Effect on Fixed Assets when purchasing an asset

When an asset is purchased, there are a few things to consider that may affect the fixed assets of a company. In the given scenario, an asset was purchased for 660000, and cash was paid 120000, and for the balance, a bill was drawn for 60 days. Let's look at the effects on fixed assets.

1. Increase in Fixed Assets
- When an asset is purchased, the fixed assets of the company increase by the value of the asset acquired. In this case, the fixed assets of the company would increase by 660000.

2. No Effect on Fixed Assets for Cash Paid
- When cash is paid for the purchase of an asset, there is no effect on the fixed assets of the company. The cash paid is recorded in the cash account, and the fixed assets account is not affected.

3. Effect on Fixed Assets for Bills Payable
- When a bill is drawn for the balance amount, it represents an amount that the company owes to the seller. The bill payable is recorded as a liability in the books of accounts. The fixed assets account is not affected by the bill payable.

4. Effect on Fixed Assets for Payment of Bill
- When the bill is paid after 60 days, the fixed assets account is reduced by the amount paid. The bill payable is reduced, and the cash account is debited for the amount paid.

Conclusion

In conclusion, the purchase of an asset affects the fixed assets of the company by increasing it by the value of the asset acquired. Cash paid has no effect on fixed assets, but bills payable represent a liability that does not affect fixed assets. When the bill is paid, the fixed assets account is reduced, and the cash account is debited for the amount paid.

Here,first an asset was purchased(increase in a fixed asset) by a payment of 1,20,00(Decrease in a current asset) and a bill was drawn for the balance amount(an increase in current liabilities)

Thus the total effect on fixed assets is an increase of 6,60,000{this increased is balanced by subsequent increase and decreases in current liabilities and current assets respectively in the balance sheet}