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    Business Transaction and its effect on accounting equation

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

    Increase an asset and increase a liability.
    Increase one asset and decrease another asset.
    Decrease an asset and decrease owner's equity.
    Decrease an asset and decrease a liability.
    Increase an asset and increase owner's equity.

    Include your references.

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    Solution Preview

    For each of the following items, give an example of a business transaction that has the described effect on the accounting equation:
    Increase an asset and increase a liability.
    Increase one asset and decrease another asset.
    Decrease an asset and decrease owner's equity.
    Decrease an asset and decrease a liability.
    Increase an asset and increase owner's equity.

    1) Increase an asset and increase a liability.

    Increase asset by increasing inventory.
    Buying supplies (worth $100) would increase inventory (an asset).
    If you buy these supplies on credit you increase a liability (accounts payables)
    Journal entries:
    Dr Inventory 100 Cr Accounts Payable 100

    Another example

    Purchased equipment ...

    Solution Summary

    The solution gives give an example of a business transaction that has the described effect on the accounting equation:
    Increase an asset and increase a liability.
    Increase one asset and decrease another asset.
    Decrease an asset and decrease owner's equity.
    Decrease an asset and decrease a liability.
    Increase an asset and increase owner's equity.

    $2.19

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