For each of the following items give an example of a business transaction that has the described effect on the accounting equation:

Question

increase an asset and increase a liability

increase one asset and decrease another asset

decrease an asset and decrease owners equity

decrease an asset and decrease a liability

increase an asset and increase owners equity

Answer 1

increase an asset and increase a liability : Purchased supplies on account. Increases supplies (asset) and increases accounts payable (liability).

increase one asset and decrease another asset: Purchased supplies with cash. Increase supplies (Asset) decrease cash (Asset).

decrease an asset and decrease a liability: Paid for purchases on account with cash. Decrease cash (asset) and decrease accounts payable (liability).


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