Asked by Yousef Abualhawa on Apr 27, 2024
Verified
Michael Anderson is starting a computer programming business and has deposited an initial investment of $15,000 into the business cash account. Identify how the accounting equation will be affected.
A) increase in assets (Cash) and increase in liabilities (Accounts Payable)
B) increase in assets (Cash) and increase in owner's equity (Michael Anderson, Capital)
C) increase in assets (Accounts Receivable) and decrease in liabilities (Accounts Payable)
D) increase in assets (Cash) and increase in assets (Accounts Receivable)
Initial Investment
The initial amount of money spent to start a project, purchase an asset, or invest in a business venture.
Accounting Equation
The foundational principle of accounting that states assets equal liabilities plus equity.
Accounts Payable
Liabilities representing amounts owed by a company to creditors for purchases of goods and services on credit.
- Examine the effects of owner's contributions and disbursements on the financial well-being of the business.
Verified Answer
TN
T'ong NaruemonMay 03, 2024
Final Answer :
B
Explanation :
The accounting equation is Assets = Liabilities + Owner's Equity. Since Michael Anderson deposited $15,000 into the business cash account, there is an increase in the assets (Cash). Since the money came from Michael's initial investment, there is also an increase in owner's equity (Michael Anderson, Capital). Therefore, the accounting equation is balanced with an increase in both assets and owner's equity. Option A is incorrect because there is no increase in liabilities. Option C is incorrect because there is no increase in accounts receivable and decrease in accounts payable. Option D is incorrect because there cannot be an increase in two different types of assets at the same time.
Learning Objectives
- Examine the effects of owner's contributions and disbursements on the financial well-being of the business.