Analyzing Transactions for Accounting Equation

 

Analyzing Transactions 

The first step in the accounting process is to analyze every financial transaction that affects the business.

Accounting equation is always, Assets = Owner’s Equity + Liabilities

After recording every financial transaction, this equation must remain in balance

 

Accountants must analyze each financial transaction to determine how it affects owner’s equity as well as assets and liabilities before recording the transaction.

 

 

Formulas for Analyzing Transactions for Accounting Equation

Ending equity

=

Beginning equity + Net Income – Dividend + New common stock

 

Formula for increase in equity

	Increase in equity	=	Ending equity – Beginning equity
Or,	Increase in equity	=	Net Income – Dividend + New common stock
Where:	Equity	=	Assets – Liabilities

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 1A       TU Model Question

An enterprise has total assets of Rs 500,000 and liabilities of Rs 300,000 at the beginning of the year. During the year, the company earned Rs 200,000 and distributed Rs 50,000 dividend.

Required: Equity at the end of the year

[Answer:  350,000]

SOLUTION

Given and working note:

Beginning equity	=	Assets –  Liabilities
	=	500,000 – 300,000
	=	Rs 200,000

 

Ending equity

Ending equity	=	Beginning equity + Net Income – Dividend + New common stock
	=	200,000 + 200,000 – 50,000 + 0
	=	Rs 350,000

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 1B

EP Online Study LLC has the following extracted financial data: ($/₹/Rs)

	Assets	Liabilities
1st January 2019	54,000	36,000
31st December 2019	124,000	58,000

Required: (1) What is the beginning equity?

(2) What is the ending equity?

(3) What is the increase in equity?

(4) If the company issues new common stock of Rs 19,000 and pay dividends of Rs 72,200, how much is net income (loss)?

(5) If net income is Rs 6,600 and dividends are Rs 15,400, how much is new common stock?

(6) If the company issues common stock of Rs 39,600 and net income is Rs 18,900, how much is dividends?

(7) If the company issues common stock of Rs 83,200 and pay dividends of Rs 2,400, how much is net income (loss)?

[Answer:  (1) 18,000; (2) 66,000; (3) 48,000; (4) 101,000;

(5) 56,800; (6) 10,500; (7) (32,800) loss]

SOLUTION

(1) What is the beginning equity?

(a) Beginning equity  

Beginning  equity	=	Assets –  Liabilities
	=	54,000 – 36,000
	=	Rs 18,000

 

(2) What is the ending equity?

Ending equity	=	Assets –  Liabilities
	=	124,000 – 58,000
	=	Rs 66,000

 

 

(3) What is the increase in equity?

	Increase in equity	=	Ending equity – Beginning equity
		=	66,000 – 18,000
		=	Rs 48,000

 

(4) If the company issues common stock of Rs 19,000 and pay dividends of Rs 72,200, how much is net income (loss)?

Net income or loss

Ending equity	=	Beginning equity + Net Income – Dividend + New common stock
66,000	=	18,000 + Net income – 72,200 + 19,000
66,000	=	Net income – 35,000
66,000 + 35,000	=	Net income
Net income	=	Rs 101,000

 

(5) If net income is Rs 6,600 and dividends are Rs 15,400, how much is new common stock?

New common stock 

Ending equity	=	Beginning equity + Net Income – Dividend + New common stock
66,000	=	18,000 + 6,600 – 15,400 + New common stock
66,000	=	9,200 + New equity
New common stock	=	66.000 – 9,200
	=	Rs 56,800

 

(6) If the company issues new equity of Rs 39,600 and net income is Rs 18,900, how much is dividends?

Dividend paid

Ending equity	=	Beginning equity + Net Income – Dividend + New common stock
66,000	=	18,000 + 18,900 – Dividend + 39,600
66,000	=	76,500 – Dividend
Dividend	=	76,500 – 66.000
	=	Rs 10,500

 

(7) If the company issues new equity of Rs 83,200 and pay dividends of Rs 2,400, how much is net income (loss)?

Income or loss

Ending equity	=	Beginning equity + Net Income – Dividend + New common stock
66,000	=	18,000 + Net income – 2,400 + 83,200
66,000	=	98,800 + Net income
66,000 – 98,800	=	Net income
Net income (loss)	=	Rs (32,800)

 

#######

Click on link for YouTube videos topic wise :
Accounting Equation	http://tiny.cc/c89jkz
Basic Journal Entries in Nepali	http://tiny.cc/uaakkz
Basic Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger Account	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cash Book	http://tiny.cc/889jkz
Trial Balance and Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
Click on link for YouTube videos chapter wise:
Financial Accounting and Analysis (All videos)	http://tiny.cc/jlersz
Accounting Process	http://tiny.cc/mlersz
Accounting for Long Lived Assets	http://tiny.cc/plersz
Analysis of Financial Statement	http://tiny.cc/slersz

#####

PROBLEMS   AND   ANSWERS

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 1A

ABC Company Ltd has beginning equity Rs 336,000. At the end of accounting years, the firm has assets Rs 500,000 and liabilities Rs 50,000. The firm has earned Rs 150,000 net income during the year.

Required: (a) Ending equity; (b) Dividend paid for the year

[Answer:  (a) 450,000; (c) 36,000]

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 1B

ABC Traders has beginning assets Rs 100,000 and liabilities Rs 50,000. During the year, the company distributed dividend Rs 20,000. At the end of the year, the company has doubled its assets and liabilities.

Required: Net income earned by firm

[Answer:  70,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 1C

Bajaj Company Ltd has beginning assets and liabilities Rs 250,000 and Rs 120,000 respectively. During the year, company increases its shareholder’s equity to Rs 200,000; and paid dividend Rs 30,000.

Required: Net income of the company during the year

[Answer:  100,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 1D

CK Company doubles the amount of its assets from the beginning to the end of the year. Liabilities at the end of the year are Rs 150,000. The share capital, net income and dividends amount to Rs 100,000, Rs 70,000 and Rs 20,000 respectively.

What is the amount of its assets at the beginning of the year?

[Answer:  150,000]

***********

Thank you for investing your time.

Please comment on article.

You can help me by sharing this article at your social media platform.

 

Jay Google, Jay YouTube, Jay Social Media

जय गूगल, जय युट्युब, जय सोशल मीडिया