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Detailed Chapter 05 Accounting Equation and Business Transactions GSEB Solutions for Class 11 Accounts
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Class 11 Accounts Chapter 05 Accounting Equation and Business Transactions GSEB Solutions PDF
1. Write the correct option from those given below each question:
Question 1. When an owner introduces capital in business
(a) increase in capital – increase in liability.
(b) increase in capital – increase in assets.
(c) increase in one liability – decrease in another liability.
(d) increase in one asset – decrease in another assets.
Answer: (b) increase in capital – increase in assets.
In simple words: When an owner puts money into the business, it grows the business's capital and also its assets, keeping the accounting equation balanced.
Exam Tip: Remember the basic accounting equation: Assets = Liabilities + Capital. When capital is introduced, both capital and assets increase by the same amount.
Question 2. When goods purchased on credit
(a) increase in assets – increase in liability.
(b) decrease in assets – decrease in liability.
(c) increase in assets – decrease in liability.
(d) decrease in assets – increase in liability.
Answer: (a) increase in assets – increase in liability.
In simple words: Buying items on credit means the business gets more goods (assets), but also owes more money (liability) to the supplier.
Exam Tip: Purchasing goods on credit raises stock (an asset) and also increases creditors (a liability), maintaining the accounting equation's balance.
Question 3. When revenue expenses are paid in cash
(a) increase in assets – increase in liability.
(b) decrease in assets – decrease in capital.
(c) increase in assets – increase in capital.
(d) decrease in assets – decrease in liability.
Answer: (b) decrease in assets – decrease in capital.
In simple words: Paying for everyday costs with cash means the business has less money (assets) and also less capital, because expenses reduce profit and profit is part of capital.
Exam Tip: Expenses reduce the owner's capital. When paid in cash, cash (an asset) decreases, and capital also decreases. This keeps the accounting equation balanced.
Question 4. When revenue income is received in cash
(a) increase in assets – increase in liability.
(b) increase in assets - decrease in liability.
(c) increase in assets – increase in capital.
(d) increase in capital – decrease in liability.
Answer: (c) increase in assets – increase in capital.
In simple words: When a business receives cash for its services or sales, its cash (asset) goes up, and its total capital also goes up because income adds to profits.
Exam Tip: Income increases the owner's capital. When received in cash, cash (an asset) increases, and capital also increases. This maintains the accounting equation's balance.
Question 5. When goods distributed as sample
(a) decrease in assets – decrease in liability.
(b) increase in assets – increase in liability.
(c) increase in assets – increase in capital.
(d) decrease in assets – decrease in capital.
Answer: (d) decrease in assets – decrease in capital.
In simple words: Giving away products as samples means the business has fewer items (assets), and this also reduces capital because samples are an expense that lowers profit.
Exam Tip: Distributing goods as samples reduces stock (an asset). This is a promotion expense, which reduces profit and, therefore, owner's capital. Thus, both assets and capital decrease.
2. Write journal entries for the following transactions and explain accounting treatments based on equation:
Questions
(1) Commenced business with capital of Rs. 80,000.
(2) Rs. 20,000 deposited with bank and opened account.
(3) Goods of Rs. 40,000 purchased from Himani on credit.
(4) Goods of Rs. 30,000 purchased for cash.
(5) Goods of Rs. 35,000 sold for Rs. 55,000 to Jaslin on credit.
(6) Goods of Rs. 10,000 sold for Rs. 18,000 in cash.
(7) Goods of Rs. 2,000 returned to Himani.
(8) Goods of Rs. 4,000 returned by Jaslin.
(9) Accounts are settled with Himani and Jaslin.
(10) Withdrew Rs. 5,000 from bank.
(11) Salary of Rs. 4,000 paid by cheque.
(12) Commission received in cash Rs. 3,000 and Rs. 2,500 are outstanding.
(13) Rent paid in cash Rs. 4,000 and Rs. 1,500 are outstanding.
(14) Goods donated Rs. 2,000.
(15) Furniture of Rs. 15,000 purchased from Prexa Furniture Mart.
(16) College fees of daughter paid Rs. 6,000.
(17) Rs. 500 bank has credited for interest and debited Rs. 200 for bank charges.
(18) Rs. 2,500 received in advance for interest.
(19) Advertisement expense paid in advance Rs. 2,000.
