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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Effect of transactions on accounting equation

Describe how the following business transactions affect the three elements of the accounting equation:

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.

To determine

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relation between resources or assets of a company and claims of resources to creditors and owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Owners' EquityAssets = Liabilities+{(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}

To analyze: Business transactions by indicating their effects on accounting equation

Explanation

  1. a.  Cash invested in business: As the cash is received, assets increase; cash is being invested in the business, owner's equity increase.
  2. b. Paid for utilities used in business: As the cash is paid, assets decrease; payment of utilities is an expense, hence the owner's equity decrease.
  3. c...

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