Answered: If a company purchased a car for cash,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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.