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Accounting Equation Problems and Solutions

Accounting Equation Problems and Solutions
Accounting Equation Problems and Solutions



Problem No.1
Show the effect of the following transactions on assets, owner’s equity and Liabilities:

1.         Mr. Sultan invested cash into business Rs.30000/-
2.         Bought Supplies for Cash Rs. 500/-
3.         Purchased Furniture on account Rs.1000/-
4.         Paid Salaries Rs.200
5.         Earned Rs.2000/- by performing services to the clients.
6.         Paid Rent of Rs.200/-
7.         Supplies in hand at the end of the month Rs.300.

Solution:
Sultan and Co.
Statement of Equation
            ASSETS                                                               =          EQUITIES

Cash
Supplies
Furniture
Creditors
 Capital
1.
2.
30000
   -500

+500


30000
Balance
3.
29500
  500

+1000

+1000
30000
Balance
4.
29500
  -200
  500
   1000
  1000
30000
   -200
Balance
5.
29300
+2000
  500
   1000
  1000
29800
+2000
Balance
6.
31300
   -300
  500
   1000
  1000
31800
   -300
Balance
7.
31000
  500
 -200
   1000
  1000
31500
   -200
Balance
31000
  300   
   1000
   1000
31300


 Total Assets= 32,300/-                                                        Total Equities= 32,300/-
Problem No.2
            The following are the transactions of a business for the month of January 2004:
Jan.    1.         Ali commenced a business by depositing Rs.17,500
                        into a bank account.
5.            Purchased a Furniture for cash Rs.12,500.
7.            Purchased a Building for Rs.5,000, paying Rs.1,500 cash and incurring liability of Rs.3,500.
11.       Sold a part of Furniture for Rs.2,500 receivable within three months.
15.       Purchased office Supplies for Rs.500 on account.
19.       Received Rs.500 as partial collection of Accounts Receivable.
25.       Paid Rs.750 as Salary.
30.       Service revenue due Rs.5,000.
Required:     Show the effect of the transactions on the accounting equation.
Solution:

Accounting Equation
As on January 31
ASSETS
=
EQUITES

Bank
Rs.
Furniture
Rs.
Building
Rs.
A/R
Rs.
Office
Supples
Rs.
=
Owners’s
Equity
Rs.
Liabilities
A/P
Rs.
Jan.1
5
+17,500
-12,500

+12,500



=
+17,500

Balance
7
+5,000
-1,500
+12,500



=
+17,500
+3,500
Balance
11
+3,500
+12,500
-2,500
+5,000

+2,500

=
+17,500
+3,500
Balance
15
+3,500
10,000
+5,000
+2,500

+500
=
=
+17,500
+3,500
+500
Balance
19
+3,500
+500
+10,000
+5,000
+2,500
-500
+500
=
+17,500
+4,000
Balance
25
+4,000
-750
+10,000
+5,000
+2,000
+500
=
=
+17,500
-750
+4,000
Balance
30
+3,200
+10,000
+5,000
+2,000
+5,000
+500
=
=
+16,700
+5,000
+4,000
Balance
+3,200
+10,000
+5,000
+7,000
+500
=
21,750
+4,000
Total
25,750
=
25,750


Problem No.3
            Ijaz and Israr own and operate a repair shop. At the beginning of the month the shop had following assets:
            Cash Rs.51,560, Account Receivable Rs.1,950, Repair Supplies Rs.1,850, Tools Rs.11,275, and Truck Rs.12,800. Their Liabilities and Owner’s Equity was as under:
            Accounts Payable Rs.16,525, Capital Rs.63,000
            During the month following transactions were completed:
a)             Paid one month rent Rs.2,000.
b)             Purchased repair supplies for cash Rs.500.
c)              Paid for repairs supplies previously purchased on credit Rs.2,250.
d)             Completed repair work and collected Rs.500.
e)             Completed repair work of Junaid Rs.15,000.
f)               Received payment from customer previously billed RS.3,250.
g)             Paid for oil and Gas used during the month Rs.200.

Required:
1.    Arrange the Asset. Liabilities and Owndr’s Equity given in the beginning in an Accounting Equation.
2.    Show the effect of the above transactions on the equation.


