DK Goel Solutions Class 11 Accountancy Chapter 6 Accounting Equations

Short Answer Question

Question 1. 

Solution 1: The two basic purposes of the accounting equation are.

(i) The accounting equation is always equal from both sides debit and credit. It shows the accuracy of recording of a financial transaction.

(ii) It helps in preparation of the final accounts.

Question 2.

Solution 2:  Below are the correct equations:-

I. Assets = Capital + Liabilities

IV. Capital = Assets – Liabilities

VIII. Liabilities = Assets – Capital

Question 3. 

Solution 3:

Total Assets = Cash + Debtors + Machinery + Stock

= Rs. 5,000 + Rs. 20,000 + Rs. 60,000 + Rs. 25,000

= Rs. 1,10,000

Capital = Rs. 75,000

Liabilities = Assets - Capital

Liabilities = Rs. 1,10,000 – Rs. 75,000

 = Rs. 35,000

Question 4.

Solution 4:

(a)     Increase in revenue                                                            Credit

(b)    Decrease in expense                                                           Credit

(c)     Record drawing                                                         Debit in Capital Account

(d)    Record the fresh capital introduced by owner              Credit in Capital Account

Question 5. 

Solution 5:

(i) A decrease in Asset will be the credit.

(ii) A Decrease in Liability will be the debit.

Question 6.

Solution 6:

(i) Decrease the assets and decrease the capital – Cash withdraw for personal use Drawings.

(ii) Increase the assets and increase the liabilities – Purchase an asset on credit basis.

(iii) Increase the assets and decrease another asset – Sale or purchases of stock on cash basis.

(iv) Decrease the assets and decrease the liabilities – Paid amount to creditors.

Question 7.

Solution 7:

(i) Increases Stock by Rs. 20,000 on assets side and Increases Creditors by Rs. 20,000 on liabilities side.

(ii) Increase Cash by Rs. 10,000 on assets side, decrease Stock by Rs. 8,000 on assets side and increase Capital by Rs. 2,000.

(iii) Decrease Cash by Rs. 500 on assets side and decrease Capital by Rs. 500.

(iv) Decrease Cash by Rs. 2,000 on assets side and decrease Capital by Rs. 2,000.

(v) Decrease Cash by Rs. 2,000 Cash  and decrease creditor by Rs. 2,000 on liabilities side.

Question 8. 

Solution 8:

Liabilities = Assets – Capital (Net worth)

Creditors = Rs. 2,00,000 - Rs. 1,50,000                          (We know that creditors are liability.)

Creditors = Rs. 50,000

Question 9. 

Solution 9:

Closing Capital = Closing Assets - Closing liabilities

= Rs. 7,80,000 – Rs. 70,000

= Rs. 7,10,000

Profit = Closing Capital – Opening Capital

= Rs. 7,10,000 - Rs.  5,00,000

= Rs. 2,10,000

Question 10.

Solution 10:

Question 11.

Solution 11:

Very Short Question

Question 1. 

Solution 1: An Accounting Equation is a mathematical expression which shows that the assets and liabilities of a firm are equal. An Accounting Equation is based on the dual aspect concept of accounting meaning; every transaction has two aspects- debit and credit. It holds that for every debit there is a credit of equal amount and vice versa.

Question 2. 

Solution  2: The fundamental accounting equation is:-

Assets = Liabilities + Capital

Question 3. 

Solution  3: Capital of the firm = Rs. 5,00,000

Liabilities = Rs. 2,00,000

Assets = Liabilities + Capital

= Rs. 5,00,000 + Rs. 2,00,000

= Rs. 7,00,000

Hence, the Total Assets will be Rs. 7,00,000

Question 4. 

Solution  4: Liabilities = Assets – Capital (Net worth)

Creditors = Rs. 10,00,000 - Rs. 4,00,000 (We know that creditors are liability)

Creditors = Rs. 6,00,000

Question 5. 

Solution 5: Closing Capital = Closing Assets - Closing liabilities

= Rs. 8,00,000 – Rs. 50,000

= Rs. 7,50,000

Profit = Closing Capital – Opening Capital

= Rs. 7,50,000 - Rs. 6,00,000

= Rs. 1,50,000

Question 6.

