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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 stockholders’ 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 stockholders’ 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?

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 1, Problem 13E
Textbook Problem
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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 stockholders’ equity, except transaction (5), affects net income.

Chapter 1, Problem 13E, Nature of transactions Teri West operates her own catering service. Summary financial data for July

  1. A. Describe each transaction.
  2. B. What is the amount of the net increase in cash during the month?
  3. C. What is the amount of the net increase in stockholders’ equity during the month?
  4. D. What is the amount of the net income for the month?
  5. E. How much of the net income for the month was retained in the business?

a)

To determine

Describe the transactions given 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:

Assets = Liabilities + Owners' Equity

Net Income: Net income denotes the excess of revenue over the expense. It is a component of owner's equity.

  1. 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.

  1. 2.      Purchased land for cash, $15000.

Assets (cash) decrease by $15,000, while another asset (land) increases by $15,000.

  1. 3.      Paid for expenses by cash, $47,500

b)

To determine

Calculate the net increase in cash during the month of July.

c)

To determine

Calculate the net increase in owner's equity during the month of July.

d)

To determine

Calculate the net income for the month of July.

e)

To determine

Calculate the net income for the month of July retained in the business.

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Financial And Managerial Accounting
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