impact on transaction
This query is : Resolved
04 April 2017
if asset is purchased for 10000 and paid cash 2000
what is the impact on transaction and
whybassetbis increased by 8000
04 April 2017
*asset is increased by 8000
28 July 2024
When you purchase an asset and make a partial payment in cash, the transaction has several impacts on your accounting records. Let’s break down the transaction and its impact on your financial statements.
### **Transaction Details**
- **Asset Purchase Price:** ₹10,000
- **Cash Paid:** ₹2,000
- **Amount Outstanding:** ₹8,000
### **Accounting Entries and Impact**
1. **Recording the Asset Purchase**
**Debit:** Asset Account ₹10,000
- This increases the value of assets on your balance sheet. Assets are recorded at their purchase price, which in this case is ₹10,000.
**Credit:** Cash Account ₹2,000
- This decreases your cash balance as you’ve paid ₹2,000 in cash.
**Credit:** Accounts Payable (or any other liability account) ₹8,000
- This represents the amount still owed to the supplier. It increases your liabilities on the balance sheet.
### **Journal Entries**
1. **When Asset is Purchased:**
```
Debit: Asset Account ₹10,000
Credit: Cash Account ₹2,000
Credit: Accounts Payable ₹8,000
```
### **Impact on Financial Statements**
1. **Balance Sheet:**
- **Assets:** Increase by ₹10,000 (reflects the cost of the new asset)
- **Liabilities:** Increase by ₹8,000 (outstanding payment)
- **Cash:** Decrease by ₹2,000 (cash paid)
2. **Cash Flow Statement:**
- **Cash Outflow:** ₹2,000 (cash payment for the asset)
### **Explanation**
- **Asset Increase:** The asset is recorded at its full purchase price of ₹10,000 on the balance sheet. This reflects the total cost of acquiring the asset, regardless of the payment method.
- **Cash Payment:** The cash account decreases by ₹2,000 because that's the portion paid immediately.
- **Outstanding Liability:** The remaining amount of ₹8,000 is recorded as a liability under accounts payable or similar accounts, representing the amount still to be paid.
### **Summary**
The asset is increased by ₹10,000 because the asset is recorded at its full purchase cost. The cash paid is ₹2,000, which reduces your cash balance. The outstanding amount of ₹8,000 is recorded as a liability, indicating the amount owed to the supplier.
This treatment ensures that the asset is recorded at its total cost, liabilities reflect the amounts owed, and the cash flow is accurately represented.
### **Transaction Details**
- **Asset Purchase Price:** ₹10,000
- **Cash Paid:** ₹2,000
- **Amount Outstanding:** ₹8,000
### **Accounting Entries and Impact**
1. **Recording the Asset Purchase**
**Debit:** Asset Account ₹10,000
- This increases the value of assets on your balance sheet. Assets are recorded at their purchase price, which in this case is ₹10,000.
**Credit:** Cash Account ₹2,000
- This decreases your cash balance as you’ve paid ₹2,000 in cash.
**Credit:** Accounts Payable (or any other liability account) ₹8,000
- This represents the amount still owed to the supplier. It increases your liabilities on the balance sheet.
### **Journal Entries**
1. **When Asset is Purchased:**
```
Debit: Asset Account ₹10,000
Credit: Cash Account ₹2,000
Credit: Accounts Payable ₹8,000
```
### **Impact on Financial Statements**
1. **Balance Sheet:**
- **Assets:** Increase by ₹10,000 (reflects the cost of the new asset)
- **Liabilities:** Increase by ₹8,000 (outstanding payment)
- **Cash:** Decrease by ₹2,000 (cash paid)
2. **Cash Flow Statement:**
- **Cash Outflow:** ₹2,000 (cash payment for the asset)
### **Explanation**
- **Asset Increase:** The asset is recorded at its full purchase price of ₹10,000 on the balance sheet. This reflects the total cost of acquiring the asset, regardless of the payment method.
- **Cash Payment:** The cash account decreases by ₹2,000 because that's the portion paid immediately.
- **Outstanding Liability:** The remaining amount of ₹8,000 is recorded as a liability under accounts payable or similar accounts, representing the amount still to be paid.
### **Summary**
The asset is increased by ₹10,000 because the asset is recorded at its full purchase cost. The cash paid is ₹2,000, which reduces your cash balance. The outstanding amount of ₹8,000 is recorded as a liability, indicating the amount owed to the supplier.
This treatment ensures that the asset is recorded at its total cost, liabilities reflect the amounts owed, and the cash flow is accurately represented.
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