Solution:
Accounting Equation
ASSETS
=
EQUITES

Cash
Rs.
A/C Receivable
Rs.
Repair
Supplies
Rs.
Tools
Rs.
Truck
Rs.
=
Owners’s
Equity
Rs.
Liabilities
A/P
Rs.
Balance
a
+51,650
-2,000
+1,950
+1,850
+11,275
+12,800
=
=
+63,000
-2,000
+16,525
Balance
b
+49,650
-500
+1,950
+1,850
+500
+11,275
+12,800
=
+61,000
+16,525
Balance
c
+49,150
-2,250
+1,950
+2,350
+11,275
+12,800
=
=
+61,000
+16,525
-2,250
Balance
d
+46,900
-500
+1,950
+2,350
+11,275
+12,800
=
=
+61,000
+500
+14,275
Balance
e
+47,400
+1,950
+15,000
+2,350
+11,275
+12,800
=
=
+61,500
+15,000
+14,275
Balance
f
+47,400
+3,250
+16,950
-3,250
+2,350
+11,275
+12,800
=

+76,500
+14,275
Balance
g
+50,650
-200
+13,700
+2,350
+11,275
+12,800
=
=
+76,500
-200
+14,275
Balance
+50,450
+13,700
+2,350
+11,275
+12,800
=
76,300
+14,275
Total
90,575
=
90,575
           
Problem No.4
            Show the effect of the following transactions on accounting equation:
            2004
            July.    1.         Ansar commenced business with cash Rs.55,000.
6.            Merchandise purchased for cash Rs.12,000.
7.            Sold merchandise to Akhter for Rs.5,600. Cost of these merchandise is Rs.4,480.
9.         Purchased merchandise from Ali Rs.7,500.
11.       Cash sales Rs.1,250 (Cost Rs.1,000).
15.       Returned merchandise to Ali Rs.150.
18.       Credit purchases from Munib Rs.2,500.
21.       Merchandise returned by Akhter Rs.125 (Costing Rs.100).
25.       Gave away charity merchandise worth Rs.100.
28.       Purchased from Danish merchandise worth Rs.1,800.
30.       Proprietor withdrew the merchandise worth RS.250 for personal use.
Solution:

Accounting Equation
Assets
=
EQUITES


Cash
Rs.
Merchandise
Inventory
Rs.
Account
Receivable
Rs.
=
Capital
Rs.
Account
Payable
Rs.
2004
Jul.1
6

+55,000
-12,000


+12,000


=

+55,000

Balance
7
+43,000
+12,000
-4,480
+5,600
=
=
+55,000
+1,120

Balance
9
+43,000
+7,520
+7,500
+5,600
=
56,120
+7,500
Balance
11
+43,000
+1,250
+15,020
-1,000
+5,600
=
=
+56,120
+250
+7,500
Balance
15
+44,250
+14,020
-150
+5,600
=
=
56,370
+7,500
-150
Balance
18
+44,250
+13,870
+2,500
+5,600
=
=
+56,370
+7,350
+2,500
Balance
21
+44,250
+16,370
+100
+5,600
-125
=
=
+56,370
-25
+9,850
Balance
25
+44,250
+16,470
-100
+5,475
=
=
+56,345
-100
+9,850
Balance
28
+44,250
+16,370
+1,800
+5,475
=
=
+56,245
+9,850
+1,800
Balance
30
+44,250
+18,170
-250
+5,475
=
=
+56,245
-250
+11,650
Balance
+44,250
+17,920
+5,475
=
+55,995
+11,650
Total
67,645
=
67,645
Problem No.5
            Following are the transactions of a Riaz Corporation for the month of December 2016:
1.            Started business with cash Rs.6,600.
2.            Purchased merchandise for cash Rs.1,100.
3.            Sold merchandise on account Rs.1,610. Cost of these merchandise being Rs.100.
4.            Purchased merchandise from Sultan for Rs.1,250.
5.            Purchased Bicycle for cash Rs.1,900.
6.            Sold merchandise for cash Rs.500 which costs Rs.360.
7.            Received cash Rs.520 from Account Receivable.
8.            Purchased office equipment for cash Rs.100.
9.            Drawings Rs.100.
10.         Paid Rent Rs.300.

Required:     Record the above transaction in columnar form and prove that Assets = Equities

Solution:
Riaz Corporation
Accounting Equation
As on 31.12.2016
ASSETS
=
EQUITES

Cash
Rs.

