Chapter 2, Problem 11BE

To determine

Match each of the following transactions with the appropriate key letters.

Explanation of Solution

Transaction analysis:

Transaction analysis is an economic event that causes impact on the value of the assets, liabilities or stockholder’s equity (increase or decrease) in an accounting equation.

Transaction	Key letters
1. The stockholders’ contributed cash to the business.	a, f
2. Purchased inventory on account.	a, d
3. Received and immediately paid advertising bill.	i, b
4. Purchased supplies for cash.	a, b
5. Borrowed money from a bank, giving a note payable.	a, d
6. Billed customers for services rendered.	a, h
7. Made a partial payment on account for equipment.	c, b
8. Paid employees’ salary.	i, b
9. Collected amounts due from customers billed in Transaction 6.	a, b

Table (1)

1. The stockholders’ contributed cash to the business:

Contribution of cash by stockholders’ increases the asset account (cash balance) and increases the stockholders’ equity account (common stock). Therefore, cash account is debited and common stock account is credited.

2. Purchased inventory on account:

Purchase of inventory increases the asset account (equipment) and increases the liability account (accounts payable). Therefore, Equipment account is debited and Accounts Payable account is credited.

3. Received and immediately paid advertising bill:

Payment of advertising expense increases the stockholders’ equity account (expense account) and decreases the asset account (cash). Therefore, debit Advertising Expense account and credit Cash account.

4. Purchased supplies for cash.

Purchase of supplies increases the asset account (supplies) and decreases the asset account (cash). Therefore, debit Supplies account and credit Cash account.

5. Borrowed money from a bank, giving a note payable:

Borrowing increases the asset account (cash) and increases the liability account (notes payable). Therefore, debit Cash account and credit Notes Payable account.

6. Billed customers for services rendered:

Rendering of services increases the asset account (accounts receivable) and the stockholders’ equity account (revenue). Therefore, debit Accounts Receivable account and credit Service Revenue account.

7. Made a partial payment on account for equipment:

Payment of amount decreases the asset account (cash) and liabilities account (accounts payable). Therefore, debit Accounts Payable account and credit Cash account.

8. Paid employees’ salary:

Payment of salary increases the stockholders’ equity account (expense) and decreases the asset account (cash). Therefore, debit Salary Expense account and credit Cash account.

9. Collected amounts due from customers billed in Transaction 6:

Receiving cash increases the asset account (cash) and decreases the amount of accounts receivables (asset account). Therefore, debit Cash account and credit Accounts Receivable account.

Note:

• Entries of Increase in asset, dividend, and expense accounts have to be debited and entries of increase in liabilities, common stock, and revenue accounts have to be credited.
• Entries of Decrease in asset, dividend, and expense accounts have to be credited and entries of decrease in liabilities, common stock, and revenue accounts have to be debited.