Accounting Equation – Investment Impact

Practice Question

Intro to Financial Accounting
Financial Statements and Business Decisions
Accounting Equation
Short Answer

A company has an accounting equation where total assets equal $500,000, total liabilities equal $300,000, and total shareholder's equity is what amount? Calculate the missing value. If a new investment of $50,000 is made, how will this affect the accounting equation?

Answer +
Final Answer: $200,000; after investment, new SE = $250,000
Explanation +

Step 1: Use the accounting equation:
Assets = Liabilities + Shareholder's Equity

$500,000 = $300,000 + SE
SE = $500,000 – $300,000 = $200,000

Step 2: Add a new investment of $50,000

New Assets = $500,000 + $50,000 = $550,000
Liabilities remain at $300,000
New SE = $550,000 – $300,000 = $250,000

Conclusion: The accounting equation remains balanced at all times, even after the investment.