Inventory
Rs.
A/R
Rs.
Bicycle
Rs.
Office
Equipment
Rs.
=
Capital
Rs.
A/P
Rs.
1
2
+6,600
-1,100




=
+6,600

Balance
3
+5,500
+1,100
-1,000

+1,610


=
=
+6,600
+610

Balance
4
+5,500
+100
+1,250
+1,610


=
+7,240
+1,250
Balance
5
+5,500
-1,900
+1,350

+1,610

+1,900

=

+7,240
+1,250
Balance
6
+3,600
+500
+1,350
-360
+1,610
+1,900


=
=
+7,240
+140
+1,250
Balance
7
+4,100
+520
+990
+1,610
-520
+1,900

=

+7,350
+1,250
Balance
8
+4,520
-250
+990
+1,090
+1,900
+250
=

+7,350
+1,250
Balance
9
+4,370
-100
+990
+1,090
+1,900
+250
=
=
+7,350
-100
+1,250
Balance
10
+4,270
-300
+990
+1,090
+1,900
+250
=
=
+7,250
-300
+1,250
Balance
+3,970
+990
+1,090
+1,900
+250
=
+6,950
+1,250
Total
8,200
=
8,200






Problem No.  6                      Following are the transactions of Pakistan & Co.
a)            Introduced cash as capital Rs.20,000.
b)            Purchased Merchandise for cash Rs.5,000.
c)            Purchased Office Supplies for cash Rs.4,000.
d)            Merchandise costing Rs.1,400 sold to Ali for Rs.1,800 on account.
e)            Purchased merchandise from Akbar for RS.500.
f)             Received Rs.1,000 from Ali.
g)            Sold merchandise for cash Rs.800 which cost Rs.750.
h)           Paid Wages in cash Rs.400.

Required:     Record the above transaction in Equation form:

Solution:         
Accounting Equation
Assets
=
EQUITES


Cash
Rs.
Machinery
Inventory
Rs.
Office Supplies
Rs.
Acconts
Receivable
Rs.
=
Capital
Rs.
A/P
Rs.
a
b
+20,000
-5,000



=
+20,000

Balance
c
+15,000
-1,000
+5,000

+1,000

=

+20,000

Balance
d
+14,000
+5,000
-1,400
+1,000
+1,800
=
=
+20,000
+400

Balance
e
+14,000
+3,600
+500
+1,000
+1,800
=

+20,400

+500
Balance
f
+14,000
+1,000
+4,100
+1,000
+1,800
-1,000

=
+20,400
+500
Balance
g
+15,000
+800
+4,100
-750
+1,000
+800
=
=
+20,400
+50
+500
Balance
h
+15,800
-400
+3,350
+1,000
+800
=
=
+20,450
-400
+500
Balance

+15,400
+3,350
+1,000
+800
=

20,050
+500
Total
20,550
=
20,550



Problem No.7
            Imtiaz & Sons started business with cash Rs.10,000 and Machinery Rs.2,000. His other transactions for the month of June 2015 were as follows:
1.            Purchased merchandise on credit Rs.5,000.
2.            Bought equipment for cash Rs.5,000.
3.            Sold merchandise costing Rs.5,000 for Rs.8,000 on account.
4.            Received cash against Accounts Receivable Rs.5,000.
5.            Payment of creditors in full settlement of account Rs.4,900.
6.            Rs.500 were privately used by Mr.Tahir.
7.            Paid salary for the month Rs.500.

Required:     Record the above transactions in Equation form:
Solution:
Imtiaz & Sons
Accounting Equation
As on June 30. 2015

ASSETS
=
EQUITES

Cash
Rs.
Machinery
Rs.
Merchandise
Inventory
Rs.
Equipment
Rs.
Debtor
Rs.
=
Capital
Rs.
Creditor
Rs.
Balance
1
+10,000
+2,000

+5,000


=
=
+12,000

+5,000
Balance
2
+10,000
-5,000
+2,000
+5,000

+5,000

=

+12,000
+5,000
Balance
3
+5,000
+2,000
+5,000
-5,000
+5,000

+8,000
=
=
+12,000
+3,000
+5,000
Balance
4
+5,000
+5,000
+2,000


+5,000
+8,000
-5,000
=

+15,000
+5,000
Balance
5
+10,000
-4,900
+2,000

+5,000

+3,000
=
=
+15,000
+100
+5,000
-5,000
Balance
6
+5,100
-500
+2,000

+5,000
+3,000
=
=
+15,100
-500

Balance
7
+4,600
-500
+2,000

+5,000
+3,000
=
=
+14,600
-500

Balance
+4,100
+2,000

+5,000
+3,000
=
+14,100

Total
14,100
=
14,100

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