What Two Accounts Are Affected When A Business Pays Cash For Supplies Or Stock Or Inventory Purchases

The Effect Of Purchased Supplies For Cash / Bank On The Accounting Equation / Purchased Supplies For Cash And Accounting Equation

When a business paid cash or by cheque / check for Supplies, Inventory purchases or Stock, then we debit supplies account as a current asset and credit cash or bank account as a current asset also.

The journal entry to record is shown below:

                                    Stock a/c / Inventory a/c / Supplies a/c  XXX

 

                                                                                                       Cash a/c / Bank a/c  XXX

 

                                                      (Paid Cash for Supplies Or Stock Or Inventory Purchases)

 

For example, Mr. A purchased supplies for Cash Rs. 3000, then the effect of this transaction on the accounting equation is shown below:

                                        Assets      =  Liabilities  + Owner’s Equity

                                +Supplies  -Cash =  Liabilities    +   Owner’s Equity

                                +3000        -3000 =         0            +              0

                                                  0          =         0             +              0

 

Supplies account as a current asset is increased by Rs. 3000 on asset side or left side of the accounting equation while cash as a current asset is decreased by Rs. 3000 on the same left side of the accounting equation, so the accounting equation remains in balance.

Suppose, Mr. A purchased supplies by cheque / check for Rs. 3000, then its effect on the accounting equation is shown below:

                                       Assets        =  Liabilities  + Owner’s Equity

                                +Supplies  -Bank =  Liabilities    +  Owner’s Equity

                                +3000       -3000  =         0            +            0

                                                0             =         0            +            0

 

So, the result is the same. Only the bank account is replaced with the cash account and the rest of the effect on the accounting equation is the same.