Solution  6: Debit is the output of increase in assets and decrease in liabilities. Debits are the balance of credits these are the opposing each other. When an amount is entered on the left-hand side of an account it is called debit.

Question 7. 

Solution  7: Credit is the output of decrease in assets and increase in liabilities. Credits are the balance of debits these are the opposing each other. When an amount is entered on the right-hand side of an account it is called credit.

Question 8. 

Solution  8: The rules of credit and debit same for both capital and liabilities because as per business entity concept the owner and business are the different entities. It is assumes that the owner of the business are creditors to the business firm and business firm is label to pay their owners.

Question 9. 

Solution  9: Increase in the capital is recoded on the Credit side.

Numerical Questions:- 

Question 1.

Solution 1:           

Working Note:-

(i) In transaction 6 goods costing Rs. 40,000 sold on 20% profit (40,000 × 20%) = 40,000 × = Rs. 8,000.

Selling price of goods = 40,000 + 8,000 = Rs. 48,000.

(ii) Total Assets = Cash + Furniture + Stock

= 1,22,300 + 5,000 +16,000

= 1,43,300

Liabilities = Creditors

= 36,000

Capital = Assets – Liabilities

= 1,43,300 – 36,000

= 1,07,000

Point of Knowledge:-

Accounting equation is based on the dual concept of accounting, according to which, every transaction has two aspects namely Debit and Credit. It means that every transaction in accounting affects both Debit (Dr.) and Credit (Cr.)

Question 2. 

Solution 2: (A)

Balance Sheet

Working Note:-

(i) In transaction 4 goods costing Rs. 500 sold at Rs. 700. So, the profit will be Rs. 700 - Rs. 500 = Rs. 200 it will rise our capital by Rs. 200.

(ii) Total Assets = Cash + Furniture + Stock

= 48,100 + 500 +4,500

= 53,100

Liabilities = Creditors

= 3,600

Capital = Assets – Liabilities

= 53,100 – 3,600

= 49,500

Point of Knowledge:-

Accounting equation thus refers to an equation in which total assets are always equal to the total Liabilities (i.e. Capital + Liabilities).

Question 2.

Solution 2 (B):

Balance Sheet

Working Note:-

(i) In transaction 5 goods costing Rs. 60,000 sold at Rs. 80,000. So, the profit will be Rs. 80,000 - Rs. 60,000 = Rs. 20,000 it will rise our capital by Rs. 20,000. 

(ii) Total Assets = Cash +Typewriter + Stock + Debtors

= 54,300 + 8,000 + 30,000 + 80,000

= 1,72,300 

Liabilities = Creditors

= 40,000 

Capital = Assets – Liabilities

= 1,72,300 – 40,000

= 1,32,300 

Point of Knowledge:-

Accounting equation thus refers to an equation in which total assets are always equal to the total Liabilities (i.e. Capital + Liabilities).

Question 3.

Solution 3:

Working Note:-

(i) In transaction 3 the

Cost of goods sold is Rs. 40,000. Sold on cash 20% of profit Rs. 40,000 ×20/100 = Rs. 8,000.

Selling price = Rs. 40,000 + Rs. 8,000 = Rs. 48,000.

Cost of goods sold is Rs. 72,000. Sold on cash 20% of profit Rs. 72,000 ×25/100 = Rs. 18,000.

Selling price = Rs. 72,000 + Rs. 18,000 = Rs. 90,000.

Total cost of goods sold = Rs. 40,000 + 72,000 = 1,12,000.

(ii) Total Assets = Cash + Stock + Debtors

= 1,83,000 + 98,000 + 90,000

= 3,71,000

Liabilities = Creditors

= 1,50,000

Capital = Assets – Liabilities

= 3,71,000 – 1,50,000

= 2,21,000

Point of Knowledge:-

The accounting equation is always equal from both sides debit and credit. It shows the accuracy of recording of a financial transaction.

Question 4.

Solution 4:

Working Note:-

(i) In transaction 4 the cost of goods Rs. 20,000 sold at Rs. 26,000. So, the profit will be Rs. 26,000 - Rs. 20,000 = Rs. 6,000.

