
Assets = 360,000
Liabilities = 0
Equity = 360,000
(b) Purchased goods for cash 80,000 and on credit 180,000:
- Increase in inventory (asset) by 260,000
- Decrease in cash (asset) by 80,000
- Increase in accounts payable (liability) by 180,000
**Accounting Equation:**
Assets = 540,000
Liabilities = 180,000
Equity = 360,000
(c) Sold goods:
i. Cash sales costing 60,000 at a profit of 20%:
- Increase in cash (asset) by 60,000
- Increase in sales revenue (equity) by 60,000
- Increase in cost of goods sold (expense) by 48,000 (60,000 * 80%)
ii. Credit sales costing 80,000 at a profit of 25%:
- Increase in accounts receivable (asset) by 80,000
- Increase in sales revenue (equity) by 80,000
- Increase in cost of goods sold (expense) by 60,000 (80,000 * 75%)
**Accounting Equation:**
Assets = 680,000
Liabilities = 180,000
Equity = 488,000
(d) Paid for Rent 5000:
- Decrease in cash (asset) by 5,000
- Decrease in equity by 5,000
**Accounting Equation:**
Assets = 675,000
Liabilities = 180,000
Equity = 483,000
(e) Commission received 4000:
- Increase in cash (asset) by 4,000
- Increase in equity by 4,000
**Accounting Equation:**
Assets = 679,000
Liabilities = 180,000
Equity = 487,000
(f) Purchased furniture:
- Increase in office furniture (asset) by 6,000
- Decrease in cash (asset) by 6,000
- Increase in household furniture (asset) by 4,000
- Decrease in cash (asset) by 4,000
**Accounting Equation:**
Assets = 685,000
Liabilities = 180,000
Equity = 487,000
(g) Goods destroyed by fire 2,500:
- Decrease in inventory (asset) by 2,500
**Accounting Equation:**
Assets = 682,500
Liabilities = 180,000
Equity = 487,000
**Summary:**
The accounting equation represents the relationship between a company's assets, liabilities, and equity. By analyzing each transaction, we can determine the impact on the accounting equation. In this case, the business started with cash, made purchases, sold goods, paid for rent, received commission