3. The basic Accounting Equation can be expressed as A = B + C. Describe A, B an

Question

3. The basic Accounting Equation can be expressed as A = B + C. Describe A, B and C in this basic accounting equation. What is the essence of the accounting equation? (10 Points) 4. Transactions made by Newton Company for the month of June are below. 1.The company provided $21,160 of services for customers on account. 2.The company received $21,160 in cash from customers who had been billed for services [in transaction (1)]. 3.The company received a bill for $3,600 of advertising but will not pay it until a later date. 4.Newton corporation paid a cash dividend of $2,360. a. Describe the expanded Accounting Equation. (4 Points) b. Prepare a tabular analysis that shows the effects of transactions 1-4 on the expanded accounting equation for Newton Company. (16 Points)

Explanation / Answer

The equation that is the foundation of double entry accounting. The accounting equation displays that all assets are either financed by borrowing money or paying with the money of the company's shareholders. Thus, the accounting equation is: Assets = Liabilities + Shareholder Equity. The balance sheet is a complex display of this equation, showing that the total assets of a company are equal to the total of liabilities and shareholder equity. Any purchase or sale by an accounting equity has an equal effect on both sides of the equation, or offsetting effects on the same side of the equation.

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