Accounting Equation

Sample Questions – Accounting Equation

Q 1: Started business with cash =$ 200,000; Purchased goods = $100,000 for cash. Paid rent for the year = $24,000. During the first quarter sold 60% of goods for $100,000. Find equity at the end quarter.

Answer:

Balance Sheet			IS		CFS
Source of Funds	Opening BS	Closing BS	Income		Receipts
Capital	200000	200000	Goods Sold	100000	Opening Cash Balance	100000
Retained Profit		34000			Goods Sold	100000
Total	200000	234000	Total	100000	Total	200000
Application of Funds			Expense		Payment
Cash in Hand	100000	176000	Rent Paid	6000	Rent Paid	24000
Goods	100000	40000	COGS	60000
Advance Rent		18000
Total	200000	234000	Total	66000	Total	24000
			Profit	34000	CIH (Cash in Hand)	176000

Q 2: Sales per month = 8000; 50% of sales on credit Expenses per month = 2000. Expenses are paid in the same month. Find profit and cash for the first quarter.

Answer:

Balance Sheet			IS		CFS
Source of Funds	Opening BS	Closing BS	Income		Receipts
			Sales	24000	Opening Cash Balance	0
Retained Profit		18000			Sales	12000
Total	0	18000	Total	24000	Total	12000
Application of Funds			Expense		Payment
Cash in Hand		6000	Expense	6000	Expense Paid	6000
Debtor Sales		12000
Total	0	18000	Total	6000	Total	6000
			Profit	18000	CIH (Cash in Hand)	6000

Q 3: Started business with cash =50,000; Purchased stock of goods on credit from XYltd. = 30,000; Sold all stock for 50,000. Find total sources at the end of the month.

Answer:

Balance Sheet			IS		CFS
Source of Funds	Opening BS	Closing BS	Income		Receipts
Capital	50000	50000	Goods Sold	50000	Opening Cash Balance	50000
Retained Profit		20000			Goods Sold	50000
Creditor (XY ltd)	30000	30000
Total	80000	100000	Total	50000	Total	100000
Application of Funds			Expense		Payment
Cash in Hand	50000	100000
Goods	30000	0	COGS	30000
Total	80000	100000	Total	30000	Total	0
			Profit	20000	CIH (Cash in Hand)	100000

Q4: Land = 60,000; Cash = 60,000; Shares of other companies = 60,000; No other assets. Equity = 60,000; Current Liabilities = 60,000. Find long term liabilities.

Answer:

Balance Sheet
Source of Funds
Capital	60000
Retained Profit
CL	60000
LTL	60000
Total	180000
Application of Funds
Cash in Hand	60000
Land	60000
Shares of other company	60000
Total	180000

Q 5: Started business with cash = 50,000; Availed loan = 100,000; Used the entire money for purchase of shares. Sold the shares at the end of the month at a discount of 10% in anticipation of further fall in the price. Find the net-worth of the business. Ignore interest.

Answer: Net Worth is Equity = Capital + Retained Profit / Earnings

Balance Sheet			IS		CFS
Source of Funds	Opening BS	Closing BS	Income		Receipts
Capital	50000	50000	Shares Sold	135000	Opening Cash Balance	0
Retained Profit	0	-15000			Shares Sold	135000
Loan	100000	100000
Total	150000	135000	Total	135000	Total	135000
Application of Funds			Expense		Payment
Cash in Hand	0	135000
Shares	150000	0	COSS	150000
Total	150000	135000	Total	150000	Total	0
			Profit	-15000	CIH (Cash in Hand)	135000

Q6: Capital = 50000; Loan = 50000; Purchased shares for 100,000 and sold the same at 120,000. Entire profit distributed as dividend. Show the accounting equation (Ignore Interest).

Answer: (Hint: Purchased shares for a loan of 50,000 and Existing Cash of 50,000)

Capital (50000) + Loan (50,000) = Cash (100,000)

Balance Sheet			IS		CFS
Source of Funds	Opening BS	Closing BS	Income		Receipts
Capital	50000	50000	Shares Sold	120000	Opening Cash Balance	0
Retained Profit		0			Shares Sold	120000
Loan	50000	50000
Total	100000	100000	Total	120000	Total	120000
Application of Funds			Expense		Payment
Cash in Hand	0	100000			Dividend Paid	20000
Shares	100000	0	COSS	100000
Total	100000	100000	Total	100000	Total	20000
			Profit	20000	CIH (Cash in Hand)	100000

Q7: Capital = 10,000 shares of 10; Bank loan = 50,000; Creditors = 50,000; Computer =35,000; Stock = 35,000; Investments in other companies = 30,000; Find Cash. Assume that the company is not having any other asset.

Answer:

Balance Sheet
Source of Funds	Opening BS	Closing BS
Capital	100000	100000
Retained Profit		0
Creditors	50000	50000
Bank Loan	50000	50000
Total	200000	200000
Application of Funds
Cash in Hand	200000	100000
Computer		35000
Stock		35000
Investment in other companies		30000
Total	200000	200000