Question

Indicate how the basic statement of financial position accounts of assets, liabilities, and shareholders’ equity would be affected by each of the following transactions and activities: a. Gagnon’s Autobody purchases new spray-painting equipment. The supplier gives the company 60 days to pay. b. The company pays for the spray-painting equipment that was purchased above. c. Supplies such as paint and putty are purchased for cash. d. The company pays for a one-year liability insurance policy. e. The company pays its employees for work done. f. A car is repaired and repainted. The customer pays the deductible required by her insurance policy, and the remainder of the bill is sent to her insurance company. g. Cash is collected from the customer’s insurance company.

Answer 1

	Assets	Liabilities	Shareholder's Equity	Remarks
a	Increase	Increase	No effect	Equipment is asset hence, asset will increase
				Since it is purchased on account, so liability will also increase
b.	Decrease	Decrease	No effect	Cash will decrease hence, asset will decrease
				Creditors are paid, so liability will also decrease
c	Decrease	No effect	Decrease	Cash will decrease hence, asset will decrease
				Expenses decrease the equity, so liability will also decrease
d	No effect	No effect	No effect	Since insurance is paid on prepaid basis. So cash will decrease and prepaid insurance will increase. Hence, it has no effect on asset.
e	Decrease	No effect	Decrease	Cash will decrease hence, asset will decrease
				Expenses decrease the equity, so liability will also decrease
f	Increase	No effect	Increase	Amount paid by customer will increase cash. Further, Insurance company will be debtors
				Income increases the equity, so liability will also increases
h	No effect	No effect	No effect	Cash will increase and debtors will decrease. Since both are assets so no effects.