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N.E. 3,01,000 + 20,000 + 10,000 = 3,06,000 + 10,000 + 5,000

Explanation:-The transaction will effect both sides as Prepaid Income is a Liability
should be shown in the Liability side & Cash received by the business should be

added back to the Cash column of assets side.

2. Transaction affecting one side of the equation:
(I) Transaction affecting Assets side of the equation:
· Transaction related to Prepaid or Advance Expense

As Expense paid in advance so it is not belong to current financial year, so it can
not be deducted from Capital. It as an amount which is paid by the business firm

for the future course of activity till the activity not happened it is the Assets of the
business.

A. Prepaid insurance paid Rs. 4,000
Effect

Assets = Capital + Liabilities

Cash Goods Accured Prepaid Capital Creditors Prepaid

Income Expense Rent

Old Equation 3,01,000 + 20,000 + 10,000 – = 3,06,000 + 10,000 + 5,000

Transactions – 4,000 + 0 + 0 + 4,000 = + 0 + 0 + 0

N.E. 2,97,000 + 20,000 + 10,000 + 4,000 = 3,06,000 + 10,000 + 5,000

Explanation:- The transaction will affect both sides as Prepaid expense is a Asset
should be shown in the Assets side & Cash paid by the business should be
deducted from Cash column of assets side.
B. Purchased Machinery for Cash Rs. 80,000
Effect
Assets = Capital + Liabilities

Cash Goods Accured Prepaid Machinery Capital Creditors Prepaid

Income Expense Rent

Old Equation 2,97,000 + 20,000 + 10,000 + 4,000 – = 3,06,000 + 10,000 + 5,000