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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Transactions

Interstate Delivery Service is owned and operated by Katie Wyer. The following selected transactions were completed by Interstate Delivery Service during May:

1.    Received cash from owner as additional investment, $18,000.

2.    Paid advertising expense, $4,850.

3.    Purchased supplies on account, $2,100.

4.    Billed customers for delivery services on account, $14,700.

5.    Received cash from customers on account, $8,200.

Indicate the effect of each transaction on the accounting equation elements (Assets, Liabilities, Owner's Equity, Drawing, Revenue, and Expense). Also indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) follows:

(1) Asset (Cash) increases by $18,000; Owner's Equity (Katie Wyer, Capital) increases by $18,000.

To determine

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relation between resources or assets of a company and claims of resources to creditors and owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Owners' EquityAssets = Liabilities+{(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}

To analyze: Business transactions by indicating their effects on accounting equation

Explanation

1.

Transaction: Cash of $18,000 received from owner.

Accounting equation effect:

Assets = Liabilities+{(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}Cash    =KW,Capital+$18,000 =+$18,000

Asset (Cash) increases by $18,000; Owners’ equity (KW, Capital) increases by $18,000.

2.

Transaction: Paid cash of $4,850 for on advertising expenses.

Accounting equation effect:

Assets = Liabilities+{(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}Cash   =Advertising Expense–$4,850 =–$4,850

Asset (Cash) decreases by $4,850; Owners’ equity (Advertising Expense) decreases by $4,850.

3.

Transaction: Purchased supplies of $2,100 on account.

Accounting equation effect:

Assets = Liabilities +{(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}Supplies  =(Accounts Payable)+$2,100 =+$2,100

Asset (Supplies) increases by $2,100; Liabilities (Accounts Payable) increases by $2,100.

4.

Transaction: Performed services of $14,700 on account

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