Question

Owens Industries is trying to increase its profile in the community. As part of this effort, Owens sponsors a Little League baseball team. The cost of sponsorship is $850. How should Owens record this transaction in order to maintain a balanced accounting equation (A = L + SE)?

Answer 1

The Owens Industries should credit $850 to their Assets, denoted by A and debit the sum of $850 to the Stockholder's Equity, denoted by SE.

Explanation:

In the question,

As the Owens industries is trying to increase its profile.

Cost of sponsorship = $850

To maintain the profile he can, by using the transaction accounting balance equation,

A = L + SE

The Owens Industries should credit $850 to their Assets, denoted by A and debit the sum of $850 to the Stockholder's Equity, denoted by SE.

That is,

$850 = L + $850

L = 0

This is how the accounting equation can be balanced.