Question

Daemon Company paid cash to purchase land. What would show how this event will affect the company's accounting equation? The letters "NA" indicate that the component of the equation is not affected.

Answer 1

The purchase of land with cash by Daemon Company decreases the cash asset while increasing the land asset, keeping the accounting equation (Assets = Liabilities + Equity) in balance, as liabilities and equity are not affected (NA).

Step-by-step explanation:

When Daemon Company paid cash to purchase land, this transaction affects the company's accounting equation. In accounting, the purchase of an asset like land with cash will decrease the company's cash account (an asset) but will increase another asset account (land). As a result, one asset is decreased while another asset is increased, leaving the overall equation balanced.

The accounting equation states that Assets = Liabilities + Equity. In this case, assets are being swapped, cash for land, without affecting liabilities or equity. Since the total amount of assets is unchanged, there is no effect on liabilities or equity. Thus, the accounting equation remains in balance.

Here's how it would look in the equation:

• Assets go down by the amount of cash paid for the land.
• Assets go up by the value of the land acquired.
• Liabilities remain unchanged (NA).
• Equity remains unchanged (NA).