Question

Identify the impact on the accounting equation of the following transactions. 1. Purchased 36-month insurance policy for cash. 2. Purchased supplies on account. 3. Received utility bill to be paid at later date. 4. Paid utility bill previously accrued.

Answer 1

Answer:

Insurance reduces one asset and increases another

Purchase of supplies on account increases liabilities and increases asset

Receipt of unpaid utility bill increases liability and reduces capital

Payment of accrued utility bill reduces asset as well as liability

Explanation:

The purchase of 36-month insurance brings about increase in asset,insurance prepayment  and reduction in another asset,cash.

The purchase of supplies on account brings about increase in liability,accrued liabilities or other accounts payable as well as increase in asset,inventory of supplies.

The receipt of utility bill yet to be paid,increases liability,accrued expenses and reduces capital,since an increase in expenses reduces retained earnings which is an integral part of capital

Payment of utility reduces asset,cash and at the same time reduces liability,accrued expenses