Effect of Transactions on Accounting Equation
Describe how the following business transactions affect the three elements of the accounting equation.
>Paid for utilities used in the business.
(increases assets and decreases assets, or increases assets and decreases liabilities, or decreases assets and increases liabilities, or decreases assets and decreases owner\'s equity, or increases assets and decreases owner\'s equity.)
Solution
The accounting equation is:
Assets = Liabilities + Owner\'s Equity.
The transaction: \"Paid for utilities\" involves 2 accounts - Cash (Asset) & utilities expense (Expense).
Here, Cash will decrease & Utilities expense will increase.
Revenues & Expenses are part of Owners equity (Under Retained earnings component, related as: Ending Retained earnings = Beginning Retained earnings + Revenue - Expenses - Dividends). So:
Cash (Current Asset) will decrease & Owner\'s Equity will decrease.
.
Effect of Transactions on Accounting Equation Describe how the followi.docx
1. Effect of Transactions on Accounting Equation
Describe how the following business transactions affect the three elements of the accounting
equation.
>Paid for utilities used in the business.
(increases assets and decreases assets, or increases assets and decreases liabilities, or decreases
assets and increases liabilities, or decreases assets and decreases owner's equity, or increases
assets and decreases owner's equity.)
Solution
The accounting equation is:
Assets = Liabilities + Owner's Equity.
The transaction: "Paid for utilities" involves 2 accounts - Cash (Asset) & utilities expense
(Expense).
Here, Cash will decrease & Utilities expense will increase.
Revenues & Expenses are part of Owners equity (Under Retained earnings component, related
as: Ending Retained earnings = Beginning Retained earnings + Revenue - Expenses -
Dividends). So:
Cash (Current Asset) will decrease & Owner's Equity will decrease.
