SOLVED:Performing services on account will have the following effects on the components of the basic accounting equation: a increase assets and decrease owner’s equity. b. increase assets and increase owner’s equity. c. increase assets and increase liabilities. d. increase liabilities and increase owner’s equity.


The record is placed on the debit side of the Accounts Receivable T-account underneath the January 10 record. Service Revenue has a credit of $1,200.

  • An increase in owner’s equity and a decrease in liabilities.
  • Advertising Expense is included in determining net income.
  • We now return to our company example of Printing Plus, Lynn Sanders’ printing service company.
  • Lynn asked to be sent a bill for payment at a future date.
  • Determine the total assets of Kirby Company at December 31, 2022.
  • Therefore, Accounts Receivable will increase for $5,500 on the debit side.

The entire group of maintained by a company is referred to collectively as the journal. The transaction is first recorded in a journal, and then posted to a ledger. Analyzing transactions is the first step in the recording process. Assets are increased by debits, which are additions to the left side of the T-account. Recall the type of transactions that reduces retained earnings. Recall the accounting equation to answer this question.

Expanding the accounting equation

Neither the income statement nor the retained earnings statement is affected. The effect of a stock dividend is to _______. The accounting equation helps to assess whether the business transactions carried out by the company are being accurately reflected in its books and accounts. Below are examples of items listed on the balance sheet. The accounting equation shows on a company’s balance that a company’s total assets are equal to the sum of the company’s liabilities and shareholders’ equity. This straightforward relationship between assets, liabilities, and equity is considered to be the foundation of the double-entry accounting system.

Is the enhancement resulting from providing goods or services to customers. Revenue will contribute to income, and income is added to retained earnings. Note that assets still equal liabilities plus equity. The Case B illustration shows that equipment increased from $250,000 to $280,000, and loans payable increased from $125,000 to $155,000. As a result, both total assets and total liabilities increased by $30,000.

Recording Transactions

In the last column of the Cash ledger account is the running balance. This shows where the account stands after each transaction, as well as the final balance in the account. How do we know on which side, debit or credit, to input each of these balances? Let’s consider the general ledger for Cash. The following are selected journal entries from Printing Plus that affect the Cash account.

ABC Company pays $25,000 in dividends. This reduces the cash account and reduces the retained earnings account. Notice that every transaction results in an equal effect to assets and liabilities plus capital.

2 Transaction Analysis- accounting equation format

The corporation received $50,000 in cash for services provided to clients. During the month of February, Metro Corporation earned a total of $50,000 in revenue from clients who paid cash. The new corporation purchased new asset for $500 but will pay for them later. We want to increase the asset Equipment and decrease the asset Cash since we paid cash. If a correct journal entry is posted twice, the trial balance will still balance. The date of a journal entry is required to maintain the chronology of the journal and the accounts.

asset account

When an is paid with cash, liabilities are not affected. True; The costs that a firm incurs when operating its business cause retained earnings to decrease.

Sample Accounting Equation Transactions decrease and equity increases. Assets increase and equity decreases. When the company pays stockholders a dividend, what is the effect on the accounting equation for that company?

  • Not affect stockholders’ equity.
  • C.a $450 payment on account is debited to Accounts d.Payable for $45 and credited to Cash for $45.
  • The Shareholders’ Equity part of the equation is more complex than simply being the amount paid to the company by investors.
  • Cash is decreased thereby decreasing total assets.
  • Ethics are the standards of conduct by which actions are judged as right or wrong.

On this transaction, Cash has a credit of $3,500. This is posted to the Cash T-account on the credit side beneath the January 14 transaction. Accounts Payable has a debit of $3,500 (payment in full for the Jan. 5 purchase). You notice there is already a credit in Accounts Payable, and the new record is placed directly across from the January 5 record.

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