Question

Which of the following transactions would cause an increase in both assets and owners' equity? A....

Which of the following transactions would cause an increase in both assets and owners' equity?
A.
Providing service to a customer to generate revenue.
B.
Paying dividends to shareholders.
C.
Borrowing money from a bank.
D.
Sale of land for cash at a price equal to its cost.

The answer is A ,why?

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Homework Answers

Answer #1

Transaction A:

Providing service to a customer to generate revenue

Asset (cash or accounts receivable) will increase and owner’s equity will increase.

Transaction B:

Paying dividends to shareholders

Asset (cash) will decrease and owner’s equity will decrease.

Transaction C:

Borrowing money from a bank

Asset (cash) will increase and liability (loan from bank) will increase.

Transaction D:

Sale of land for cash at a price equal to its cost

Asset (cash) will increase and asset (land) will decrease.

So, only in transaction A both assets and owner’s equity will increase.

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