Transcribed Image Text: Exercise 2
Use the table provided to analyze the effect of the following transactions (owner’s equity)
on the accounting equation.
Jackson Shane owns Cleaning and more, an office cleaning company. At the end of the
accounting period on December 31, 2019, Cleaning and more had $210,000 in (assets) and
$55,000 in (liabilities).
+ Capital
Drawing +Revenues – Expense
assets
liabilities
Account
Receivables
Food
Account
Payable
(Cuentas por
Fee
Utilities Rent
Cash
Equipment Supplies cobrar)
earned
expense Expense Expense
To analyze the effect of the given transactions on the accounting equation, we will consider the impact on the different elements of the equation – assets, liabilities, and owner’s equity.
1. Capital:
– An increase in the capital will result in a corresponding increase in the owner’s equity.
– Capital represents the initial investment made by the owner and any additional investments made over time.
– Therefore, any transaction that increases the capital will increase the owner’s equity.
– This can be seen as a positive (+) effect on the owner’s equity.
2. Drawing:
– Drawing represents the withdrawals made by the owner from the business for personal use.
– It reduces the owner’s equity as it represents a reduction in the owner’s investment in the business.
– Therefore, any transaction related to drawing will have a negative (-) effect on the owner’s equity.
3. Revenues:
– Revenues are the amount earned by the business from its primary operations, such as sales of goods or services.
– An increase in revenues will result in an increase in the owner’s equity.
– This can be seen as a positive (+) effect on the owner’s equity.
4. Expenses:
– Expenses represent the costs incurred by the business in order to generate revenues.
– An increase in expenses will result in a decrease in the owner’s equity.
– This can be seen as a negative (-) effect on the owner’s equity.
5. Assets:
– Assets represent the resources owned by the business, such as cash, equipment, and accounts receivable.
– Any transaction that increases an asset will have a positive (+) effect on the accounting equation, as it increases the total value of assets.
– On the other hand, any transaction that decreases an asset will have a negative (-) effect on the accounting equation.
6. Liabilities:
– Liabilities represent the obligations of the business, such as accounts payable or loans.
– An increase in liabilities will result in a decrease in the owner’s equity.
– This can be seen as a negative (-) effect on the owner’s equity.
Analyzing the given transactions:
– The table includes various accounts and transactions that impact different elements of the accounting equation.
– By analyzing each transaction, we can determine its effect on the owner’s equity.
Please provide the specific transaction you would like me to analyze or the numbers associated with each transaction in the table to perform a more detailed analysis.
