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INDIAN SCHOOL DARSAIT
DEPARTMENT OF COMMERCE
ACCOUNTANCY XI (055)
Worksheet No: 5
Chapter No: 5 -Accounting Equation
Resource Person: Dr. Femina S R Date: 7/5/24
Name and Class of Student:
Meaning of Accounting Equation
Accounting equation signifies that the assets of a business are always equal to the total of its liabilities
and capital. The equation reads as follows:
A=C+L
Where,
A= Assets
L= Liabilities
C= Capital
The above equation can also be presented in the following forms as its derivatives to enable the
determination of missing figures of Capital(C) or Liabilities (L).
A–L=C
A–C=L
Since, the accounting equation depicts the fundamental relationship among the components of the
balance sheet, it is also called the Balance Sheet Equation. As the name suggests, the balance sheet is
a statement of assets, liabilities and capital
Illustration 1. Find the capital of the business if total assets are ₹ 1, 50,000 & liabilities are ₹ 70,000
.
Illustration 2. Aryan Ltd. commenced business on 1st April, 2023 with a capital of ₹ 50,000. On 31st
March 2024, its assets were worth ₹ 95,000 and liabilities of ₹ 30,000. Find the capital at the end of
the year and profit earned during the year.
Illustration 3.
Prepare the Accounting Equation on the basis of the following: (₹)
1. Ramesh commenced business with cash. 1,50,000
2. Furniture purchased for cash. 20,000
3. Purchased goods from Manish on credit. 25,000
4. Sold goods (costing ₹ 10,000) to Mohini for cash. 14,000
5. Additional capital introduced. 20,000
6. Commission received in advance. 2,000
7. Paid to creditor (Manish) in full settlement. 22,500
8. Sold goods (costing ₹ 15,000) for ₹ 18,000 out of which ₹ 5,000 received in cash.
9. Depreciation on furniture provided @ 10%.
ISD/XI/ACCOUNTANCY 24-25
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Effects of Adjustment Transactions on Accounting Equation
Illustration 4. Show effect of following transaction on the accounting equation:
(a) Manoj started business with Cash ₹ 2, 30,000; Goods ₹ 1, 00,000 and Building ₹ 2, 00,000.
(b) He purchased goods for cash ₹ 50,000.
(c) He sold goods (costing ₹ 20,000) ₹ 35,000.
(d) He purchased goods from Rahul ₹ 55,000.
(e) He sold goods to Varun (Costing ₹ 52,000) ₹ 60,000.
(f) He paid cash to Rahul in full settlement ₹ 53,000.
(g) Salary paid by him ₹ 20,000.
(h) Received cash from Varun in full settlement ₹ 59,000.
(i) Rent outstanding ₹ 3,000.
(j) Prepaid Insurance ₹ 2,000.
(k) Commission received by him ₹ 13, 000.
(l) Amount withdrawn by him for personal use ₹ 20,000.
(m) Depreciation charge on building ₹ 10,000.
(n) Fresh capital invested ₹ 50,000.
(o) Purchased goods from Rakhi ₹ 10,000.
Illustration 5. How are the following items dealt in Accounting Equation?
(i) Interest due but not received ₹ 5,000.
(ii) Rent received in advance ₹ 10,000.
(iii) Insurance premium paid in advance ₹ 15,000.
(iv) Salaries due but not paid ₹ 20,000.
Illustration 6. Give an example for each of the following types of transactions:
1. Increase in one asset, decrease in another asset.
2. Increase in asset, increase in liability.
3. Increase in asset, increase in owner‘s capital.
4. Decrease in asset, decrease in liability.
5. Decrease in asset, decrease in owner‘s capital.
6. Decrease in liabilities, increase in owner‘s capital.
7. Increase in one liability, decrease in another liability.
8. Increase in liabilities, decrease in owner‘s capital.
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Calculation of Total Assets, Capital and Other Variables:
Illustration: 7
From the following information calculate total asset of the business
Capital 4,50,000; Creditors: 3,50,000; Revenue earned during the period: 7,00,000; Expenses incurred
during the period 1,50,000
Illustration: 8
X commenced business on 1st April 2023 with a capital of Rs.40,000. On 31st March 2024 his assets were
Rs.60,000 and liabilities were Rs.20,000. Find his closing capital and profits earned during the year.
Illustration: 9
On 31st March 2024 the total assets and external liabilities were Rs.1,00,000 and Rs.3000 respectively.
During the year, the proprietor had introduced additional capital of Rs.10,000 and had withdrawn Rs.6,000
for personal use. He made a profit of Rs.10,000 during the year. Calculate the capital as on 1 st April 2023.
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