What is the effect of each of the following transactions on the three elements (assets, liabilities, and stockholders’ equity) of the accounting equation? a. Invested cash in business in exchange for common stock. b. Paid for business expenses. c. Paid dividends. d. Purchased supplies on account. e. Received cash for services performed.

a. . Invested cash in business in exchange for common stock- Increase in asset and equity

b. Paid for business expenses - Reduction in asset and equity

c. Paid dividends - Reduction in asset and equity

d. Purchased supplies on account - Increase in assets and liability

e. Received cash for services performed - Increase in asset and equity

Explanation:

The accounting equation shows the relationship between the elements of a balance sheet which are assets liabilities and equity. This may be expressed mathematically as

Assets = Liabilities + Equity

While assets include fixed assets, cash, inventories, account receivables etc, liabilities include accounts payable, loans payable, accrued expenses etc.

Equity which represents the amount owed to the owners of the business includes retained earnings (which is the accumulation of the net income/loss over the years less dividends paid) and common shares.