Question

Using the following formula (D=C) develop and illustrate algebraic step-by-step Debit and Credit system in T account format for Assets, Liabilities, Owners Equities, Revenues and Expenses. Be sure to indicate in the T accounts when a D is negative and when it is positive do likewise for the C.

Answer 1

    Assumption 1. When Inventory is purchased for $20000

Assumption 2 : When Inventory is sold or returned of $25000

Inventory A/c

Debit	Credit
40000	Balance
20000	to Creditors A/c
creditors A/c	25000
35000	Balance ( 40000+20000-25000)

Creditors A/c

Debit	Credit
Balance	60000
Inventory A/c	20000
25000	to Inventory A/c
Balance ( 60000+20000-25000)	55000

Explanation : Assumption 1 : When inventory is purchased for $20000 it will increase the inventory and creditors by 20000

Similarly when inventory is returned for $25000 it decrease the inventory and creditors by 25000.

Assumption 3 : When loan is taken to buy a machine of $6000

Assumption 4 : When machine is sold off to waive off the loan of $10000

Loan A/c

Debit	Credit
Balance	20000
Machinery	6000
10000	Machinery A/c
Balance ( 20000+6000-10000)	16000

Machinery A/c

Debit	Credit
50000	Balance
6000	To loan A/c
loan A/c	10000
46000	Balance ( 50000+6000-10000)

Assumption : When loan is taken to purchase a machinery both items increases by 6000 and when machinery is sold to waive off loan both of them decreases by $10000

Owners Equity

Assumption 5 ; When capital introduced by $10000

Assumption 6 ;When cash withdrawn of $5000

Owner's Equity or Capital

Debit	Credit
Balance	50000
Cash	10000
5000	To cash
Balance	55000

Cash A/c

Debit	Credit
40000	Balance
10000	Capital A/c
Capital A/c	5000
45000	Balance

Both cash and capital increased with introduction of new funds and decrease with withdraw of funds and ultimately net effect of $5000 increase remains same in both.