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Homework answers / question archive / Using the accounting equation to analyze transactions: As the manager of Papa Sam's restaurant, you must deal with a variety of business transactions
Using the accounting equation to analyze transactions:
As the manager of Papa Sam's restaurant, you must deal with a variety of business transactions. Give an example of a transaction that has each of the following effects on the accounting equation:
a. Increase one asset and decrease another asset.
b. Decrease an asset and decrease equity.
c. Decrease an asset and decrease liability.
d. Increase an asset and increase equity.
e. Increase an asset and increase liability.
The following accounting equation will be used to calculate the missing information
Total Assets = Total Liabilities + (Stockholders Equity + Retained earnings)
A) Increase one asset and decrease another asset.
The fixed asset is purchased by paying cash will involve an increase in the asset (fixed asset) and decrease asset (Cash)
B ) Decrease an asset and decrease equity.
Loss on sale of a fixed asset will involve a decrease in the asset (reduction in fixed asset ) and loss on sale will reflect in a decrease in retained earnings and in turn decrease in equity
c) Decrease an asset and decrease liability
The accounts payable is paid by cash will result in a decrease in an asset (cash) and a decrease in liability ( reduction in accounts payable)
D). Increase an asset and increase equity
Sales made on account will increase asset (accounts receivable) and retained earnings (equity)
E) Increase an asset and increase liability.
Purchase inventory from vendors on account will increase asset (inventory ) and liabilities (accounts payable)