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Amy Austin established an insurance agency on March 1 of the current year and completed the following transactions during March: a. Opened a business bank account with a deposit of $50,000 from personal funds. b. Purchased supplies on account, $4,000. c. Paid creditors on account, $2,300. d. Received cash from fees earned on insurance commissions, $13,800. e. Paid rent on office and equipment for the month, $5,000. f. Paid automobile expenses for the month, $1,150, and miscellaneous expenses, $300. g. Paid office salaries, $2,500. h. Determined that the cost of supplies on hand was $2,700; therefore, the cost of supplies used was $1,300. i. Billed insurance companies for sales commissions earned, $12,500. j. Withdrew cash for personal use, $3,900. Instructions 1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings: 2. Briefly explain why the owner’s investment and revenues increased owner’s equity, while withdrawals and expenses decreased owner’s equity. 3. Determine the net income for March. 4. How much did March’s transactions increase or decrease Amy Austin’s capital?
Financial Accounting
Solutions
Financial Accounting
Amy Austin established an insurance agency on March 1 of the current year and completed the following transactions during March:
- a. Opened a business bank account with a deposit of $50,000 from personal funds.
- b. Purchased supplies on account, $4,000.
- c. Paid creditors on account, $2,300.
- d. Received cash from fees earned on insurance commissions, $13,800.
- e. Paid rent on office and equipment for the month, $5,000.
- f. Paid automobile expenses for the month, $1,150, and miscellaneous expenses, $300.
- g. Paid office salaries, $2,500.
- h. Determined that the cost of supplies on hand was $2,700; therefore, the cost of supplies used was $1,300.
- i. Billed insurance companies for sales commissions earned, $12,500.
- j. Withdrew cash for personal use, $3,900.
Instructions
- 1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:
- 2. Briefly explain why the owner’s investment and revenues increased owner’s equity, while withdrawals and expenses decreased owner’s equity.
- 3. Determine the net income for March.
- 4. How much did March’s transactions increase or decrease Amy Austin’s capital?
a)
Indicate the effect of each given transaction on the 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 + Shareholders Equity
Business transaction: Business transaction is a re...
b)
Explain the reason for increase in owner's equity due to owner's investment and revenue, and decrease in owner's equity due to withdrawals and expenses.
c)
Determine the net income for the month of March.
d)
Determine the increase or decrease of owner's equity in the month of March.
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