Chapter D, Problem 6QS

To determine

Accounting Equation: Accounting equation is also known as balance sheet equation. Accounting equation is based on the principles of double entry system of accounting. The accounting equation is as follows

$Assets=Liability+owner’sequity$

Journal: A journal is the complete record of a financial transaction which shows the debit and credit of respective accounts for every transaction including the explanation of the transaction.

T-Accounts: An account is a unique record of increases or decreases in any asset, liability, equity, revenues or expenses. T-accounts are drawn to resemble a T-shape with debit on the left and credit on the right. Assets and expenses have normally debit balances and liability, equity and revenue accounts have normally credit balance.

To analyze:

The given transaction using accounting equation.

Answer to Problem 6QS

The

	Assets		=	Liabilities		+	Owner’s Equity
	Account	Amount		Account	Amount		Account	Amount
a	Cash & Equipment	+10,000	=		0	+	Common stock	+10,000
b	Office Supplies	+500	=	Accounts Payable	+500	+		0
c	Cash	+4,000	=		0	+	Landscaping Revenue	+4,000
d	Cash	+1,000	=	Unearned Landscaping Revenue	+1,000

Explanation of Solution

a. Total Assets increase by $10,000 and total equity increase by $10,000

b. Assets increase by $500 and liability increases by $500

c. Asset increases by $4,000 and Equity increases by $4,000. Since all revenues are added to Equity and all expenses are deducted from equity balance, to arrive at closing equity, it can be said that revenue ultimately is a part of Equity. So, the revenue has been added to Equity.

d. Asset increases by $1,000 and liability increases by $1,000.

Thus, accounting equation has been explained.

To determine

Accounting Equation: Accounting equation is also known as balance sheet equation. Accounting equation is based on the principles of double entry system of accounting. The accounting equation is as follows

$Assets=Liability+owner’sequity$

Journal: A journal is the complete record of a financial transaction which shows the debit and credit of respective accounts for every transaction including the explanation of the transaction.

T-Accounts: An account is a unique record of increases or decreases in any asset, liability, equity, revenues or expenses. T-accounts are drawn to resemble a T-shape with debit on the left and credit on the right. Assets and expenses have normally debit balances and liability, equity and revenue accounts have normally credit balance.

To prepare:

Journal Entries for the given transaction.

Answer to Problem 6QS

In the books of Elegant LawnsJournal Entries
Date	Accounts And explanations	Debit $	Credit $
May 15	Cash (101)	7,000
	Equipment(167)	3,000
	Common stock(307)		10,000
	(Cash and Equipment brought in the business and common stock issued)
May 21	Office Supplies(124)	500
	Accounts Payable(201)		500
	(Office supplies purchased on credit)
May 25	Cash(101)	4,000
	Landscaping Revenue(403)		4,000
	(Cash received for landscaping Revenue)
May 30	Cash(101)	1,000
	Unearned Landscaping Revenue(236)		1,000
	(Cash received for unearned landscaping Revenue)

Explanation of Solution

May 15-Cash & Equipment (Asset) come in and so they are debuted. Common stock (Equity) is issued, so it is credited.

May 21-Office Supplies (Asset) comes into the business, so Office Supplies is debited. Accounts Payable (liability) arises, so Accounts Payable is credited.

May 25-Cash (Asset) comes into the business, so Cash is debited. Landscaping Revenue (Revenue) is generated, so it is credited

May 30- Cash (Asset) comes into the business, so Cash is debited. Unearned Landscaping Revenue (liability) comes into existence, so it is credited.

Thus, the Journal entry for the transaction has been passed.

To determine

Accounting Equation: Accounting equation is also known as balance sheet equation. Accounting equation is based on the principles of double entry system of accounting. The accounting equation is as follows

$Assets=Liability+owner’sequity$

Journal: A journal is the complete record of a financial transaction which shows the debit and credit of respective accounts for every transaction including the explanation of the transaction.

T-Accounts: An account is a unique record of increases or decreases in any asset, liability, equity, revenues or expenses. T-accounts are drawn to resemble a T-shape with debit on the left and credit on the right. Assets and expenses have normally debit balances and liability, equity and revenue accounts have normally credit balance.

To prepare:

T-accounts for the given transactions.

Answer to Problem 6QS

Cash(101)
Date	Accounts	Amount $	Date	Accounts	Amount $
May 15	Common Stock	7,000	May 30	Balance c/d	12,000
May 25	Landscaping Revenue	4,000
May 30	Unearned Landscaping Revenue	1,000
		12,000			12,000

Office Supplies(124)
Date	Accounts	Amount $	Date	Accounts	Amount $
May 21	Accounts Payable	500	May 30	Balance c/d	500
		500			500

Equipment(167)
Date	Accounts	Amount $	Date	Accounts	Amount $
May 15	Common Stock	3,000	May 30	Balance c/d	3,000
		3,000			3,000

Accounts Payable(201)
Date	Accounts	Amount $	Date	Accounts	Amount $
May 30	Balance c/d	500	May 21	Office Supplies	500
		500			500

Unearned Landscaping Revenue(236)
Date	Accounts	Amount $	Date	Accounts	Amount $
May 30	Balance c/d	1,000	May 30	Cash	1,000
		1,000			1,000

Common stock(307)
Date	Accounts	Amount $	Date	Accounts	Amount $
May 30	Balance c/d	10,000	May 15	Cash	7,000
			May 15	Equipment	3,000
		10,000			10,000

Landscaping Revenue(403)
Date	Accounts	Amount $	Date	Accounts	Amount $
May 30	Income Summary	4,000	May 25	Cash	4,000
		4,000			4,000

Explanation of Solution

Cash, Equipment and Office Supplies are Assets, Accounts Payable and Unearned Landscaping Revenue is a liability All Assets, Liabilities and Equity accounts are part of Balance Sheet. So, the balances of all these accounts are carried forward to the Balance Sheet.

The Balance of Landscaping Revenue has been carried forward to the Income summary.

Thus, T-accounts have been prepared.