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M4 Assignment 1 Discussion Assignment 1 Discussion—The Accounting Equation Why must this equation always balance? • What transactions increase or decrease owner’s equity? • How does net income or loss affect owner’s equity? • Provide an example of a trans

M4 Assignment 1 Discussion

Assignment 1 Discussion—The Accounting Equation Why must this equation always balance?

·       What transactions increase or decrease owner’s equity?

·       How does net income or loss affect owner’s equity?

·       Provide an example of a transaction, applied to the accounting equation.

 

Response:

 

Our textbook illustrates the fundamental accounting equation as assets equaling the sum of liabilities and owner equity. Assets are defined as what is owned. Liabilities are defined as what is owed to others. Owner equity is defined as the difference between assets and liabilities represented as owner equity or shareholder equity. By definition this equation must remained balanced. A business with large liabilities and small equity in comparison to its assets will typically fall under economic pressure.

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