Question from as, How to Process Fitshape Gym’s Transactions Through the Basic Accounting Equation?
Answer from AI:
The basic accounting equation is a fundamental concept in financial accounting. It states that assets (A) are always equal to the sum of liabilities (L) and equity (E). This equation is also known as the balance sheet equation and it forms the basis of double-entry bookkeeping.
In the context of Fitshape Gym’s transactions, the equation would be applied as follows:
1. March 1: Initial Investment
The owner transferred R80,000 from a personal savings account into Fitshape Gym’s bank account and also transferred gym equipment valued at R20,000. This increases the assets of the business (cash and equipment) and also the owner’s equity.
2. March 2: Rent Payment
The business paid R4,000 in rent. This decreases the business’s assets (cash) and also decreases the owner’s equity (as an expense).
3. March 5: Equipment Purchase
The business purchased additional equipment on credit for R54,000. This increases the business’s assets (equipment) and also increases its liabilities (accounts payable).
4. March 7: Personal Withdrawal
The owner withdrew R1,500 from the business for personal use. This decreases the business’s assets (cash) and also decreases the owner’s equity.
5. March 9: Web Development
The business paid R3,000 to a web developer. This decreases the business’s assets (cash) and also decreases the owner’s equity (as an expense).
6. March 30: Gym Fees
The business received R27,000 in gym fees. This increases the business’s assets (cash) and also increases the owner’s equity (as revenue).
7. March 31: Equipment Payment
The business paid the first installment for the equipment purchased on credit. This decreases the business’s assets (cash) and also decreases its liabilities (accounts payable).
Please note: This is a simplified explanation and actual accounting practices may involve more detailed and complex processes. It’s recommended to consult with a professional accountant or financial advisor for personalized advice.
For more information on basic accounting principles, you can refer to the Financial Accounting Standards Board (FASB) or the IRS guide on accounting periods and methods.
The answer is written by AI.
The text above is written by AI, i.e., a computer.
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