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    The fundamental accounting equation

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    The fundamental accounting equation can be applied to your personal finances. For each of the following transactions, show how the accounting equation would be kept in balance.

    Paid for semester's tuition (decrease assets: cash account; decrease owners' equity: expense account increases).

    1. Took out a school loan for college.

    2. Paid this month's rent.

    3. Sold your old computer for cash at what it cost to buy it.

    4. Received week's paycheck from part-time job.

    5. Received interest on savings account.

    6. Paid monthly payment on car loan (part of the payment is principal; the remainder is interest).

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    Solution Preview

    Hi there,

    First some basic information regarding the basic accounting equation:

    The resources controlled by a business are referred to as its assets. For a new business, those assets originate from two possible sources:

    * Investors who buy ownership in the business
    * Creditors who extend loans to the business

    Those who contribute assets to a business have ...

    Solution Summary

    In this solution, information is given for the basic accounting equation, and then demonstrates how this equation applies to each of the given transactions. It is detailed and well presented.