Question

Elysa paid $135 for utilities for her office; this transaction increased Cash and the expense account. What is the effect of this transaction on the accounting equation?

1) Increase in Assets and Increase in Expenses
2) Increase in Assets and Decrease in Expenses
3) Decrease in Assets and Increase in Expenses
4) Decrease in Assets and Decrease in Expenses

Answer 1

The effect of Elysa paying $135 for utilities for her office is an increase in Assets and Increase in Expenses on the accounting equation.

Step-by-step explanation:

The effect of Elysa paying $135 for utilities for her office is an increase in Assets and Increase in Expenses on the accounting equation.

When Elysa pays $135 for utilities, her Cash account increases because money is leaving the business to pay for the expenses. At the same time, the expense account for utilities increases because this transaction represents an expense that the business incurs.

Therefore, the effect of this transaction on the accounting equation is an increase in Assets and Increase in Expenses.