Question

If a company uses $1,370 of its cash to purchase supplies, the effect on the accounting equation would be:

a) One asset increases $1370 and another asset decreases $1,370, causing no effect
b) Assets increase $1,370 and liabilities increase $1370
c) Assets Increase $1.370 and es decrease 51370
d) Assets decrease $1370 and equity decreases $1270 Axes decine 51370 and equity increates $1.370

Answer 1

If a company uses $1,370 to purchase supplies, one asset increases by $1,370 while another decreases by $1,370, causing no overall effect on the accounting equation.

Step-by-step explanation:

When a company uses $1,370 of its cash to purchase supplies, the effect on the accounting equation would be: One asset increases $1370 (supplies) and another asset decreases $1,370 (cash), causing no overall effect on the accounting equation. This transaction affects two asset accounts only. Thus, the correct answer is (a) One asset increases $1370 and another asset decreases $1,370, causing no effect.

Let's take two scenarios as examples for further clarification:

• If a company's supplies account did not exist before the purchase, then the supplies account is increased (debited) by $1,370 when the purchase is made.
• The cash account, being the source of the payment, is decreased (credited) by the same amount, $1,370, reflecting the outflow of cash.