Increase in an asset, decrease in another asset. b. Increase in an asset, increase in a liability. c. Increase in an asset, increase in stockholders’ equity. d. Decrease in an asset, decrease in a liability. e. Decrease in an asset, decrease in stockholders’ equity.
Q3. Mother Earth delivery service had the following selected transactions during December:
- Received cash from issuance of common stock, $25,000
- Paid rent expense for December, $3,000
- Paid advertising expense, $2,500
- Received cash for providing delivery services, $17,500
- Borrowed $6,980 from TD Bank to finance its operations
- Purchased a deliver van for cash, $12,500
- Paid interest on note from TD Bank, $75
- Paid salaries and wages for November, $6,500
- Paid dividends, $1,500
- Purchased office stationary, $300
Indicate the effect of each transaction on the
a. Increase in an asset, decrease in another asset.
b. Increase in an asset, increase in a liability.
c. Increase in an asset, increase in
d. Decrease in an asset, decrease in a liability.
e. Decrease in an asset, decrease in stockholders’ equity.
Accounting equation is the basis of double entry system of accounting. It shows every transaction have two effect i.e. every transaction is seprated in two accounts. It shows how the debit side is equal to credit side.
It is expressed as ;
Assets = Liabilities + shareholder's equity
There are many possibilities of each transactions i.e.
Increase in one asset, will decreases another asset.
Decrease in one asset, decreases a liability or equity.
Increase in one asset, increases liability or equity.
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