Accounting equation signifies that assets of a business are always equal to the total of its liabilities and capital The equation is expressed as follows- Assets = Liabilities + Capital The fundamental equation gives the foundation to the Double Entry Book-keeping system Following are the equations- Capital = Total Assets - Outsider's Liabilities Assets = Capital + Outsiders Liabilities 36 Assets = Liabilities Example:- 1 Rahul started business with Cash 50,000 The accounting equation will be- Assets = Capital + Liabilities Cash = Capital + Liabilities 350,000 = 350,000 + 0 350,000 = 350,000 2 + Rahul purchased Machinery from H.P. Co. on credit of 10,000 The accounting equation will be- Assets = Capital Liabilities Cash + Machinery = Capital + Sundry Creditors 350,000 + 10,000 = 350,000 + 10,000 360,000 = 360,000 3. Rahul purchased goods +20,000, The accounting equation will be- Assets - Capital + Liabilities Cash + Machinery + Stock = Capital+ Sundry Creditors Old Bal. 50,000+ 10,000+ 0 50,000 + 10,000 New Transaction 330,000+ 310,000+ 320,000 = 750,000 + 10,000 New Balance 30,000 + 10,000+ 320,000 350.000 + 10,000 360.000 160,000 = Illustration-1 Show the accounting equation for the following transactions. 1) Rohit Sharma started business with cash 350,000 2) Purchased goods from Dhoni on credit 10,000 3) Sold goods to Virat on credit 320,000 4) Received Dividend 500, 5) Paid for Advertisement 500