Chapter 3: Accounting Equation and Transaction Analysis

y y y y y Accounting Equation Assets and Liabilities Effects of Financial Transactions on Accounting Equation Transaction Analysis Problems

ACCOUNTING EQUATION The end result of the accounting process for a business entity is the financial statements such as balance sheet, profit and loss account, statement of changes in financial position. These statements are presented in a condensed (highly summarised) form and cannot be prepared until the financial transactions of the business entity have been recorded, classified and summarised. The framework of the financial statements and the elements shown in these statements rests on important and basic relationship, referred to as basic or fundamental accounting equation, basic accounting model. This basic equation is expressed by the balance sheet equation, and therefore, known as the balance sheet equation also. The balance sheet equation indicates that Sources of Funds = Uses of Funds Or Equities = Assets Or Proprietor's Equity (Capital) + Outside Liability = Assets

The above accounting equation signifies that assets of a business are always equal to the total of outside liabilities and proprietor's equity. It means that the accounting equation should always be in balance. This fundamental equality is always true because the left side of the equationis simply another view of the right side. This is because whatever funds are raised by t h e b u s iess, either through capital or business operations or from outsider will be tied up in one or other form of uses (assets). Assets represent resources owned by the business entity; equity represents the claims of those who supplied the assets. Thus, the fundamental accounting equation emphasizesaccounting equivalence or duality concept, i.e., each financial transaction has a dual .nature and affects both the assets and liabilities side of the balance sheet. Algebraically the equations can be expressed as: A=L+P
Where A = Assets

L = Outside liabilities P = Proprietor's equity.

The above equation can also be expressed as P=A L L=A P A L P =0 ..(1) (2) (3)

ASSETS AND LIABILITIES

The abovementioned Accounting Equation is concerned with assets and equities (outside liabilities and proprietor's equity). Following is the list of some assets and equities: Assets: 1. Cash 2. Cash at Bank 3. Bills Receivable 4. Prepaid expenses 5. Debtors or accounts receivable 6. Stock (stock of raw materials, work-in-progress, finished goods etc.) 7. Loose tools 8. Office equipments and furniture 9. Patents, copyrights 10. Machinery 11. Buildings 12. Land 13. Goodwill Equities (Outside liabilities and Proprietor's equity), (a) Outside liabilities 1. Bank overdraft 2. Outstanding expenses 3. Bills payable 4. Creditors on accounts 5. Loan short-term as well as long-term 6. Debentures (b) Proprietorship equity (i) Capital (Plus additions less withdrawals) (ii) Reserves and surplus of profits/accumulated profits.
t

EFFECTS OF FINANCIAL TRANSACTIONS ON ACCOUNTING EQUATION Every business transaction can be analysed by or expressed in terms of its effect on the balance sheet equation. A business transaction results into a change in all or any of the components f the equation. Whatever may be the change, the Accounting Equation remains in balance.Different types of business transactions may result into a maximum of nine possible effect combinations n the components of accounting equation. These nine possible combinations of changes or effects are: 1) Increase in one asset; decrease in another asset. 2) Increase in one liability; decrease in another liability. 3) Increase in one item of proprietor's equity; decrease in another item of proprietor's equity. 4) Increase in one item of proprietor's equity; decrease in liability. 5) Increase in a liability; decrease in proprietor's equity, 6) Increase in asset; increase in liability. 7) Increase in asset; increase in proprietor's equity. : 8) Decrease in asset; decrease in liability. 9) Decrease in asset; decrease in proprietor's equity. Determining the effect of a business transaction on assets, liabilities and equities of the accounting equation is called transaction analysis. A transaction analysis shows increases and decreases in the assets, liabilities or proprietor's equity of a business entity. Where these effects are presented in an account form, they are shown by a simultaneous debit and credit in the relevant accounts of assets, liabilities and/or equities. Some illustrations are given to explain the transaction analysis and the effects of business transactions on the accounting equation. Example 1 Transaction 1X starts business and invests Rs. 1, 00,000 as his capital. (Ami. in Rs.) Assets = Liabilities + Proprietor's equity Cash = Effects of transaction New Balance 1,00,000 = 1,00,000 = X's capital 1,00,000 1,00,000

Transaction 2
On April 2.the firm purchases furniture for Rs. 40,000 for cash.

