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Back a step
| Scabernac
Posts: 2,545 Status: Lord Karma: +377 [+1] [-1]   |
Subject: I remember this question... | |||||
| We had to do the same thing in first year accounting, but had to explain it in terms of assets and liabilities rather then SharpMoon's method; of course the answer is still the same... Although we used CAD lol Opening Balances Cash = 0 Shirts = 0 Accounts Payable (Mom) = 0 Accounts Payable (Dad) = 0 Equity = 0 Transaction 1 - Borrowing From Mom and Dad Debit Cash 100 --- Credit Accounts Payable (Mom) 50 --- Credit Accounts Payable (Dad) 50 Transaction 2 - Buying the shirt Debit Shirt 97 --- Credit Cash 97 Transaction 3 - Paying back Mom and Dad $1 each Debit Accounts Payable (Mom) 1 Debit Accounts Payable (Dad) 1 --- Credit Cash 2 Final Balances Cash = 1 Shirt =97 Accounts Payable (Mom) = 49 Accounts Payable (Dad) = 49 Equity = 0 Assets must equal Liabilities + Equity, but there is no equity in this situation so assets only have to equal the liabilities. Assets involved being Cash and Shirt (1 + 97 = 98), while liabilities are the two Accounts Payable accounts (49 + 49 = 98). Therefore nothing is amiss in terms of this non-existent 'missing dollar' since your assets (what you have; $98) equals your liabilities (what you still owe; $98) plus equity (what you put in; $0). So same answer in a way as SharpMoon's, but the methodology is completely different... that question earned me three bonus marks back then though lol. |
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