Final Answer:
1. Increase in asset and increase in liability — Example: Buying equipment on credit.
2. Decrease in asset and decrease in liability — Example: Paying off a loan with cash.
3. Decrease in asset and decrease in capital — Example: Owner withdraws cash for personal use.
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Explanation:
Let’s break it down like we’re talking about your piggy bank and your debts.
1. When you buy something (like a bike) but don’t pay cash right away — you now have the bike (asset ↑), but you also owe money (liability ↑). So both go up.
2. When you pay back money you borrowed — you lose cash (asset ↓), but you also clear part of your debt (liability ↓). So both go down.
3. When you take money out of your business for yourself — you lose cash (asset ↓), and since that money was yours (capital), your ownership value goes down too (capital ↓).
Think of it like this:
- Assets = what you own
- Liabilities = what you owe
- Capital = what’s really yours after paying debts
So if you change one, you often change another to keep things balanced — just like in math, both sides of an equation must stay equal.
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Parent Tip: Review the logic above to help your child master the concept of accounting equation worksheet.
