Page 347 - Microsoft Word - 00 BA3 IW Prelims STUDENT.docx
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Answers to questions
Example 1: Solution (cont.)
Day 3 Obtained a $1,000 loan.
Assets (cash) increases by $1,000
Liabilities (loan) increases by $1,000
AVO’s accounting equation becomes:
Assets = Equity + Liabilities
$2,000 $1,000 $1,000
Day 4 Purchased goods for $300 cash.
Equity (profit) decreases by $300
Assets (cash) decreases by $300
AVO’s accounting equation becomes:
Assets = Equity + Liabilities
$1,700 $700 $700
Day 5 Sold goods for $400 on credit.
Equity (profit) increases by $400
Assets (receivables) increases by $400
AVO’s accounting equation becomes:
Assets = Equity + Liabilities
$2,100 $1,100 $1,000
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