Instructor: Eric Weitner
As you have learned in this week’s readings the Accounting Equation is Assets = Liabilities + Owners’ Equity. Is the accounting equation true in all instances? Provide sample transactions from your own experiences to demonstrate the validity of the Accounting Equation.
Answer- The assets in the accounting equation are the assets of that a company which has available for its use, such as cash, accounts receivable, fixed assets, and inventory. The reason why the accounting equation is so important is that is always right, if it is done correctly - and it forms the information for all the accounting transactions. At a general level, this means that whenever a company makes a recordable transaction, all the choices for recording it all would involve keeping the accounting equation right. My friend invested a bakery business with a capital of $20,000 which increases the cash of a business which means that the asset of the business increases and the owner’s equity capital also increases in the form of capital investment.
Accounting Equation is Assets = Liabilities + Owners’ Equity
Or 20,000= 0 + 20,000 or 20,000 = 20,000
The accounting equation is balanced.
Review several of your peers’ postings and identify some core components that you feel should be included in every transaction. Respond to at least two of your peers and provide recommendations to extend their thinking. Challenge your peers by asking a question that may cause them to reevaluate or add components to their transactions.
What does the term account mean? What are the different classifications of accounts? How do the rules for debits and credits impact accounts? Please provide an example of how debits and credits impact accounts.
Answer- Account means a record or statement of financial expenditure or receipts relating to a particular period or purpose.
What are the different classifications of accounts? There are personal account, real accounts, and nominal account. The accounts which relate to an individual, firm, company are called personal accounts. The accounts of all things whose value can be measured in terms of money are known as real accounts. Nominal account includes the accounts of all expenses and incomes. Commission earned, rent paid, bad debts, rent received, and etc… are good examples.
How do the rules for debits and credits impact accounts? Debit Impact- A debit entry increases any account that appears on the left side of the accounting equation. These accounts included any of the assets owned by the company. For example, the accountant records an increase in inventory, an asset, with a debit entry. A debit entry reduces any account that appears on the right side of the accounting equation. These accounts include the liability and equity accounts. For example, the accountant records a cut in accounts payable, a liability, with a debit. Credit Impact- A credit entry increases any account that appears on the right side of the accounting equation. These accounts include the liabilities and equity accounts. For example, the accountant records an increase in bonds payable, a liability, with a credit entry. A credit entry cuts back on any account that appears on the left side of the accounting equation. These accounts include the asset accounts. For example, the accountant records a decrease in cash, an asset when companies use credit.
Analyze several of your peers’ posts. Let at least two of your peers know if this knowledge could be used in their everyday lives. Is so, how? If not, why not?
Basic Accounting Equations
Please complete each of the exercises below in a word document. Save the document, and submit to in week using the Assignment Submission button.
Week One Exercise Assignment
1. Financial statements are a product of the accounting cycle. Think about two different