. Assets = Cash + furniture = Old Balance 1.00.000 Effect of Transaction - 40,000 + 40.000 New Balance 60.000 + 40.000 = = Liabilities + Proprietor's equity -X's capital 1,00,000 1,00,000 1.00.000

Transaction 3: On April 3, the firm purchases merchandise (goods) costing Rs. 30,000 for cash. Assets = Cash + furniture + Merchandise = Old Balance 60,000 + 40,000= Effect of transaction - 30,000 + 30,000 New Balance 30,000 + 40,000 + 30,000 Transaction 4: On April 4, the firm purchases merchandise costing 40,000 on credit. Assets = Cash + furniture + Merchandise = Old Balance 30,000 + 40,000 + 30,000 = Effect of transaction + 40,000= New balance 30,000 + 40,000 + 70,000 = Transaction 5: On April 6, the firm sells merchandise for Rs. 30,000 on credit to Mr. A, costing Rs. 20,000 Assets = Cash + Debtors + Merchandise + Furniture = Old Balance 30,000 + - + 70,000 + 40,000 = Effect of transactions + 30,000 - 20,000 New Balance 30,000 + 30.000' + 50.000 + 40,000 = Transaction 6: Liabilities + Proprietor's equity Creditors + X's capital + surplus Profit 40,000 + 1,00,000 10,000 40,000 + 1,00,000 + 10,000 + 1.00,000 + 40.000 40,000 + 1.00,000 Liabilities + Proprietor's equity Creditors + X's capital Liabilities + Proprietor's equity - X's capital a/c 1,00,000 - 1,00,000 1 00.000

On April 15, the firm receives 20,000 cash from Debtor. Assets = Cash + Debtor + Merchandise + Furniture = Liabilities + Proprietor's equity Creditor + X's Cap + surplus profit

Old Balance 30,000 + 30,000 + 50,000 + 40000 =

40,000 + 1,00,000 + 10,000

Effect of transaction + 20,000 - 20,000 New Balance 50,000 + 10,000 + 50,000 + 40,000 = 40,000 + 1,00,000 + 10,000

Transaction 7: On April 16, the firm pays Rs. 40,000 to its creditors. Assets = Cash + Debtors + Merchandise + Furniture = Old Balance 50,000 + 10,000 + 50,000 + 40,000 Effect of Transaction - 40,000 Liabilities + Proprietor's equity Creditors + X's capital + Surplus/Profit = 40,000 + 1,00,000 + 10,000 = - 40,000

New Balance 10,000 + 10,000 + 50,000 + 40,000 = 1,00,000 + 10,000 Transactions 8: On April 17, the firm pays Rs. 2,000 as rent. Assets = Liabilities + Proprietor's equity

Cash + Debtors + Merchandise + Furniture = Creditor + X's Cap + Surplus/Profit Old Balance 10,000 + 10,000 + 50,000 + 40,000 = 100000+10000 Effect of Transaction 2000 -2000

New Balance 8,000 + 10,000 + 50,000 + 40,000= 1,00,000

+ 8000

Profit and Loss A/c for the year ending ... Rs. To purchase a/c To purchase a/c To G/P c/d 30,000 40000 10000 80,000 80,000 By Sales a/c By closing stock Rs. 30,000 50,000

To Rent a/c To Net profit

2,000 8,000 10,000

By Gross profit b/d

10,000

10,000

Balance Sheet as on ... Liabilities Capital Profit profit Rs. Assets Rs. 8,000 40,000 10,000 50,000

1,00,000 Cash 8000 Furniture Debtors Closing Stock (merchandise) 1,08,000

1,08,000

Illustration 2: Shows the Accounting equation on the basis of the following transactions: (i)I started business with cash Rs. 1,00,000 (ii) Purchased goods on credit from Mohan - Rs. 40,000 (iii) Sold goods for cash Rs. 26,000 (Cost Rs. 22,000) Solution: ACCOUNTING FOR MANAGEMENT (Amt. in Rs.) Transaction 1. X started business with cash Beginning Equation 2. Purchased goods Credit on from Mohan Assets Bank + Goods = Rs. 1,00,000 + 0 1,00,000 + 0 = Liabilities Creditors 0 + Proprietor's equity + + Capital Rs. 1,00,000 + Rs. 1,00,000

(+) 40,000

= (+) 40,000

New Equation
s

1,00,000 +40,000

= 40,000

+ 1,00,000

3.

