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## Q. 2.1

Look at the following transactions of Andrew Rose. How will they affect the double-entry
equation? Enter the changes to each component of the equation (as pluses and minuses)
in the table below, and then show the overall effect on the double-entry equation. The
changes relating to the first two transactions have been entered as an example.

1 1 January Starts a business by opening a bank account with £4,000

2 2 January Buys goods for resale with a bank transfer of £2,000

3 3 January Sells goods for cash, £700

4 4 January Pays wages £300 by cash

5 5 January Buys stationery from Paper Products valued at £700. Andrew
expects to pay for the stationery in a month’s time

6 6 January Buys a computer with a bank transfer, £1,000

7 7 January Sells goods to Sarah Prince for £820. Sarah hopes to pay in two
months’ time

8 8 January Andrew pays a lottery win of £1,000 into the business bank
account

9 9 January Andrew draws out £100 from the business bank account for his
own use
10 10 January Andrew buys goods for resale costing £1,500 from BiggaBuys,
and intends to pay for them in a month’s time

 Assets £ Expenses £ Liabilities £ Equity £ Income £ 1  +4,000 (Bank) +4,000 2  -2,000 (Bank) + 2,000 (Purchases) 3 4 5 6 7 8 9 10

## Verified Solution

 Assets £ Expenses £ Liabilities £ Equity £ Income £ 1  +4,000 (Bank) +4,000 2  -2,000 (Bank) +2,000 (Purchases) 3  + 700 (Cash) + 700 (Sales) 4  – 300 (Cash) + 300 (Wages) 5 + 700 (Stationery) + 700 (Trade payables) 6  + 1,000 (Computer) – 1,000 (Bank) 7  + 820 (Trade receivables) + 820 (Sales) 8  + 1,000 (Bank) + 1,000 (Equity increase) 9  – 100 (Bank) – 100 (Equity decrease) 10 + 1,500 (Purchases) + 1,500 (Trade payables)

The overall effect of the ten transactions is:

 Assets   Expenses £               £ Liabilities   Equity  Income £                 £          £ $+ 4,120\underbrace{}_{= + 8,620} + 4,500$ $+ 2,200 \underbrace{+ 4,900}_{= + 8,620} + 1,520$