Question

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 owner's equity (Michael Anderson, Capital) b.increase in assets (Cash) and increase in liabilities (Accounts Payable) c.increase in assets (Cash) and increase in assets (Accounts Receivable) d.increase in assets (Accounts Receivable) and decrease in liabilities (Accounts Payable)

Answer 1

Answer:

a.increase in assets (Cash) and increase in owner's equity (Michael Anderson, Capital)

Explanation:

we solve this using the accounting equation

Assets = Liabilities + Equity

The cash would represent currency own by the company. That is the definition of assets. Something own by the company that either is cash or can be converted into cash in the future or help to provide an inflow of cash.

Now, as Asset increase by 15,000 the other side must also increase.

The company has no liability against the owner Thus this will be an equity account Which precisely, it represent the capital of the owners.