Question

Owens Industries is trying to increase its profile in the community. As part of this effort, Owens sponsors a Little League baseball team. The cost of sponsorship is $850. What impact does this transaction have on Owens’ accounting equation (A = L + SE)?

Answer 1

Answer:

Assets and stockholder's equity shall be decreased by $850.

Explanation:

Every accounting transaction has an effect on the standard accounting equation, or at least an effect on its components.

Standard Accounting Equation is:

Assets = Liabilities + Stockholder's Equity

As in the given instance the company sponsors, a baseball league, thus, this is an expense.

This will reduce the revenue and ultimately retained earnings which are part of stockholder's equity.

This will also reduce assets in the form of cash outflow made to incur this expense.

Thus, assets and stockholder's equity shall be decreased by $850.