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According to Accounting Equation Approach

  1. Assets Account---- 2, 5, 6, 8, 19, 20, 28, 30, 32, 34, 35
  2. Liabilities Account----21, 31, 33, 36
  3. Capital Account----1, 26, 37,
  4. Revenue Account----11, 18, 22, 27, 39
  5. Expenses Account----3, 4, 7, 9, 10, 12, 13, 14, 15, 16, 17, 23, 24, 25, 29, 38

Note

  • Debit in relation to Assets A/c’s and Expenses A/c’s represents an increase but in relation to Liabilities A/c’s, Capital A/c’s and Revenue A/c’s represents a decrease.
  • Credit in relation to Assets A/c’s and Expenses A/c’s represents a decrease but in relation to Liabilities A/c’s, Capital A/c’s and Revenue A/c’s represents an increase.


Illustration 2

Analyze the following transactions according to the accounting equation approach and the traditional approach
 

a) Mr. A started his business with cash

b) Borrowed from Mahesh 

c) Purchased furniture

d) Purchased furniture from Mohan on credit

e) Purchased goods for cash

f) Purchased goods from Ram on credit

g) Returned goods to Ram

h) Sold goods for cash

I) Sold goods to B on credit

j) B returned goods

k) Received cash from B

l) Paid cash to Ram

m) Deposited into the bank

 

 

Solution
 

Transaction

Accounts involved

Traditional

Approach

Accounting

equation

approach

Effect

Debited or

Credited

 

(a)

Cash A/c

Capital A/c

Real

Personal

Asset

Capital

Increased

Increased

Debit

Credit

(b)

Cash A/c

Loan from Mahesh A/c

Real

Personal

Asset

Liability

Increased

Increased

Debit

Credit

(c)

Furniture A/c

Cash A/c

Real

Real

Asset

Capital

Increased

Increased

Credit

Debit

(d)

Furniture A/c

Mohan’s A/c

Real

Personal

Asset

Liability

Increased

Increased

Debit

Credit

(e)

Purchases A/c

Cash A/c

Real

Personal

Asset

Asset

Increased

Decreased

Debit

Credit

(f)

Purchases A/c

Ram’s A/c

Nominal

Real

Asset

Liability

Increased

Increased

Debit

Credit

(g)

Ram’s A/c

Purchase returns A/c

Nominal

Personal

Expense

Asset

 

Decreased

Decreased

Debit

Credit

(h)

Cash A/c

Sales A/c

Personal

Nominal

Expense

Liability

Increased

Increased

Debit

Credit

(i)

B’s A/c

Sales A/c

Real

Nominal

Liability

Revenue

Increased

Increased

Debit

Credit

(j)

Sales returns A/c

B’s A/c

Personal

Nominal

Expense

Asset

 

Decreased

Decreased

Debit

Credit

(k)

Cash A/c

B’s A/c

Nominal

Personal

Asset

Asset

Increased

Decreased

Debit

Credit

(l)

Ram’s A/c

Cash A/c

Real

Personal

Liability Asset

Decreased

Decreased

Debit

Credit

(m)

Bank A/c

Cash A/c

Personal

Real

Asset

Asset

Increased

Decreased

Debit

Credit





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