Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

Which of the following is one effect of a purchase of $300 of supplies on credit?

Increase Cash by $300

Decrease Accounts Payable (a liability) by $300

Decrease Supplies Expense by $300

Increase Supplies (an asset) by $300

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Verified step by step guidance

Step 1: Understand the transaction. The purchase of $300 of supplies on credit means the company acquires supplies (an asset) but does not pay cash immediately. Instead, it incurs a liability (Accounts Payable).

Step 2: Analyze the impact on the accounting equation. The accounting equation is Assets = Liabilities + Equity. Since supplies are an asset, they will increase by $300. Accounts Payable, a liability, will also increase by $300 to reflect the obligation to pay later.

Step 3: Determine which accounts are affected. The Supplies account (an asset) will increase by $300, and the Accounts Payable account (a liability) will increase by $300. Cash is not affected because the purchase was made on credit.

Step 4: Eliminate incorrect options. 'Increase Cash by $300' is incorrect because no cash was involved. 'Decrease Accounts Payable by $300' is incorrect because the liability increases, not decreases. 'Decrease Supplies Expense by $300' is incorrect because this transaction does not involve an expense account.

Step 5: Confirm the correct answer. The correct effect of the transaction is 'Increase Supplies (an asset) by $300,' as the supplies acquired are recorded as an asset on the balance sheet.