IGCSE Accounting Paper-2: Specimen Questions with Answers 52 - 54 of 189

Passage

Miss. Rosy started a small business as a sole proprietor in the year 2013 and had the following transaction during the year:

  • Commenced business with cash £ 200000
  • Purchases made for cash £ 80000 and credit £ 120000
  • Made Sales of £ 160000 in cash of goods costing £ 120000
  • Rent paid £ 2000 and outstanding rent for the year was £ 400
  • Bought car on credit £ 20000
  • Purchased a mobile phone for personal use £ 20000
  • Purchased a land for cash £ 80000

Question 52 (2 of 7 Based on Passage)

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Show Miss. Rosy՚s balance sheet as on 31.03. 2014.

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Explanation

Balance Sheet of Miss Rosy as on 31.03. 2014
LIABILITIESAMOUNTAMOUNTASSETSAMOUNTAMOUNT
Capital200000Cash178000
Add Profit on sale40000Building80000
240000Stock80000
Less: Drawings (Phone)20000Car20000
220000
Less: Expenses (Rent)2000218000
Creditors: Stock120000
Car20000140000
Outstanding rent400
358000358000

Question 53 (3 of 7 Based on Passage)

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What is the importance of accounting equation in a business?

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Explanation

Accounting equation is said to be the foundation or the stepping stone for the double entry system of book keeping. As per the Accounting equation, in every business:

Assets = Liabilities + Capital, Which means, that all the assets in the business are either financed by the proprietor or by borrowing funds from outside.

Question 54 (4 of 7 Based on Passage)

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What is the other name for accounting equation and how does the name justify itself?

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Explanation

Accounting equation is also otherwise called as the Balance sheet equation. It gets the name of balance sheet because of its basic feature of double entry system. It depicts the fundamental relationship among all the elements present in a balance sheet namely the assets, Liabilities and capital. The equality of the asset and liabilities side of the balance sheet justifies the name of accounting equation as the balance sheet equation.

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