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Balance of goods coming in negative while using Basic Accounting equation

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Anurag Gupta

Service

45 Points Posted on 17 May 2021

I was solving a question related to posting of Journal entry for given question. Out of curiosity, I tried to solve it using basic accounting equation i.e. Assets = Liability+ Capital. After completing it I found that Goods balance is in negative. I am sure that I have not made any mistake in it (file attached). Have i done something wrong during the process? If not what does the negative sign signify?

Solution:

Attached File : 3390089 20210516202052 account practice sheet.xlsx downloaded: 114 times

Replies (2)

Quick Summary

This discussion addresses a user's confusion when their goods balance appeared negative after applying the basic accounting equation (Assets = Liabilities + Capital). The explanation clarifies that when cash or goods are spent, retained earnings decrease, which is why the balance sheet still tallies. This reduction in assets is matched by a reduction in liabilities or equity.

CA. Sourav Sarkar

Chartered Accountant

16188 Points Posted on 17 May 2021

Use Golden Rule

yasaswi gomes

My grammar is 💯 good I

5110 Points Posted on 17 May 2021

Asset= liability+capital is true. But when you spend cash or goods, the retained earning will reduce. That is why your balance sheet tallies. Assets reduce, your liabilities reduce. I hope you got it in the other problem as well.