The economic entity assumption states that economic events can be identified with a particular…
The economic entity assumption states that economic events can be identified with a particular unit of accountability.
6. State the basic accounting equation and explain the meaning of assets, liabilities,and owner’s equity. The basic accounting equation is:ASSETS = LIABILITIES + OWNER’S EQUITY (STOCKHOLDER’S EQUITY)Assets are resources owned by a business. Liabilities are creditorship claims on totalassets. Owner’s equity is the ownership claim on total assets. It is often referred toas residual equity.
7. Analyze the effect of business transactions on the basic accounting equation.Each business transaction must have a dual effect on the accounting equation. Forexample, if an individual asset is increased, there must be a corresponding (1)decrease in another asset, (2) increase in a specific liability, or (3) increase inowner’s equity.
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