Question

For each of the following transactions/situations, indicate its accounting effect (+, or –, or blank for no effect) on Assets, Liabilities, and Equity. (Recall that income is added to retained earnings at the end of an accounting period, so revenues, expenses, gains, and losses each affect equity as well).

	Effect on:
Transaction	Assets	Liabilities	Equity
Borrowing money from a bank
Providing consulting services to a client (on credit)
Having employees take raw materials and convert them into finished products.
Receiving payment in advance from a customer for products to be delivered in the future.
Selling products to a customer in exchange for cash
Purchasing a new vehicle for the business by taking on an auto loan
Paying the electric bill
Selling shares of the company’s stock to new investors
Making a decision to expand into a new product line
Paying the executive team using stock options

Answer 1

Transaction	Assets	Liabilities	Equity
i. Borrowing money from a bank	+	+
i. Providing consulting services to a client (on credit)	+		+
i. Having employees take raw materials and convert them into finished products.
i. Receiving payment in advance from a customer for products to be delivered in the future.	+	+
i. Selling products to a customer in exchange for cash	+		+
i. Purchasing a new vehicle for the business by taking on an auto loan	+	+
i. Paying the electric bill	-		-
i. Selling shares of the company’s stock to new investors	+		+
i. Making a decision to expand into a new product line
i. Paying the executive team using stock options