Marcum Company was started in 2012 when it issued a note to borrow $6,200 cash. Write an accounting equation, and record the effects of the borrowing transaction under the appropriate general ledger account headings.
The accounting equation is as follows:
Assets = Liabilities + Equity
Now, let's record the effects of the borrowing transaction under the appropriate general ledger account headings:
1. Cash (Asset) increases by $6,200.
Debit: Cash $6,200
2. Notes Payable (Liability) increases by $6,200, representing the amount borrowed.
Credit: Notes Payable $6,200
The accounting equation after this transaction will be as follows:
Assets = Liabilities + Equity
Cash (+$6,200) = Notes Payable (+$6,200)
To write the accounting equation, we need to understand the basic components of the equation. The accounting equation is:
Assets = Liabilities + Equity
Assets represent what a company owns, liabilities represent what a company owes, and equity represents the owners' stake in the company.
In this case, when Marcum Company issued a note to borrow $6,200 cash, it incurred a liability to repay the borrowed amount. Therefore, the accounting equation would look like this:
Assets = Liabilities + Equity
Cash + X = X + X
Since Marcum Company borrowed $6,200 cash, the cash amount in the equation would increase by $6,200:
Cash + $6,200 = X + X
Next, we need to record the effects of the borrowing transaction in the appropriate general ledger accounts. In this case, we would create a new liability account called "Notes Payable" to record the borrowed amount.
The general ledger accounts affected would be:
1. Cash: This is an asset account that would increase by $6,200.
2. Notes Payable: This is a liability account that would also increase by $6,200.
The entry to record the borrowing transaction would be as follows:
Date Account Debit Credit
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- Cash $6,200
- Notes Payable $6,200
By following this transaction entry, the accounting equation would balance:
Assets (Cash) = Liabilities (Notes Payable) + Equity (X + X)