Question

Explain how the following transactions affect the accounting equation: assets purchased on credit rent paid in cash office furniture purchased for cash inventory bought on credit

Answer 1

Answer:

1. An increase in asset and an increase in liability

2. The decrease in asset cash.

3. An increase in assets and a decrease in cash.

4. An increase in inventory and an increase in liability.

Explanation:

The asset purchased on credit will increase the fixed asset account and it will also increase the account payable account. Thus, asset and liability have the same effect.

Rent paid in cash will decrease the company’s asset cash.  While the office furniture purchased in cash will increase the assets in the account and cash will be reduced by the same amount. Further, the inventory purchased on credit will increase the inventory and it will also increase the liability by the same amount.