CA Foundation · Accounting · Accounting Process
Under the accounting equation approach, which of the following transactions causes a decrease in both assets and liabilities by the same amount?
Payment to a creditor in cash reduces cash, which is an asset, and also reduces the creditors balance, which is a liability, by equal amounts. The other transactions either increase both sides, swap assets, or reduce assets and capital instead of liabilities.
- APurchase of machinery on credit
- BPayment made to a creditor in cashCorrect
- CCash received from a debtor
- DOwner withdraws cash for personal use
Explanation
Paying a creditor in cash reduces cash (an asset) and reduces creditors (a liability) by the same amount. Purchase on credit increases both. Receipt from a debtor only swaps one asset for another. Drawings reduce assets and capital, not liabilities.
Did you get it right without looking?
One question tells you little. A timed set on Accounting Process shows your real accuracy, how long you take and where you lose marks.
More Accounting Process questions
- Goods returned by a customer, Kiran, worth Rs 4,000 were correctly entered in the Sales Returns Book but were posted to the debit side of Ki…
- A firm purchased a machine for Rs 50,000 and debited the amount to Purchases Account. What is the rectification entry?
- Which of the following transactions would be recorded through a journal proper entry rather than in a special purpose book?
- Which of the following accounts normally shows a credit balance when balanced in the ledger?
- In the books of Kiran Stores, the Purchases Account shows a debit total of Rs 3,80,000 and the Purchases Returns are Rs 24,000, which are re…
- Sundaram Enterprises purchased a machine for Rs 2,00,000 on credit from Vishal Machines and paid Rs 10,000 in cash as installation charges. …