for each of the following items, give an example of a business transaction that has described effect on the accounting equation: Increase an asset and increase a liability. Increase one asset and decrease another asset. Decrease an asset and decrease owner's equity. Decrease an asset and decrease a liability. Increase an asset and increase owner's equity.
For each of the following items, give an example of a business transaction that has the described effect on the accounting equation:
Increase an asset and increase a liability.
Increase one asset and decrease another asset.
Decrease an asset and decrease owner's equity.
Decrease an asset and decrease a liability.
Increase an asset and increase owner's equity.
You should read the discussion on this topic throughout this week to evaluate and respond to your classmates' insights and comments.
In your own words, please post a response to the Discussion Board and comment on other postings. You will be graded on the quality
1. Increase an asset and increase a liability –
Purchase a fixed asset with bank financing.
Purchase inventory on credit
Dr Merchandize inventory
Cr Accounts Payable
To identify business transactions that have the described effect on the accounting equation, we need to understand the components of the equation. The accounting equation is Assets = Liabilities + Owner's Equity.
1. Increase an asset and increase a liability:
An example could be a business taking out a loan. The assets (cash) would increase as it receives the loan amount, and the liability (loan payable) would increase as it now owes the borrowed amount to the lender.
2. Increase one asset and decrease another asset:
For instance, a business purchases equipment by exchanging cash, resulting in an increase in the asset (equipment) and a decrease in the asset (cash) due to the outflow of funds.
3. Decrease an asset, and decrease owner's equity:
One example could be a business paying off its debt. As it makes the payment, the assets (cash) decrease due to the reduction in cash, and the owner's equity (retained earnings) decreases as the payment reduces the company's outstanding debt.
4. Decrease an asset and decrease a liability:
An example might be a business settling a trade payable. As the business pays off its outstanding supplier bill, the assets (cash) decrease due to the payment, and the liability (trade payable) decreases as the debt is cleared.
5. Increase an asset and increase owner's equity:
If a business generates sales, it increases its asset (cash or accounts receivable) through the inflow of revenue. Simultaneously, owner's equity (retained earnings) increases due to the positive effect on profits.
Remember, these examples are simplified illustrations, but in practice, there may be additional factors and accounts involved in recording transactions.