Question

1	Purchased computer terminals for RM20,000 from Digital Equipment on account.
2	Paid RM4,000 cash for September rental on storage space.
3	Received RM15,000 cash from customers for contracts billed in August.
4	Provided computer services to Fisher Construction Company for RM3,000 cash.
5	Paid TNB, a power company, RM11,000 cash for energy usage in August.
6	Shareholders invested an additional RM32,000 in the business.
7	Paid Digital Equipment for the terminal purchased in (1) above.
8	Incurred advertising expense for May of RM1,200 on account.

Bakar Enterprise entered into the following transactions during September 2016:

Required:

Indicate with the appropriate letter in the last column whether each of the above transactions.

(a)    An increase in assets and a decrease in assets.

(b)   An increase in assets and an increase in equity.

(c)    An increase in assets and an increase in liabilities.

(d)   A decrease in assets and a decrease in equity.

(e)   A decrease in assets and a decrease in liabilities.

(f)     An increase in liabilities and a decrease in equity.

(g)    An increase in equity and a decrease in liabilities.

Answer 1

S No	Transaction	Answer	Explanation
1	Purchased computer terminals for RM20,000 from Digital Equipment on account.	(c) Increase in assets and increase in iabilities	Computer Terminal is an asset. Since it is on account, liabilities increase
2	Paid RM4,000 cash for September rental on storage space.	(d) Decrease in assets and decrease in equity	Expenses reduce profit, therefore indirectly reduce the equity. Since the expense is paid in cash, asset decreases.
3	Received RM15,000 cash from customers for contracts billed in August.	(a) Increase in asset and decrease in asset	It was a receivable in August. When received, this asset goes down and since cash is received cash goes up. So asset increases and asset decreases
4	Provided computer services to Fisher Construction Company for RM3,000 cash.	(b) Increase in asset and increase in equity	Increase in asset since cash is increasing. Increase in equity because revenues increase profits, and profits increase equity.
5	Paid TNB, a power company, RM11,000 cash for energy usage in August.	Assuming that liability was NOT CREATED in August (d) Decrease in asset and decrease in equity Assuming that liability was CREATED in August (e) Decrease in asset and decrease in liabilities	Assuming that liability was NOT CREATED in August Power usage is an expense. Expenses reduce equity. Also, cash is paid, so assets go down. Assuming that liability was CREATED in August Cash is paid, assets go down. Also, if liability is paid, it reduces too.
6	Shareholders invested an additional RM32,000 in the business.	(b) Increase in asset and increase in equity	Investment brings in cash, so assets increase. Also, since shareholders are investing, the Common Stock would increase. This means Equity will increase
7	Paid Digital Equipment for the terminal purchased in (1) above.	(e) Decrease in assets and decrease in liabilities	Cash is paid that means assets go down. Payables also go down since payment is made.
8	Incurred advertising expense for May of RM1,200 on account.	(f) Increase in liabilities and decrease in equity	Expenses reduce profit, therefore indirectly reduce the equity. Since the expense is on account, it is a liability until paid, in other words, liabilities increase.