Question

Review the journal entry and explain what the probable transaction would be requiring the entry and how this entry is impacting the financial statements. Explanation should cover the actual transaction that occurred.

Example: Utilities expenses 700, cash $700 Answer: Client paid current month's utility bill, asset is decreasing and net worth is decreasing.

1. Account Receivable 8,000 debit

Services Revenue $8,000 credit

2. Explain what the probable transaction would be requiring the entry, and how this entry is impacting the financial statements

Prepaid Insurance: 6,000 debit

Cash 6,000 credit

3. Explain what the probable transaction would be requiring the entry, and how this entry is impacting the financial statements.

Cash 100,000 debit

Office Equipment 24,000 debit

Common stock 124,000 credit

4. Explain what the probable transaction would be requiring the entry, and how this entry is impacting the financial statements.

Office Equipment 12,000 debit

Office supplies 2,400 debit

Accounts payable 14,000 credit

Answer 1

Answers

• #1
  Services are provided on account to the clients for $ 8000. The cash is not yet received,
  Net worth is increasing and Asset is also increasing.
• #2
  Cash has been paid for purchase of insurance for future period of $ 6000.
  Increase in Asset (Prepaid insurance) is equal to decrease in Asset (Cash).
• #3
  Amount has been invested in Common Stock of $ 124,000, out of which $ 100000 is in cash and $ 24000 is in form of Office Equipment.
  Asset is increasing by $ 124000 and Stockholder’s equity will increase by $ 124000
• #4
  Some office equipment and Office supplies were purchased ‘on account’ and there payments are not paid in cash at the time.
  Asset is increasing and Liabilities are increasing.