Answer:
The effect to the accounting equation is;
a. Assets increase by $85,000 and liabilities increase by $85,000
Explanation:
The accounting equation can be described as a tool that is the basis for the double-entry system of accounting. The accounting tool is utilized especially in a company's balance sheet where the total assets should equal the total liabilities and shareholders equity. This can be expressed using the equation below;
A=L+E
where;
A=assets
L=liabilities
E=shareholder's equity
This can also be written as;
Total assets=Liabilities+shareholder's equity
An asset is anything that has some economic value that is owned by the company. A liability on the other hand represents all items of economic value that the company owes to an entity in the form of a loan. Shareholders equity is the economic value of all the items granted o the shareholders when all the assets and liabilities are liquidated.
Using the expression to determine the effects in Alpha company;
Total assets=$620,000
Liabilities=$260,000
Equity=$360,000
Total assets (620,000)=Liabilities (260,000)+equity (360,000)=620,000
If it buys equipment worth $85,000, it gains an asset worth that value and also since the equipment was bought on credit, the liabilities also increase by the same amount.
Answer:
The effect to the accounting equation is;
a. Assets increase by $85,000 and liabilities increase by $85,000
Explanation:
The accounting equation can be described as a tool that is the basis for the double-entry system of accounting. The accounting tool is utilized especially in a company's balance sheet where the total assets should equal the total liabilities and shareholders equity. This can be expressed using the equation below;
A=L+E
where;
A=assets
L=liabilities
E=shareholder's equity
This can also be written as;
Total assets=Liabilities+shareholder's equity
An asset is anything that has some economic value that is owned by the company. A liability on the other hand represents all items of economic value that the company owes to an entity in the form of a loan. Shareholders equity is the economic value of all the items granted o the shareholders when all the assets and liabilities are liquidated.
Using the expression to determine the effects in Alpha company;
Total assets=$620,000
Liabilities=$260,000
Equity=$360,000
Total assets (620,000)=Liabilities (260,000)+equity (360,000)=620,000
If it buys equipment worth $85,000, it gains an asset worth that value and also since the equipment was bought on credit, the liabilities also increase by the same amount.
Hope this helps :).
