Question

Perfect Printers is able to obtain 30 days credit terms to purchase a heavy duty printing machine for $200,000. How will this purchase impact the accounting equation of Perfect Printers at the time of the purchase?

Answer 1

Answer:

How will this purchase impact the accounting equation of Perfect Printers at the time of the purchase?

An increase in the assets by $200,000 and a similar increase in liability by $200,000

Explanation:

The accounting equation is the foundation for the double enter system of account balancing. In this system, the amount of debits are entered on one side as the corresponding credit is entered on the other side. Then the total credits are added and compared to the sum of the debit. When the credit equals the debit, the accounts balance. The accounting equation can be expressed as;

A=L+E

where;

A=assets

L=liabilities

E=owner's equity

Lets enter the transaction as shown;

Account type                                   Asset                                Liability

Printing machine                          $200,000

Cash                                                                                       $200,000

Total                                              $200,000                        $200,000

An increase in the assets by $200,000 and a similar increase in liability by $200,000