Accounting Equation Problems and Solutions
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Learning Objectives
After studying this problem set, you should be able to:
1. Understand the components of the accounting equation and their relationships.
2. Analyze how business transactions affect assets, liabilities, and owner’s equity.
3. Apply debit-credit rules to maintain the balance of the accounting equation.
4. Solve numerical problems to record and verify changes in the equation.
5. Assess knowledge through MCQs on transaction effects and equation adjustments.
The accounting equation is the foundation of double-entry bookkeeping and explains how every business transaction impacts a company’s financial position. To conduct operations, a business requires funds, which are represented as assets.
Some assets are funded by the owner, known as owner’s equity (capital). If only the owner provides resources, the basic form of the equation is:
Assets = Owner’s Equity (A = O.E.)
In practice, companies often acquire additional assets through borrowing or credit. These obligations are called liabilities. When liabilities are included, the equation becomes:
Assets = Liabilities + Owner’s Equity (A = L + O.E.)
This balance must always hold true
Assets = Liabilities + Owner’s Equity
For a deeper understanding, we’ve provided accounting equation problems with solutions and MCQs below to help you practice and strengthen your concepts.
Problem 1:
Habib Ullah Sadiq is wholesale trader; following transactions are record in Accounting Equation?
i. Commence business with cash Rs. 200,000 and Land Rs. 50,000.
ii. Bought merchandising for cash Rs. 80,000.
iii. Cash sales of worth Rs. 25,000.
iv. Bought goods on credit from Salman of worth Rs. 50,000.
v. Sales on account to Ali Raza Rs. 12,000.
vi. Purchase furniture of the value of Rs. 5,000 by cash.
vii. Received cash form Ali Raza of Rs. 10,000.
viii. Return defective furniture of worth Rs. 1,500.
xi. Paid wages Rs. 1,000, Rent 2,000 and Electricity Bill Payable Rs. 1,500.
Accounting Equation Format Download
Solution:
>> Read Accounting Equation explanation.
Video Lecture: Accounting Equation Problems and Solutions
Click Here To Download Worksheet Used in Video
Click Here To Download Worksheet Used in Video
Problem 2:
Muhammad Faizan Abid had the following transactions. Use accounting equation to show their effect on his Assets, Liabilities and Capital?
a) Invested Rs. 15,000 in cash.
b) Purchased securities for cash Rs. 7,500.
c) Purchased a home for Rs. 15,000: giving Rs. 5,000 in cash and the balance through loan account.
d) Sold securities costing Rs. 1,000 for Rs. 1,500.
e) Purchase an old car for Rs. 2,800 cash.
f) Received cash as salary Rs. 3,600.
g) Paid cash Rs.500 for loan and Rs. 300 for interest.
h) Paid cash for expenses Rs. 300.
i) Received cash for dividend on securities Rs.200.
Solution:
>> Understand Types of Accounts for Accounting Equation Problems and Solutions .
Check your understandings _ Accounting Definition MCQs
(Tab to RIGHT OPTION to see answer.)
Which transaction decreases assets and decreases equity?
Which of the following will not change the total assets?
Revenue earned in cash affects?
Paying cash to settle a supplier’s account will?
When a company borrows cash from a bank?
If a business buys equipment on credit, the accounting equation will?
If assets are $50,000 and liabilities are $20,000, equity equals?
Which will decrease assets and liabilities simultaneously?
Which transaction increases both assets and owner’s equity?
Which of the following best represents the basic accounting equation?
Share your Results:
>>> See More Accounting Definition
Problem 3:
Selected Transactions from Shah Transport Services began on June 1, 2016 by Zahid Shah as?
a. Zahid Shah invested Rs. 600,000.
b. Truck was Purchase by business for Rs. 430,000.
c. Equipment purchased on credit for Rs. 9,000.
d. A bill of Rs. 7,200 for transporting goods was sent to Mr. Ashraf Abbasi, a customer.
e. Cash of Rs. 6,000 is received from the customer who was billed in d.
f. Received Rs. 22,300 is cash for transporting goods.
g. A payment of Rs. 5,000 was made on the equipment purchased in c.
h. Paid expenses of different types for Rs. 1,700 in cash.
i. Equipment of Rs. 1,200 was withdrawn from business for Zahid Shah’s personal use.
Required: Arrange the Assets, Liabilities and Owner’s Equity accounts in an Accounting Equation, using the following account titles: Cash, Trucks, Equipment, Account Receivables, Account Payable and Owner’s Equity:
Accounting Equation Format Download
Solution:
>> Further study Golden Rules of Accounting.
Problem 4:
Prove that the Accounting Equation is satisfied in all following transactions of Wajeeha Ejaz owner of business enterprises?
