Question

Provide an example of a transaction that creates the described effects for the separate cases a through e. a. Increases an asset and increases a liability. b. Decreases an asset and decreases a liability. c. Decreases an asset and decreases equity. d. Increases an asset and increases equity. e. Increases an asset and decreases another asset.

Answer 1

a. Increases an asset and increases a liability : Purchase equipment on credit.(Assets account-(Equipment account) will be debited and Liability Account (Creditor) will be credited.

b. Decreases an asset and decreases a liability: Paid for equipment purchased on credit. Creditor's account will be debited and Cash/Bank account will be credited.

c. Decreases an asset and decreases equity. Paid salaries and wages. Salary & Wages will be debited and Cash/Bank will be credited.

d. Increases an asset and increases equity. Issued common stock. Bank will be debited (increase) and ordinary share(Common Stock) will be credited (increase).

e. Increases an asset and decreases another asset. : Paid cash to purchase motor Vehicle. Motor vehicle account will be debited and cash account will be credited.

Step-by-step explanation:

A credit entry to an asset account will decrease the asset while a debit entry to asset will increase the asset balance.

A credit entry to a liability account will increase the liability account while a debit entry to a liability account will decrease the liability balance.