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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

What is the effect on the fundamental accounting equation if supplies are purchased on account? How will the fundamental accounting equation change if supplies are purchased with cash? Explain how this purchase will or will not change the owner’s equity.

To determine

Indicate the effect of purchase of supplies on account on the fundamental accounting equation.

Explanation

Accounting equation: Accounting equation is a concept expressed in the form of equation, which creates a relation between resources or assets of a company and claims of resources to creditors and owners. Fundamental accounting equation is expressed as shown below:

Assets = Liabilities + Owners' EquityAssets = Liabilities+{(Owners' Capital)+(Owners' Withdrawals)+(Revenues)(Expenses)}

Transaction: Purchased supplies on account

To determine

Indicate the effect of purchase of supplies with cash on the fundamental accounting equation.

To determine

Describe the reason for no effect of the purchase of supplies either for credit or for cash on the owners’ equity.

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