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: Assets = Liabilities + Stockholders' equity Assets Assets are the resources owned by a business to carry out production and sales activities. The assets are associated with a future economic value that can be expressed in terms of monetary values. All the assets are meant to provide future services or benefits. Examples include cash, accounts receivable, land, buildings, equipment, vehicles, investments, etc. Liabilities Liabilities are the obligations against assets that are to be fulfilled in the future. Most of the businesses borrow money or buy goods and services from a supplier on credit. This incurs a future obligation on the businesses, which is to be fulfilled in the future. Examples include loans payable, interest payable, accounts payable, wages payable, etc. Stockholders’ equity The amount invested to a business by its shareholder or the donated capital and earnings from operations less any dividends issued gives the stockholders’ equity. The stockholders’ equity gives the ownership claim on the total assets of a business. The amount left after satisfying the creditors, belongs to the stockholders’ claim on the assets. It also includes common stock and retained earnings . Whether the transactions increased ( + ), decreased (-), or had no effect (NE) on assets, liabilities, and stockholders' equity.

Question

Want to see the full answer?

Answer 1

Question

Chapter 1, Problem 1.6BE

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:

Assets=Liabilities+Stockholders' equity

Assets

Assets are the resources owned by a business to carry out production and sales activities. The assets are associated with a future economic value that can be expressed in terms of monetary values. All the assets are meant to provide future services or benefits. Examples include cash, accounts receivable, land, buildings, equipment, vehicles, investments, etc.

Liabilities

Liabilities are the obligations against assets that are to be fulfilled in the future. Most of the businesses borrow money or buy goods and services from a supplier on credit. This incurs a future obligation on the businesses, which is to be fulfilled in the future. Examples include loans payable, interest payable, accounts payable, wages payable, etc.

Stockholders’ equity

The amount invested to a business by its shareholder or the donated capital and earnings from operations less any dividends issued gives the stockholders’ equity. The stockholders’ equity gives the ownership claim on the total assets of a business. The amount left after satisfying the creditors, belongs to the stockholders’ claim on the assets. It also includes common stock and retained earnings.

Whether the transactions increased (+), decreased (-), or had no effect (NE) on assets, liabilities, and stockholders' equity.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Sophia sold land to Brian. The sales price was $250,000. Sophia paid a commission to a real estate broker of $15,000 and paid other selling expenses of $3,200. Sophia's basis in the land was $135,500. What was Sophia's gain realized on the sale of the land?

provide answer general accounting

The cost of goods sold by York Enterprise for the period is.