Accounting equation help please

Ozzy86Ozzy86 New MemberPosts: 7Registered
Hi I am currently studying level 2 and getting ready for BA1 and 2 exams and I am struggling a bit with this exercise:'' Show whether the transaction in the table below would increase, decrease or have no effect on assets, liabilities and capital of Gold ltd. 1.Gold ltd bought office furniture from a credit supplier 2.Gold ltd took out a bank loan and paid the money into the bank current account''.Could you explain me please why there won't be the effect on capital cause everything else will increase is it right?

Comments

  • wbauk2002wbauk2002 Well-Known Posts: 110Registered
    Both increase assets, increase bank accounts and fixed assets, and also increase liabilities as your creating a new creditor and creating a long term liability in the loan
  • wbauk2002wbauk2002 Well-Known Posts: 110Registered
    Sorry didn't read question right, so further, accounting equation is assets - liabilities = capital, debits have increased, and credits have increased by same amounts, so no change in capital as they bet out
  • wabisabiwabisabi Feels At Home Posts: 130Registered
    I'm doing level 2 as well and we have done questions like this in class. I would work it out like this:

    If we say, for example, that prior to the first transaction assets = £5,000 capital = £3,000 and liabilities = £2,000
    capital = assets - liabilities (3,000 = 5,000 - 2,000)

    1. purchase office furniture on credit for say £500 so you increase you assets by £500 but you also increase you liabilities by £500 so the accounting equation now look like this capital = £5,500 - £2,500 = £3,000

    2. this is more or less the same - the bank loan increase your assets (ie money in the bank) but also increases you liabilities by the same amount so there will be no change in the left hand side of the above equation

    Hope this helps
  • Ozzy86Ozzy86 New Member Posts: 7Registered
    thanks a lot
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