# Use accounting equation to show the effect of the following transactions of M/s Royal Traders:     Rs (a) Started business with cash 1,20,000 (b) Purchased goods for cash  10,000 (c) Rent received 5,000 (d) Salary outstanding 2,000 (e) Prepaid Insurance 1,000 (f) Received interest  700 (g) Sold goods for cash (costing Rs 5,000)  7,000 (h) Goods destroyed by fire  500

 S.No. Explanation Assets = Liabilities + Capital Cash + Stock + Prepaid Expenses Outstanding Expenses (a) Increase in cash 1,20,000 Increase in capital 1,20,000 1,20,000 = NIL + 1,20,000 (b) Increase in stock 10,000 Increase in cash (10,000) = 1,10,000 + 10,000 = NIL + 1,20,000 (c) Increase in cash 5,000 Increase in capital (Profit) 5,000 1,15,000 + 10,000 = NIL + 1,25,000 (d) Increase in outstanding expenses = 2,000 Decrease in capital (Expense) (2,000) 1,15,000 + 10,000 = 2,000 + 1,23,000 (e) Increase in prepaid expenses 1,000 Decrease in cash (1,000) 1,14,000 + 10,000 + 1,000 = 2,000 + 1,23,000 (f) Increase in cash 700 Increase in capital (Profit) 700 1,14,700 + 10,000 + 1,000 = 2,000 + 1,23,700 (g) Increase in cash 7,000 Decrease in stock (5,000) Increase in capital (Profit) 2,000 1,21,700 + 5,000 + 1,000 = 2,000 + 1,25,700 (h) Decrease in stock (500) Decrease in capital (Loss) = (500) 1,21,700 + 4,500 + 1,000 = 2,000 + 1,25,200

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