Question
An owner contributes cash to the business. How does this affect the accounting equation?
Answers
GPT-4o mini
When an owner contributes cash to the business, it affects the accounting equation, which is:
**Assets = Liabilities + Owner's Equity**
In this scenario:
1. **Assets** increase because cash (an asset) is added to the business.
2. **Owner's Equity** also increases because the owner's contribution is considered an investment in the business.
Thus, if the owner contributes, for example, $10,000 in cash:
- **Assets** increase by $10,000 (cash).
- **Owner's Equity** increases by $10,000 (owner's contribution).
The accounting equation remains balanced, as both sides increase by the same amount:
**Assets (increased by $10,000) = Liabilities (no change) + Owner's Equity (increased by $10,000).**
**Assets = Liabilities + Owner's Equity**
In this scenario:
1. **Assets** increase because cash (an asset) is added to the business.
2. **Owner's Equity** also increases because the owner's contribution is considered an investment in the business.
Thus, if the owner contributes, for example, $10,000 in cash:
- **Assets** increase by $10,000 (cash).
- **Owner's Equity** increases by $10,000 (owner's contribution).
The accounting equation remains balanced, as both sides increase by the same amount:
**Assets (increased by $10,000) = Liabilities (no change) + Owner's Equity (increased by $10,000).**