Effect of Transactions on the Accounting Equation

Starting Business with Cash ₹50000
- This transaction will have the following effect on the accounting equation:
- Assets will increase by ₹50000 (cash received)
- Equity will increase by ₹50000 (owner's investment)

Salaries Paid ₹2000
- This transaction will have the following effect on the accounting equation:
- Assets will decrease by ₹2000 (cash paid)
- Liabilities will decrease by ₹2000 (amount owed to employees)

Wages Outstanding ₹200
- This transaction will have the following effect on the accounting equation:
- Assets will remain unchanged
- Liabilities will increase by ₹200 (amount owed to employees)

Interest Due but not Paid ₹100
- This transaction will have the following effect on the accounting equation:
- Assets will remain unchanged
- Liabilities will increase by ₹100 (amount owed to creditors)

Rent Paid in Advance ₹150
- This transaction will have the following effect on the accounting equation:
- Assets will decrease by ₹150 (cash paid)
- Liabilities will increase by ₹150 (amount owed to landlord)

Explanation
- The accounting equation is a fundamental principle of accounting that shows the relationship between a company's assets, liabilities, and equity.
- Transactions affecting assets and liabilities must also have an effect on equity to keep the accounting equation balanced.
- In the transactions given above, each transaction affects either assets or liabilities or both, resulting in changes to the accounting equation.
- For example, when the business starts with cash, both assets and equity increase by the same amount, keeping the accounting equation balanced.
- Similarly, when salaries are paid, assets decrease (cash paid) and liabilities decrease (amount owed to employees), keeping the accounting equation balanced.
- These transactions demonstrate how the accounting equation serves as a useful tool for keeping track of a company's financial position and ensuring that all transactions are recorded accurately.