Question

Indicate what impact the following transactions would have on the accounting equation, Assets = Liabilities + Equity

A. Paid monthly note payment to bank
B. Sold inventory on account
C. Bought supploes, to be paid for next month
D. Received cash from sales this month
E. Paid for inventory purchased on account last month

Answer 1

A.Paid monthly note payment to bank ;

notes payable are current libilities (short term note payable) or long-term liabilities(long term note payable )notes are legal instruments in which one party makes promises in writing to pay a sum of money to another party under specific conditions .it can be short term (1 year or less )or long term(more than 1 year).when payment of note payable occurs , it reduced the liability of the company .also , an interest expense may be charged on notes payable at a specific rate on a monthly basis .this will be recorded in the income statement and reduces retained earnings of the company thus reduces the equity of the company. funds borrowed may be used for purchase of assets or for increasing the efficieny of business operations which result in increased  assets, profit,investment etc..

B.Sold inventory on account :

sale of inventory on account means that inventory has been sold on credit . this will increase the income on accrual basis and thus increases the equity by way of increased retained earnings .an account receivable will be recorded on the balance sheet , thus increases the assets of the company at the same time , inventory recorded on the balance sheet reduces so a reduction in assets also will be occured.

C.Bought supplies, to be paid for next month ;

Bought supplies to be paid for next month means the purchase of supplies on credit. this will increase the expenses on the income statement on accrual basis and thus decreases the equity by way of retained earnings . an accounts payable will be recorded on the balance sheet under current liabilities thus increases the liability of the company.supplies can be classified as assets thus increases the total assets of the company.

D.Received cash from sales this month ;

this shows sales revenue which increases the retained earnings of the company and so the equity .cash will be recorded on the balance sheet as current asset under'cash on hand'thus increases the assets of the company .

E.Paid for inventory purchased on account last month:

this means that inventory purchased on credit has been paid off .this payment will reduce the current liabilities as this will reduce the' accounts payable ' recorded under current liabilities at the time of purchase.this is a reduction in cash and thus reduction in current assets . payment would be recorded earlier as an expense in the income statement in the last month itself on accrual basis thus reducing last months's equity by reduced retained earnings and increasing last months current liabilities under  'accounts payable' and also results in  increased assets of the company as the inventory is shown as an asset on the balance sheet .