Question

Nature of Transactions

Kristoff Walker operates his own catering service. Summary financial data for February are presented in equation form as follows. Each line designated by a number indicates the effect of a transaction on the equation. Each increase and decrease in owner's equity, except transaction (5), affects net income.

Assets			=	Liabilities +		Owner's Equity
	Cash + Supplies + Land			=	Accounts Payable	+	Kristoff Walker, Capital	-	Kristoff Walker, Drawing	+	Fees Earned	-	Expenses
Bal.	27,600	3,600	69,000		7,500		92,700
1.	+32,300										+32,300
2.	-13,800		+13,800
3.	-24,000												-24,000
4.		+1,400			+1,400
5.	-1,800								-1,800
6.	-6,600				-6,600
7.		-2,800											-2,800
Bal.	13,700	2,200	82,800		2,300		92,700		-1,800		32,300		-26,800

Fill in the blank options for questions of a:

-Recognition of cost of supplies used

-Withdrawal of cash by owner

-Purchase of supplies on account

-Purchase of land for cash

-Payment of cash to creditors

-Payment of cash for expenses

-Provided catering service for cash

a. Select the description for transaction 1

a. Select the description for transaction 2

a. Select the description for transaction 3

a. Select the description for transaction 4

a. Select the description for transaction 5

a. Select the description for transaction 6

a. Select the description for transaction 7

b. What is the amount of the net decrease in cash during the month?

c. What is the amount of the net increase in owner's equity during the month?

d. What is the amount of the net income for the month?

e. How much of the net income for the month was retained in the business?

Answer 1

(a) Description for:-

Transaction 1 - Provided catering service for cash

Transaction 2 - Purchase of land for cash

Transaction 3 - Payment of cash for expenses

Transaction 4 -Purchase of supplies on account

Transaction 5 - Withdrawal of cash by owner

Transaction 6 - Payment of cash to creditors

Transaction 7 - Recognition of cost of supplies used

(b) Amount of the net decrease in cash during the month :-

=Current Year Closing Balance- Balance at the beginning

=22700 - 13700

=9000

(c) Amount of the net increase in owner's equity during the month :-

Owner's equity = Assets - Liabilities

=(Cash + Supplies + Land) - Accounts Payable

=(13700+2200+82800) - 2300

= 96400

(d) Amount of the net income for the month :-

=Total Earnings - Total Liabilities

=32300-26800

=5500

(e) Net income for the month retained in the business :-

Owner's equity at the end - Owner's equity at the beginning

=96400-92700

=3700

or

=Net income - Drawings

=5500-1800

=3700