Question

Question:The expanded accounting equation consists of assets, liabilities, common stock, dividends, revenues, and expenses. It can be used to reveal insights into changes in a company’s financial position.

Required

1. Form learning teamsof six (or more) members. Each team member must select one of the six components, and each team must have at least one expert on each component: (a) assets, (b) liabilities, (c) common stock, (d) dividends, (e) revenues, and ( f) expenses.

2. Form expert teamsof individuals who selected the same component in part 1. Expert teams are to draft a report that each expert will present to his or her learning team addressing the following:

e. Using the transaction and amounts in (d), verify the equality of the accounting equation and then explain any effects on the income statement and statement of cash flows.

3. Each expert should return to his/her learning team. In rotation, each member presents his/her expert team’s report to the learning team. Team discussion is encouraged.

Short answer

Answer

Total assets have been decreased by $3,400, Liabilities by $2,000, and capital by $1,400.

Step-by-step solution

Accounting equation

The accounting equation is the horizontal form of expressing the double-entry system. Under this equation, all the assets are shown on the left side of the equation, and the liabilities and assets are shown on the right side of the equation. The sum of all assets equals the sum of all liabilities and capital.

Accounting equation for described transactions in (d)

Assets = Liability + Equity
Cash -$1000 -$2,000 -$400			= = = =	Accounts payable -$2,000		+	Capital - $1,000 -$400	Revenue
-$3,400			=	-$2,000			-$1,400

This led to net loss of $1,400 because equity section of accounting equation is decrease by $1,400. Cash flow statement shows decrease of $3,400 as cash is decrease by $3,400.