Questions: If a company uses 1,460 of its cash to purchase supplies, the effect on the accounting equation would be: Multiple Choice Assets decrease 1,460 and equity decreases 1,460. One asset increases 1,460 and another asset decreases 1,460, causing no effect. Assets increase 1,460 and liabilities decrease 1,460. Assets decrease 1,460 and equity increases 1,460. Assets increase 1,460 and liabilities increase 1,460.

If a company uses 1,460 of its cash to purchase supplies, the effect on the accounting equation would be:

Multiple Choice
Assets decrease 1,460 and equity decreases 1,460.
One asset increases 1,460 and another asset decreases 1,460, causing no effect.
Assets increase 1,460 and liabilities decrease 1,460.
Assets decrease 1,460 and equity increases 1,460.
Assets increase 1,460 and liabilities increase 1,460.

Transcript text: If a company uses $\$ 1,460$ of its cash to purchase supplies, the effect on the accounting equation would be: Multiple Choice Assets decrease $\$ 1,460$ and equity decreases $\$ 1,460$. One asset increases $\$ 1,460$ and another asset decreases $\$ 1,460$, causing no effect. Assets increase $\$ 1,460$ and liabilities decrease $\$ 1,460$. Assets decrease $\$ 1,460$ and equity increases $\$ 1,460$. Assets increase $\$ 1,460$ and liabilities increase $\$ 1,460$.

Solution

Answer

The answer is One asset increases \$1,460 and another asset decreases \$1,460, causing no effect.

Explanation

Option 1: Assets decrease \$1,460 and equity decreases \$1,460.

This option is incorrect because purchasing supplies with cash does not affect equity. Equity is affected by revenues, expenses, dividends, and investments by owners, not by the purchase of assets.

Option 2: One asset increases \$1,460 and another asset decreases \$1,460, causing no effect.

This option is correct. When a company uses cash to purchase supplies, the cash account (an asset) decreases by \$1,460, and the supplies account (another asset) increases by \$1,460. The total assets remain the same, so there is no net effect on the accounting equation.

Option 3: Assets increase \$1,460 and liabilities decrease \$1,460.

This option is incorrect because purchasing supplies with cash does not affect liabilities. Liabilities are obligations the company owes to others, and purchasing supplies with cash does not change these obligations.

Option 4: Assets decrease \$1,460 and equity increases \$1,460.

This option is incorrect because purchasing supplies with cash does not affect equity. Equity is not directly impacted by the purchase of assets.

Option 5: Assets increase \$1,460 and liabilities increase \$1,460.

This option is incorrect because purchasing supplies with cash does not affect liabilities. The transaction only involves the exchange of one asset (cash) for another asset (supplies).

Was this solution helpful?

Unhelpful

Helpful

Questions asked by other users

Next >

Thank you for your feedback.

Copied!