Sold goods for cash Rs. 26,000 (cost Rs.22000) Ending Equation

(+) 26,000 (-) 22,000 1,26,000 + 18,000 = 40,000

+ 4,000 + 1,04,000

Illustration 3: On January 1, 2008, a company Super Consultants India Ltd. was incorporated. The following transactions occurred during January 2008. January 1 Business was started with capital of Rs. 1, 00, 00 cash. 4 Equipment was rented (and paid) for the month at a cost of Rs. 12,000. 8 Paper stationery purchased on credit Rs. 8,000. 15 The company charged Rs. 30,000 as consulting fees from the customers during January. This amount is due to be received next month. 20 Miscellaneous expenses of Rs. 6,000 were paid. 29 Land was purchased by borrowing Rs. 4, 00,000 from a bank. The loan is due to be repaid in five years. Interest payments are due at the end of each month beginning July 31. 30 Salaries of Rs. 7,000 for the month were paid. 31 Lesson fees were billed to customers in the amount of Rs. 28,000. (They are due to be received next month). Prepare a summary of the preceding transactions. Determine balances after each transaction to show that the basic equation is in balance. Prepare an income statement, a statement of retained earnings, balance sheet for January 2008. Date Cash + Assets Accounts + Land = = Liabilities + Equity receivables A/c payables + Loan Capital + Profit or Retained Earning 1,00,000 12,000

14

1,00,000 12,000

88,000

+ 8,000

1,00,000

- 12,000 8,000 - 20,000 + 30,000 + 10,000 - 6,000

15

88,000

+ 30,000

8,000

1,00,000

88,000 20 29 - 6,000 82.000

30,000

= 8,000

1,00,000

30,000

+ 4,00,000 = 8,000

+ 1,00,000 4,00,000 4,00,000 1,00,000

+ 4,000

30

82,000 - 7,000 30,000

4,00,000

= 8,000

4,000 7,000 - 3,000 + 28,000 25,000

31

75,000

30,000 + 28,000 4,00,000

= 8,000

4,00,000 1,00,000

75,000

58,000

4,00,000

= 8,000

4,00,000 1,00,000

Income Statement for the Month Ended January 31,2008

Revenues: Consulting fees Lesson Fees Total Revenues Less: Expenses: Rent expense Paper & Stationery Salaries Misc. expenses Total expenses Net Income

(Rs.) 30,000 28,000 58,000

12,000 8,000 7,000 6,000 33,000 25,000

Statement of Retained Earnings Retained earnings as on January 1... Add: Net Income for January 2008 Total Less: Dividends Retained earnings, January 31 Balance Sheet as on January 31, 2008 Liabilities Capital Retained earnings Accounts payables Loan Rs. Assets Rs. 75,000 58,000 4,00,000 Nil Rs. 25,000 25,000 Nil 25,000

1,00,000 Cash 25,000 8,000 4,00,000 5,33,000 Account Receivable Land

5,33,000

Illustration 4: Prove that accounting equation is satisfied in all the following transactions of Mr X. (0 Commenced business with cash Rs. 80,000 (ii) Purchased goods for cash Rs. 40,000 and on credit Rs. 30,000 (Hi) Sold goods for cash Rs. 40,000 costing Rs. 25,000 (iv) Paid salary Rs. 2,000, and salary outstanding Rs. 1,000 (v) Bought scooter for personal use for cash at Rs. 20,000. (Amt. in Rs., Solution: Transaction Cash Assets = Liabilities + Owners' Equity Creditors Goods + Salary + Capital outstanding ___ _______ ________ 80,000

(i)

X commenced business with 80,000 cash, beginning equation Purchased goods for cash and on credit - 40,000

(ii)

+ 70,000 =

- 30,000

(iii)

Sold goods for cash Rs. 40,000 (costing Rs. 25,000) New equation

40,000

- 25,000 =

+ 15,000

80,000

+ 45,000 = ___ =

30,000 _______ + 1,000

+ 95,000 - 3,000

(iv)

Paid salary of Rs. 2,000 and - 2,000 salary outstanding is Rs. 1,000 New equation 78,000

+ 45,000 =

30,000

1,000

+ 92,000 - 20,000

(v)

Bought scooter for personal - 20,000 use for cash Ending equation 58,000 + 45,000 = 30,000 + 1,000

+ 72,000

Illustration 5: Show the accounting equation on the basis of the following transactions: (Rs) (i) (ii) (iii) (iv) (v) (vi) Y started business with cash 90000 Purchased goods on credit 50000 Purchased furniture for cash 10000 Sold goods costing Rs. 20,000 for 40000 Sold goods costing Rs. 20,000 on credit for42000 Bought goods worth Rs. 20.000

