Some individuals, for whatever reason, do not pay income tax or pay less than they should. Often their business transactions are cash transactions, so there is no paper trail to prove how much or how little they actually earned. Canada Revenue Agency, however, has a way of dealing with these individuals; they use a model (based on the accounting equation) to calculate how much the individual must have earned.

Canada Revenue Agency is about to audit Donna Wynn for the period January 1, 2017, to December 31, 2017. Wynn buys and sells collectible coins for cash. Wynn had $8,000 cash and no other assets or liabilities at January 1, 2017.

Required

1. Use the accounting equation (specifically owner's equity) to explain how the Canada Revenue Agency model will be used to audit Donna.

2. What do you think are the accounting concepts underlying the model?