(ii) Total Assets = Cash + Furniture + Stock

= 2,39,000 + 35,000 + 20,000

= 2,94,000

Liabilities = Creditors

= 40,000

Capital = Assets – Liabilities

= 2,94,000 – 40,000

= 2,54,000

Point of Knowledge:-

The accounting equation is always equal from both sides debit and credit. It shows the accuracy of recording of a financial transaction.

Question 5.

Solution 5:

Working Note:-

(i) In transaction 3 the cost of goods Rs. 17,500 sold at Rs. 20,000. So, the profit will be Rs. 17,500 - Rs. 20,000 = Rs. 2,500.

(ii) Total Assets = Cash + Stock + Debtors + Furniture

= 1,32,500 + 32,500 + 0 + 10,000

= 1,75,000

Liabilities = Creditors

= 0

Capital = Assets – Liabilities

= 1,75,000 – 0

= 1,75,000

Point of Knowledge:-

Every transaction has two aspects- debit and credit. It holds that for every debit there is a credit of equal amount and vice versa.

Question 6.

Solution 6:

Working Note:-

(i) In transaction 3 the cost of goods Rs. 24,000 sold at Rs. 40,000. So, the profit will be Rs. 17,500 - Rs. 20,000 = Rs. 16,000.

(ii) Total Assets = Cash + Stock + Debtors + Prepaid Salary

= 1,52,000 + 28,000 + 50,000 + 3,000

= 2,33,000

Liabilities = Creditors + Outstanding Rent

= 30,000 + 2,000

= 32,000

Capital = Assets – Liabilities

= 2,33,000 – 32,000

= 2,01,000

Point of Knowledge:-

Every transaction has two aspects- debit and credit. It holds that for every debit there is a credit of equal amount and vice versa.

Question 7.

Solution 7: 

Working Note:-

(i) Total Assets = Cash + Stock + Prepaid Insurance

= 1,14,700 + 10,000 + 1,000 + 2,000

= 1,25,700

Liabilities = Outstanding Salary

= 2,000

= 2,000

Capital = Assets – Liabilities

= 1,25,700 – 2,000

= 1,23,700

Point of Knowledge:-

Outstanding transactions are the liability for the business firm and prepaid transaction are the assets for the business firm.

Question 8.

Solution 8: (A)

Working Note:-

(i) In transaction 4 the cost of goods Rs. 50,000 sold at Rs. 25% of profit. So, the profit will be Rs. 50,000 × 25/100 = Rs. 12,500. Selling price = Rs. 50,000 + Rs. 12,500 = Rs. 62,500. In which Cash Sale = 27,500 and Credit Sale = Rs. 35,000.

(ii) Total Assets = Cash + Stock + Debtors

= 50,500 + 49,000 + 35,000

= 1,34,500

Liabilities = Creditors

= 44,000

= 44,000

Capital = Assets – Liabilities

= 1,34,500 – 44,000

= 90,500

Point of Knowledge:-

Every transaction has two aspects- debit and credit. It holds that for every debit there is a credit of equal amount and vice versa.

Question 8.

Solution 8: (B)

Balance Sheet

Working Note:-

(i) In transaction 3 the cost of goods Rs. 75,000 sold at Rs. 100/3% of profit. So, the profit will be Rs. 75,000 × 100/3% = Rs. 25,000. Selling price = Rs. 75,000 + Rs. 25,000 = Rs. 1,00,000. In which Cash Sale = 50,000 and Credit Sale = Rs. 50,000.

(ii) Total Assets = Cash + Stock + Debtors

= 1,32,500 + 15,000 + 62,000

= 2,09,500

Liabilities = Creditors

= 40,000

= 40,000

Capital = Assets – Liabilities

= 2,09,500 – 40,000

= 1,69,500

Point of Knowledge:-

Every transaction has two aspects- debit and credit. It holds that for every debit there is a credit of equal amount and vice versa.

Question 9. 

Solution  9: We know that

Assets = Liabilities + Capital

Assets = Rs. 20,000 + Rs. 1,20,000

Assets = Rs. 1,40,000

Point of Knowledge:-

The formulas using to calculate Assets, Liabilities and Capital are:-

Assets = Liabilities + Capital

Liabilities = Assets – Capital

Capital = Assets – Liabilities

Question 10. 

