Page 64 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes  The accounting equation is also the basis for the most basic of accounting reports, the aptly
named Balance Sheet.

 A balance sheet reports what a business owns (assets), what it owes (liabilities) and what
remains for the owners (equity) as of a certain date.
 Accounting is described as origin for the creation of information and the continuous
utility of information.

4.4 Keywords

Accounting Equation: The recording of business transactions in the books of account is based on
a fundamental equation called Accounting Equation.

Asset: Any physical thing or right owned that has money value is an asset.
Liability: It means the amount which the firm owes to outsiders that is, accepting the proprietors.
Stock: The goods purchased are for selling, if the goods are not sold out fully, a part of the total
goods purchased is kept with the trader unlit it is sold out, it is said to be a stock.

4.5 Review Questions

1. “Accounting equation remains intact under all circumstances” Justify the statement with
the help of example.

2. “Accounting is described as origin for the creation of information and the continuous
utility of information.” Discuss.
3. Why accounting equation does remains in balance?

4. “Accounting is the process of recording, classifying and summarizing of accounting
transactions.” Discuss.
5. Prepare accounting equation from the following Transactions:

Hemant started business with cash 3,00,000
Purchased goods for cash 80,000
Sold goods [costing 30,000] for cash 45,000

Purchased goods from Monika 70,000
Salary paid 7,000
Commission received 5,000
Paid Cash to Monika in full settlement 69,000
Goods sold to Rahul {Costing 20,000} for cash 25,000

6. Prepare accounting equation on the basis of the following:
(i) Anup started business with cash 250,000
(ii) Purchased goods for cash 35000

(iii) Purchased office furniture for cash 12000
(iv) Paid rent 7000
(v) Sold goods (costing 30000) for 50000 for cash

58 LOVELY PROFESSIONAL UNIVERSITY