Effect of 50 Transactions on Accounting Equation
Accounting Equation is also known as Balance Sheet Equation as already discussed in the previous article on Balance Sheet Equation. Here is the break-up analysis of 50 transactions given below, showing the effect of these transactions on Capital, Liability and Asset.
Students can use C + L = A or A - L = C but C + L = A is preferred as it aligns the normal Balance Sheet columns.
The presentation of the effect of transactions can be given in horizontal or vertical form. Here, only horizontal way has been given. Either way the effect is same.
Here’s a breakdown of 50 sample transactions along with their balance sheet equation effects (Assets = Liabilities + Equity):
Effect of 50 Transactions on Accounting Equation
- Started business with cash.
Cash - Asset - Increase
Capital - Increase
- Started business with cash, bank balance.
Cash - Asset - Increase,
Bank – Asset- Increase
Capital - Increase
- Borrowed loan from State Bank of India.
Bank - Asset – Increase,
SBI’s loan – Liability - Increase
- Borrowed loan from a friend.
Bank - Asset - Increase,
Friend’s loan - Liability - Increase
- Purchased machinery for cash.
Machinery - Asset - Increase,
Cash - Asset - Decrease
- Purchased machinery for cash, payment made by cheque.
Machinery - Asset - Increase,
Bank - Asset - Decrease
- Purchased furniture, payment made by accepting a bill of exchange
Furniture – Asset – Increase,
Bills Payable - Liability - Increase
- Purchased goods, 50% payment made by cheque.
Stock – Asset - Increase,
Bank - Asset - Decrease,
Creditors - Liability - Increase
- Goods purchased on credit, now returned.
Creditors - Liability - Decrease,
Stock – Asset - Decrease
- Sold goods for cash.
Cash - Asset - Increase
Stock – Asset - Decrease
- Sold goods on credit.
Debtors - Asset - Increase
Stock – Asset - Decrease
- Sold goods, 50% payment received in cash.
Cash - Asset - Increase
Debtors - Asset - Increase
Stock – Asset - Decrease
- Payment of an instalment of State bank of India’s loan.
SBI’s loan – Liability – Decrease,
Bank – Asset - Decrease
- Bills Receivable received from a debtor.
Bills Receivable – Asset – Increase,
Debtors – Asset - Decrease
- Deposited into Canara bank.
Canara Bank – Asset – Increase,
Cash – Asset - Decrease
- Withdrew from bank for office use.
Cash - Asset – Increase,
Bank - Asset – Decrease
- Withdrew from bank for domestic use.
Drawings – Capital – Decrease,
Bank – Asset - Decrease
- Payment of wages, rent by cheque.
Wages and Rent – Capital (Expenses) – Decrease,
Bank – Asset - Decrease
- Returned to friend, loan borrowed from him, by cheque.
Friend’s loan – Liability – Decrease,
Bank – Asset - Decrease
- Bad Debts (Debtors didn’t pay their dues, declared insolvent by court).
Bad Debts – Capital (Expense) – Decrease,
Debtors – Asset - Decrease
- Cash received from Munim for commission.
Cash – Asset – Increase,
Commission – Capital (Income) - Increase
- Received rent by cheque
Bank – Asset – Increase,
Rent – Capital (Income) - Increase
- Goods returned by our customers.
Stock – Asset – Increase,
Debtors – Asset - Decrease
- Collection of cash from debtors after discount.
Cash - Asset - Increase
Discount Allowed – Capital (Expense) - Decrease
Debtors - Asset - Decrease
- Payment to creditors after discount.
Creditors - Liability - Decrease
Cash – Asset – Decrease
Discount received – Capital - Increase
- Depreciation on asset.
Depreciation – Capital (Expense) - Decrease
Asset - Decrease
- Appreciation to asset.
Asset - Increase
Appreciation – Capital - Increase
- Interest on Loan.
Interest on Loan – Capital - Decrease
Loan – Liability - Increase
- Interest on bank deposit.
Bank - Asset - Increase
Interest on Bank Deposit – Capital - Increase
- Outstanding expenses.
Expenses – Capital - Decrease
Outstanding expenses – Liability - Increase
- Expenses paid in advance (when these are paid).
Prepaid expenses - Asset - Increase
Cash – Asset - Decrease
- Accrued Income.
Accrued Income - Asset - Increase
Income – Capital - Increase
- Income received in advance. (when it is received).
Cash - Asset - Increase
Income received in advance – Liability - Increase
- Withdrew goods for personal use.
Drawings - Capital - Decrease
Stock – Asset - Decrease
- Goods given as charity.
Charity – Capital - Decrease
Stock – Asset - Decrease
- Prepaid Expenses (Adjustment)
Prepaid Expenses - Asset - Increase
Expenses – Capital - Decrease
- Interest On Capital.
Interest on Capital - Capital – Increase and - Decrease
- Interest on Drawings.
Interest on Drawings - Capital – Decrease and - Increase
- Loss By Fire (Theft)
Loss by Fire (Theft) – Capital - Decrease
Stock – Asset - Decrease
- Received a Cheque from Angad, directly deposited into bank.
Bank - Asset - Increase
Angad – Asset - Decrease
- Collected accounts Receivable
Cash – Asset – Increase
Accounts Receivable – Asset - Decrease
- Purchased vehicle with loan
Vehicle – Asset – Increase
Loan – Liability - Increase
- Owner withdrew cash
Cash – Asset – Decrease
Capital - Decrease
- Paid off accounts payable
Accounts Payable – Liability – Decrease
Cash/Bank – Asset - Decrease
- Provided services on credit
Debtors – Asset – Increase
Service Income - Capital - Increase
- Owner invested additional cash
Cash – Asset – Increase
Capital - Increase
- Received interest income
Cash – Asset – Increase
Interest - Capital - Increase
- Paid insurance premium
Insurance – Capital – Decrease
Cash/Bank – Asset - Decrease
- Paid for software subscription
Software Expenses – Capital – Decrease
Cash – Asset - Decrease
- Paid for employee medical insurance
Employee Benefit Expenses – Capital – Decrease
Cash – Asset - Decrease
Note:
Name of the expense, asset, liability, debtor, creditor etc. is to be used if given.
For payment Cash/ Bank is to be used depending on the case.