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Capital and Liabilities RA Assets Rs Capital 10.000 Cash 10,000 Transaction 2. A purchases furniture for cash worth Rs 2,000. The position of his business
Capital and Liabilities RA Assets Rs Capital 10.000 Cash 10,000 Transaction 2. A purchases furniture for cash worth Rs 2,000. The position of his business will be as follows: Capital and Liabilities Assets Rs Capital 10,000 || Cash 8,000 Furniture 2.000 10.000 10,000 R Transaction 3. A purchases cotton bales from B at Rs 5,000 on credit. He sells for cash cotton bales costing Rs 3,000 for those of Rs 4.000 and Rs 1,000 for Rs 1,500 on credit to P. As a result of these transactions the business makes a profit of Rs 1,500 (ie, Rs 5,500-Rs 4,000). This will increase A's Capital from Rs 10,000 to Rs 11,500. The business will have a liability of Rs 5,000 to B and two more assets in the form of a debtor P for Rs 1,500 and stock of cotton bales of Rs 1,000. The position of his business will now be as follows: Capital and Liabilities Assets Rs Creditor (B) 5,000 Cash (R$ 8,000 + 4,000) 12.000 Capital 11.500 Stock of Cotton Bales 1.000 Debtor (P) 1,500 Furniture 2.000 16.500 16,500 RA Transaction 4. A withdraws cash of Rs 1,000 and cotton bales of Rs 200 for his personal use. The amount and the goods withdrawn will decrease relevant assets and A's capital. The position will be now as follows: Capital and Liabilities Assers Rs Creditor (B) 5,000|| Cash (R$ 12,000 - Rs 1,000) R) 11,000 Capital Stock of Cotton Bales 800 (Rs 11.500 - Rs 1.200) 10,300 || Debtor (P) 1,500 Furniture 2.000 15.300 15.300 34 The above type of statement showing the financial position of a business on a certain date is termed as the balance sheet. The result of applying the system of double entry may be summarised in the form of the following rule: **For every debit there must be equivalent credit and vice versa." The rules of Debit and Credit are explained in the next Unit. Illustration 2.1. Anil had the following transactions. Use an accounting equation to show their effect on his assets, liabilities and capital: 1. Started business with cash 2. Purchased goods on credit 3. Purchased goods for cash 4. Purchased furniture 5. Withdrew for personal use 6. Paid rent 7. Received Interest 8. Sold goods costing Rs 50 on credit for 9. Paid to creditors 10. Paid for salaries 11. Further capital invested 12. Borrowed from P Rs 5.000 400 100 50 70 20 10 70 40 20 1,000 1.000
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