b1 Assets Cash + Furniture + Stock Old Equation 90,000 + 10,000 0 Transaction 0 + 0 + 25,000 + Liabilities + 0 25,000 + Capital 1,00,000 0 + + + New Equation 90,000 + 10,000 25,000 25,000 1,00,000 Transaction 4: Salary Paid 35,000 This transaction will reduce the asset in the form of cash and the payment of expense will reduce the profit, which ultimately decreases the capital. This transaction will have the following effect on the accounting equation: Assets Cash + Furniture + Stock Liabilities Capital Old Equation 90,000 + 10,000 + 25,000 = 25,000 + 1,00,000 Transaction (m) 5,000+ 5,000 + 0 + 0 0 + New Equation 85,000 + 10,000 + 25,000 25,000 + 95000 Illustration 2: Show the Accounting Equation on the basis of the following transactions and prepare Balance Sheet on the basis of the last new equation: 1. Started Business with cash 1,50,000 2. Purchased goods for cash 60,000 3. Purchased furniture for cash 37,500 4. Purchased goods on credit 30,000 5. Sold goods for cash 15,000 6. Sold goods on credit cost price 60,000 75,000 7. Received commission 1,500 8. Paid salary 1,500 9. Cash withdrawn for personal use 15,000 10. Paid to creditors 15,000