Answer:
| Sr. No. | Journal Entry | Debit Rs. | Credit Rs. | Explanation | Assets (A) | Capital (C) | + | Liabilities (L) |
|---|---|---|---|---|---|---|---|---|
| (1) | Cash A/c To Capital A/c | 80,000 | 80,000 | Capital increased | Cash 80,000 | Capital 80,000 | + | 0 |
| 80,000 = | 80,000 | + | 0 | |||||
| (2) | Bank A/c Dr To Cash A/c | 20,000 | 20,000 | Bank balance increased Cash balance decreased | Cash 80,000 - Deposited cash in bank 20,000 Cash balance 60,000 Bank balance 20,000 | Capital 80,000 | + | 0 |
| 80,000 = | 80,000 | + | 0 | |||||
| (3) | Purchase A/c Dr To Himani A/c | 40,000 | 40,000 | Stock of goods increased Liability increased | Cash 60,000 Bank balance 20,000 Stock of goods 40,000 | Capital 80,000 | + | Debts (Himani) 40,000 |
| 1,20,000 = | 80,000 | + | 40,000 | |||||
| (4) | Purchase A/c Dr To Cash A/c | 30,000 | 30,000 | Stock of goods increased Cash balance decreased | Cash 60,000 - Goods purchased 30,000 Cash balance 30,000 Bank balance 20,000 Stock of goods (40,000 + 30,000) 70,000 | Capital 80,000 | + | Debts 40,000 |
| 1,20,000 = | 80,000 | + | 40,000 | |||||
| (5) | Jaslin A/c Dr To Sales A/c | 55,000 | 55,000 | Dues increased Stock of goods decreased | Cash 30,000 Bank balance 20,000 Stock of goods 70,000 - Decreased 35,000 35,000 Dues (Jaslin) 55,000 | Capital 80,000 + Profit (55,000 - 35,000) 20,000 | + | Debts 40,000 |
| 1,40,000 = | 1,00,000 | + | 40,000 | |||||
| (6) | Cash A/c Dr To Sales A/c | 18,000 | 18,000 | Cash balance increased Stock of goods decreased | Cash 30,000 + Increased 18,000 48,000 Bank balance 20,000 Stock of goods 35,000 - Decreased 10,000 25,000 Dues 55,000 | Capital 1,00,000 + Profit (18,000 - 10,000) 8,000 | + | Debts 40,000 |
| 1,48,000 = | 1,08,000 | + | 40,000 | |||||
| (7) | Himani A/c Dr To Purchase Returns A/c | 2,000 | 2,000 | Debts decreased Stock of goods decreased | Cash 48,000 Bank balance 20,000 Stock of goods 25,000 - Decreased 2,000 23,000 Dues 55,000 | Capital 1,08,000 | + | Debts 40,000 - Decreased 2,000 38,000 |
| 1,46,000 = | 1,08,000 | + | 38,000 | |||||
| (8) | Sales Returns A/c Dr To Jaslin A/c | 4,000 | 4,000 | Stock of goods increased Dues decreased | Cash 48,000 Bank balance 20,000 Stock of goods 23,000 + Increased 4,000 27,000 Dues 55,000 - Sales returns 4,000 51,000 | Capital 1,08,000 | + | Debts 38,000 |
| 1,46,000 = | 1,08,000 | + | 38,000 | |||||
| (9) (i) | Himani A/c Dr To Cash A/c | 38,000 | 38,000 | Debts decreased Cash balance decreased | Cash 48,000 - Decreased 38,000 10,000 Bank balance 20,000 Stock of goods 27,000 Dues 51,000 | Capital 1,08,000 | + | Debts 38,000 - Decreases 38,000 0 |
| 1,08,000 = | 1,08,000 | + | 0 | |||||
| (9) (ii) | Cash A/c Dr To Jaslin A/c | 51,000 | 51,000 | Cash balance increased Dues decreased | Cash 10,000 + Increased 51,000 61,000 Bank balance 20,000 Stock of goods 27,000 Dues 51,000 - Decreased 51,000 0 | Capital 1,08,000 | + | 0 |
| 1,08,000 = | 1,08,000 | + | 0 | |||||
| (10) | Cash A/c Dr To Bank A/c | 5,000 | 5,000 | Cash balance increased Bank balance decreased | Cash 61,000 + Increases 5,000 66,000 Bank balance 20,000 - Decreased 5,000 15,000 Stock of goods 27,000 Dues 0 | Capital 1,08,000 | + | 0 |
| 1,08,000 = | 1,08,000 | + | 0 | |||||
| (11) | Salary A/c Dr To Bank A/c | 4,000 | 4,000 | Expense (Capital decreased) Bank balance decreased | Cash 66,000 Bank balance 15,000 - Decreased 4,000 11,000 Stock of goods 27,000 Dues 0 | Capital 1,08,000 - Salary 4,000 1,04,000 (Expense) | + | 0 |
| 1,04,000 = | 1,04,000 | + | 0 | |||||
| (12) (i) | Cash A/c Dr To Commission A/c | 3,000 | 3,000 | Cash balance increased Income (Capital increased) | Cash 66,000 + Increases 3,000 69,000 Bank balance 11,000 Stock of goods 27,000 Dues 0 | Capital 1,04,000 + Commission (Income) 3,000 1,07,000 | + | 0 |
| 1,07,000 = | 1,07,000 | + | 0 | |||||
