Question

exercise 1-14 (algo) identifying effects of transactions on the accounting equation lo p1
identify the impact of each of the given transactions on the accounting equation.

transaction	impact
b the company pays cash toward an account payable
c the owner invests land in the business
d the company purchases supplies for cash
e the company pays this period’s electricity bill
f the company pays workers for wages earned

impact options (dropdown): decreases an asset and decreases a liability. decreases an asset and decreases equity. increases an asset and decreases an asset. increases an asset and increases a liability. increases an asset and increases equity.

Explanation:

To solve this, we analyze each transaction using the accounting equation (\( \text{Assets} = \text{Liabilities} + \text{Equity} \)):

Transaction (a): Company purchases supplies on credit

• Step 1: Purchasing supplies (an asset) on credit means we receive supplies (increase asset: Supplies).
• Step 2: Credit purchase creates a debt (increase liability: Accounts Payable).
• Impact: \( \boldsymbol{\text{Increases an asset and increases a liability}} \).

Transaction (b): Company pays cash toward an account payable

• Step 1: Paying cash (an asset) decreases the asset (Cash).
• Step 2: Paying off a debt (Accounts Payable, a liability) decreases the liability.
• Impact: \( \boldsymbol{\text{Decreases an asset and decreases a liability}} \).

Transaction (c): Owner invests land in the business

• Step 1: Receiving land (an asset) increases the asset (Land).
• Step 2: Owner’s investment increases equity (Owner’s Capital).
• Impact: \( \boldsymbol{\text{Increases an asset and increases equity}} \).

Transaction (d): Company purchases supplies for cash

• Step 1: Purchasing supplies (an asset) increases the asset (Supplies).
• Step 2: Paying cash (an asset) decreases the asset (Cash).
• Impact: \( \boldsymbol{\text{Increases an asset and decreases an asset}} \).

Transaction (e): Company pays this period’s electricity bill

• Step 1: Paying cash (an asset) decreases the asset (Cash).
• Step 2: Paying an expense (Electricity Expense) decreases equity (since expenses reduce net income, which affects equity).
• Impact: \( \boldsymbol{\text{Decreases an asset and decreases equity}} \).

Transaction (f): Company pays workers for wages earned

• Step 1: Paying cash (an asset) decreases the asset (Cash).
• Step 2: Paying wages (an expense) decreases equity (wages expense reduces net income, affecting equity).
• Impact: \( \boldsymbol{\text{Decreases an asset and decreases equity}} \).

Final Answers (Matching Transactions to Impacts):

Transaction	Impact
b	Decreases an asset and decreases a liability.
c	Increases an asset and increases equity.
d	Increases an asset and decreases an asset.
e	Decreases an asset and decreases equity.
f	Decreases an asset and decreases equity.

Answer:

To solve this, we analyze each transaction using the accounting equation (\( \text{Assets} = \text{Liabilities} + \text{Equity} \)):

Transaction (a): Company purchases supplies on credit

• Step 1: Purchasing supplies (an asset) on credit means we receive supplies (increase asset: Supplies).
• Step 2: Credit purchase creates a debt (increase liability: Accounts Payable).
• Impact: \( \boldsymbol{\text{Increases an asset and increases a liability}} \).

Transaction (b): Company pays cash toward an account payable

• Step 1: Paying cash (an asset) decreases the asset (Cash).
• Step 2: Paying off a debt (Accounts Payable, a liability) decreases the liability.
• Impact: \( \boldsymbol{\text{Decreases an asset and decreases a liability}} \).

Transaction (c): Owner invests land in the business

• Step 1: Receiving land (an asset) increases the asset (Land).
• Step 2: Owner’s investment increases equity (Owner’s Capital).
• Impact: \( \boldsymbol{\text{Increases an asset and increases equity}} \).

Transaction (d): Company purchases supplies for cash

• Step 1: Purchasing supplies (an asset) increases the asset (Supplies).
• Step 2: Paying cash (an asset) decreases the asset (Cash).
• Impact: \( \boldsymbol{\text{Increases an asset and decreases an asset}} \).

Transaction (e): Company pays this period’s electricity bill

• Step 1: Paying cash (an asset) decreases the asset (Cash).
• Step 2: Paying an expense (Electricity Expense) decreases equity (since expenses reduce net income, which affects equity).
• Impact: \( \boldsymbol{\text{Decreases an asset and decreases equity}} \).

Transaction (f): Company pays workers for wages earned

• Step 1: Paying cash (an asset) decreases the asset (Cash).
• Step 2: Paying wages (an expense) decreases equity (wages expense reduces net income, affecting equity).
• Impact: \( \boldsymbol{\text{Decreases an asset and decreases equity}} \).

Final Answers (Matching Transactions to Impacts):

Transaction	Impact
b	Decreases an asset and decreases a liability.
c	Increases an asset and increases equity.
d	Increases an asset and decreases an asset.
e	Decreases an asset and decreases equity.
f	Decreases an asset and decreases equity.