   Chapter 2, Problem 4SEB

Chapter
Section
Textbook Problem

EFFECTS OF TRANSACTIONS (BALANCE SHEET ACCOUNTS) Jon Wallace started a business. During the first month (March 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 account totals.(a) Invested cash in the business, $30,000.(b) Bought office equipment on account,$4,500.(c) Bought office equipment for cash, $1,600.(d) Paid cash on account to supplier in transaction (b),$2,000.EFFECTS OF TRANSACTIONS (REVENUE, EXPENSE, WITHDRAWALS) This exercise is an extension of Exercise 2-3B. Let’s assume Jon Wallace completed the following additional transactions during March. Show the effect of each transaction on the basic elements of the expanded accounting equation: Assets = Liabilities + Owner’s Equity (Capital − Drawing + Revenues − Expenses). After transaction (k), report the totals for each element. Demonstrate that the accounting equation has remained in balance.(e) Performed services and received cash, $3,000.(f) Paid rent for March,$1,000.(g) Paid March phone bill, $68.(h) Jon Wallace withdrew cash for personal use,$800.(i) Performed services for clients on account, $900.(j) Paid wages to part-time employee,$500.(k) Received cash for services performed on account in transaction (i), $500. 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($34,032)=Liabilities($2,500)+Owners'equity($36,268)

Working note:

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

 Transaction Assets =</

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