Question

ADDITIONAL PROBLEM: Farm & Fleet purchases $35,000 of inventory. They decide not to pay until the end of the credit period. What is the transaction analysis, journal entry, and effect on the accounting equation? Transaction Analysis: Journal Entry Effect on the Accounting Equation: *Now, what would the transaction analysis be when Farm & Fleet PAYS off their credit?

Answer 1

Farm & Fleet purchases $ 35000 of inventory. They Decided not to pay until the end of the
credit period. What is the transaction analysis, journal entry, and effect on accounting equation.?
Transaction Analysis
In the present siuation, Asset is purchased on credit and at the end of credit period it is paid off.
It helps in saving the scarce, working capital
	Asset = Liabilities + Owner's Equity
	35000 $ = 35000 $ + Owner's Equity
Journal Entry
	Description			Amount(Dr.)	Amount(Cr.)
	On Purchase on Credit
	Material Purchase			$35,000.00
		Supplier			$35,000.00
	(Inventory Purchased on Credit)
	On Payment
	Supplier			$35,000.00
		Cash/Bank			$35,000.00
	(Supplier paid at the end of the Credit
	Period)
Effect on the Accounting Equation
On Purchase on Credit
	Asset = Liabilities + Owner's Equity
	35000 $ = 35000 $ + Owner's Equity
On Payment
	Asset = Liabilities + Owner's Equity
	-35000 $ = -35000 $ + Owner's Equity
Transaction Analysis when they pay their credit
On Payment Balance in Cash or Bank would be reduced and the liability
would be reduced to the extent of payment i.e. $35000
Accounting Equation on Payment
	Asset = Liabilities + Owner's Equity
	-35000 $ = -35000 $ + Owner's Equity

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