Question

For each of the following transactions of Spotlighter, Inc., for the month of January, indicate the accounts, amounts, and direction of the effects on the accounting equation. A sample is provided. (Sample) Borrowed $5,440 from a local bank on a note due in six months.
Received $6,130 cash from investors and issued common stock to them.
Purchased $2,500 in equipment, paying $950 cash and promising the rest on a note due in one year. Paid $1,050 cash for supplies.
Bought and received $1,450 of supplies on account.

Answer 1

Answer:

Spotlighter, Inc.

Indication of the accounts, amounts, and direction of the effects on the accounting equation:

1. Cash and Notes Payable, $5,440: Assets +$5,440 = Liabilities +$5,440

2. Cash and Common Stock, $6,130: Assets +$6,130 = Liabilities + Equity $6,130

3. Equipment, Cash, and Notes Payable, $2,500: Assets +$2,500 -$950 = Liabilities + $1,550 + Equity

4. Cash and Supplies: Assets -$1,050 - $1,050 = Liabilities + Equity

5. Supplies + Accounts Payable: Assets + $1,450 = Liabilities + $1,450 + Equity

Explanation:

Spotlighter's accounting equation of assets equal to liabilities plus equity will always be in balance with each business transaction that occurs.  This is because each transaction involves two accounts on either side or both sides of the equation with a plus or minus action.