Concept explainers
Transactions
Interstate Delivery Service is owned and operated by Katie Wyer. The following selected transactions were completed by Interstate Delivery during May:
- 1. Received cash in exchange for common stock, $18,000.
- 2. Paid advertising expense, $4,850.
- 3. Purchased supplies on account, $2,100.
- 4. Billed customers for delivery services on account, $14,700.
- 5. Received cash from customers on account, $8,200.
Indicate the effect of each transaction on the following
(1) Asset (Cash) increases by $18,000; Common Stock increases by $18,000.
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Analyze the Business transactions by indicating their effects on accounting equation.
Explanation of Solution
Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relation between resources or assets of a company and claims of resources to creditors and owners. Accounting equation is expressed as shown below:
1.
Transaction: Cash of $18,000 received from owner.
Accounting equation effect:
Therefore, Asset (Cash) increases by $18,000; Owners’ equity (KW, Capital) increases by $18,000.
2.
Transaction: Paid cash of $4,850 for on advertising expenses.
Accounting equation effect:
Therefore, Asset (Cash) decreases by $4,850; Owners’ equity (Advertising Expense) decreases by $4,850.
3.
Transaction: Purchased supplies of $2,100 on account.
Accounting equation effect:
Therefore, Asset (Supplies) increases by $2,100; Liabilities (Accounts Payable) increases by $2,100.
4.
Transaction: Performed services of $14,700 on account.
Accounting equation effect:
Therefore, Asset (Accounts Receivable) increases by $14,700; Owners’ equity (Delivery Service Fee) increases by $14,700.
5.
Transaction: Received $8,200 for services performed on account.
Accounting equation effect:
Therefore, Asset (Cash) increases by $8,200; Asset (Accounts Receivable) decreases by $8,200.
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Chapter 1 Solutions
Financial and Managerial Accounting
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