(Rs. 15,000 paid in cash and balance on credit) (vii) (viii) Drawn for personal use Paid as rent 5000 1000 3000 40000 12000

(ix) Paid for salaries (x) Paid for creditors (xi) Received from debtors Solution: Solutios: Transaction Assets

= Liabilities Owners' Equity +

Cash Y started business with 90,000 cash Beginning equation Purchased goods on credit New equation Purchased furniture for cash New equation Sold goods costing Rs. 20,000 for Rs. 40,000 New equation Sold goods costing Rs. 20,000 for Rs. 42,000 on credit New equation 90,000

+ Goods + Debtors + Furniture = Creditors + Y's Capital 90,000

+ 50,000 + -

+-

= 50,000

+-

+ 50,000 + -+-

++ 10,000

50,000 __

+ 90,000 +-

- 10.000 + -

80,000

+ 50,000 + - +

+ 10,000 +-

= 50,000 =-+

+ 90,000 20,000

+ 40,000 - 20,000 + -

1,20,000 + 30,000 + - +

10,000

= 50,000 =-+

+ 1,10,000 22,000

- 20,000 + 42,000 + -

1,20,000 + 10,000 + 42,000 + 10,000 -+

= 50,000 = +5,000

1,32,000

6 Bought goods worth Rs. - 15,000 + 20,000 + .20,000 (Rs. 15,000 paid in cash, balance on credit) New equation 7 Drew for personal use . New equation 8 Paid as rent . New equation 9. Paid for salaries New equation 10. Paid to creditors'

1,05,000 - 30,000 + 42,000 + 10,000 -5,000 + + -

= 55,000 =

+ 1,32,000 - 5,000

1,00,000 + 30,000 + 42,000 + 10,000 -1,000 + -+ -

55,000 =

+ 1,27,000 - 1,000

99,000 -3,000 96,000 40,000

+ 30,000 + 42,000 + 10,000 + + 30,000 + -+ -

= 55,000 =-

+ 1,26,000 - 3,000 + 1,23,000 + -

+ 42,000 + 10,000 = 55,000 + -+ = - 40,000

New equation 11. Received from Debtors Ending equation

56,000 +12000

+ 30,000 +

+ 42,000 + 10,000 15,000 -12,000 + --

+ 1,23,000 +

68,000

+ 30,000

+ 30,000 + 10,000 = 15,000

+ 1,23,000

Illustration 6: Show the accounting equation on the basis of the following transactions and present a balance sheet on the basis of the ending equation. (Rs.) (i) (ii) Mohan commenced business with cash Purchased goods on credit 70,000 14,000 3,000 10,000 2,000 10,000 15,000 6,000 2,000

(iii) Withdrew for private use (iv) Goods purchased for cash (v) Paid wages

(vi) Paid to creditors (vii) Sold goods, on credit (Cost price - Rs. 10,000) (viii) Sold goods for cash (Cost price - Rs. 3,000) (ix) Purchased furniture for cash

Solution: (Amt. in Rs., Transaction Assets = Liabilities + Owners' Equity

Cash + Goods + Debtors + Furniture = Creditors-^ Mohan's Capital Mohan commenced Business with cash Beginning equation 70,000 + _ + +=-+ 70,000

70,000

+ _

+-

=-+

70,000

Purchased goods on credit New equation

+ 14,000 +

14,000

70,000

+ 14,000 + + +

+ +

14,000 =--

70,000 3,000

Withdrawn for private - 3,000 use New equation 67,000

+ 14,000 +

++

14,000 =-+

67,000

Goods purchased for - 10,000 + 10,000 + cash New equation Paid wages New equation Paid to creditors New equation Sold goods on credit for Rs. 15,000 (Cost Rs. 10,000) New equation 45,000 Sold goods for cash Rs. 6,000 costing Rs. 3,000 + 6,000 - 3,000 + - + New equation 57,000 - 2,000 55,000 + 24,000 + + +

+++ +

14,000 14,000 14,000 = - 10,000 = 4,000 =-

67,000 - 2,000 65,000 65,000 5,000

+ 24,000 +

- 10,000 + 45,000

+ 24,000 + -

- 10,000 + 15,000 + -

+ 14,000 + 15,000 +

4,000

70,000

=+ +2,000 +2,000 = 4,000 == 4000

+ 3,000 + 73,000 + + 73,000

51,000 + - 11,000 + 15,000 -

Purchased furniture for cash - 2,000 + + Ending equation

49,000 + 11,000 +15,000

Balance Sheet Liabilities Rs. Assets Rs.

