Indicate how each of the following transactions affects the accounting equation.
ID: 2503274 • Letter: I
Question
Indicate how each of the following transactions affects the accounting equation.
a. Purchase of supplies on account.
b. Payment of wages.
c. Cash sale of goods for more than their cost.
d. Payment of monthly utility bills.
e. Purchase of a building with a down payment of cash plus a mortgage.
f. Cash investment by a stockholder.
g. Payment of a cash dividend.
h. Sale of goods on account for more than their cost.
i. Sale of land at less than its cost.
Indicate how each of the following transactions affects the accounting equation. a. Purchase of supplies on account. b. Payment of wages. c. Cash sale of goods for more than their cost. d. Payment of monthly utility bills. e. Purchase of a building with a down payment of cash plus a mortgage. f. Cash investment by a stockholder. g. Payment of a cash dividend. h. Sale of goods on account for more than their cost. i. Sale of land at less than its cost.Explanation / Answer
Basic accounting equation: Assets = Liabilities + Stockholder's Equity
a) The purchase of supplies on account.
increase in supplies (increase in assets)
Accounts Payable (increase in liabilities)
(b) Payment of wages
Payment of wages (decrease in liability)
Cash (decrease in assets)
(c) Cash sale of goods for more than their cost.
Revenue(sale of goods for more than their cost) - increases in stockholder equity
Cashincreases (increase in asset)
(d) Payment of monthly utility bills.
Cash decreases (decrease in asset)
(e) Purchase of a building with a down payment of cash plus a mortgage
Increase in one asset (Building) - increase in asset
Decrease in another asset
Overall no change in asset
(f) Cash investment by a stockholder
Cash account increases(asset increases)
paid-in capital(increases) thus equity increases
(g).Payment of a cash dividend.
Decrease in an asset, decrease in stockholders' equity.
(h).Sale of goods on account for more than their cost.
Increase in asset( Accounts recievables increases)
Increase in sotckholder's equity
(i).Sale of land at less than its cost.
Decrease in one asset(land)
Increase in another asset(cash account)
Overall no change in asset