Question

Purchasing supplies for cash has what effect on the accounting equation? Multiple Choice Increase assets. Decrease stockholders' equity. Decrease liabilities.

Answer 1

1.

Option D No effect is the correct answer.

Purchase of supplies increase current asset which is a part of total assets of the balance sheet and reduced the cash balance which is also a part of total assets of the balance sheet. Hence, the effect nullifies itself.

Option A is wrong since cash purchase of supplies will not change assets total.

The remaining options are wrong as cash purchase will not impact equity or liability.

2.

	Transaction	Assets =	Liabilities	+	Shareholders' equity
1	Issue common stock in exchange for cash, $15000	$        15,000	$             -		$            15,000
2	Purchase equipment for cash, $20,000	$        20,000	$             -		$                     -
		$     (20,000)	$             -		$                     -
3	Pay cash for insurance in advance, $2,400	$          2,400	$             -		$                     -
		$        (2,400)	$             -		$                     -
4	Pay cash for employees' salaries in the current period, $17,200	$     (17,200)	$ (17,200)		$                     -
5	Pay accounts payable, $1,000	$        (1,000)	$   (1,000)		$                     -
6	Purchase office supplies on account, $3,750	$          3,750	$      3,750		$                     -
7	Provide service to customers for cash, $6,800	$          6,800			$              6,800
8	Provide service to customers on account, $12,300	$        12,300			$            12,300
9	Pay cash dividend to stockholders, $2,500	$        (2,500)	$   (2,500)		$                     -
10	Pay cash for utilities in the current period, $1,200	$        (1,200)			$            (1,200)
	Totals	$        15,950	$ (16,950)		$            32,900