Accounting Equation for Surendra Kumar’s Transactions:

Assets = Liabilities + Owner’s Equity

(i) Commenced business with cash 25,000
- Cash increases by 25,000
- Owner’s Equity increases by 25,000

Assets = 25,000
Liabilities = 0
Owner’s Equity = 25,000

(ii) Cash Purchases 15,000
- Cash decreases by 15,000
- Increase in inventory/assets by 15,000

Assets = 40,000
Liabilities = 0
Owner’s Equity = 25,000

(iii) Credit Purchases 10,000
- Increase in inventory/assets by 10,000
- Increase in accounts payable/liabilities by 10,000

Assets = 50,000
Liabilities = 10,000
Owner’s Equity = 25,000

(iv) Cash Sales (Cost ` 5,000) 6,000
- Cash increases by 6,000
- Increase in revenue/owner’s equity by 6,000
- Decrease in inventory/assets by 5,000 (cost of goods sold)

Assets = 45,000
Liabilities = 10,000
Owner’s Equity = 31,000

(v) Bought furniture on credit 1,000
- Increase in furniture/assets by 1,000
- Increase in accounts payable/liabilities by 1,000

Assets = 46,000
Liabilities = 11,000
Owner’s Equity = 31,000

(vi) Paid to creditors 7,500
- Decrease in accounts payable/liabilities by 7,500
- Decrease in cash/assets by 7,500

Assets = 38,500
Liabilities = 3,500
Owner’s Equity = 31,000

Final Accounting Equation:

Assets = 38,500
Liabilities = 3,500
Owner’s Equity = 31,000

Explanation:

The accounting equation is a fundamental concept in accounting that represents the relationship between a company’s assets, liabilities, and owner’s equity. In this case, Surendra Kumar’s transactions are used to demonstrate how the accounting equation is affected by various business activities.

Each transaction is analyzed to determine how it affects the three components of the accounting equation. The analysis shows that every transaction has an impact on at least two components of the accounting equation.

By the end of all transactions, the total assets are 38,500, total liabilities are 3,500, and the owner’s equity is 31,000. This final accounting equation shows that the assets are equal to the sum of liabilities and owner’s equity, which is a fundamental principle in accounting.

Assets :-
Cash (25000) + Stock (15000) - Purchase (15000) + Stock (10000) - Stock (5000) + Cash (6000) + Furniture (1000) - Cash (7500) = 29500

Liabilities :-
Credit Purchase (10000) + Credit Purchase of Furniture (1000) - Creditors paid (7500) = 3500

Capital :-
Cash invested (25000) + Profit on sale (1000) = 29500

Assets = Liabilities + Capital
29500 = 3500 + 26000
Verified !