Question

Selected transactions for Spring-Green Lawn Care Company are listed below.

Answer 1

Answer:

1. Sold ordinary shares for cash to start a business.  - Increase in assets and Increase in equity

2.Paid monthly rent.  - Decrease in assets and decrease in equity

3.Purchased equipment on account.  - Increase in assets and Increase in liabilities

4. Billed customers for services performed.  - Increase in assets and Increase in equity

5.Paid dividends.  - Decrease in assets and decrease in equity

6. Received cash from customers hilled in (4). - No effect

7.Incurred advertising expense on the account.  - Increase in liabilities and a decrease in equity

8.Purchased additional equipment for cash.  - No effect

9. Received cash from customers when service was performed. - Increase in assets and Increase in equity

Explanation:

The accounting equation shows the relationship between the elements of a balance sheet which are assets liabilities and equity. This may be expressed mathematically as

Assets = Liabilities + Equity

While assets include fixed assets, cash, inventories, account receivables etc, liabilities include accounts payable, loans payable, accrued expenses etc.

Equity which represents the amount owed to the owners of the business includes retained earnings (which is the accumulation of the net income/loss over the years less dividends paid) and common shares.