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Celery Company has assets of $150,000, liabilities of $90,000, and equity of $60,000. It buys supplies for cash $5,000. What effect would this transaction have on the accounting equation?

Respuesta :

Samawati

Answer:

Assets increase by $5,000 increase, equity  decrease by $5000

Explanation:

The accounting equation is expressed as below.

Assets = Liabilities + shareholders equity

  • Assets are valuable items that the business owns.
  • Liabilities are the debts of the business.
  • Shareholder equity is the owner's capital, plus the retained earnings.

The transaction by Celery Company involves buying supplies valued at $5000 by cash.

  • Since celery paid cash, no liabilities were incurred. The shareholder money (Equity) decreased by $5000.
  • Supplies worth $5000 were acquired.  The suppliers belong to the business; they are valuable items( assets) to the business.