Provide a numerical example to illustrate the effect of double entry book keeping on transaction.
it must show all debits and credits, and they must all add up to the same value.
A person is running at the rate of 13.0 m/s on a horizontal street directly
toward the foot of a tower 33.0 m high. How fast is the person approaching the top of
the tower when 15.0 m from the foot of the tower?
Sure! Let's consider a simple example of a business transaction involving the purchase of inventory.
Suppose a company, ABC Retail, purchases inventory worth $1,000 from a supplier, XYZ Distributors, on credit. This transaction would be recorded using double-entry bookkeeping.
Here's an illustration of how double-entry bookkeeping records this transaction:
1. Debit: Inventory account ($1,000) - Increase in asset account (reflecting inventory purchase)
2. Credit: Accounts Payable account ($1,000) - Increase in liability account (reflecting the amount owed to the supplier)
Explanation:
To understand the effect of double-entry bookkeeping on this transaction, we need to remember that every transaction has at least two sides or aspects.
In this example, the purchase of inventory affects two different accounts - the Inventory account and the Accounts Payable account.
The first entry, known as the debit entry, increases the value of the Inventory account by $1,000. This reflects the fact that the company now owns additional inventory.
The second entry, known as the credit entry, increases the value of the Accounts Payable account by $1,000. This reflects the fact that the company has incurred a liability to XYZ Distributors and needs to pay them the amount owed.
By following the double-entry bookkeeping system, each transaction has an equal debit and credit entry, ensuring that the accounting equation (Assets = Liabilities + Equity) remains in balance. This allows for accurate financial reporting and analysis.