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Answers to questions

Example 2

Returning to Example 1, if we assume that Nadim had the following
transactions during the first week of January:

 Bought office equipment at a cost of $7,000, and paid a $2,000 deposit
by cheque, the balance to be paid at the end of March.
 Returned some of the above office equipment to his supplier because it
was faulty. Nadim had originally been charged $3,000 for these items.
 Received $8,000 from his receivables. They all paid him by cheque.

Required:

How would these transactions affect Nadim’s accounting equation?

Example 2: Solution

Bought office equipment at a cost of $7,000, and paid a $2,000 deposit
by cheque, the balance to be paid at the end of March.
Assets (office equipment) increase by $7,000

Assets (bank balance) decrease by $2,000
Liabilities (payables) increase by $5,000
Nadim’s accounting equation becomes:

Assets = Liabilities + Capital
$327,000 $262,000 $65,000

Returned some of the above office equipment to his supplier because it
was faulty. Nadim had originally been charged $3,000 for these items.

Assets (office equipment) decrease by $3,000
Liabilities (payables) decrease by $3,000

Nadim’s accounting equation becomes:
Assets = Liabilities + Capital
$324,000 $259,000 $65,000

Received $8,000 from his receivables. They all paid him by cheque.

Assets (receivables) decrease by $8,000
Assets (bank balance) increase by $8,000
This has no net effect on Nadim’s accounting equation.

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