Question

Bonita Petronick decided to start an accounting practice after graduation from university. The following is a list of events that occurred concerning Bonita's practice.

WileyPLUS Problem 1-06 Bonita Petronick decided to start an accounting practice after graduation from university. The following is a list of events that occurred concerning Bonita's practice. 1. After shopping around, Bonita found an office to lease and signed a lease agreement. The lease calls for a payment of $800 rent per month. 2. Bonita borrowed $3,200 from his grandmother so that he could buy some office furniture for his new office. 3. Bonita deposited the $3,200 plus $400 of his own cash in a new bank account at BMO under the name Petronick Accounting Services. 4. Paid the landlord the first month's rent. 5. Purchased office furniture for $2,640 on account. 6. Moved into the office and obtained the first assignment from a client to prepare year-end financial statements for $1,600. 7. Performed the work on the assignment and sent an invoice to the customer for $1,600. 8. Paid half of the amount of the purchase of office furniture. 9. Purchased office supplies on account for $240. 10. Paid $40 cash for Internet services. 11. Collected half of the amounting owing from the customer referred to in #7. 12. Bonita withdrew cash from the business of $120 for personal expenses. Using the table below, insert the amount of the effect of each of these events on the accounting equation. (If a transaction causes a decrease in Assets, Liabilities or Owner's Equity, place a negative sign (or parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced.) Event Asset Liability Owner's Equity y 2. mi w o N co o 5 s Activate Windows

Answer 1

The Basic Principle of financial accounting is the Accounting Equation.

The Accounting Equation is Assets = Liabilities + Equity

Assets are resources controlled by the firm because of past transactions that are expected provide future benefits.

Liabilities are the obligations as a result of past events that are expected require an outflow of economic resources

Equity is the residual interest in the assets of the firm after deducting the liabilities. Equity consists of contributed capital and retained earnings

Event Liability $0 $0 $3,200 Owners' Equity $0 $0 $400 -$800 $o $0 $1,600 $2,640 Assets $0 $0 $3,600 -$800 $2,640 $0 $1,600 -$1,320 $240 -$40 -$800 $800 $120 $0 $0 -$1,320 $240 $0 -$40 10 11 $0 SO SO $0 -$120 12