Hi! Can you tell me how the following transactions are treated in the accounting equation?
1.Transfer from capital to loan 5,000
2.Alloted shares to creditors 1,000
Dear Student,
1) Transfer from Capital to Loan Rs 5,000
=> In this case, Capital is converted into ​Loan. This usually happens when a partner retires from the business and his capital is converted into Loan. So, Capital amount is reduced with Rs 5,000 and it is converted into loan (that means Loan is increasing on the Liabilities side) with the same amount.
2) Allotted shares to Creditors Rs 1,000
=> Here, Creditors are paid through shares of the business. So, when shares are increased, Capital is said to be increased and Creditors are reduced by the same amount.
Both the transactions have its effect on the Liabilities side.
Hope this clarifies your doubt.
Keep posting for further doubts!!
1) Transfer from Capital to Loan Rs 5,000
=> In this case, Capital is converted into ​Loan. This usually happens when a partner retires from the business and his capital is converted into Loan. So, Capital amount is reduced with Rs 5,000 and it is converted into loan (that means Loan is increasing on the Liabilities side) with the same amount.
2) Allotted shares to Creditors Rs 1,000
=> Here, Creditors are paid through shares of the business. So, when shares are increased, Capital is said to be increased and Creditors are reduced by the same amount.
Both the transactions have its effect on the Liabilities side.
Hope this clarifies your doubt.
Keep posting for further doubts!!