Business organizations own various types of assets and have various types of lia

Question

Business organizations own various types of assets and have various types of liabilities and my even have various categories of owners equity. A change in the equation occurs when there is either an increase or decrease in assets or ther is an increase or decrease in liabilities and owners equity. However, quite often there are changes that occur within the assets side of the equation or within the liabilities and owners side of the equation that do not affect the equation as such. In the situations described below indicate the nature of the change and whether or not the change affects the equation:

Example: A company issues shares of stock in exchange for cash. Assets increase, owners equity increases and the change affects the equation.

1. Company issues shares of stock in exchange for land.

2. Inventory is sold for cash at cost

3. Company receives money from a debtor

4. Company pays off an amount owed to a creditor

5. Equipment is bought on credit.

6. Wages owed employees are paid

7. A creditor arranges to convert the amount owed into common stock

8. An item previously sold is return

Explanation / Answer

1) Assets increase, owners equity increases and the change affects the equation.

2) Changes on the asset side of the equation aand hence the change doesnt affect the equation

3) Changes on the asset side of the equation aand hence the change doesnt affect the equation

4) Changes on the liability side of the equation aand hence the change doesnt affect the equation

5) Assets increase and also liabilities increase and the change affects the equation

6) Assets decrease and liabilities decrease and the change affects the equation

7) Liabilities decrease and equity increase and the change affects the equation

8) Changes on the asset side of the equation aand hence the change doesnt affect the equation

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