Question

analyze the transactions in terms of increase or decrease:

1. increase cash (asset) $120000, increase office equipment ( asset) 10,000 ; increase zhang capital equity $130000.

2. increase building (asset) $240000; decrease cash (asset) $5000, increase in note payable (liability) $ 190000.

Answer 1

Transaction 1 -

In the 1st Transaction Cash and Equipment Introduced into the business. In return of Capital into the business. Assets Increased as cash in introduced into the business by $120,000 and also office equipment $10,000 hence assets side is increased by $130,000.

Liabilities Side is increased in term of zhang capital $130,000 in the equity portion.

Accounting Equation -

II Liabilities Equity Cash Assets Office + Equipment $ 10,000 II Liabilities + Equity $ 120,000 $ 130,000

Transaction 2 -

In the second transaction company has purchased building partly by paying cash and partly by issuing notes payable. Hence Assets are decreased by $50,000 (Cash) as the payment is made to acquire building. Assets side is increased by $240,000 as building is purchased.

Liabilities side is increase due to notes has been issued to pay the building acquisition balance after paying cash.

Accounting Equation -

Assets II Equity Cash + Building II Liabilities Notes Payable $ 190,000 + Equity $ (50,000) $ 240,000