If a company purchased a car for cash, total assets did not increase
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
If a company purchased a car for cash, total assets did not increase
Group of answer choices
True
False
Expert Solution
Step 1
Cash is the current asset & Car is the Non-current asset.
Both the Car & Cash will be the part of total assets.
In the given case, Company purchased the car for cash.
The Journal entry for the above transaction is,
| Car A/c Dr | xxx | |
| To Cash A/c | xxx | |
| (Being car purchased for the cash) | ||
From the above entry it is clear that the assets were increased by the amount paid to the car & the assets were also decreased by the cash. Non current asset(Car) increases & current asset(Cash) decreases. The net effect to the total assets is nil as there was an increase in the non current asset & there is a decrease in the current assets.
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