The Purchase of An Asset For Cash Or Bank Affects On Which Accounts

The purchase of an asset account for Cash or Bank affects asset account and cash / bank account but the Total Assets on Accounting Equation or Balance Sheet remain unchanged.

For example, if a company purchased furniture for cash / bank Rs. 50000, then we record the following entry as shown below:

                                                             Furniture a/c  50000

  

                                                                                     Cash a/c / Bank a/c  50000

 

                                                              (Purchased Furniture For Cash / Bank)

 

Here two accounts are involved in this Business Transaction. One is furniture account, which is a fixed asset, and since it is increasing, so we debit it. The other account is cash or bank account, which is a Current Asset, and as it is decreasing, so we credit it.

Now, we see why total assets remain unchanged?

Suppose, total assets is Rs. 800000, then, we have:

Total Assets + Furniture - Cash / Bank

                                                                           800000 + (50000 - 50000) = Rs. 800000

 

As furniture account is increasing by Rs. 50000 and at the same time the cash or bank account is also decreasing by Rs. 50000, so these two amounts of these accounts offset each other and total assets remain unchanged.