Laura J set up a part-time business 'Speedy Window Cleaning' by depositing
$6000 into a business bank account. Which of the following represents the effect of this transaction on the accounting equation?
A) Increase in assets of $6000; increase in equity of $6000.
B) Increase in assets of $6000; decrease in equity of $6000.
C) Increase in assets of $6000; increase in liabilities of $6000.
D) Decrease in assets of $6000; increase in equity of $6000.

Question

Quizplus · Accepted Answer

The deposit of $6000 into the business bank account is an increase in assets (cash), which would increase the left side of the accounting equation. Since Laura J is the sole owner of the business, the increase in assets also increases her equity in the business, which would increase the right side of the accounting equation by the same amount ($6000). Therefore, the effect on the accounting equation would be an increase in assets of $6000 and an increase in equity of $6000, making choice A the correct answer. There is no effect on liabilities, so choices C and D are incorrect. Choice B is incorrect because it suggests that the transaction has a negative effect on equity, which is not true.

Laura J Set Up a Part-Time Business 'Speedy Window Cleaning