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Transactions The following selected transactions were completed by Cota Delivery Service during July: 1. Received cash in exchange for common stock, $35,000. 2. Purchased supplies for cash, $1,100. 3. Paid rent for October, $4,500. 4. Paid advertising expense, $900. 5. Received cash for providing delivery services, $33,000. 6. Billed customers for delivery services on account, $58,000. 7. Paid creditors on account, $2,900. 8. Received cash from customers on account, $27,500. 9. Determined that the cost of supplies on hand was $300 and $8,600 of supplies had been used during the month. 10. Paid cash dividends, $2,500. Indicate the effect of each transaction on the accounting equation by listing the numbers identifying the transactions, (1) through (10), in a column, and inserting at the right of each number the appropriate letter from the following list: A. Increase in an asset, decrease in another asset. B. Increase in an asset, increase in a liability. C. Increase in an asset, increase in stockholders’ equity. D. Decrease in an asset, decrease in a liability. E. Decrease in an asset, decrease in stockholders’ equity.
Financial And Managerial Accounting
Solutions
Financial And Managerial Accounting
Transactions
The following selected transactions were completed by Cota Delivery Service during July:
- 1. Received cash in exchange for common stock, $35,000.
- 2. Purchased supplies for cash, $1,100.
- 3. Paid rent for October, $4,500.
- 4. Paid advertising expense, $900.
- 5. Received cash for providing delivery services, $33,000.
- 6. Billed customers for delivery services on account, $58,000.
- 7. Paid creditors on account, $2,900.
- 8. Received cash from customers on account, $27,500.
- 9. Determined that the cost of supplies on hand was $300 and $8,600 of supplies had been used during the month.
- 10. Paid cash dividends, $2,500.
Indicate the effect of each transaction on the accounting equation by listing the numbers identifying the transactions, (1) through (10), in a column, and inserting at the right of each number the appropriate letter from the following list:
- A. Increase in an asset, decrease in another asset.
- B. Increase in an asset, increase in a liability.
- C. Increase in an asset, increase in stockholders’ equity.
- D. Decrease in an asset, decrease in a liability.
- E. Decrease in an asset, decrease in stockholders’ equity.
Indicate the effect of given transactions on accounting equation.
Explanation of Solution
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:
The effect of given transaction on the accounting equation is shown below.
- 1. Received cash from owner as additional investment, $35,000
Accounting equation effect:
| Asset | = | Liabilities | + | Owner's Equity | ||
| Cash | = | Liabilities | + | Owner's Equity | ||
| (+) $35,000 | = | (+) $35,000 | ||||
| Bal | $35,000 | = | $35,000 | |||
Table (2)
In assets cash increases by $35,000; Owners’ equity increases by $35,000.
- 2. Purchased supplies for cash, $1,100.
Accounting equation effect:
| Asset | = | Liabilities | + | Owner's Equity | ||||
| Cash | + | Supplies | = | Liabilities | + | Owner's Equity | ||
| Bal | $ 25,000 | = | $ 25,000 | |||||
| (-)$1,100 | (+) $1,100 | = | ||||||
| Bal | $ 23,900 | $1,100 | = | $ 25,000 | ||||
Table (3)
In assets cash decreases by $1,100, while supplies increases by $1,100.
- 3. Paid rent for October, $4,500.
Accounting equation effect:
| Asset | = | Liabilities | + | Owner's Equity | ||
| Cash | = | Liabilities | + | Owner's Equity | ||
| Bal | $25,000 | = | $25,000 | |||
| (-) $4,500 | = | (-) $4,500 | ||||
| Bal | $20,500 | = | $20,500 | |||
Table (4)
In assets cash decreases by $4,500, while owner's equity decreases by $4,500.
- 4. Paid advertising expense, $900.
Accounting equation effect:
| Asset | = | Liabilities | + | Owner's Equity | ||
| Cash | = | Liabilities | + | Owner's Equity | ||
| Bal | $25,000 | = | $25,000 | |||
| (-) $900 | = | (-) $900 | ||||
| Bal | $24,100 | = | $24,100 | |||
Table (5)
In assets cash decreases by $900, while owner's equity decreases by $900.
- 5. Received cash for providing delivery services, $33,000.
Accounting equation effect:
| Asset | = | Liabilities | + | Owner's Equity | ||
| Cash | = | Liabilities | + | Owner's Equity | ||
| Bal | $25,000 | = | $25,000 | |||
| (+) $33,000 | = | (+) $33,000 | ||||
| Bal | $58,000 | = | $58,000 | |||
Table (6)
In assets cash increases by $33,000, while owner's equity increases by $33,000
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