Question

ea systems entered into the following transactions during the month of august: 1. received $6,350 for services performed during august. 2. purchased $1,200 of supplies on account. 3. paid employee salaries of $3,280 for the first week of august. 4. paid $900 towards the previous purchase of supplies. required indicate whether each transaction increases, de- creases, or has no effect on assets, liabilities, and eq- uity. if a transaction affects equity, indicate whether the transaction affects revenues or expenses.

Answer 1

Transaction 1: Received $6350 for services performed during august

This transaction results in a debit to the "Cash Ac" and a credit to the "Accounts Receivable Ac", both of the amount $6350. Both "Cash ac" and "Accounts Receivable Ac" are assets. Debit to the "Cash Ac" results in an increase in the cash balance, however, there is also a credit of the same amount in the  "Accounts Receivable Ac" which results in a decrease in the amount of accounts receivable. As one item of the assets (cash) increases, the other asset item (accounts receivable) decreases which has the effect of canceling out the increase in cash. Therefore the value of assets remains the same even though the items of assets change values.

Trancsaction 2: Purchased $1200 of supplies on account

Here, there will be a debit of $1200 to the "Purchase Ac" and a credit of the same amount to the " Accounts Payable" account. Purchases is an asset whereas accounts payable is a liability. Therefore an increase in the value of purchases results in an increase in the value of assets (here, by $1200). And the increase in the value of accounts payables results in an increase in the value of liabilities (by $1200). Therefore both assets and liabilities increase by $1200.

Transaction 3: Paid salaries of $ 3,280 for the first week of august.

This results in a debit to the "Salaries Payable Ac" (which is a liability) of $3280 and a credit to the "Cash Ac" (which is an asset) of $3280. It is therefore evident that there will be a decrease in the value of the liabilities by $3280 and a decrease in the value of assets by $3280, thereby reducing the value of both assets and liabilities by $3280.

Transaction 4: Paid $900 towards the previous purchase of supplies.

This results in a debit to "Accounts Payable Ac" (which is a liability) of $900 and a credit to "Cash Ac" (which is an asset) of $900. Therefore there is a decrease in the value of liability and an decrease in the value assets both by $900.

Note: The student may note that all the transactions, however complex they may be, always comply to the accounting equation "Total assets= Total liabilities". Also none of the transactions affected equity.