Question

c) For each of the following, give an example of a transaction that creates the described effects:
a) Decreases a liability and decreases an asset
b) Increases an asset and decreases another asset
c) Decreases an asset and decreases owners’ equity
d) Increases a liability and decreases owners’ equity
e) Increases an asset and increases a liability
f) Decreases an asset and decreases a liability

Answer 1

Answer:

Effect

Example

i. Increase in asset and decrease in another asset

i. Sale of goods for cash.

Increase in cash and decrease in goods.

ii. Decrease in liability and increase in another liability

ii. Bills payable issued to creditors.

Increase in bill payable and decrease in liability

iii. Decrease in asset and decrease in owner’s equity

iii. Drawings by the proprietor Decrease in liability (capital) and decrease in asset (cash or bank)

iv. Increase in asset and increase in owner’s equity

iv. Introduction of capital by the proprietor increases asset (cash or bank) and also liability (capital)

Explanation: