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Transactions – 80,000 + 0 + 0 + 0 80,000 = + 0 + 0 + 0

N.E. 2,17,000 + 20,000 + 10,000 + 4,000 80,000 = 3,06,000 + 10,000 + 5,000

Explanation:- The transaction will affect one side as cash has been paid for
purchased of machinery & Machine is an fixed asset so it is separately shown in
the asset side as well as cash is to be reduced.
(II) Transaction affecting Liability side of the equation:
· Transaction related to outstanding Expense

As Expense not paid yet or Outstanding but belong to current financial year so it is

deducted from Capital & business has to pay it in near future so it is the liability of
the firm.

A. Salary outstanding Rs. 8,000
Effect

Assets = Capital + Liabilities

Cash Goods Accured Prepaid Machinery Capital Creditors Prepaid Outstanding

Income Expense Rent Exp

Old Equation 2,17,000 + 20,000 + 10,000 + 4,000 + 80,000 = 3,06,000 + 10,000 + 5,000

Transactions – 0 + 0 + 0 + 0 + 80,000 = – 8,000 + 0 + 0 + 8,000

N.E. 2,17,000 + 20,000 + 10,000 + 4,000 + 80,000 = 3,06,000 + 10,000 + 5,000 + 8,000

Explanation:- The transaction will affect Liability side as outstanding expense is a
Liability should be shown in the Liability side & Expense should be deducted from
Capital
· Transaction related to Interest on Capital

As interest on capital is the Expense of business it should be shown or deducted in
the capital as well as interest of capital is the amount which is to be given to the
owner as capital is the amount which is invested by the owner, therefore it is to
be added back to Capital.

A. Interest on Capital Rs. 10,000
Assets = Capital + Liabilities