CBSE Class 11 Accountancy : Accounting Equation Notes
CBSE Class 11 Accountancy Notes : A business’s assets are always equal to its total capital and liabilities, as demonstrated by the Accounting Equation. CBSE Class 11 Accounting Equation Notes covers all the important topics and concepts as mentioned in the chapter. These are the notes for class 11 accounting equations.
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REVISION NOTES
ACCOUNTING EQUATION NOTES
MEANING
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:
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).
(i) A – L = C (ii) 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.
Example 1.
Find the capital of the business if total assets are ₹1,70,000 and its liabilities are ₹70,000. Solution:
Assets = Liabilities + Capital
So, Capital = Assets – Liabilities
Capital = 1,70,000 – 70,000 = ₹1,00,000
Example 2.
X commenced business on 1st April, 2016 with a capital of ₹50,000. On 31st March, 2017, his 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.
Solution:
Assets = Liabilities + Capital
So, Capital = Assets – Liabilities
Capital = 95,000 – 30,000 = ₹65,000
Profit = Closing Capital – Opening Capital
Profit = 65,000 – 50,000 = ₹15,000
Example 3.
Show effect of following transaction on the accounting equation:
(a) Manoj started business with Cash ₹2,30,000, Goods ₹1,00,000, 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(l) Amount withdrawn by him for personal use ₹20,000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
Solution:
| S.no | Transactions | ASSETS = | LIABILITIES + CAPITAL | ||||||
| CASH | STOCK | BUILDING | DEBTORS | Prepaid Insurance | Creditors | O/S Rent | Capital | ||
| a | Started Business | 2,30,000 | 1,00,000 | 2,00,000 | 5,30,000 | ||||
| b | Purchased goods for cash | 2,30,000 (50,000) | 1,00,000 50,000 | 2,00,000 | 5,30,000 | ||||
| c | Sold goods for cash | 1,80,000 35,000 | 1,50,000 (20,000) | 2,00,000 | 5,30,000 15,000 | ||||
| d | Purchased goods from Rahul | 2,15,000 | 1,30,000 55,000 | 2,00,000 | 55,000 | 5,45,000 | |||
| e | Sold goods to Varun | 2,15,000 | 1,85,000 (52,000) | 2,00,000 | 60,000 | 5,45,000 8,000 | |||
| f | Paid cash to Rahul | 2,15,000 (53,000) | 1,33,000 | 2,00,000 | 60,000 | 55,000 (55,000) | 5,53,000 2,000 | ||
| g | Paid salary | 1,62,000 (20,000) | 1,33,000 | 2,00,000 | 60,000 | 5,55,000 (20,000) | |||
| h | Received cash from Varun | 142,000 59,000 | 1,33,000 | 2,00,000 | 60,000 (60,000) | 5,35,000 (1,000) | |||
| i | O/S Rent | 2,01,000 | 1,33,000 | 2,00,000 | 3,000 | 5,34,000 (3,000) | |||
| j | Prepaid Insurance | 2,01,000 (2,000) | 1,33,000 | 2,00,000 | 2,000 | 3,000 | 5,31,000 | ||
| k | Commission received | 1,99,000 13,000 | 1,33,000 | 2,00,000 | 2,000 | 3,000 | 5,31,000 13,000 | ||
| l | Drawings | 2,12,000 (20,000) | 1,33,000 | 2,00,000 | 2,000 | 3,000 | 5,44,000 (20,000) | ||
| m | Depreciation on building | 1,92,000 | 1,33,000 | 2,00,000 (10,000) | 2,000 | 3,000 | 5,24,000 (10,000) | ||
| n | Fresh capital | 1,92,000 50,000 | 1,33,000 | 1,90,000 | 2,000 | 3,000 | 5,14,000 50,000 | ||
| o | Purchased goods from Rakhi | 2,42,000 | 1,33,000 10,000 | 1,90,000 | 2,000 | 10,000 | 3,000 | 5,64,000 | |
| 2,42,000 | 1,43,000 | 1,90,000 | 2,000 | 10,000 | 3,000 | 5,64,000 | |||
| 5,77,000 | 5,77,000 | ||||||||
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