Question

Show the effect of each of the seven listed transactions on the balance sheet items of Distinctive Draperies. Indicate the new balances after the transaction of May 2 and each subsequent transaction. The effects of the May 1 transaction are already filled in to provide you with an example. Note that the example has a + or - in addition to the amount for each account affected. May 1 Issued capital stock for $75,000 2 Purchased a small office building at a price of $58,000 for the land and $65.000 for the building Paid $43,000 cash and signed a note payable for the balance 8 Borrowed $15,000 from the bank. Signed a 60-day note payable for this amount 16 Purchased copying machines, computers, and other office equipment for $19.000 Paid $9,000 cash and signed a note payable for the balance. 28 Sold an item of office equipment computer) to a stockholder at its cost of $2,800 The stockholder paid $800 cash and promised to pay the balance within 30 days. 30 Paid $5,000 on the liability for the office equipment 31 Collected $500 from the stockholder who had bought the computer Cash As Receivable Equity Cape Stock Buting Offee Equipment Notes Pule Mai -$75.000 Balas B 16 Bal 28 Bal 30 Bal 31 Balm

Answer 1

1. Accounting Equation -

Accounting Equation = Assets = Liabilities + Equity

Every company needs to follow the equation to balance the financial statement if the company miss to follow the accounting equation financial statement will not get match.

Every financial statement contains debit and credit transactions of the transactions and balances.

Every Transaction affect the accounting equation like every transaction has debit effect and credit effect. Hence to match the equation one need to understand the effect of those transaction.

We needs to understand golden rules -

1. Real Account - Debit what comes in and Credit What Goes out

2. Personal Account - Debit the receiver and Credit the Giver.

3. Nominal Account - Debit All Expense and Losses and Credit all income and Gains.

Application of these three principles according to the transaction.

2. Accounting Equation -

Assets II Liabilities + Date Cash Owner's Equity Capital Stock $ 75,000 Accounts Receivable + + Land + Building + Office Equipment II Notes Payable + $ 58,000 $ 58,000 $ 65,000 $ 65,000 $ $ $ 75,000 $ 80,000 $ 80,000 $ 15,000 $ 95,000 $ 10,000 $ 105,000 $ $ 58,000 $ 65,000 May 1 $ 75,000 May 2 $(43,000) Balance $ 32,000 May 8 $ 15,000 Balance $ 47,000 May 16 $ (9,000) Balance $ 38,000 $ 800 Balance $ 38,800 May 30 $ 5,000 Balance $ 43,800 May 31 $ 500 Balance $ 44,300 $ 75,000 $ 58,000 $ 65,000 $ 75,000 May 28 $ $ 2,000 $ 2,000 $ $ 19,000 $ 19,000 $ (2,800) $ 16,200 $ (5,000) $ 11,200 $ 58,000 $ 65,000 $ 105,000 $ 75,000 $ 58,000 $ 65,000 $ 105,000 $ 75,000 $ 2,000 $ (500) $ 1,500 + + $ 58,000 + $ 65,000 + $ 11,200 = $105,000 + $ 75,000