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Accounting (Text Only)
Nature of transactions
Teri West operates her own catering service. Summary financial data for July are presented in equation form as follows. Each line designated by a number indicates the effect of a transaction on the equation. Each increase and decrease in owner's equity, except transaction (5), affects net income.
a.    Describe each transaction.
b.    What is the amount of the net increase in cash during the month?
c.    What is the amount of the net increase in owner's equity during the month?
d.    What is the amount of the net income for the month?
e.    How much of the net income for the month was retained in the business?
a)
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:
Net Income: Net income denotes the excess of revenue over the expense. It is a component of owner's equity.
To describe: The transactions given on accounting equation.
- 1. Received cash from for providing catering services, $71,800.
Assets (cash) increase by $71,800, while owner's equity (fees earned) increases by $71,800.
- 2. Purchased land for cash, $15000.
Assets (cash) decrease by $15,000, while another asset (land) increases by $15,000.
- 3. Paid for expenses by cash, $47,500.
Assets (cash) decrease by $47,500, while owner's equity (expenses) decreases by $47,500.
- 4. Purchased supplies on account, $1,100.
Assets (cash) increase by $1,100, while liabilities increase by $1,100...
b)
To calculate: The net increase in cash during the month of July.
c)
To calculate: The net increase in owner's equity during the month of July.
d)
To calculate: The net income for the month of July.
e)
To calculate: The net income for the month of July retained in the business.
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