Chapter 1, Problem 12Q

(a)

To determine

Accounting Equation: Accounting equation refers to the equation which is based on the double entry system of accounting. This implies that if there is a change in the assets of the entity, there will be a corresponding effect on the liabilities or owner’s equity of the entity also. The accounting equation is as follows:

$\text{Assets}=\text{Liabilities}+\text{Owner's}\text{Equity}$

To Explain: The terms assets, liabilities and owner’s equity.

(b)

To determine

To Explain: The items which affect the owner’s equity.