Chapter 1, Problem 11E

To determine

Concept Introduction:

Accounting equation:

It reflects the concept of double entry accounting. The accounting equation displays that all assets are either financed through shareholders funds i.e. equity or by borrowing money i.e. liabilities. Thus, the accounting equation is:          $Asset=Liabilities+Equity$

To Identify:

The transactions with their corresponding equation effect on assets, liabilities and equity of Mulan's Boutique.

Explanation of Solution

  $\begin{array}{l}Assets=Liabilities+Equity\\ Cash+ Accounts+office+Land=Accounts+Mulan+\mathrm{Re}venues\\ \mathrm{Re}ceivables\sup pliespayableCapital\\ \$21,000+ \$0 +\$3,000 + \$19,000 = \$ 0 + \$43,000 + \$ 0\\ -4,000+4,000\\ \end{array}$

Explanation f is the description of above equation effect: The company purchased land for $4,000 cash.

It shows that company has paid $4,000 in lieu of purchase of land and hence, the effect of this transaction is that the assets of the boutique are decreased by $4,000 in the form of cash and also assets in the form of land are increased by $4,000.

  $\begin{array}{l}Assets=Liabilities+Equity\\ Cash+ Accounts+office+Land=Accounts+Mulan+\mathrm{Re}venues\\ \mathrm{Re}ceivables\sup pliespayableCapital\\ \$21,000+ \$0 +\$3,000 + \$19,000 = \$ 0 + \$43,000 + \$ 0\\ +1,000+\$1,000\end{array}$

Explanation a is the description of above equation effect: The company purchased $1,000 of office supplies on credit.

It shows that the company has purchased office supplies of $1,000 on credit and hence, the effect of this transaction is that the assets of boutique are increased by $1,000 in the form of office supplies and also liabilities in the form of accounts payable are increased by $1,000.

  $\begin{array}{l}Assets=Liabilities+Equity\\ Cash+ Accounts+office+Land=Accounts+Mulan+\mathrm{Re}venues\\ \mathrm{Re}ceivables\sup pliespayableCapital\\ \$21,000+ \$0 +\$3,000 + \$19,000 = \$ 0 + \$43,000 + \$ 0\\ +1,900+\$1,900\end{array}$

Explanation g is the best description of above equation effect: The Company billed a client $1,900 for services provided.

It shows that the company has rendered services on credit and generated revenue of $1,900 and hence, the effect of this transaction is that the assets of boutique is increased by $1,900 in the form of accounts receivable (debtors) and also capital in the form of revenue has increased by $1,900.

  $\begin{array}{l}Assets=Liabilities+Equity\\ Cash+ Accounts+office+Land=Accounts+Mulan+\mathrm{Re}venues\\ \mathrm{Re}ceivables\sup pliespayableCapital\\ \$21,000+ \$0 +\$3,000 + \$19,000 = \$ 0 + \$43,000 + \$ 0\\ -1,000-\$1,000\end{array}$

Explanation h describes the equation effect of the above transaction. The company has paid $1,000 cash towards an account payable.

It shows that the company paid its liability of $1,000 in cash and hence, the effect of this transaction is that the assets of boutique are decreased by $1,000 in the form of cash and also liability in the form of accounts payable is decreased by $1,000.

  $\begin{array}{l}Assets=Liabilities+Equity\\ Cash+ Accounts+office+Land=Accounts+Mulan+\mathrm{Re}venues\\ \mathrm{Re}ceivables\sup pliespayableCapital\\ \$21,000+ \$0 +\$3,000 + \$19,000 = \$ 0 + \$43,000 + \$ 0\\ +1,900-\$1,900\end{array}$

Explanation b best describes the equation effect of above transaction: The Company collected cash $1,900 from an account receivable.

It shows that the company has received an amount of $1,900 against accounts receivable and hence, the effect of this transaction is that the assets of boutique are decreased by $1,900 in the form of accounts receivable and also assets in the form of cash are increased by $1,900.