Question

The following transactions occur for Badger Biking Company during the month of June: Provide services to customers on account for $35,000. Receive cash of $27,000 from customers in (a) above. Purchase bike equipment by signing a note with the bank for $20,000. Pay utilities of $3,500 for the current month. Analyze each transaction and indicate the amount of increases and decreases in the accounting equation. (Decreases to account classifications should be entered as a negative.)

Answer 1

Answer:

a) Assets increase by 35,000 (account receivable )

   Equity increase by 35,000 (sales revenue)

b) no effect

c) Assets increase by 20,000 (equipment)

Liabilities increase by 20,000 (note payable)

d) Assets decrease by 3500 (cash)

   Equity decrease by 3500 (utilities expense)

Explanation:

Accounting Equation:

Assets = Liaiblities + Equity

Assets: things and right owned by the company and able to generate cash in the future

Liabilities: obligation to do or pay assumed by the company

Equity: contribution from owners and earnings/losses

a) Provide services to customers on account for $35,000.

As the company has the right to claim the invoince aginst his customers and is also earning a profit from this sale

b) Receive cash of $27,000 from customers in (a) above.

we are "trading" one assets (account receivable) for another (cash) As the amount collected decerase the amount owed by the customer the effect of income from cash and decrease in amount to collect balance.

c) Purchase bike equipment by signing a note with the bank for $20,000.

the new equipment is an asset, it wil lgenerate earnings in the future. While the promissory note is an obligation thus, liability.

d) Pay utilities of $3,500 for the current mont.

the utulities paid will not generate incoem in the future are cost incurred thus, expenses which decreases the earnings of the business.