View Full Version : Expanded accounting equation
 
 rmedina
Apr 23, 2009, 11:27 AM
On the expanded accounting equation Assets = Liabilities + Owners capital-expenses-owners draws I need to complete the amount missing.
 
case 1-Asstes 23,000 Liabilities 11,000, capital stock (A) retained earnings 4,500. I am confused on where to place the retained earnings. 
Is my answer 12,000 for capital stock corrrect?
 morgaine300
Apr 23, 2009, 03:44 PM
It makes more sense if you do the equation:
Assets = Liabilities + Equity
 
This keeps you open to dealing with "equity" using either a sole proprietorship or corporation.  The way you've got it is like for a sole proprietorship.
 
In a corporation, "equity" consists of the stock and the retained earnings.  So the retained earnings of 4500 is part of the equity.  So that gets included in the right side of the equation.  With that info you should be able to do this.
 satyanarayanara
May 1, 2009, 05:19 AM
According to the Equation the assets must be equal to Liabilities
Hence
Assets                       23000
Liabilities                              11000
Retained earnings                   4500
Capital stock                          7500
So according to your answer Capital stock is inclusive of retained earnings