Expanded Accounting Equation: Trading Firm Sole Proprietorship

Trading Firm Sole Proprietorship 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: 11               Trading Firm Owner’s Equity

MP Traders has following extracted information:             

(a) Capital introduced in cash Rs 4,00,000.

(b) Bank account opened in Nabil Bank by Rs 100,000.

(c) Office files, registers and stationery purchased for Rs 5,000.

(d) Fixed assets purchased on account Rs 1,00,000.

(e) Goods purchased for cash Rs 50,000 and by cheque Rs 80,000.

(f) Goods purchased of Rs 100,000 from AB Company and made partial payment of Rs 60,000.

(g) Goods sold in cash costing Rs 1,00,000 at Rs 1,20,000.

(h) Goods sold on account costing Rs 50,000 for Rs 60,000.

(i) Cash paid to AB Company Rs 39,000 in full settlement.

(j) Paid rent by cheque Rs 15,000 including advance rent Rs 5,000.

Required: Accounting equation in expended form

 [Answer:  Assets = 266,000; 5,000; 100,000; 80,000; 60,000; 5,000;

Capital = 416,000; Liabilities = 100,000]

SOLUTION

Accounting Equation

#######

#####

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

PROBLEM: 11A            Trading Firm Owner’s Equity

The following extracted data is given by BB Traders:       

a.     Business started with cash Rs 300,000 and equipment Rs 100,000.

b.    Old equipment costing Rs 50,000 was sold to Mr Mahesh for Rs 40,000.

c.     Goods purchased from M/s RK Traders Rs 90,000 and partially paid Rs 20,000 immediately.

d.    Prepaid insurance Rs 3,000 out of insurance for the year Rs 12,000.

e.     Goods sold costing Rs 60,000 for Rs 90,000 on account.

f.       Goods sold to Kalpana Rs 5,000.

g.     Goods worth Rs 3,000 and cash Rs 7,000 taken by proprietor for domestic use.

h.    Goods destroyed by fire worth Rs 10,000 but insurance company accepted claim only Rs 6,000.

i.       Amount due from Kalpana Rs 5,000 has been written off as bad debts because she became insolvent.

j.       Rent paid Rs 15,000 and payable Rs 5,000.

Required: Accounting equation in expended form

[Answer:  Assets = 286,000; 50,000; 12,000; 90,000; 3,000; 6,000;

Owner’s equity = 372,000; Liabilities = 70,000; 5,000]

***********

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