Question

As the manager of a Papa Sean’s restaurant, you must deal with a variety of business transactions. Give an example of a transaction that has each of the following effects on the accounting equation: a. Increase one asset and decrease another asset. b. Decrease an asset and decrease equity. c. Decrease an asset and decrease a liability. d. Increase an asset and increase equity. e. Increase an asset and increase a liability

Short answer

(a) Inventory purchased by cash.

(b) Dividends paid in cash

(c) Payment to accounts payable

(d) Issuance of common stock

(e) Inventory purchased on account

Step-by-step solution

Step-by-Step-SolutionStep 1: Inventory purchased by cash.

Inventory purchased by cash will increase inventory (asset) and cash (asset).

Dividends paid in cash

Payment of dividends, results in decrease in cash (asset) and decrease in retained earnings (equity).

Payment to accounts payable

Payment of accounts payable, results in decrease in cash (asset) and decrease in accounts payable (Liability).

Issuance of common stock

Issuance of common stock, results in decrease in cash (asset), and increase in common stock (Equity).

Inventory purchased on account

Inventory purchased on account, results in increase in inventory (asset) and increase in accounts payable (Liability).