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18 June, 13:51

Sergei has $23 000 in assets and $13 200 in liabilities. If Sergei used $3000 of his cash to pay off his bank loan, how would that impact his owner's equity? Use the balance sheet equation to illustrate your answer.

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  1. 18 June, 14:14
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    Balance sheet equation states:

    Assets (A) = Liabilities (L) + Owners equity (E)

    Before paying the loan,

    E = 23000-13200 = $9,800

    After paying the loan in cash,

    E = 23000-13200-3000 = $6,800

    Therefore, paying own's loan reduces owners equity by $3,000.
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