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EXERCISES Exercise 2-1 Classifying accounts LO 2, 3 The following accounts are from Yoojin Changs interior design company, B

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Answer #1

The transactions will be analyzed in the following manner:

Basic Account Financial Statement Normal balance Effect of a debit Effect of a credit
a Cash Asset Balance Sheet Debit Increase Decrease
a. Yoojin Chang Capital Account Owner's Capital Balance Sheet/Statement of Changes in Equity Credit Decrease Increase
b Equipment Asset Balance Sheet Debit Increase Decrease
b Accounts Payable Liability Balance Sheet Credit Decrease Increase
c Equipment Asset Balance Sheet Debit Increase Decrease
c Cash Asset Balance Sheet Debit Increase Decrease
d Cash Asset Balance Sheet Debit Increase Decrease
d Design Revenue Revenues Income Statement Credit Decrease Increase

Explanation

Balance Sheet contains information on Assets, Liabilities & Equity

Income Statement contains information on Revenues and expense of the company

Statement of Changes in equity contains components which are responsible for the changes in equity from beginning of the period to end of the period. This include stock issued, dividends paid, withdrawals made, net income etc.

Normal balance of the accounts are:

Assets - Debit balance - increase with debit, decrease with credit

Expenses - Debit balance - increase with debit, decrease with credit

Liabilities - Credit balance - increase with credit, decrease with debit

Revenues - Credit balance - increase with credit, decrease with debit

Equity - Credit balance - increase with credit, decrease with debit

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