Journal entries and the accounting equation 1) for the following items, determine the effect of each item on the accounting equation (a = l + e) and record the appropriate journal entries for the following transactions: a. issued common stock for $20,000 cash. b. purchased building for $200,000 cash and a $150,000 note.

Following would be the journal entries:

1. Issue of common stock for cash:

  Cash A/C                            Dr.  $20,000      

         To Common Stock                             $20,000

(Being common stock issued for cash)

Effect on Accounting Equation:

Issue of stock for cash will increase cash balance by $20,000 and at the same time increase equity balance by $20,000

The equation would become:

A + $20,000 = L + E + $20,000

2. Purchased building for $200,000 cash and $150,000 note:

   Building A/C                     Dr. $350,000

         To Cash A/C                                      $200,000

         To Note Payable A/C                        $150,000

(Being building purchased for cash and a note issued for the unpaid balance)

Effect on Accounting Equation:

Building which is an asset, it's purchase would increase the assets side of the equation by total amount i.e $350,000.

Cash which is again an asset, would reduce the asset side of the equation by $200,000

The net effect of the above 2 items will result in an increase to the assets side of equation by $150,000

Notes Payable is a liability and hence it will raise the Liabilities by $150,000.

Thus, the equation would become:

A + 150,000 = L + 150,000 + E

answer; (consensus);

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