Creditor Mohan's capital

4,000 73,000

Cash Goods Debtors Furniture

49,000 11,000 15,000 2,000

THEORY QUESTIONS 1. 2. 3. 4. What is the fundamental accounting equation? Express it in two different forms. What are the two classification of equities in a balance sheet? What do you understand by transaction analysis? Illustrate. Each business transaction has two elements. Explain.

5. Indicate whether each of the following would increase, decrease or have no effect on owner's equity: (a) Purchased supplies for cash (b) Withdrew supplies for personal use (c) Paid salaries (d) Purchased equipment for cash (e) Invested cash in business (f) Rendered service to customers, on account (g) Rendered service to customers, for cash 6: Give one suitable transaction that would result into each of the following: (i) (ii) (iii) (iv) Increase in an asset and decrease in another asset Increase in one liability and decrease in another liability Increase in liability and decrease in proprietor's equity Increase in one asset and increase in liability

7 Certain generally accepted accounting principles or concepts have been violated in each of the situations described below. Indicate for each situation which concept or principle has been violated.

a) When the Alpha Company acquired its branch office building for Rs. 50,000; the total amount of cash outlay was recorded as rent expense. b) The personal automobile of Rajiv Dhawan, major shareholder of a company, is listed among the company assets. c) Land acquired at a cost of Rs. 2,50,000 in 2005 is upto Rs. 4,25,000. (d) Equipment acquired on January 15, for Rs. 70,000 is recorded on December 31 balance sheet: at Rs. 84,000. Mr. Ashok Johnson, the managing director of the company explains that since at the date of acquisition, the consumer price index was 100 and had increased to 120 by year- end, the appropriate value for financial statement presentation would accordingly be Rs. 84,000. (e) A calculator purchased in early March for Rs. 1,150 can be purchased at year-end for Rs. 925 .The Company has used the later value on the balance sheet date. (J) Land bought on July 1 for Rs. 5, 15,000 is valued on the December 31 balance sheet at: Rs.7, 05,000, a value obtained by considering recent land sales in the vicinity, (g) A lawnmower used by Mr. Rakesh, the managing director of the company, for his residence is included among the December 31 assets of the company. 8. What is an accounting equation? Explain with suitable examples. 9. All transactions are subject to accounting equation. Comment on this statement. 10. Give the example of different transactions which may influence assets, liabilities and owner's funds. 11. "Assets and liabilities both are claims, one in favour of business, the other against business." Explain this statement. 12. What is transaction analysis. Explain with suitable examples. 13.Explain with examples as to how accounting equation is not influenced by occurrence of some transactions. EXERCISES AND PROBLEMS 1. Show the Accounting Equation on the basis of the following transactions: Rs. 1. Ravi started business with cash 2. Purchased goods on credit 3. Received commission 40000 10,000 250

4. Paid rent 5. Purchased goods for cash 6. Withdrew cash for private use 7. Sold goods on credit (Cost price Rs. 15,000) 8. Purchased furniture for cash 9. Paid to creditors Assets Rs. 45,250; Liabilities Rs. 2,500; Capital Rs. 42,750). 2.Show the Accounting Equation on the basis of the following transactions: 1. Mohan commenced business with cash 2. He purchased goods on credit 3. He sold goods for cash (costing Rs. 2,500) for 4. Purchased furniture for cash 5. Sold goods to Rakesh on credit (costing Rs. 400) for 6. Paid salaries 7. Received cash from Rakesh 8. Withdrew cash for private use 9. Received rent from tenants 10. Purchased goods from Mukesh for cash (Ans.: Assets = Rs. 20,650; Liabilities Rs. 5,000; Capital Rs. 15,650).

