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Business Transactions that Affect the Accounting Equation

For each of the following items, give an example of a business transaction that has the described effect on the accounting equation:

1. Increase an asset and increase a liability.
2. Increase one asset and decrease another asset.
3. Decrease an asset and decrease owner's equity.
4. Decrease an asset and decrease a liability.
5. Increase an asset and increase owner's equity.

Solution Preview

1. Increase an asset and increase a liability.

The company purchases supplies on credit. This will lead to an increase in supplies, asset, and an increase in accounts payable, liability.

2. Increase one asset and decrease another asset.

When the ...

Solution Summary

The solution gives concise potential causes to the transaction that would affect a business' accounting equation in the question in 164 words.

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