Question

Create a post about the accounting equation, elements and effects on elements through a increase or decrease. Requirement 2: State the accounting equation and which accounting element or elements the post will concentrate on. Requirement 3: Give an example of a journal entry and specify effect on each element.

Answer 1

Requirement 1.

Acounting Equation:

Assets = Liability + Shareholders' Equity

The accounting equation is considered to be the foundation of the double-entry accounting system. On a company's balance sheet, it shows that a company's total assets are equal to the sum of the company's liabilities and shareholders' equity.

Based on this double-entry system, the accounting equation ensures that the balance sheet remains “balanced,” and each entry made on the debit side should have a corresponding entry (or coverage) on the credit side.

Requirement 2.

Assets

Assets include cash and cash equivalents or liquid assets, which may include Treasury bills and certificates of deposit. Accounts receivables are the amount of money owed to the company by its customers for the sale of its product and service. Inventory is also considered an asset.

Liabilities

Liabilities are what a company typically owes or needs to pay to keep the company running. Debt, including long-term debt, is a liability, as are rent, taxes, utilities, salaries, wages, and dividends payable.

Shareholders' Equity

Shareholders' equity is a company's total assets minus its total liabilities. Shareholders' equity represents the amount of money that would be returned to shareholders if all of the assets were liquidated and all of the company's debt was paid off.

Requirement 3.

Company X wishes to purchase a $500 Bags but it only has $250 of cash in its holdings. The company is allowed to purchase this Bags with an initial payment of $250 but it owes the manufacturer the remaining amount. This would result in a credit to Equipment (+$500), a credit to Accounts Payable (+$250) and a debit to Cash (-$250)