1,000 14,000 1,500 20,000 3,000 7,500

Rs

15,000 5,000 3,000 1,500 500 250 500 1,200 1,500 500

3. Prove that Accounting Equation is satisfied in all the following transactions of Manu: 1. Commenced business with cash Rs. 3, 00,000 2. Paid rent in advance Rs. 2,500 3. Purchased goods for cash Rs. 1, 50,000 and credit Rs. 1, 00,000 4. Sold goods for cash Rs. 1, 50,000 costing Rs. 1, 00,000 5. Paid salary Rs. 2500 and salary outstanding Rs. 500

6. Bought motorcycle for personal use Rs. 25,000 (Ans.: Asset Rs. 4,22,500; Liabilities Rs. 1,00,000; capital Rs. 3,22,500). 4. Prepare Accounting Equation from the following: 1. Started business with cash Rs. 1, 00,000 and goods Rs. 40,000 2. Bought goods for cash Rs. 30,000 and credit for Rs. 20,000 3. Goods costing Rs. 48,000 sold at a profit of 33 1/3%. Half the payment received in cash 4. Purchased furniture for office use Rs. 12,000 and for household use of Sudhir Rs. 8,000 (Ans.: Assets Rs. 1,68,000; Liabilities Rs. 20,000, Capital Rs. 1,48,000) 5. Show the effect of the following transactions on assets, liabilities and capital using the Accounting Equation: 1. Started business with cash Rs. 60,000 2. Rent received Rs. 2,000 3. Accrued interest Rs. 500 4. Commission received in advance Rs. 1,000 5. Amount withdrawn Rs. 5,000 (Ans. Assets Rs. 58,500; Liabilities Rs. 1,000; Capital Rs. 57,500). 6. Anu has following transactions in an accounting year: 1. Commenced business with cash Rs. 25,000. 2. Paid wages Rs. 1,000 3. Salaries outstanding Rs. 100 4. Prepaid Insurance Rs. 350 5. Interest due but not paid Rs. 50 6. Rent paid in advance Rs. 75
A

. Assets Rs. 24,000; Liabilities Rs. 150; Capital Rs. 23,850)

Prove that the accounting equation is satisfied in all the following transactions: 1. Started business with cash Rs. 1, 20,000

2. Purchased a typewriter for cash for Rs. 8,000 for office use 3. Purchased goods for Rs. 50,000 for cash 4. Purchased goods for Rs. 40,000 on credit 5. Goods costing Rs. 60,000 sold for Rs. 80,000 on credit 6. Paid for Rent Rs. 1,500 and for salaries Rs. 2,000 7. Received Rs. 800 for commission 8. Withdrew for private use Rs. 5,000 in cash Ans: Assets Rs. 1, 72,300; Liabilities Rs. 40,000; Capital Rs. 1,32,300). 8. Develop accounting Equation for the following transactions: 1. Rohit started business with cash 2. He Purchased goods from Ram on credit 3 Paid carriage 4 Sold goods for (profit Rs. 3,000) 5 Received security deposits from tenants 6.Invested in shares (personal) (Rs) 1, 50,000 50000 500 9000 1,500 50000

7. Introduced fresh capital 8. Goods destroyed by fire

25000 2500

(Ans.: Assets Rs. 1, 76,500; Liabilities Rs. 51,500; Capital Rs. 1, 25,000). 9. Prepare Accounting Equation from the following: 1. Invested Rs. 3, 00,000 in cash 2. Purchased on old car for Rs. 56,000 cash 3. Received cash as salary Rs. 72,000 4. Purchased a home for Rs. 3, 00,000, giving Rs. 1, 00,000 in cash and balance through a loan

5. Purchased securities for cash Rs. 1, 50,000 6. Received cash for dividend on securities Rs. 4,000 7. Paid cash for household expenses Rs. 6,000 8. Paid cash Rs. 10,000 for loan and Rs. 6,000 for interest 9. Sold securities costing Rs. 20,000 for Rs. 30,000 (Ans.: Assets Rs. 5,64,000; Liabilities Rs. 1,90,000; Capital Rs. 3,74,000). 10. Prakash started a business with a cash investment of Rs. 70,000. Following transactions took place: 1. Paid three months' advance rent for office accommodation Rs. 4,200 2. Bought office car Rs. 42,000 3. Purchased office furniture Rs. 14,000 4. Bought office typewriter from Alpine Supply Company Rs. 6,000 5. Sold extra office furniture at cost to Ajay for Rs. 2,000. Ajay paid Rs. 1,200 in cash and accepted a bill at three months for the balance 6. Ajay paid the amount of the bill at maturity and Prakash paid half the amount he owed to Alpine Supply Company 7. Collected Rs. 1, 20,000 as commission 8. Paid telephone bill amounting to Rs. 300. Develop Accounting Equation.