Bob’s Equity

The accounting equation is described using the following equation

Assets = liabilities + Equity

An Owner’s claims on the businesses are referred to as Equity and therefore the equation can be rearranged as below Ie with an example of Bob a Farmer

Equity($200) = Assets($700) – Liabilities ($ 500)

So Bob in the chart of accounts would have a normal balance which is of type Debit of $200 and if to be liquidated the assets which could be land would be sold off at $700 and the liabilities like salaries at $500 be paid before getting the $200

Can you classify the type of financial statement and the balance of the economic activities mentioned above?

The land mentioned above can produce future services or goods and therefore it is classified as an asset while the salaries are an obligation that needs to be settled and hence a liability

With a focus on the business being registered as a proprietorship and on Bob’s Equity, the following activities can affect Bobs’ Equity

increase Bobs Equity

1. Bob purchased a pickup for the business recorded as owner-capital
2. Bob rents out the barn for a concert and brings in revenue

decrease Bobs Equity

1. Bob goes to the bank and withdraws money from the business not to buy a personal TV
2. Bob paying property tax for the land acts as an Expense