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 owners equity
decrease an asset and decrease a liability
increase an asset and increase owners equity
increase an asset and increase a liability : Purchased supplies on account. Increases supplies (asset) and increases accounts payable (liability).
increase one asset and decrease another asset: Purchased supplies with cash. Increase supplies (Asset) decrease cash (Asset).
decrease an asset and decrease a liability: Paid for purchases on account with cash. Decrease cash (asset) and decrease accounts payable (liability).
Hope these help
To provide examples of business transactions that have the described effects on the accounting equation, it's important to understand the accounting equation itself. The accounting equation is:
Assets = Liabilities + Owners' Equity
1. Increase an asset and increase a liability:
An example transaction that would have this effect is borrowing money from a bank. Let's say a company borrows $10,000 from a bank. This would increase the company's cash (an asset) by $10,000 and also increase their liabilities (the amount owed to the bank) by $10,000.
2. Increase one asset and decrease another asset:
A common example of this type of transaction is when a company purchases inventory for cash. Let's say a company buys inventory worth $5,000, paying cash for it. This transaction would increase their inventory (an asset) by $5,000, but decrease their cash (another asset) by $5,000.
3. Decrease an asset and decrease owner's equity:
An example of this type of transaction is when a company pays its owner a dividend. Let's say a company distributes dividends to its shareholders in the amount of $1,000. This transaction would decrease the company's cash (an asset) by $1,000 and also decrease the owner's equity by $1,000.
4. Decrease an asset and decrease a liability:
A typical example of this transaction would be when a company repays a loan. Suppose a company pays back a loan of $10,000 to a bank. This transaction would decrease their cash (an asset) by $10,000 and also decrease their liabilities (the amount owed to the bank) by $10,000.
5. Increase an asset and increase owner's equity:
A transaction that demonstrates this effect would be when a company receives an investment from its owner in cash. For instance, if an owner injects $20,000 cash into the business, this transaction would increase the company's cash (an asset) by $20,000 and also increase the owner's equity by $20,000.
In general, understanding the accounting equation and its impact on different business transactions can help clarify the effects on the assets, liabilities, and owner's equity as they change.