Record the following transactions in the accounting equation (Assets = Liabilities + Equity): 1) Owner introduced initial capital Rs. 750,000 and motor vehicle Rs. 2,000,000 2) Purchased a computer for business use Rs. 85,000 3) Purchased goods Rs. 40,000 4) Owner introduced additional capital Rs. 125,000 5) Sold goods Rs. 20,000 6) Paid electricity bill Rs. 17,500

What you are recording in the accounting equation

Each transaction must keep the equation balanced: $$\text{Assets} = \text{Liabilities} + \text{Equity}$$ Here, no liabilities are mentioned, so every change will be between Assets and Equity.

Assumptions (so the equation can be completed)

• All purchases, sales, and bills are paid/received in cash (no credit terms given).
• For the sale of goods Rs. 20,000, the cost of those goods is also taken as Rs. 20,000 (so profit is Rs. 0). This lets us reduce Inventory when goods are sold.

Transaction-by-transaction effect (A = L + E)

1) Owner introduced capital: Cash Rs. 750,000 and Motor Vehicle Rs. 2,000,000

• Assets: Cash $+750{,}000$, Motor Vehicle $+2{,}000{,}000$
• Equity: Capital $+2{,}750{,}000$

2) Purchased computer Rs. 85,000

• Assets: Computer $+85{,}000$, Cash $-85{,}000$
• Equity: No change

3) Purchased goods (inventory) Rs. 40,000

• Assets: Inventory $+40{,}000$, Cash $-40{,}000$
• Equity: No change

4) Owner introduced additional capital Rs. 125,000

• Assets: Cash $+125{,}000$
• Equity: Capital $+125{,}000$

5) Sold goods Rs. 20,000 (assume cost Rs. 20,000)

• Assets: Cash $+20{,}000$, Inventory $-20{,}000$
• Equity: No net change (Sales $+20{,}000$ and Cost/Expense $-20{,}000$ cancel)

6) Paid electricity bill Rs. 17,500

• Assets: Cash $-17{,}500$
• Equity: Expenses reduce equity, so Equity $-17{,}500$

Running totals after each transaction

Final check

$$\text{Assets } 2{,}857{,}500 = \text{Liabilities } 0 + \text{Equity } 2{,}857{,}500$$ Balanced.