When dividends are paid in cash, then the accounting entry will be to debit the dividends account and credit cash account. The balance in dividends account will increase while the balance of cash account will drop. Thus, both the assets and shareholder’s equity will reduce (Kimmel, Weygandt, Kieso, Trenholm, and Irvine 124).
Income tax is an expense. Therefore, payment of taxes will cause an increase in the account and a subsequent decline in cash. The income tax expense account will be debited while cash account will be credited. When analyzing the accounting equation, this transaction will lead to a decline in both assets and stockholders’ equity ((Kimmel et al. 124).
Inventory is an asset in the business. Purchase of inventory on account will increase the inventory balance and an increase the accounts payable account. Thus, the inventory account will be debited while accounts payable account will be credited. The transaction will cause an increase in both assets and liabilities.
Land is an asset. Purchase of land will cause an increase in that account and a corresponding increase in the loan account. The accounting entry will be to debit land account and credit bank loan payable account. The effect on the accounting equation will be an increase in both assets and liabilities.
Sale is a revenue account and it has a credit balance. When commodities are sold on credit, the both the sales revenue account and accounts receivables will increase. Therefore, accounting entry will be to credit sales account and debit accounts receivables. This will have an effect of increasing both the assets and stockholder’s equity.
Comparative analysis: Shoppers Drug Mart and Jean Coutu
Shoppers Drug Mart
Basic accounting equation
Amounts in thousands of Canadian dollars
Expanded equation
Jean Coutu
Basic accounting equation
The amounts are in millions of Canadian dollars
Expanded equation
A review of accounting equations of the two companies shows that a significant proportion of assets are financed by shareholders’ equity and not debt. Besides, Shoppers Drug Mart has a higher proportion of debt as compared to Jean Coutu.
Reference
Kimmel, Paul, Jerry Weygandt, Donald Kieso, Barbara Trenholm, and Wayne Irvine. Financial Accounting: Tools for Business Decision Making, Toronto, Canada: John Wiley & Sons, 2014. Print.