Question

13. Diamond Company had the following transactions during June Performed services for $5,000 on account; received cash on account, $7,000; paid $600 for repair expense; paid $2,000 to a supplier that it owed from the previous month. What is the combined effect on Cash of these June transactions? A) $4,400 increase B) $4,400 decrease C) $7,000 increase D) $2,600 decrease 14) Mitchell Company receives a bill from one of its suppliers for advertising services received and will pay the supplier next month. How does the receipt of the bill from the supplier affect the accounting equation of Mitchell? A) assets and equity decrease B) liabilities increase and equity decreases C) assets and liabilities increase D) liabilities and equity increase

Answer 1

13.

Services performed will not have any effect on actual transactions as there is no inflow and outflow of Cash. So this transaction will not have any effect on Cash.

Received Cash on Account will increase cash by +$7,000

Payment made for repair expense will decrease the cash by -$600

Payment made to supplier will decrease the cash by -$2,000

Net Effect on Cash= $7,000-$600-$2,000

=+$4,400

So these transactions will increase the overall cash balance by $4,400

Correct Option is A. $4,400 increase

14.

First we shall define Liabilities and Equity.

Liabilities are the obligations of a company, meaning that, they are amounts owed to creditors for past transactions and they usually have the word"payable" in their account title.

Equity is the remaining value of an owner's interest in company, after all liabilities have been deducted.

From the definations above, we can see that the liabilities of Mitchell Company have increased because the company owes the supplier. While the Equity has decreased because it is what is left of the value of the company after the liabilities have been deducted.

Correct Option is B. Liabilities increse and Equity decreases   

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