Question

7. An account will have a credit balance if the A)debits exceed the credits. B)credits exceed the debits. C)first transaction entered was a credit. D)last transaction entered was a credit.

10. Which of the following is incorrect as to category, normal balance, financial statement, to increase, to decrease A)Cash - asset, debit, balance sheet, credit, debit B)Accounts Payable - liabilities, debit, balance sheet, credit, debit C)Common Stock - shareholders equity, debit, balance sheet, credit, debit D)Service Revenue - revenue, credit, income statement, debit, credit E)Dividend - expense, debit, retained earning, debit, credit F)All of these G)None of these

12. The accounting equation for Eldorado Enterprises is:Assets $100,000 = Liabilities $40,000 + Stockholders' equity Equity $60,000. If Eldorado purchases equipment for $25,000 and signs a note payable for the same amount, the new accounting equation will be: A)Assets $75,000 = Liabilities $15,000 + Stockholders' equity $60,000. B)Assets $100,000 = Liabilities $40,000 + Stockholders' equity $60,000 C)Assets $125,000 = Liabilities $40,000 + Stockholders' equity $85,000. D)Assets $125,000 = Liabilities $65,000 + Stockholders' equity $60,000. Thank you for helping. I really hope u can give me the right answer and explain the steps

Answer 1

Concepts and reason

Transaction: Transaction is an act of buying or selling goods or rendering any service that is reliably measured in terms of money.

Accounting: Accounting is a process of recording the transactions, classifying them in a specific manner, and then the process of summarizing and analyzing is done to interpret the results. It is a process of preserving the accounts.

Journal entry: Journal entry is the recording of transactions in a systematic manner as they occur. Thus, it is a summary of all the transactions which have debit and credit aspects recorded chronologically.

Balance sheet: Balance sheet refers to a statement of assets, liabilities, and owner’s equity as on a particular date of the fiscal year of the business enterprise. It also depicts the financial status of a business enterprise in a nutshell.

Fundamentals

Rules for debit and credit:

When asset increases, debit it; when asset decreases, credit it.

When liabilities increase, credit them; when liabilities decrease, debit them.

When stockholders’ equity increases, credit it; when stockholders’ equity decreases, debit it.

When the expenses and losses increase, debit them; when expenses and losses decrease, credit them.

When incomes and gains increase, credit them; when incomes and gains decrease, debit them.

Income statement: This is the financial statement of a company which reports all the revenues that are earned and expenses that are to be expended by the company on the immediate accounting year. Income statement is also known as profit and loss statement.

Accounting equation: Accounting equation consists of assets, liabilities, and capital. The total assets are equal to total liabilities. According to this equation, when assets increase, corresponding increase will happen on either liabilities or owners’ equity. The following formula is used for accounting equation:

Assets: Asset is the resource of a company to generate income. Asset is generally classified into fixed assets, current assets, tangible assets, and intangible assets. Fixed assets are the assets that are used to generate income over a long period. Current assets are the assets that are realized within the current financial year. Tangible assets are the assets that can be felt and touched. Intangible assets are the assets that cannot be felt and touched.

Liabilities: Liabilities are a company’s owing to outsiders. It is an obligation raised to a company to settle. Liability is generally classified into long-term liability and short-term liability. Long-term liability is the liability to be settled in the succeeding financial years. Short-term liability or current liability is the liability to be settled in the current financial year.

Stockholders’ equity: A shareholder’s claim on the assets of a company is known as stockholders’ equity, which are assets minus liabilities. This is also a permanent account because these balances are carried forward from one financial year to the other stockholders’ equity, also called as owners’ equity.

Accounts payable: Accounts payable is the amount to be paid by a person or company who has purchased goods or received any services during the future period. It is the liability of a company, and thus shown under liabilities in balance sheet.

Common stock: Common stock is the stock issued by a company to the people having voting rights. It is termed as stockholders’ equity account. It is a form of corporate equity ownership. It is one of the forms of securities that are issued to common shareholders. They are entitled to dividend and repayment of capital after the payment is made to preference shareholders. It will be reported in balance sheet as liabilities.

Service revenue: It is the income of a company for the services provided in the accounting period (which is taken into consideration). The income or earnings received by a company for the purpose of services provided are known as service revenue.

Retained earnings: The amount of cumulative earnings that are distributed in the form of dividends to the investors on the stock is termed as retained earnings.

Dividends: The after tax profit of the company that is distributed among its shareholders based on the number of shares held by the shareholders are known as dividends. This will have an impact on the shareholders’ equity section of the balance sheet.

7)

Determine when the account will have credit balance:

An account may have both debit and credit sides. It is said to have a particular side balance when the side has larger amount or highest amount of expense or income. When the debit side is higher, it has debit balance. When the credit side is higher, it has credit balance.

Therefore, the account has credit balance when the credit exceeds the debit.

10)

Determine the incorrect answer based on the category, normal balance, the financial statement, and increase and decrease.

Cash does not increase on credit and decrease on debit. It increases on debit and decreases on credit.

The accounts payable has a credit balance. It does not have debit balance.

The common stock has a credit balance. It does not have debit balance.

The service revenue increases on the credit and decreases on the debit. It does not decrease on credit and increase on debit.

Therefore, cash, accounts payable, common stock, service revenue and dividend is incorrect as to category, the balance, statement and its increase and decrease.

12)

Determine the accounting equation:

Ans: Part 7

The account has credit balance when the credit exceeds the debit.

Part 10

The cash, accounts payable, common stock, service revenue and dividend is incorrect as to category, the balance, statement and its increase and decrease.

Part 12