Question

Bright Eyes Downtown Diner received a bill of $600 from the White Wine Advertising Agency. The owner, A. A. Bondy, is postponing payment of the bill until a later date. The effect of this transaction on the basic accounting equation is

Answer 1

Asset = Equity + Liability

No Effect = Reduces + Increased

$0 = (-$600) + (+$600)

Step-by-step explanation:

Accounting Equation

Asset = Equity + Liability

As bill received against the advertisement services received from the White Wine Advertising Agency. This transaction will be recorded as follows

Dr. Advertisement Expense $600

Cr. Account Payable $600

The expense entry will increase the operating expenses of the company and decrease the Net income which ultimately reduce the Equity value.

On the other hand the credit entry will create an additional liability for the business. This will increase the Liability.