Solution  10 :  Assets = Rs. 1,30,000

Capital = Rs. 80,000

We know that

Liabilities = Assets – Capital

Liabilities = Rs. 1,30,000 – Rs. 80,000

Liabilities = Rs. 50,000

Point of Knowledge:-

The accounting equation is always equal from both sides debit and credit. It shows the accuracy of recording of a financial transaction.

Question 11. 

Solution  11: Opening Capital = Rs. 3,00,000

Assets = Rs. 5,00,000

Liabilities = Rs. 1,00,000

Calculation of Closing Capital

Closing Capital = Assets – Liabilities

Closing Capital = Rs. 5,00,000 – Rs. 1,00,000

Closing Capital = Rs. 4,00,000

Calculation of Profit

Profit = Closing Capital – Opening Capital

Profit = Rs. 4,00,000 – Rs. 3,00,000

Profit = Rs. 1,00,000

Point of Knowledge:-

Closing Capital = Opening Capital + Additional Capital + Profit - Drawings

Question 12. 

Solution 12:

(A) Opening Capital = Rs. 5,00,000

Assets = Rs. 8,00,000

Liabilities (Loan) = Rs. 1,00,000

Calculation of Closing Capital

Closing Capital = Assets – Liabilities

Closing Capital = Rs. 8,00,000 – Rs. 1,00,000

Closing Capital = Rs. 7,00,000

Calculation of Profit

Profit = Closing Capital – Opening Capital

Profit = Rs. 7,00,000 – Rs. 5,00,000

Profit = Rs. 2,00,000

Working Capital:-

(i) It is assumed that loan borrowed from Citi Bank has not been paid till the end of the accounting year.

Point of Knowledge:-

(i) Closing Capital = Opening Capital + Additional Capital + Profit – Drawings

Question 12. 

Solution 12:

(B) Opening Capital = Rs. 5,00,000

Assets = Rs. 8,00,000

Liabilities (Loan) = Rs. 1,00,000

Calculation of Closing Capital

Closing Capital = Assets – Liabilities

Closing Capital = Rs. 8,00,000 – Rs. 1,00,000

Closing Capital = Rs. 7,00,000

Calculation of Profit

Closing Capital = Opening Capital + Additional Capital + Profit – Drawings

Rs. 7,00,000 = Rs. 5,00,000 + Rs. 40,000 + Profit – Rs. 10,000

Rs. 7,00,000 = Rs. 5,30,000 + Profit

Rs. 7,00,000 - Rs. 5,30,000 = Profit

Profit = Rs. 7,00,000 - Rs. 5,30,000

Profit = Rs. 1,70,000

Point of Knowledge:-

(i) Closing Capital = Opening Capital + Additional Capital + Profit – Drawings

Question 13.

Solution 13: 

1.) Transaction - Increase in an asset and a liability.

Example :- Goods purchases on credit basis.

2.) Transaction - Decrease in an asset and a liability.

Example :- Amount paid to creditors.

3.) Transaction - Increase in assets and capital.

Example :- Additional capital introduce in the business.

4.) Decrease in assets and capital.

Example :- Amount withdraw by proprietor.

Question 14.

 Solution 14: 

Question 15. On which side the decrease in the following accounts will be recorded? Also mention the nature of account:−

1. Cash Bank
2. Bank Overdraft
3. Rent Paid
4. Outstanding Rent
5. Prepaid Insurance
6. Manoj, Proprietor of the business

Solution 15:

Question 16.

Solution 16:

Question 17.

Solution 17:                                                                                                    Machinery Account

Working Note:-

Increase in assets will be debit and decrease In assets will be credited. Here Machinery is an asset.

Question 18.

Solution 18:

Raghubir’s Account

Working Note:-

Decrease in liabilities will be debit and increase in liabilities will be credited. Here Raghubir is a creditor (liability).

Question 19.

Solution 19:

Point of Knowledge:-

1. Increase in asset will be debited and decrease will be credited.
2. Increase in the liabilities will be credited and decrease will be debited.
3. Increase in the capital will be credited and decrease will be debited.
4. Increase in the revenue or income will be credited and decrease will be debited.
5. Increase in expenses and losses will be debited and decrease will be credited.

