Question

Indicate whether each of the items would increase, decrease or no effect on cash. Assume all items are cash transactions. Cash Effect 1. Purchase of goods for resale 2. Issue of common shares 3. Sale of equipment that the company has finished using 4. Receipt of bank loan 5. Purchase of long-term investment 6. Purchase of equipment 7. Sale of merchandise to customers 8. Payment of salaries to employees 9. Sale of long-term investment 10. Repayment of loan owed to bank 11. Payment of dividends 12. Payment of interest on money borrowed from bank

Answer 1

Answer & Explanation:

Transactions                                               Effect on Cash

1. Purchase of goods for resale             decreases on purchases

When goods are purchased cash is decreased unless they are sold.

2. Issue of common shares                            Increases

On Issuing shares money is collected so it increases cash.

3. Sale of equipment that the company has finished using   increases

Sale of equipment increases cash.

4. Receipt of bank loan                                     Increases

Bank Loan increases the current cash as more cash is added.

5. Purchase of long-term investment         decreases on purchases

Long term investment decrease cash unless they are sold for a profit

6. Purchase of equipment                           decreases on purchases

Purchase of equipment decreases cash

7. Sale of merchandise to customers                          Increases

Sales increase the cash if credit sales are not considered

8. Payment of salaries to employees                      decreases

Payment of salaries to employees decreases cash

9. Sale of long-term investment                                Increases

Sale of long-term investment Increases as it yields profit.

10. Repayment of loan owed to bank                     decreases

Repayment of loan owed to bank decreases as cash is paid to the bank.

11. Payment of dividends                                     decreases

Payment of dividends decreases cash as they are the repayments of the share holder's capitals .

12. Payment of interest on money borrowed from bank decreases

Payment of interest on money borrowed from bank decreases as cash is deposited in the bank for the interest accrued.

All payments and purchases ( other than credit ) decrease cash. All receipts and sales ( other than credit ) increase cash.

These transactions effects are only on the current cash account. They do not predict future profits or losses.