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The Accounting Equation is used to develop the organization's financial reports
The Accounting Equation is used to develop the organization's financial reports.
(1) Describe what owners' equity values would be if Assets are $100,000 and Liabilities are $27,000 by showing the Accounting Equation.
(2) Provide an explanation of what accounts could be found in owners' equity.
Expert Solution
(1) Answer: $73,000
Explanation:
The accounting equation is calculated as:
Assets - Liabilities = Owner's equity
$100,000 - $27,000 = $73,000
(2) Owner's equity represents the owner's claim to assets after all liabilities are satisfied. If the business is organized as a sole proprietorship then the owner's equity section would include a capital account that records owners investments. If the business is organized as a corporation the equity section would include accounts such as common stock, preferred stock, additional paid in capital, and retained earnings. Retained earnings is earned capital that is reinvested into the corporation.
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