NIOS Class 10 Accountancy Chapter 4 Accounting Equation

NIOS Class 10 Accountancy Chapter 4 Accounting Equation Solutions to each chapter is provided in the list so that you can easily browse through different chapters NIOS Class 10 Accountancy Chapter 4 Accounting Equation and select need one. NIOS Class 10 Accountancy Chapter 4 Accounting Equation Question Answers Download PDF. NIOS Study Material of Class 10 Accountancy Notes Paper 224.

NIOS Class 10 Accountancy Chapter 4 Accounting Equation

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Also, you can read the NIOS book online in these sections Solutions by Expert Teachers as per National Institute of Open Schooling (NIOS) Book guidelines. These solutions are part of NIOS All Subject Solutions. Here we have given NIOS Class 10 Accountancy Chapter 4 Accounting Equation, NIOS Secondary Course Accountancy Solutions for All Chapters, You can practice these here.

Accounting Equation

Chapter: 4

Intext Questions 4.1

I. Fill in the blanks with correct words: 

(i) Accounting equation is also called as ____________ equation. 

Ans: Balance sheet. 

(ii) Asset = ____________ + Liabilities 

Ans: Capital.

(iii) Accounting equation satisfies the ____________ concept of accounting. 

Ans: Dual aspect.

(iv) Accounting equation serves as a basis for preparing ____________. 

Ans: Balance sheet.

(v) Capital = Assets – ____________. 

Ans: Liabilities. 

(vi) Liabilities = ____________ – Capital. 

Ans: Assets. 

II. 

(i) In accounting equation, assets are equal to 

(a) Capital only. 

(b) Capital + Liabilities. 

(c) Capital – Liabilities. 

(d) Liabilities – Capital. 

Ans: (b) Capital + Liabilities.

(ii) Which of the following lists is a list of assets only? 

(a) Cash, Stock, Debtors, Machinery. 

(b) Cash, Creditors, Loan. 

(c) Capital, Furniture, Bill payable. 

(d) Capital, Prepaid Expenses, Outstanding Expenses. 

Ans: (a) Cash, Stock, Debtors, Machinery.

(iii) Which of the following lists is a list of liabilities only? 

(a) Cash, Stock, Debtors. 

(b) Cash, Loan, Creditors. 

(c) Creditors, Loan, Bank Overdraft, Bills Payable. 

(d) Prepaid Rent, Salary, Outstanding Bills receivables.

Ans: (c) Creditors, Loan, Bank Overdraft, Bills Payable.

Intext Questions 4.2

(i) Goods purchased from Ritu for Rs. 60,000. What effect will the transaction have on the Accounting Equation? 

(a) Increase in assets and increase in liability. 

(b) Increase and decrease in assets. 

(c) Increase and decrease in liability. 

(d) Decrease in assets and decrease in liability. 

Ans: (a) Increase in assets and increase in liability.

(ii) Rent outstanding 2,000. What effect will this transaction have on the Accounting Equation? 

(a) Increase and decrease in assets. 

(b) Increase and decrease in liability. 

(c) Increase in liability and increase in assets. 

(d) Increase in liability and decrease in Capital. 

Ans: (d) Increase in liability and decrease in Capital.

(iii) Interest on drawings amounted to `5,000. What effect will this transaction have on the Accounting Equation? 

(a) Increase and decrease in assets. 

(b) Increase and decrease in liability. 

(c) Increase and decrease in Capital. 

(d) Increase in asset and Increase in liability.

Ans: (c) Increase and decrease in Capital.

1. Answer the following question in (1-10 words).

(i) If a firm borrows a sum of money, what will be its effect on the Accounting Equation?

Ans: The accounting equation is:

Assets = Liabilities + Equity.

(ii) Give two examples – one showing the effect only on assets and the other on liabilities only.

Ans: (a) Effects on assets: A company purchases new equipment for its manufacturing process. This transaction affects only assets on the balance sheet. For example:

Before the purchase: Total Assets: Rs. 500,000

After the purchase of equipment worth Rs.100,000:

Total Assets: Rs.600,000.

(b) Effects on liabilities: Suppose a company takes out a loan to finance its expansion. This transaction affects only liabilities on the balance sheet. 

For example:

Before the loan: Total Liabilities: Rs.200,000

After taking out a loan of Rs.100,000:

Total Liabilities: Rs.300,000

(iii) How will you show income received in advance in the accounting equation?

Ans: When a firm receives income in advance, it creates a liability because the firm has an obligation to provide goods or services in the future. This is typically recorded as a liability called “Unearned Revenue” or “Deferred Revenue”. 

Let’s represent this in the accounting equation:

The basic accounting equation is: Assets = Liabilities + Equity.

(iv) If goods costing Rs. 8,000 are sold for Rs. 8,500, how will the capital be affected? 

Ans: Therefore, the capital will increase by the amount of profit earned. In this scenario, the profit earned is Rs. 500. So, the capital will increase by Rs. 500.

The accounting equation after the sale will be: Assets = Liabilities + Capital.

2. Answer the following in (30-50 words)

(i) What is an Accounting Equation?

Ans: The recording of business transactions in books of accounts is based on a fundamental equation called Accounting Equation. This equation expresses the equality of assets on one side and the claims of outsiders and owners or proprietors on the other side. Thus, an Accounting Equation is a mathematical expression which shows that the assets and liabilities of a firm are equal.

(ii) How are revenue and expenses treated in the Accounting Equation?

Ans: Revenue and expenses are treated in the accounting equation based on their impact on equity.

(a) Revenue: Revenue represents the income generated by a business from its primary activities, such as sales of goods or services. When revenue is earned, it increases equity. Therefore, revenue increases the equity portion of the accounting equation.

(b) Expenses: Expenses represent the costs incurred by a business in generating revenue. When expenses are incurred, they decrease equity. Therefore, expenses decrease the equity portion of the accounting equation.

3. “Accounting Equation remains intact under all circumstances” Justify this statement with the help of examples (100-150 words).

Ans: The accounting equation, Assets = Liabilities + Equity, remains intact under all circumstances due to the fundamental principle of double-entry bookkeeping. This principle ensures that every financial transaction has an equal and opposite effect on the equation, maintaining its balance. For instance, when a business borrows money (increasing liabilities), it also receives cash (increasing assets), keeping the equation balanced. Similarly, when a business purchases inventory (increasing assets), it either pays cash or incurs a liability (decreasing assets or increasing liabilities, respectively), once again maintaining equilibrium in the equation. Thus, regardless of the nature of transactions, the accounting equation holds true, reflecting the financial position of the entity accurately.

4. Prepare Accounting Equation on the basis of the following:

(i) Karan started a business with cash Rs. 1,60,000.

Ans: Karan started a business with cash Rs. 1,60,000 introduced as capital.

This transaction means that Rs. 1,60,000 have been introduced by Karan in terms of cash, which is the capital for the business concern. Hence on one hand, the asset (cash) has been created to the extent of Rs. 1,60,000. 

(ii) He purchased furniture for cash Rs.16,000.

Ans: He purchased furniture for cash Rs. 16,000.

This transaction has its effect only on the assets, as one asset has been purchased against the other. In this transaction, furniture is purchased against cash. Furniture and cash both are assets. Hence, furniture is increased by Rs. 16,000 and cash is decreased by Rs. 16,000.