Course:

Date:
Facilitator
:
Time:

ACC200/LECT/003 Financial
Accounting
09/15/2013
Moses Bukenya
20 Minutes

Practice Exercise: Accounting Equation

Karim is a businessman dealing in general merchandise. Below are the transactions for
the month of August, 2013. Show the accounting equation and the balance sheet for
the transactions below.
i)

He started business with a Motor Vehicle of $30,000 and cash at bank of

$20,000

ii)

A motor vehicle of $10,000 was bought on credit from Toyota Ltd

iii)

He purchased goods of $6,000 using a cheque

iv)

Bought furniture of $4,200 from Hwan Sung on credit

v)

He used his private salary to buy a shirt for himself worth $80

vi)

He sold 1/2 of the goods earlier purchased for $5,000 cash

vii)

Secured an Aziz bank loan of $5,000 which was deposited on his bank account
to be paid after 2 years.

viii)

Paid Hwan sung $2,200 cash

ix)

Paid utilities of $800 by cheque

x)

He used the business debit card to withdraw $1,000 for buying a mobile
phone for his wife.

xi)

He paid $100 wages to casual workers

Required:
I.
II.

Show the effect of each of the transactions above on the accounting equation
Comment on the financial position of the business after at the end of the
month.

Solution
i)
Assets
Bank
20,000
M/Vehicles
30,000
Total Assets
50,000
ii)
Assets
Bank

M/ vehicles
40,000
Total Assets
60,000
iii)
Assets

=
14,000

M/vehicles
Inventory
Total Assets

40,000
6,000
60,000

iv
Assets
Bank
Inventory
M/ vehicle

=
14,000
6,000

Bank
Inventory
M/ vehicles

=
14,000
6,000

Liabilities
Payables-Toyota ltd 10,000

+ Owners
equity
+ Capital
50,000

Total Liabilities & Owners Equity

60,000
Liabilities
Payables-Toyota Ltd
10,000

+ Owners
equity
+ Capital
50,000

Total Liabilities & Owners Equity

60,000
Liabilities
Payables-Toyota
10,000
-Hwan sung
4,200

+ Owners
equity
+ Capital
50,000

Total Liabilities & Owners Equity

64,200
Liabilities
Payables-Toyota ltd
10,000
-Hwan sung
4,200

+ Owners
equity
+ Capital
50,000

40,000

Furniture
4,200
Total Assets 64,200
vi)
Assets

Owners equity
+ Capital
50,000

40,000

Furniture
4,200
Total Assets 64,200
v)
Assets

Total Liabilities & Owners Equity

50,000

20,000

Bank

Liabilities
-----------

Total Liabilities & Owners Equity

64,200
Liabilities

+ Owners
equity

Cash
Bank
Inventory

5,000
14,000
3,000

M/ vehicles 40,000
Furniture
4,200
Total Assets 66,200
vii)
Assets
Cash
Bank
Inventory
M/ vehicles

=
5,000
19,000
3,000
40,000

Furniture
Total Assets

4,200
71,200

Viii
Assets

Cash
Bank
Inventory
M/ vehicles

2,800
19,000
3,000
40,000

Furniture
Total Assets

4,200
69,000

iX
Assets

Cash
Bank
Inventory
M/ vehicles

2,800
18,200
3,000
40,000

Furniture
Total Assets

4,200
68,200

X
Assets

Cash
Bank
Inventory

2,800
17,200
3,000

Payables-Toyota ltd
10,000
-Hwan sung
4,200

+ Capital
50,000
R/E
2,000

Total Liabilities & Owners Equity

66,200
Liabilities

+ Owners
equity

Payables-Toyota ltd
10,000
-Hwan sung
4,200
Loan-Aziz Bank5,000

+ Capital
50,000
R/E
2,000

Total Liabilities & Owners Equity

71,200
Liabilities

+ Owners
equity

Payables-Toyota ltd
10,000
-Hwan sung
2,000
Loan-Aziz Bank5,000

+ Capital
50,000
R/E
2,000

Total Liabilities & Owners Equity

69,000
Liabilities

+ Owners
equity

Payables-Toyota ltd
10,000
-Hwan sung
2,000
Loan-Aziz Bank5,000

+ Capital
50,000
R/E
1,200

Total Liabilities & Owners Equity

68,200
Liabilities

+ Owners
equity

Payables-Toyota ltd
10,000
-Hwan sung
2,000

+ Capital
50,000
R/E
200

M/ vehicles

40,000

Furniture
Total Assets

4,200
67,200

XI
Assets

Cash
Bank
Inventory
M/ vehicles
Furniture
Total Assets

2,700
17,200
3,000
40,000

Loan-Aziz Bank5,000
Total Liabilities & Owners Equity
67,200
Liabilities

+ Owners
equity

Payables-Toyota ltd
10,000
-Hwan sung
2,000
Loan-Aziz Bank5,000

+ Capital
50,000
R/E
100

4,200
67,100

Total Liabilities & Owners Equity

67,100
Karims Business Balance Sheet as at
Current Assets
Cash
2,700
Bank
17,200
Inventory
3,000
22,900
Non Current Assets
M/ vehicles
40,000
Furniture
4,200
44,200
Total Assets
67,100
Liabilities
Payables-Toyota ltd
10,000
-Hwan sung
2,000
Loan-Aziz Bank5,000
Total Liabilities
17,000
Liabilities
Owners Equity
Capital/C. Stock
50,000
Retaining Earnings
100
Total Equity
50,100
Total Liabilities & Owners Equity
67,100
Comment: The financial position of the firm: Total worth $67,100 financed by owners
resources of $50,100 and external funding (Liabilities) of $17,000.