Question

Motocross Delivery Service transactions:

Received cash for capital stock, $30,000.
Paid advertising expense, $1,200.
Purchased supplies on account, $450.
Billed customers for delivery services on account, $7,500.
Received cash from customers on account, $4,900.


What is the effect of transaction 3 on the accounting equation elements?
A) Assets (Supplies) decrease by $450; Liabilities (Accounts Payable) increase by $450.
B) Assets (Supplies) increase by $450; Liabilities (Accounts Payable) decrease by $450.
C) Stockholders' Equity (Retained Earnings) decreases by $450.
D) Revenue increases by $450.

Answer 1

The effect of transaction 3 on the accounting equation elements is that Assets (Supplies) decrease by $450 and Liabilities (Accounts Payable) increase by $450.

Step-by-step explanation:

The effect of transaction 3 on the accounting equation elements is option A) Assets (Supplies) decrease by $450; Liabilities (Accounts Payable) increase by $450.

Transaction 3 states that the company purchased supplies on account for $450. When this transaction occurs, the company's assets, specifically supplies, will decrease by $450 because they are being used up or consumed. At the same time, the company's liabilities, specifically accounts payable, will increase by $450 because they owe this amount to their supplier for the supplies purchased on credit.