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When you receive a family loan, which accounts are impacted and on which side? Select one:

a. The left side in Cash; the right side in Loans
b. The left side in Cash; the left side in Interest Expense
c. The right side in Cash; the right side in Loans
d. The right side in Cash; the right side in Interest Expense

1 Answer

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Answer:

The correct answer to the question is:

a. The left side in Cash; the right side in Loans

To understand why this is the correct answer, we need to delve into the basics of accounting and how transactions are recorded in financial statements.

In accounting, every transaction impacts at least two accounts, which is known as double-entry bookkeeping. This system ensures that the accounting equation (Assets = Liabilities + Equity) always remains balanced. The left side of this equation represents assets, while the right side represents liabilities and equity.

When you receive a family loan, it impacts two accounts: Cash (an asset account) and Loans (a liability account). Here's how:

1. Cash Account: When you receive a loan, your cash increases because you now have more money than before. In accounting terms, an increase in an asset account like cash is recorded on the debit side (left side). So, when you receive a loan, your Cash account is impacted on the left side.

2. Loans Account: The money you receive isn't free; it's a loan that you're obligated to pay back. This obligation is a liability. In accounting terms, an increase in a liability account like loans is recorded on the credit side (right side). So, when you receive a loan, your Loans account is impacted on the right side.

Therefore, when you receive a family loan, it impacts the left side in Cash and the right side in Loans.

As for the probability that this answer is correct, given that this is based on fundamental principles of accounting which are universally accepted and practiced, we can say with near certainty that the probability is 100%.

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