Explanation Accounting equation : Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below: Assets = Liabilities + Stockholders' Equity Indicate the effects of each adjusting entry as follows: Transaction Assets Liabilities Stockholders’ equity a. Prepaid insurance -$150 NE Insurance expense -$150 (refer working note 1) b. Supplies - $700 NE Supplies expense -$700 (refer working note 2) c. NE Accounts payable +$800 Repairs and maintenance expense -$800 d. Accounts receivable +$7,950 NE Service revenue +$7,950 e. Accumulated depreciation (xA) --$2,750 NE Depreciation expense -$2,750 f. NE Interest payable +$500 Interest expense -$500 g. NE Income tax payable +$9,000 Income tax expense - $9,000 (refer working note 3) Table (1) Justification: a. Insurance expense incurred at the end of the accounting period: This transaction decreases the value of assets by $150, and decreases the value of stockholder’s equity by $150. Working note 1: Calculate the amount of insurance expense: Inusrance expense = [ Total insurance amount × [ Number of months Total number of coverage months ] ] = $ 600 × 6 24 = $ 150 b

6th Edition

ISBN: 9781260664386

Author: PHILLIPS, LIBB

Publisher: MCG

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Financial Transaction Analysis

The transaction analysis is done with the help of the accounting equation. The basic accounting equation is alternatively known as the balance sheet equation is based on the double-entry system which says that for each transaction happening in a business…

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Chapter 4, Problem 3PA

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Indicate the effects of each adjusting entry.

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Indicate the effects of each adjusting entry .

Solution Summary: The author explains the accounting equation as an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of the company, and claims by the creditors and the owners.

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Indicate the effects of each adjusting entry.

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