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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

EFFECTS OF TRANSACTIONS (BALANCE SHEET ACCOUNTS) John Sullivan started a business. During the first month (February 20--), the following transactions occurred. Show the effect of each transaction on the accounting equation: Assets = Liabilities + Owner’s Equity. After each transaction, show the new totals.

(a) Invested cash in the business, $27,000.

(b) Bought office equipment on account, $7,500.

(c) Bought office equipment for cash, $1,600.

(d) Paid cash on account to supplier in transaction (b), $2,300.

EFFECTS OF TRANSACTIONS (REVENUE, EXPENSE, WITHDRAWALS) This exercise is an extension of Exercise 2-3A. Let’s assume John Sullivan completed the following additional transactions during February. Show the effect of each transaction on the basic elements of the expanded accounting equation: Assets = Liabilities + Owner’s Equity (CapitalDrawing + RevenuesExpenses). After transaction (k), report the totals for each element. Demonstrate that the accounting equation has remained in balance.

(e) Received cash from a client for professional services, $1,500.

(f) Paid office rent for February, $600.

(g) Paid February phone bill, $64.

(h) Withdrew cash for personal use, $1,000.

(i) Performed services for clients on account, $750.

(j) Paid wages to part-time employee, $1,200.

(k) Received cash for services performed on account in transaction (i), $400.

To determine

Show the effect of each transaction and demonstrate that the accounting equation remained in balance.

Explanation

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relation between resources or assets of a business and claims on the resources by the creditors, and the owners.

The effects of each transaction on the accounts of accounting equation are given bellow:

Figure (1)

Therefore, from the above calculation, it is demonstrated that accounting equation remained balance as given below:

Assets($31,586)=Liabilities($5,200)+Owners'equity($26,386)

Working note:

Calculate the balance of assets, liabilities and owners’ equity by showing the effects of each transaction on the accounts of accounting equation are given bellow:

TransactionAssets=

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