Chapter 3, Problem 3.1BP

(a)

Accounting equation:

Accounting equation represents the relationship between assets, liabilities and shareholders’ equity. It is the foundation of double entry system and it helps to analyze the business transaction. Accounting equation displays the total assets are equal to the total liabilities and shareholders’ equities. Thus, the accounting equation is,

$\boxed{\text{Assets}\text{=}\text{Liabilities}\text{+}\text{Stockholders'}\text{Equity}}$

Net income:

Net income is the excess amount of revenue left after deducting all the expenses of a company. Simply, it is the difference between the total revenue, and the total expenses of the company.

$\boxed{\text{Net}\text{income}\text{=}\text{Total}\text{revenue}\text{–}\text{Total}\text{expenses}}$

To determine

To show: The effect of each transaction on the accounting equation, and explanation for changes to retained earnings.

(b)

To determine

To compute: the net income of H Incorporation for the month of May.