The company borrowed $125,000 in cash from Far West Bank.
a. List the accounts impacted by the transaction.
b. For each account, indicate whether the transaction increased or decreased the account.
c. For each account, indicate how much the transaction increased or decreased the account.
d. Compute the impact of the transaction on total assets, total liabilities, and total owners' equity.
To answer these questions, we need to understand the impact of the transaction and the accounts involved.
a. The accounts impacted by the transaction are:
- Cash: This account will increase as the company borrows $125,000 in cash.
- Notes Payable: This account will increase as the company incurs a liability of $125,000 for the loan.
b. For each account, the transaction will have the following effects:
- Cash: The account will increase by $125,000.
- Notes Payable: The account will increase by $125,000.
c. For each account, the transaction will increase as follows:
- Cash: Increased by $125,000.
- Notes Payable: Increased by $125,000.
d. The impact of the transaction on total assets, total liabilities, and total owners' equity can be computed as follows:
- Total Assets: Since cash is an asset, the transaction will increase total assets by $125,000.
- Total Liabilities: Notes Payable is a liability, so the transaction will increase total liabilities by $125,000.
- Total Owners' Equity: The transaction does not directly impact owners' equity. However, it may indirectly affect owners' equity through changes in retained earnings or additional investments.
In summary, the transaction increases total assets by $125,000, increases total liabilities by $125,000, and does not directly impact total owners' equity.