Expert: Mike Wellman - 2/10/2009

Question
I am a teacher(9-12) who has been assigned to teach accounting. A question came up that I couldn't answer. We are working with balance sheets. The transaction: Paid cash for one month of insurance $100.00. The book tells us it would be +$100.00 under Supplies. and -$100.00 under Cash. Why is it not right to -$100.00 from Owners equity

Answer
It would be a debit to insurance expense and a credit to cash. It will not be until the end of the year when all profit & loss (nominal) accounts are closed to income summary and then retained earnings that the expense affects the balance sheet again.