Began his business with equipment valued at 40,000 and place 400,000 in the business checking account.
What accounts will be decrease or increase?
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To determine which accounts will be increased or decreased, we need to understand the basic accounting equation. The basic accounting equation states that Assets = Liabilities + Owner's Equity.
In this scenario, when the business owner starts his business, he invests equipment valued at $40,000 and places $400,000 in the business checking account. Let's break down the accounts affected:
1. Equipment: The value of the equipment is increased by $40,000. Therefore, the Equipment account will be increased by $40,000.
2. Cash/Business Checking Account: The business owner deposits $400,000 into the business checking account. This increases the cash or checking account by $400,000.
3. Owner's Equity: As the business owner invests both the equipment and cash into the business, it will increase the owner's equity in the business. The total increase in the owner's equity will be $440,000 (sum of the equipment value and cash deposited).
To summarize:
- Equipment account will increase by $40,000.
- Cash or Business Checking account will increase by $400,000.
- Owner's Equity will increase by $440,000.