The Greenwood Company purchased equipment costing $900. Greenwood paid $400 in cash and agreed to pay the remaining amount in thirty days. As a result of this transaction:
As a result of this transaction, the Greenwood Company had a purchase of equipment for $900. They paid $400 in cash at the time of purchase and agreed to pay the remaining amount in thirty days.
To determine the specific effect of this transaction, we need to understand the accounting equation:
Assets = Liabilities + Equity
In this case, the equipment represents an asset, and the cash used for payment represents a decrease in another asset.
So, let's break down the effects of this transaction:
1. Increase in Equipment:
- Equipment increases by $900.
2. Decrease in Cash:
- Cash decreases by $400.
3. Increase in Accounts Payable:
- This is the remaining amount that Greenwood agreed to pay in thirty days. So, Accounts Payable increases by $500.
To summarize, the effects of this transaction are an increase in Equipment by $900, a decrease in Cash by $400, and an increase in Accounts Payable by $500.