Question
What is the effect of the following transactions on the accounting equation, A debtor paid R20 000.
A.
Increase in assets and increase in equity
B.
Increase in assets and decrease in liabilities
C.
Increase in liabilities and decrease in equity
D.
Decrease in assets and increase in assets
A.
Increase in assets and increase in equity
B.
Increase in assets and decrease in liabilities
C.
Increase in liabilities and decrease in equity
D.
Decrease in assets and increase in assets
Answers
GPT-4o mini
When a debtor pays R20,000, the effect on the accounting equation (Assets = Liabilities + Equity) is as follows:
- **Assets**: The cash or bank balance increases by R20,000 because you receive payment from the debtor.
- **Liabilities**: There is no direct impact on liabilities because the payment from a debtor does not create or settle any new liabilities.
- **Equity**: There is no immediate effect on equity from the transaction itself; however, the payment is a collection of a receivable which reflects prior income, thus indirectly relating to equity.
Therefore, the correct choice is:
**A. Increase in assets and increase in equity**
This is because when the debtor pays, the asset (cash) increases, and this payment is tied to previous sales (revenue), which ultimately affects retained earnings, a part of equity.
- **Assets**: The cash or bank balance increases by R20,000 because you receive payment from the debtor.
- **Liabilities**: There is no direct impact on liabilities because the payment from a debtor does not create or settle any new liabilities.
- **Equity**: There is no immediate effect on equity from the transaction itself; however, the payment is a collection of a receivable which reflects prior income, thus indirectly relating to equity.
Therefore, the correct choice is:
**A. Increase in assets and increase in equity**
This is because when the debtor pays, the asset (cash) increases, and this payment is tied to previous sales (revenue), which ultimately affects retained earnings, a part of equity.