Question

For each of the following transactions, select the account and its effect on the basic accounting equation (Assets = Liabilities + Shareholders’ Equity) (If no entry is required select No Entry for the account. For the effect, select "+" for Increase, "-" for Decrease and "NE" for No effect):

Transaction Assets a. Issuance of shares for cash b. Purchase of land for cash C. Sale of services to a customer on credit d. Receipt of cash from customers as payments on their accounts e. Payment of cash to shareholders as a distribution of earnings f. Receipt of a loan from a bank g. Payment of interest on the bank loan h. Purchase of inventory on credit i. Payment of an account payable j. Payment to a courier company for delivering goods to a customer k. Payment of an insurance premium to cover the following year 1. Depreciation of equipment

Answer 1

		Assets		=	Liabilities		+	Stockholders' Equity
a	Issuance of shares for cash	+	Cash		NE	No Entry	No Entry	+	Common shares
b	Purchase of land for cash	+	Land		NE	No Entry	No Entry	NE	No Entry
		-	Cash		NE	No Entry	No Entry	NE	No Entry
c	Sale of service to customer on credit	+	Accounts receivable		NE	No Entry	No Entry	+	Retained earnings
d	Receipt of cash from customers as payments on their accounts	+	Cash		NE	No Entry	No Entry	NE	No Entry
		-	Accounts receivable		NE	No Entry	No Entry	NE	No Entry
e	Payment of cash to shareholders as a distribution of earnings	-	Cash		NE	No Entry	No Entry	-	Retained earnings
f	Receipt of a loan from a bank	+	Cash		+	Bank loan payable	No Entry	NE	No Entry
g	Payment of interest on the bank loan	-	Cash		NE	No Entry	No Entry	-	Retained earnings
h	Purchase of inventory on credit	+	Inventory		+	Accounts payable	No Entry	NE	No Entry
i	Payment of an accounts payable	-	Cash		-	Accounts payable	No Entry	NE	No Entry
j	Payment to a courier company for delivering goods to a customer	-	Cash		NE	No Entry	No Entry	-	Retained earnings
k	Payment of an insurance premium to cover the following year	+	Prepaid insurance		NE	No Entry	No Entry	NE	No Entry
		-	Cash		NE	No Entry	No Entry	NE	No Entry
l	Depreciation of equipment	-	Accumulated depreciation		NE	No Entry	No Entry	-	Retained earnings