Question

Cutlets hair salon opened their shop using $10,000 of the owner’s money. how will this transaction impact the accounting equation?

Answer 1

Investing $10,000 in Cutlets hair salon increases both assets and owner's equity by the same amount, with no impact on liabilities, keeping the accounting equation balanced.

Step-by-step explanation:

When the owner of Cutlets hair salon invests $10,000 of their own money into the business, it affects the accounting equation, which is Assets = Liabilities + Owner's Equity. In this case, the salon's assets increase by $10,000 due to the cash infusion. Concurrently, the owner's equity also increases by $10,000, as the owner has a stronger financial claim on the assets of the business. There is no change in liabilities because this transaction does not involve any borrowing. The accounting equation remains balanced, with the increase in assets matched by an increase in owner's equity.