Question 21. 

Solution 21:

Working Note:-

(i) In transaction 2 goods costing Rs. 50,000 sold at 25% profit on cost = Rs. 50,000 ×25/100 = 12,500.

(ii) Total Assets = Cash + Stock + Bank

= 22,500 + 2,80,000 + 1,80,000

= 4,82,500

Liabilities = Creditors

= 80,000

Capital = Assets – Liabilities

= 4,82,500 – 80,000

= 4,02,500

Point of Knowledge:-

1. Increase in asset will be debited and decrease will be credited.
2. Increase in the liabilities will be credited and decrease will be debited.

Question 22.

Solution 22:

Working Note:-

(i) Amount paid to creditor Rs. 17,500 in full settlement instant of Rs. 18,000. Here the gap of Rs. 500 treated as discount received. 

(ii) Total Assets = Cash + Stock + Machinery

= 32,500 + 18,000 + 20,000

= 70,500

Liabilities = Creditors

= 0

Capital = Assets – Liabilities

= 70,500 – 0

= 70,500

Point of Knowledge:-

The rules of credit and debit same for both capital and liabilities because as per business entity concept the owner and business are the different entities. It is assumes that the owner of the business are creditors to the business firm and business firm is label to pay their owners.

Question 23. 

Solution 23:

Working Note:-

(i) In transaction 3 goods costing Rs. 40,000 sold at Rs. 55,000. Profit = Selling price – Cost Price

Profit = Rs. 55,000 – Rs. 40,000

Profit = Rs. 15,000

(ii) Total Assets      =     Cash + Stock

                        =     Rs. 65,000 + Rs. 40,000

                        =     Rs. 1,05,000

Liabilities         =     Creditors + Outstanding Rent

                        =     Rs. 20,000 + Rs. 2,000

                        =     Rs. 22,000

Capital              =     Assets – Liabilities

                        =     Rs. 1,05,000 – Rs. 22,000

                        =     Rs. 83,000

Point of Knowledge:-

In the accounting equation if the capital shows negative figure then it is drawings.

Question 24. 

Solution 24: 

Working Note:-

(i) In transaction 3 goods costing Rs. 3,000 sold at Rs. 4,000. Profit = Selling price – Cost Price

Profit = Rs. 4,000 – Rs. 3,000

Profit = Rs. 1,000

(ii) Total Assets = Cash + Stock + Debtors + Furniture

= Rs. 51,500 + Rs. 6,000 + Rs. 15,000 + Rs. 500

= Rs. 73,000

Liabilities = Creditors

= Rs. 4,000

Capital = Assets – Liabilities

= Rs. 73,000 – Rs. 4,000

= Rs. 69,000

Point of Knowledge:-

Accounting equation thus refers to an equation in which total assets are always equal to the total Liabilities (i.e. Capital + Liabilities).

Question 25.

Solution 25:

Working Note:-

(i) In transaction 3 goods costing Rs. 50,000 sold at Rs. 60,000. Profit = Selling price – Cost Price

Profit = Rs. 60,000 – Rs. 50,000

Profit = Rs. 10,000

(ii) 1/3 part of total Goods = Rs. 60,000 ×1/3= Rs. 20,000

Rs. 60,000 × 1/3 = Rs. 20,000

Add: Profit (Rs. 20,000 ×20%) = Rs. 4,000

Selling price = Rs. 20,000 + Rs. 4,000 = Rs. 24,000

Cash Received = 24,000 × 50% = Rs. 12,000

Credit Sales = 24,000 × 50% = Rs. 12,000

(iii)

Total Assets = Cash + Stock + Typewriter + Debtors

= Rs. 79,500 + Rs. 15,000 + Rs. 15,000 + Rs. 12,000

= Rs. 1,21,500

Liabilities = Creditors

= Rs. 10,000

Capital = Assets – Liabilities

= Rs. 1,21,500 – Rs. 10,000

= Rs. 1,11,500

Point of Knowledge:-

Traditional or English rules of accounting:-

(1) Personal Account: Debit the receiver and credit the giver.

(2) Real Account: Debit what comes in and credit what goes out.

(3) Nominal Account: Debit all expenses and losses credit all incomes and gains.