Question

Anne Wilson, starting her own business, made an investment of a building to the company. The building is valued at $400,000 with a $360,000 outstanding mortgage payable.

The effect of this transaction on the accounting equation of the business would be to:

Answer 1

For business, this transaction will include -

• Inflow (or Increase) of Building (Asset) = $ 400,000
• Inflow (or Increase) of Mortgage payable (Liability) = $ 360,000
• Thus net contribution by owner ( Capital) to the Business= 400000-360000 = 40000

Thus, effect of this transaction on the accounting equation of the business would be to -

Assets = Liabilities + Capital

Asset Increase by 400,000 = Liability Increase by 360,000 + Capital Increase by 40,000