Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Business started is also known as business began and business commenced.
There are different types of business; sole proprietor, partnership, private limited company and public limited company.
When a businessperson starts his business, he must invest cash.
Sometimes he starts business with cash, stock (business goods) and fixed assets.
PROBLEM: 1
The extracted information is given below:
Business started by Aman with cash ₹/Rs 150,000 and stock ₹/Rs 35,000.
Required: Accounting equation
[Answer: Assets = Rs 185,000; Capital = Rs 185,000]
SOLUTION:
Explanation:
While starting the business, cash (asset) comes into the business,
Cash increases asset by 1,50,000; it is represented under assets column,
Stock also increases assets by 35,000; it is represented under assets column,
Starting business also increases the capital by 1,85,000; it is the total of cash and stock. It is represented under capital column,
There is no effect on liabilities column.
It can be represented as under:
Effect on Accounting Equation
Particulars |
Assets |
= |
Capital |
+ |
Liabilities |
||||
a |
Business started by Aman with cash and stock |
150,000 35,000 |
cash stock |
= |
185,000 |
|
+ |
0 |
|
|
Beginning equation |
185,000 |
|
= |
185,000 |
|
+ |
0 |
|
Alternatively,
Accounting Equation
Particulars |
ASSETS |
= |
CAPITAL |
+ |
LIABILITIES |
||||
|
Cash |
+ Stock |
|
|
|
|
|||
a |
Business started by Aman with cash and stock |
150,000 |
+ 35,000 |
= |
185,000 |
|
+ |
0 |
|
|
First equation |
150,000 |
+ 35,000 |
= |
185,000 |
|
+ |
0 |
|
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PROBLEM AND ANSWERS |
Basic Problem: 1
The following extracted information is given to you:
Business started with cash Rs 150,000; stock Rs 80,000 and equipment Rs 40,000.
Required: Show in accounting equation
[Answer: Assets = Rs 270,000; Capital = Rs 270,000; Liabilities = Nil]
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