can a company enter into a business transaction that affects only one side of the basic accounting equation?
Yes, a company can enter into a business transaction that affects only one side of the basic accounting equation. The basic accounting equation is:
Assets = Liabilities + Equity
In a transaction, assets are something that the company owns or controls, while liabilities are the debts or obligations the company owes to others. Equity represents the residual interest in the assets of the company after deducting liabilities.
In certain transactions, only one side of the equation may be affected. Here are a few examples:
1. Purchase of equipment with cash: If a company purchases equipment using its available cash, the assets side of the equation (specifically, the equipment account) increases, while the cash account decreases. This type of transaction affects only the assets side.
2. Taking out a loan: When a company takes out a loan from a bank, the liabilities side of the equation increases (specifically, the loan payable account), while the assets side remains unaffected. This transaction does not impact the equity.
3. Owner's investment: When an owner invests additional funds into the company, the assets side remains unchanged, but the equity side increases. In this case, the equity account reflects the owner's capital contribution.
It's important to note that while a transaction may affect only one side of the equation at the time of the transaction, over time, the impact will likely be reflected in both sides as the business operates and engages in more transactions.