Question

If I received a utility bill amounting to $340 on April 10th and pay for it on May 10th then according the rule " If an asset increases another asset decreases and if an asset increases a liability increases " which asset would increase or decrease and which liability would increase or decrease in this situation?

Answer 1

Utility bill of $340 is received on April 10th and it is paid on May 10th.

When utility bill is received on April 10th, it has the following effects:

(i) Expenses increase by $340 due to utility expense

(ii) Liabilities increase by $340 since the utility bill is not paid on April 10th. 'Utilities payable' is the liability which is increasing.

When utility bill is paid on May 10th, it has the following effects:

(i) Assets decrease by $340. Cash is the asset which is decreasing.

(ii) Liabilities decrease by $340. 'Utilities payable' is the liability which is decreasing.