Match the following transactions with their effects to the accounting equation.

Question

Match the following transactions with their effects to the accounting equation.
a. Increase assets, increase liabilities
b. Increase liabilities, decrease owner’s equity
c. Increase assets, increase owner’s equity
d. No affect
e. Decrease assets, decrease liabilities
f. Decrease assets, decrease owner’s equity



1. Received cash for services provided

2. Received utility invoice to be paid next month

3. Investment of land by owner

4. Paid part of an amount owed to a creditor

5. Paid cash for the purchase of a one year insurance policy

6. Received payment from a customer for an invoice that was billed last month

7. Cash withdrawal by owner

8. Provided a service to a customer on account

9. Purchased supplies on credit

10. Paid wages

Explanation / Answer

1. Cash goes up and the firm provided the service so C 2. Received a liability (the bill) that must be expensed now and hits equity so B 3. Owner likely contributes capital to buy land which ends up as an asset so C 4. Paid out a liability with cash, an asset so E 5. An insurance policy is a prepaid asset. It has value because if something goes wrong the insurance company pays you. Since you exchanging an asset for another asset (cash for an insurance policy) the answer is D 6. Similar to number 6, here a customer had an account with firm to pay them. This is called an account receivable and since you are exchanged an accounts receivable for cash, both are assets and the net change in assets is zero. This one is D 7. Because cash is reduced by the equity owner both go down. This one is F 8. This is a creation of an account receivable. After providing the service the firm generated the revenue. Now the customer owes them a future cash payment. This one is C 9. Purchasing supplies increases assists by the amount of supplies you earn while liabilities go up by the amount you owe the firm you purchased those supplies from. This one is A 10. Wages are often deferred expenses. The employee has done the work and firm owes them a paycheck after two weeks. They pay the employees in cash and reduce the liability because they don't owe those workers anything after they paid them. This one is E Hope this helps!

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