Question

During the current year, the assets of Danzler Stationary increased by 300,000, and the liabilities decreased by 120,000. What was the change in the owners equity during the year?

Answer 1

Answer: Owners equity is increased by 420,000 during the year.

Calculation:

Accounting equation is:

ASSETS = LIABILITIES + OWNERS EQUITY

So, change in assets should be equal to change in liabilities + owners equity

Change in asset = +300,000 (asset increased by 300,000)

Change in liability = -120,000 (liability decreased by 120,000)

Change owners equity = ?

As per equation ,

+ 300,000 = -120,000 + Change in owners equity

So, change in owners equity = 300,000 + 120,000 = 420,000(increase)

Let us check this by applying in accounting equation;

300,000 = -120,000 + 420,000

See, both sides of the equation are equal,which means;

assets = liabilities + owners equity