Explain the relationship between economic resources and claims to economic resources.

Economic Resources pertains to the resources that are the company controls. In short, economic resources are the company's assets. Claims to Economic Resources are the resources of the economic resources. In a company, it is the liabilities and owner's equity.

Why must this equation always balance?

These equation is always balance due to the fact that when you gain something, you give up something. For example, if you buy a candy, you will get a candy but you will lose a penny. These is true in a company as well. The company's assets are either financed by the debt or an investment from the owner.

What transactions increase or decrease owner's equity?

Transactions that increases owner's equity is an additional investment by the owner and net income. Withdrawal of invested capital and net loss can decrease the owner's equity.

How does net income or loss affect owner s equity?

Net Income increases the owner's equity and net loss decreases it.

Give an example of a transaction, applied to the accounting equation.

1. Owner invested $100,000 cash in a sole proprietorship business.

2. Bought a merchandise worth $50,000. Half is paid on cash and the other half is on credit.