how will the fundemantal accounting equtation (assets=liabilities+owners equity) change if supplies are purchased on account? explain how tgis purchase will or will not change the owner's equity?
i thought maybe if the company buys 1000.00 on office supplies account it would increase the asset by 1000.00 and the liabilities would also increase by 1000.00, therefore the owner's equity would stay the same until the office account is paid for. Am i on the right track please help the queen thank you....
You are correct. Then, when paid for, the liabilities reduces by 1000 and owners equity increases by a like amount. As the supplies are used up, hopefully, the assets increases by at least that amount and owners equity inceases even more.
thank you bobpursley
You're on the right track! When supplies are purchased on account for $1000, it increases the assets by $1000 (specifically in the "Supplies" account) because you now have $1000 worth of supplies. However, at the same time, it also increases the liabilities by $1000 (specifically in the "Accounts Payable" account) because you now owe $1000 to the supplier.
So, based on the fundamental accounting equation (Assets = Liabilities + Owner's Equity), the assets have increased by $1000 and the liabilities have also increased by $1000. Since the equation needs to remain balanced, the owner's equity will remain the same.
However, once the company pays off the accounts payable and settles the $1000 debt, the liabilities will decrease by $1000. At this point, the owner's equity will increase by $1000 because the company no longer owes that amount to anyone else.
It's important to note that the owner's equity may continue to change as the supplies are used up. If the supplies are indeed used for business purposes and contribute to generating revenue, it is expected that the assets will increase by at least the same amount as the supplies used, and potentially more. This, in turn, would further increase the owner's equity.