Professional Documents
Culture Documents
Effects
Effects
Effects
Let's explore the effects of various transactions on these elements with detailed examples:
1. Asset Transactions
Effect: Decreases one asset (cash) and increases another asset (inventory).
Example: Buying $1,000 worth of inventory for cash.
Journal Entry:
Debit: Inventory $1,000 (increases inventory)
Credit: Cash $1,000 (decreases cash)
2. Liability Transactions
Taking a Loan
Issuing Shares
Declaring Dividends
Effect: Increases a liability (dividends payable) and decreases equity (retained earnings).
Example: Declaring $3,000 in dividends.
Journal Entry:
Debit: Retained Earnings $3,000 (decreases equity)
Credit: Dividends Payable $3,000 (increases liabilities)
4. Expense Transactions
Paying Salaries
Effect: Increases an expense (utilities expense) and increases a liability (utilities payable).
Example: Accruing $500 in utilities expense.
Journal Entry:
Debit: Utilities Expense $500 (increases expenses)
Credit: Utilities Payable $500 (increases liabilities)
5. Revenue Transactions
Comprehensive Examples
Summary of Effects