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Describe how the following business transactions affect the three elements of the account equation (Assets = Liabilities + Equity): a
Describe how the following business transactions affect the three elements of the account equation (Assets = Liabilities + Equity):
a. Invested cash in business
b. Paid for utilities used in the business
c. Purchased supplies for cash
d. Purchased supplies on account
e. Received cash for services performed
Expert Solution
All business transactions can be shown in the following accounting equation
Total Assets = Total Liabilities + Stockholders Equity
Analysis of all transactions are shown below
| Assets | = | Liabilities | + | Owner's Equity | |
|---|---|---|---|---|---|
| a. | Cash | = | Capital | ||
| b. | (Cash) | = | + | (Expenses) | |
| c. | (Cash) + Supplies | = | + | ||
| d | Supplies | = | Accounts payable | ||
| e | Cash | = | + | Revenue |
Explanation
a. Invested cash in business will increase asset (cash account) and equity account (capital)
b. Payment for utilities will decrease asset (cash account) and equity (expenses)
c. Purchasing supplies for cash will impact asset accounts only. The cash account will decrease and supplies account will increase
d. Purchasing supplies on account will increase both the asset account (supplies) and liabilities (accounts payable)
e. Cash received for services performed will increase both the asset account (cash account) and equity (revenue)
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