Question

Goal: determine the effect of various transactions on the cash-basis accounting equation (pp. 55-59) 1. Use the template below to indicate how the following transactions affect the cash-basis accounting equation: a. Kissimmee, Inc. (a retail store) begins business on January 1, 2015 with a $100,000 cash contribution from the owners. b. On January 1, 2015, Kissimmee hires tive employees to manage and operate the business. c. On January 1, 2015, Kissimmee pays the monthly rent of $500 cash. d. On January 27, 2015. Kissimmee issues a 12% note payable to purchase warehouse equipment for $10,000. e. On January 10, 2015, Kissimmee purchases goods from a wholesaler for $2.500 cash, and sells the goods on the same day to a customer for S4,500 cash. f. On January 15, 2015, Kissimmee pays wages due employees in the amount of $750 cash. . On January 20, 2015, Kissimmee pays various utility expenses in the amount of $400 cash. h. On January 25, 2015, Kissimmee purchases goods on credit from a wholesaler in the amount of $1,000 i. At the end of business on January 31, 2015: - customers owe Kissimmee $500 for the sale and delivery of goods from inventory during January 2105 with a cost of $278 (i.e., the customer invoices remain unrecorded and unpaid as of January 31, 2015). - Kissimmee owes employees $500 for wages earned during January 2015 (i.e., wages remain unrecorded and unpaid as of January 31, 2015). - Kissimmee owes the local utility company S100, which remains unrecorded as of January 31, 2015 Assets Shareholders' Equity Contributed Earned Capital Capital Revenue (+) Expenses (-) Cash Cash In Cash Out Transaction reference (h-i) $4,150 Totals $104,500 $4,150 $100,350 = | - $100,000 $100,000 $4,500 $350

Answer 1

Solution

Answer:

	Assets		=	Shareholders' Equity
	Cash		=	Contributed Capital	Earned Capital
	Cash In (+)	Cash Out (-)			Revenue (+)	Expenses (-)
Transaction Reference
a	1,00,000.00	-	=	1,00,000.00	-	-
b	-	-	=	-	-	-
c	-	500.00	=	-	-	500.00
d	-	-	=	-	-	-
e	4,500.00	2,500.00	=	-	4,500.00	2,500.00
f	-	750.00	=	-	-	750.00
g	-	400.00	=	-	-	400.00
(h-i)	-	-	=	-	-	-
Totals	1,04,500.00	4,150.00	=	1,00,000.00	4,500.00	4,150.00
	1,00,350.00			1,00,000.00	350.00

Explanation:

1.a.	Cash A/c	Dr.	100000		This results in an Increase (+) in both Contributed Capital and Cash balance
	To, Contributed Capital A/c			100000
1.b.	No Entry Required				This is not a transaction. Hence it will have no effect.
1.c.	Rent A/c	Dr.	500		This results in an Increase (+) in Expenses, and a Decrease (-) in Cash balance
	To, Cash A/c			500
1.d.	Equipment A/c	Dr.	10000		This is a non-cash transaction. Hence it will have no effect in the Cash-basis equation.
	To, Notes Payable A/c			10000
1.e.	Purchases A/c	Dr.	2500		This results in an Increase (+) in Expenses, and a Decrease (-) in Cash balance
	To, Cash A/c			2500
	Cash A/c	Dr.	4500		This results in an Increase (+) in both Revenue and Cash balance
	To, Sales A/c			4500
1.f.	Wages A/c	Dr.	750		This results in an Increase (+) in Expenses, and a Decrease (-) in Cash balance
	To, Cash A/c			750
1.g.	Utility Expenses A/c	Dr.	400		This results in an Increase (+) in Expenses, and a Decrease (-) in Cash balance
	To, Cash A/c			400
1.h.	Purchases A/c	Dr.	1000		This is a non-cash transaction. Hence it will have no effect in the Cash-basis equation.
	To, Accounts Payable A/c			1000
1.i.	Accounts Receivable A/c	Dr.	778		This is a non-cash transaction. Hence it will have no effect in the Cash-basis equation.
	To, Sales A/c			778
	Wages A/c	Dr.	500		This is a non-cash transaction. Hence it will have no effect in the Cash-basis equation.
	To, Wages Payable A/c			500
	Utility Expenses A/c	Dr.	100		This is a non-cash transaction. Hence it will have no effect in the Cash-basis equation.
	To, Accounts Payable A/c			100