| (12) (ii) | Outstanding Commission A/c Dr To Commission A/c | 2,500 | 2,500 | Dues increased Income (Capital increased) | Cash 69,000 Bank balance 11,000 Stock of goods 27,000 Dues + Increased 2,500 2,500 | Capital 1,07,000 + Commission (Income) 2,500 1,09,500 | + | 0 |
| 1,09,500 = | 1,09,500 | + | 0 | |||||
| (13) | Rent A/c Dr To Cash A/c To Outstanding Rent A/c | 5,500 | 4,000 1,500 | Expense (Capital decreased) Cash balance decreased Debts increased | Cash 69,000 - Decrease 4,000 65,000 Bank balance 11,000 Stock of goods 27,000 Dues 2,500 | Capital 1,09,500 - Rent (Expense) 5,500 1,04,000 | + | Debts 0 + Increases 1,500 1,500 |
| 1,05,500 = | 1,04,000 | + | 1,500 | |||||
| (14) | Donation A/c Dr To Purchase A/c | 2,000 | 2,000 | Expense (Capital decreased) Stock of goods decreased | Cash 65,000 Bank balance 11,000 Stock of goods 27,000 - Decreased 2,000 25,000 Dues 2,500 | Capital 1,04,000 - Donation (Expense) 2,000 1,02,000 | + | Debts 1,500 |
| 1,03,500 = | 1,02,000 | + | 1,500 | |||||
| (15) | Furniture A/c Dr To Prexa Furniture Mart A/c | 15,000 | 15,000 | Asset increased Debts increased | Cash 65,000 Bank balance 11,000 Stock of goods 25,000 Dues 2,500 Furniture 15,000 | Capital 1,02,000 | + | Debts 1,500 + Increases 15,000 16,500 |
| 1,18,500 = | 1,02,000 | + | 16,500 | |||||
| (16) | Drawings A/c Dr To Cash A/c | 6,000 | 6,000 | Capital decreased Cash balance decreased | Cash 65,000 - Decreased 6,000 59,000 Bank balance 11,000 Stock of goods 25,000 Dues 2,500 Furniture 15,000 | Capital 1,02,000 - Drawings 6,000 96,000 | + | Debts 16,500 |
| 1,12,500 = | 96,000 | + | 16,500 | |||||
| (17) (i) | Bank A/c Dr To Bank Interest A/c | 500 | 500 | Bank balance increased Income (Capital increased) | Cash 59,000 Bank balance 11,000 + Increased 500 11,500 Stock of goods 25,000 Dues 2,500 Furniture 15,000 | Capital 96,000 + Bank interest (Income) 500 96,500 | + | Debts 16,500 |
| 1,13,000 = | 96,500 | + | 16,500 | |||||
| (17) (ii) | Bank Charges A/c Dr To Bank A/c | 200 | 200 | Expense (Capital decreased) Bank balance decreased | Cash 59,000 Bank balance 11,500 - Decreased 200 11,300 Stock of goods 25,000 Dues 2,500 Furniture 15,000 | Capital 96,500 - Bank charges (Expense) 200 96,300 | + | Debts 16,500 |
| 1,12,800 = | 96,300 | + | 16,500 | |||||
| (18) | Cash A/c Dr To Pre-received Interest A/c | 2,500 | 2,500 | Cash balance increased Debts increased | Cash 59,000 + Increased 2,500 61,500 Bank balance 11,300 Stock of goods 25,000 Dues 2,500 Furniture 15,000 | Capital 96,300 | + | Debts 16,500 + Increases 2,500 19,000 |
| 1,15,300 = | 96,300 | + | 19,000 | |||||
| (19) | Pre-paid Advertisement A/c Dr To Cash A/c | 2,000 | 2,000 | Dues increased Cash balance decreased | Cash 61,500 - Decreased 2,000 59,500 Bank balance 11,300 Stock of goods 25,000 Dues 2,500 + Increased 2,000 4,500 Furniture 15,000 | Capital 96,300 | + | Debts 19,000 |
| 1,15,300 = | 96,300 | + | 19,000 |
In simple words: This table explains how each business action affects the three main parts of the accounting equation: Assets, Capital, and Liabilities. Every transaction keeps the equation balanced by changing at least two of these parts. For example, starting a business increases both cash (an asset) and capital by the same amount. Buying goods on credit increases goods (assets) but also increases money owed (liabilities). Each line shows the transaction's journal entry, its impact on the accounting elements, and how the total assets always equal the sum of capital and liabilities.
Exam Tip: When solving accounting equation problems, always remember that Assets = Liabilities + Capital. Ensure that after every transaction, the equality holds true. Carefully analyze how each transaction affects specific assets, liabilities, or capital accounts.
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GSEB Solutions Class 11 Accounts Chapter 05 Accounting Equation and Business Transactions
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