Question

adams a layer invested $20,00in his new legal practice adam,s law & litigation assets cash, equity 20,000 b. purchased $1000 of letterhead paper & legal forms on account whatto account does thiseffect assets, liabilities, equity ,revenue or various exp.ns

Answer 1

Total assets of the business are equal to the sum of liabilities and owners equity.

Assets = Liabilities + Owners Equity

This relationship is maintained for each and every transaction of the firm.

Office supplies are normally consumed within one year. So these are recorded as supplies in hand and effect to current assets in balance sheet. When office supplies are purchased on account the accounting equation will reflect the change as:

Assets = Liabilities + Owner’s Equity

Supplies on hand = Accounts payable + none

$ 1,000 = $ 1,000 + 0

Office consumables for immediate use, increases supplies on hand. Being current assets it will increase assets to an amount of $ 1,000. Accounts payable increases same amount as the supplies is purchased on account, which represents the liability side on the accounting equation whereas owner’s equity will remain unaffected.