Expanded Accounting Equation: Trading Firm Public Limited Company

Trading Firm Public Limited Company and Accounting Equation

Trading firms purchase finished products from manufacturers or importers and sell to customers or consumers.

Sometime, they purchase finished products in large quantity and package them in small quantity with own logo and trademark.

There are two types of traders; they are internal trader and external trader.

Internal trader is also known as home trader or domestic trader.

These traders are distributors, wholesalers and retailers, B2B (business to business) suppliers.

External trader is also known as foreign trader or international trader.

These traders are importers, exporters and entrepot traders.

Trading firms are categorized into sole proprietorship, partnership and public limited companies.

In accounting equation, sole proprietorship and partnership firm record income, expenses, profit and loss with capital; it is known as owner’s equity.

In accounting equation, public limited firm record income, expenses, profit and loss in retained earnings (RE); Total of capital and retained earnings is known as shareholders equity.

PROBLEM: 12               Trading Firm Shareholders’ Equity

EP Furniture LLC has following information in July:

(1) Started business with bank balance Rs 4,00,000 and converted into 40,000 common stock @ Rs 10.

(2) Furniture purchase by cheque Rs 2,25,000.

(5) Office equipment purchase on account Rs 45,600.

(7) Furniture purchased of Rs 130,500 from JK Suppliers and partially paid online payment Rs 30,500

(10) Furniture sold and cheque received Rs 132,250.

(15) Furniture sold costing Rs 64,000 for 80,000 on account.

(18) Advance received from customer for dining table Rs 25,750 by cheque.

(20) Cheque received from customer sold on account Rs 79,000 in full settlement.

(25) Payment made to JK Suppliers Rs 98,000 by cheque in full settlement.

(30) Salary paid by cheque Rs 12,000 and still payable Rs 8,000.

(31) Utility bills paid by banking app Rs 1,550.

Required: Accounting equation in expended form

 [Answer:  Assets = 270,200; 159,000; 45,600; Nil;

SHE = 400,000; RE = (4,550); Liabilities = 45,600; 25,750; 8,000]

SOLUTION

Accounting Equation

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

PROBLEM: 12A            Trading Firm Shareholders’ Equity

EP Importer LLC has the following summarized transaction: (all transactions through bank)

(a) Invested cash into business and converted into 30,000 common stock of Rs 10 each.

(b) 8% Debentures issued for 5 years of Rs 200,000.

(c) Insurance paid in advance Rs 12,000.

(d) Different office equipment purchased and bill accepted of Rs 80,200.

(e) Goods imported from China of Rs 150,000 with all legal charges.

(f) Goods sold in cash costing Rs 25,000 at 40% profit.

(g) Goods sold on account costing Rs 28,500 for Rs 50,000 and bill received.

(h) Commission received Rs 13,000.

(i) Office expenses paid Rs 20,350.

(j) Office and warehouse rent payable Rs 23,500

(k) Utility bill paid online Rs 2,550.

(l) Dividend distributed Rs 3,000.

Required: Expanded accounting equation

[Answer:  Assets = 365,100; 80,200; 96,500; 50,000; 12,000;

SHE = 300,000; RE = 100; Liabilities = 200,000; 80,200; 23,500]

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