Purchased inventory on credit from Horn Trading, R34 275.
Deposited cash sales for the first week, R9 000. Inventory is marked up at 50% on cost.
How can I enter this two separate transactions into the accounting equation?
What is the accounting equation?
To enter the two separate transactions into the accounting equation, you will need to consider the double-entry accounting system. This means that for every transaction, there will be at least two accounts affected – one account will be debited (increased) and another account will be credited (decreased).
Let's break down the two transactions and see how they would be entered into the accounting equation:
1. Purchased inventory on credit from Horn Trading, R34 275:
In this transaction, you are buying inventory on credit, which means you will have an increase in inventory and an increase in accounts payable.
To enter this transaction, you would:
Debit: Inventory - R34,275
Credit: Accounts Payable - R34,275
2. Deposited cash sales for the first week, R9,000:
In this transaction, you are depositing the cash sales into your bank account, which means you will have an increase in cash and an increase in revenue.
To enter this transaction, you would:
Debit: Cash - R9,000
Credit: Revenue - R9,000
Note: Since there is no mention of any cost of goods sold or any other expenses associated with the cash sales, we are assuming that the full amount of the cash sales is recorded as revenue.
Now, the updated accounting equation after both transactions would be:
Assets = Liabilities + Equity
(R34,275 inventory - R9,000 cash) = R34,275 accounts payable + R9,000 revenue
Alternatively, you can also represent the transactions using T-accounts or journal entries in a general ledger, but the end result would still be reflected in the accounting equation.