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.
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