Chapter 1, Problem 14Q

To determine

Basic Accounting Equation:

The mathematical equation which shows the relationship among the different categories of a balance sheet, such as assets, liabilities, and stockholders’ equity of a company, is referred to as the “basic accounting equation.” It is represented as below:

$\text{Assets}=\text{Liabilities}+\text{Stockholders' equity}$

This relationship between assets, liabilities, and stockholders’ equity is termed as the basic accounting equation, where assets equal the sum of liabilities and stockholders’ equity. In the right hand side of the equation, liabilities always come before stockholders’ equity, since they are paid first when a business is liquidated. The accounting equation is applicable to all types of entities, irrespective of their size and nature of business.

To ascertain: Whether a business can enter into a transaction in which only the left side of the basic accounting equation is affected.