Multiple Choice
Which component of the fundamental accounting equation includes the total cost of owning the product or receiving the service?
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1. Introduction to Accounting
Fundamental Accounting Equation
Multiple Choice
Which of the following transactions affects owner's equity?
A
The business purchases equipment with cash
B
The business pays off an accounts payable
C
Owner invests additional cash into the business
D
The business borrows money from a bank
Verified step by step guidance1
Step 1: Understand the concept of owner's equity. Owner's equity represents the owner's residual interest in the business after liabilities are subtracted from assets. It is affected by transactions such as investments by the owner, withdrawals by the owner, and the net income or loss of the business.
Step 2: Analyze the first transaction: 'The business purchases equipment with cash.' This transaction involves exchanging one asset (cash) for another asset (equipment). Since there is no change in the total assets or liabilities, owner's equity is not affected.
Step 3: Analyze the second transaction: 'The business pays off an accounts payable.' This transaction reduces a liability (accounts payable) and reduces an asset (cash). Since there is no direct impact on owner's equity, it remains unaffected.
Step 4: Analyze the third transaction: 'Owner invests additional cash into the business.' This transaction increases both the assets (cash) and owner's equity because the owner is contributing additional resources to the business. This directly affects owner's equity by increasing it.
Step 5: Analyze the fourth transaction: 'The business borrows money from a bank.' This transaction increases both assets (cash) and liabilities (loan payable). Since there is no direct impact on owner's equity, it remains unaffected.
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