Question

For each of the following transactions, indicate the accounts affected and whether the accounts affected are an asset, a liability, an equity, an income or an expense. Also indicate whether the accounts are being increased or decreased and whether the increase or decrease is a debit or credit. Ignore GST.

1. Owner gave their personal computer to the business. 2. Employed a secretary.
3. Purchased supplies on credit.
4. Paid a creditor using an electronic transfer.

5. Invoiced a customer for services performed.
6. Paid some cash and took out a loan to purchase office furniture. 7. Received cash from a customer that owed the business money. 8. Paid for an advertisement aired on television.

Answer 1

1. Owner gave their personal computer to business:

In case the owner gave his personal computer to business it is termed as capital introduction, it affects the equity and the assets. When the computer is provided in business then the computer being an asset is increased and hence debited and equity being a liability portion is Credited.

2. Employed a secratery:

When only a secretary is appointed primarily it does not effect any accounts as no financial consideration is involved in employment of secratery, however if the secretary is employed he must be paid salary, this salary payment will have a financial impact and it will have  affect on expenses and cash- assets, ultimately expenses have effect on profit and on retained earning. But merely an employement of secratery will have no effect on any accounts.

3.Purchased Supplies on credit:

When the supplies are credited then its effect is on Inventory and liability as purchase is made on account, here while purchasing supplies it is debited as it is an asset and the amount is payable on a future date hence it is payable and liability. Supplies is assets it is debited and creditors are payable hence credited. An another angle is also possible, if supplies are expensed as purchase then it will have impact on COGS and liability.

4. Paid a creditor using an electronic transfer:

When a creditor is paid it reduces the liability , as it is paid and hence it is debited , and when electronic transfer is done then it reduces the bank balances and hence it is credited. This entry will have effect on the assets being reduced and liabilities also being reduced.

5.Invoiced a customer for services performed.

When a service is performed the revenue from the service is recorded and the amounts receivable from the service is also recorded. when the invoice is booked the receivables are debited being and assets as amount is receivable and the service revenue is credited being it is income.

6. Paid some cash and took out a loan to purchase office furniture.

When cash is paid and loan is made for the purchase of furniture the furniture being assets is affected , cash being assets is affected and liabilities are also affected. Here when furniture is purchased being an assets it is debited , cash is paid being an assets it is reducing hence credited and loan taken being a liabilities is credited.

7 Received cash from a customer that owed the business money.

When cash is received from owed customer receivable it is debited and accounts receivable is credited as it is reduced. when asset is paid and another assets is acquired , one is debited an another credited , it will have no effect on liabilities only effect will be on assets.

8. Paid for an advertisement aired on television.

Advertisement is an expenses account and when it is paid it is to be debited and the cash paid is an assets which is being reduced and hence it is debited.