Answer to Question #183920 in Accounting for hemangi

Question

 Discuss and analyze the following transactions for X Ltd, using the concept of accounting equation (Assets, Liabilities and Equities).

1. Purchased Furniture for Rs675000

2. Capital Introduced by the business Owner by depositing 12 Lakhs in the bank account

3. Goods purchased on credit from Aman Enterprises for Rs105000

4. Goods sold on credit for Rs 400000. The cost of the goods sold was Rs 300000

5. Purchased goods from Sneha Enterprises for Rs 600000 and made the payment from the business's bank account 

Answer 1

The concept of accounting equation implies Assets = Capital + Liabilities. Generally the double entry principle is applying in every transaction where for debit there is corresponding credit entry.

1. Purchased Furniture for Rs675000

In this transaction, Furniture as an asset worth Rs675000 is Debited and cash/bank is credited at the same amount, since both are assets there is an increase and decrease of the same amount.

2. Capital Introduced by the business Owner by depositing 12 Lakhs in the bank account

Capital introduced is credited as an amount to finance the business and Cash/bank an asset is increased by the same amount hence debited.

3. Goods purchased on credit from Aman Enterprises for Rs105000

There is increase in assets as inventory by Rs105000 and increase in Liabilities as creditors (Aman Enterprises) by the same amount hence credited.  

4. Goods sold on credit for Rs 400000. The cost of the goods sold was Rs 300000

There is decrease in assets by Rs 400000 as inventory, Increase in assets as Debtors by the same amount. There is profit of Rs 100000 that should go as part of capital.

5. Purchased goods from Sneha Enterprises for Rs 600000 and made the payment from the business's bank account

There is increase of assets as inventory by Rs 600000 and an decrease in assets in the bank account by the same amount.