Question

Using the accounting equation, if assets and liabilities both decrease by 4,000 what is the effect on owner's equity?

Select one:

a. Increases by 8,000

b. No effect

Using the accounting equation, if liabilities increase by 6,000 and equity reduces by 10,000, what is the change in assets?

Select one:

a. Decrease of 4,000

b. Increase of 4,000

The owner increases the capital of the business by depositing personal cash. Which of assets liabilities equity is not part of the transaction?

Select one:

a. Liabilities

b. Assets

c. Equity

The owner increases the capital of the business by transferring a computer to the business. Which of assets liabilities equity is not part of the transaction?

Select one:

a. Liabilities

b. Equity

c. Assets

A new motor vehicle is purchased on account from a supplier. Which of assets liabilities equity is not part of the transaction?

Select one:

a. Liabilities

b. Equity

c. Assets

A new motor vehicle is purchased on account from a supplier. Which of assets liabilities equity is not part of the transaction?

Select one:

a. Liabilities

b. Equity

c. Assets

Answer 1

Solution:
1.
	Answer is b. No effect
Working Notes:
	Using accounting equation
	Assets = Liabilities +   Equity
So	Change in Assets = Change in Liabilities + Change in Equity
	-4000 = -4000 + Change in Equity
	Change in Equity =-4000 + 4000 =0
	Change in Equity = No effect
2.
	Answer is a. Decrease of 4,000
Working Notes:
	Using accounting equation
	Assets = Liabilities +   Equity
	Change in Assets = Change in Liabilities + Change in Equity
	liabilities increase by 6,000 and equity reduces by 10,000, what is the change in assets
	Change in Liabilities =6,000
	Change in Equity =-10,000
	change in assets =??
	Change in Assets = Change in Liabilities + Change in Equity
	Change in Assets = 6,000 + (-10,000)
	Change in Assets = 6,000 -10,000
	Change in Assets = -4,000
	Change in Assets = Decrease of 4,000
3.	Answer is a. Liabilities
Working Notes:
	Owner increases the capital of the business by depositing personal cash
	Using accounting equation
	Assets = Liabilities +   Equity
	Change in Assets = Change in Liabilities + Change in Equity
	depositing personal cash will increase cash of the business which is assets and increase capital means equity in increases .
	Hence only liabilities is not involved in above transaction
4.	Answer is a. Liabilities
Working Notes:
	owner increases the capital of the business by transferring a computer to the business.
	Using accounting equation
	Assets = Liabilities +   Equity
	Change in Assets = Change in Liabilities + Change in Equity
	Transferring computer will increase assets of the business and increase capital means equity increases .
	Hence only liabilities is not involved in above transaction
5.	Answer is b. Equity
Working Notes:
	A new motor vehicle is purchased on account from a supplier
	New motor vehicle is assets for business so it is part of the transaction
	Purchased on account from a supplier
	Means the liabilities created in the favor of supplier , hence liabilities will increase
	Using accounting equation
	Assets = Liabilities +   Equity
	Change in Assets = Change in Liabilities + Change in Equity
	Hence only Equity is not part of the transaction
6	Answer is b. Equity
Working Notes:
	A new motor vehicle is purchased on account from a supplier
	New motor vehicle is assets for business so it is part of the transaction
	Purchased on account from a supplier
	Means the liabilities created in the favor of supplier , hence liabilities will increase
	Using accounting equation
	Assets = Liabilities +   Equity
	Change in Assets = Change in Liabilities + Change in Equity
	Hence only Equity is not part of the transaction
Notes	Same question as of Question no 5.