Answer:
Elaine's Inflatables
The effects of the business transactions on the accounting equation for Elaine’s Inflatable.
a. Increase asset,(Cash); Increase Equity (Common Stock) by $10,000
b. Increase asset, (Equipment); Increase Liabilities (Accounts Payable) $5,000
c. Increase asset, (Supplies); Decrease asset, (Cash) $400
d. Increase asset, (Cash); Increase Equity (Retained Earnings) $2,500
e. Decrease asset, (Cash); Decrease Equity (Retained Earnings) $400
f. Decrease asset, (Cash); Decrease Equity (Retained Earnings) $1,000
g. Increase asset, (Accounts Receivable); Increase Equity (Retained Earnings) $1,000
h. Decrease asset, (Cash); Decrease Equity (Retained Earnings) $1,000
i. Increase Liabilities (Utilities Payable); Decrease Equity (Retained Earnings) $250
Explanation:
To explain the accounting equation in action, Elaine's Inflatable business transactions will always show the effects on the accounting equation. This equation states that Assets are always equal to Liabilities Plus Equity with every given transaction. This equation implies that two or more accounts are impacted by each transaction and the effect is always to keep the accounting equation in balance. For example, the payment of rent of $1,000 decreases the asset (Cash) and decreases the equity (Retained Earnings) side of the accounting equation by the same amount.
