Exercise 1B

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The answers are at the bottom, work it out first please!!!

Exercise 1B

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Answers:
1. C - Cash is received, which would increase the asset, since it was a revenue, it increases owner's equity.
2. D - Cash is an asset, so by paying cash, we reduce our asset. An obligation to a creditor is a liability, so by paying/fulfilling our obligation to the credit, we also reduce our liability (obligation) to the creditor.
3. C - Cash, once again is an asset, and stock is an owner's equity.
4. E - Think of Expense as decreasing Owner's equity, and a decrease in cash is a decrease in assets.
5. E - This is a kind of trick question, INTEREST was paid, not the PRINCIPLE, if PRINCIPLE was paid then we would be lowering the obligation (liability) to the creditor, but INTEREST is an expense on the PRINCIPLE, so by paying only the INTEREST, we are not lowering the obligation, thus INTEREST is an EXPENSE, thus lowering Owner's equity and since we're paying cash, also lowering ASSET. I got caught on this one too!!!!!!!
6. A - When supplies are initially purchased with cash, the asset (cash) decreases and supplies (asset) increases, therefore it's a simultaneous increase and decrease in asset (+ supply, - cash).
7. E - Rent is an expense, remember expense lowers owner's equity, and since it's being paid by cash (check is also considered cash), asset is also decreased.
8. B - Borrowing money will also increase cash which increases asset, and since an obligation developed, then a liability increases.
9.E - Consumption of supplies is an expense, which means it decreases owner's equity and since all the supplies are used up (consumed), then asset also decreases (kind of a trick question).
10. E - Paying out cash will lower asset and owner's equity.