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For each of the transactions in items 2 through 13, indicate the two (or more) effects on the accounting equation of the business or company.
Information for Items 10 through 13:
If you have any difficulty answering the questions, learn more about this topic by reading our mini-lectures covering introductory to Accounting Equation. Go Top What will happen if the company purchases land by paying half in cash and signing a note?The cost of land purchased is an asset of the business, cash paid shall decrease the assets but cost of land shall increase it & at the same time, the note payable shall be a liability to be paid.
Does purchase of land affect equity?The short answer is that it doesn't impact equity. The reason for this is that the debt incurred through the purchase of the land is balanced out by the acquisition of the land on the ledger. Like a cash purchase, this is a "swap" transaction.
What happens to the owner's asset when the company purchases equipment with its cash?The company purchases equipment with its cash. The asset Equipment will increase. However, the asset Cash will decrease by the same amount. Therefore, the total amount of assets will not change.
What happens to the owner's equity when the company receives cash?If a company provides a service to a client and immediately receives cash, the company's assets increase and the company's owner's equity will increase because it has earned revenue.
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