I. Started business with cash value of Rs. 500,000.
II. Rent paid in advance for a year Rs. 6,000.
III. Purchased merchandising inventory for cash Rs. 80,000 and on account Rs. 20,000 from Mr. Tahir.
IV. Purchased Marketable securities for cash Rs. 100,000.
V. Cash Sales Rs. 30,000 (cost 20,000).
VI. During the period rent expires Rs. 2,000.
VII. Commission paid during the trading was Rs. 1,000.
VIII. Received cash dividend Rs. 4,000 on marketable securities.
IX. Paid to Rs. 19,500 to Mr. Tahir in full settlement.
X. Withdrew inventory for personal purpose by owner of worth Rs. 6,000.
Solution:
>> Practice Journal Entry Problems and Solutions.
Check your understandings _ Accounting Definition MCQs
(Tab to RIGHT OPTION to see answer.)
If liabilities are $10,000 and equity is $25,000, assets are?
Which of the following transactions increases assets and decreases liabilities?
Which transaction increases both assets and liabilities?
Which transaction increases one asset and decreases another asset?
If total assets are $100,000 and liabilities are $40,000, owner’s equity equals?
Which element is missing? Assets = Liabilities + ____?
Which transaction affects only the equity side of the equation?
The effect of drawings on the accounting equation is?
Which of the following leaves total assets unchanged?
Which of the following transactions decreases assets and liabilities?
>>> See More Accounting Definition
Problem 5:
Show the effect of the following transactions upon the Accounting Equation?
June 2017
| 1 | Mr. Salman started business with cash Rs. 80,000, Inventory Rs. 50,000 & Machinery Rs 5,000. |
| 5 | Purchased furniture for cash Rs. 4,000 and purchased goods from Naveed store of Rs. 25,000. |
| 8 | Sold goods to Rashid on credit basis for Rs. 8,000, costing Rs. 6,500. |
| 12 | Open a bank account and deposited Rs. 40,000. |
| 18 | Sold goods for cash Rs. 15,000, which is 20% above cost. |
| 24 | Received Rs. 7,800 from Rashid in full settlement for June 8th transaction. |
| 29 | Paid Rs. 24,700 to Naveed store in full settlement for June 5th transaction by bank. |
| 30 | Paid rent and salaries for the month Rs. 4,000 and wages outstanding for month Rs. 1,000. |
Solution:
>> Read Balance Sheet for better understanding the Balance Sheet Equation.
This page has been developed as a structured academic resource aimed at enhancing conceptual clarity regarding the fundamental principles of the accounting equation. By integrating theoretical explanations with accounting equation problems and solution with MCQs, the material supports an applied learning approach that aligns with the needs of business and accounting students.
The practice exercises provided here illustrate the systematic relationship between assets, liabilities, and owners’ equity, reinforcing the essential balance that underpins all financial reporting. Engaging with these accounting equation problems and solution with MCQs will enable learners to:
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Strengthen their analytical skills in interpreting financial transactions.
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Apply theoretical knowledge to practical scenarios.
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Prepare effectively for academic examinations, quizzes, and professional assessments.
By consistently working through these structured examples, students can develop a solid foundation in accounting principles—an essential competency for further studies in financial accounting, corporate finance, and related business disciplines.
Related Problems
Accounting Equation Exam Questions
Accounting Equation Exercises
References
Mukharji, A., & Hanif, M. (2003). Financial Accounting (Vol. 1). New Delhi: Tata McGraw-Hill Publishing Co.
Narayanswami, R. (2008). Financial Accounting: A Managerial Perspective. (3rd, Ed.) New Delhi: Prentice Hall of India.
Ramchandran, N., & Kakani, R. K. (2007). Financial Accounting for Management. (2nd, Ed.) New Delhi: Tata McGraw Hill.
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Great post! I found the examples of the accounting equation really helpful in understanding how to balance the balance sheet. The solutions provided make it much easier to follow along. Thanks for breaking it down so clearly!
This post really clarified the accounting equation for me! The examples are super helpful in understanding how to apply the concepts to balance sheet scenarios. I appreciated the step-by-step solutions – it made everything so much easier to follow. Thanks for sharing!
thanks
Plz solve depriciation of class 11 question no 3 Frome numerical problem from asmita publication
Thank you for sharing this information
commenced business with cash 200,000. purchase building for cash 50000. Purchase machine on credit base 70000. purchase goods for cash 100000 and 30000 on credit base. sold goods 60000 on cash . he paid outstanding wages 10000. He sold good 10000 costing Rs 8000 for cash. He deposit 10000 cash into bank. He pay bills by cheque 5000. He withdraw goods for Rs 5000 for his personal use.
Kindly Send me the solution of this questio.
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