Accounting Equation : The assets, liabilities and equity relation is known as the accounting equation. Assets are the resources of company and that increase as business expand whereas liabilities are the burden on company that has to pay in future; Equity means the owner claim on assets. An accounting equation represent the assets of the company are equal to the liabilities and equity of the company. In can be represented as follow: Assets = Liabilities + Equity Assets: Assets are the resources that a company needs to run the business. An asset is economic resources of the company. Liabilities: Liabilities are generally the amount owned by the company from lenders, suppliers, or bank. Liabilities are the burden on the company that they have to pay to others. Equity: The Company needs finance to run the business. Equity is one of the method through which the company raise the capital. To Identify: The effect of transactions on the accounting equation.

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Question 4Waterfront Inc. wishes to borrow on a short-term basis withoutreducing its current ratio below 1.25. At present its current assetsand current liabilities are $1,600 and $1,000 respectively. How muchcan Waterfront Inc. borrow?

Answer 1

Question

Chapter 1, Problem 12E

To determine

Accounting Equation:

The assets, liabilities and equity relation is known as the accounting equation. Assets are the resources of company and that increase as business expand whereas liabilities are the burden on company that has to pay in future; Equity means the owner claim on assets. An accounting equation represent the assets of the company are equal to the liabilities and equity of the company.

In can be represented as follow:

Assets=Liabilities+Equity

Assets:

Assets are the resources that a company needs to run the business. An asset is economic resources of the company.

Liabilities:

Liabilities are generally the amount owned by the company from lenders, suppliers, or bank. Liabilities are the burden on the company that they have to pay to others.

Equity:

The Company needs finance to run the business. Equity is one of the method through which the company raise the capital.

To Identify: The effect of transactions on the accounting equation.

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