Answer to Question #190811 in Accounting for Shivani

Question

If in the question didn't mention about the mode of purchase transaction is furniture purchase worth rs. 300000 what is the accounting equation ?

Assets 300000= liability0+capital 300000 y capital 300000 but it increases assets by purchasing furniture

Answer 1

Solution:

The accounting equation is as follows:

Assets = Liabilities + Capital

Since the mode of transaction is not mentioned, then the transaction will only increase assets, because furniture is an asset. Liabilities and capital will not be affected.

Liabilities will only be affected if the furniture was purchased on credit, hence liabilities will also increase. The main accounts that affect capital include revenues, gains, expenses, and losses. Capital will increase if you have revenues and gains and decrease if you have expenses and losses.

Therefore the accounting function will be as follows:

Assets = Liabilities + Capital

+300,000 = 0 + 0