Question

Please, I need a correct answer and clear explanation. Thank you,

Part I – Explanation

Q1

Below are pairs of changes that affect elements of the accounting equation. Give an example of a transaction or economic event that reflects each:

a. Asset increases, asset decreases

b. Asset increases, liability increases

c. Asset increases, shareholders’ equity increases

d. Asset increases, revenue increases

e. Liability decreases, asset decreases

f. Asset decreases, expense increases

g. Liability decreases, revenue increases

h. Asset decreases, shareholders’ equity decreases

i. Liability increases, expense increases

j. Asset decreases, revenue decreases

Answer 1

a. Asset increases, asset decreases:

Example: Payment Received from Trade Receivables - Cash increases & Receivables decreases

b. Asset increases, liability increases

Example: Machinary purchased on Credit / Loan taken from bank - cash increases and loan liability increases

c. Asset increases, shareholders’ equity increases

Example: Common stock issued - Equity increases & Cash balance increases

d. Asset increases, revenue increases

Example: Sales/ Services provided on cash/ credit - cash/receivables increases & Revenue from sales increases

e. Liability decreases, asset decreases

Example: Loan from Bank repaid - Cash decreases & Loan liability decreases

f. Asset decreases, expense increases

Example: Power charges/Water charges paid - cash decreases & Expenses increases

g. Liability decreases, revenue increases

Example: Loyalty points/reward points redeemed by customer - Revenue increases & liability

h. Asset decreases, shareholders’ equity decreases

Examples: Buyback of common stock - cash decreases & equity decreases

i. Liability increases, expense increases

Examples: Power charges payable - Payables increases & Expense increases

j. Asset decreases, revenue decreases

Example: Sales Returns due to defects - Cash or Receivables decreases & Revenue decreases