Question

The following transactions were completed by the company

Answer 1

Answer:

(a) The company completed consulting work for a client and immediately collected $6,700 cash earned - Assets (increase) = Liabilities (NA) + Equity (increase)

(b) The company completed commission work for a client and sent a bill for $5,200 to be received within 30 days - Assets (increase) = Liabilities (NA) + Equity (increase)

(c) The company paid an assistant $2,000 cash as wages for the period - Assets (decrease) = Liabilities (NA) + Equity (decrease)

(d) The company collected $2,600 cash as a partial payment for the amount owed by the client in transaction b - Assets (No effect) = Liabilities (NA) + Equity (NA)

(e) The company paid $940 cash for this period's cleaning services - Assets (decrease) = Liabilities + Equity (decrease)

*NA = Not Applicable

Explanation:

Accounting equation is defined by this formula: Assets = Liabilities + Equity

• Cash of $6,700 collected by the company increase Cash (Asset) and increases Service revenue (Retained earnings/Equity).
• The commission work increases Accounts receivable (Asset) and Credit sales (Retained earnings/Equity) by $5,200.
• Payment of $2,000 for wages decreases Cash (Asset) and increases Wages expense (which decreases Equity).
• Collection of $2,600 has no effect on the asset, since the company would have debited Accounts receivable to credit Sales revenue initially, so the collection is a debit to Cash (Asset) and credit to Accounts receivable (Asset).
• Payment for cleaning services of $940 decrease Cash (Asset) and increase Operating expenses (ultimately decreases Equity).

Answer 2

Answer:

The Accounting Equation is As follows:

Assets = Liabilities + Stockholder's Equity

Statement (a)

With the cash collected there will be increase in assets by $6,700

And with the recognition of revenue there will be increase in stockholder's equity as retained earnings will increase by the amount $6,700,

Assets increase $6,700  = Liabilities + Stockholder's equity increase $6,700.

Statement (b)

Revenue is recognized and with that retained earnings will increase, and accordingly stockholder's equity will also increase by $5,200,

As the cash is not realized now, accounts receivables increase and accordingly, assets increase by $5,200.

Statement (c)

Cash paid as wages will reduce cash and accordingly assets by $2,000,

Also , with the recognition of expense, retained earnings will reduce and accordingly stockholder's equity will reduce by $2,000.

Statement (d)

This will increase the cash and decrease the accounts receivable by $2,600.

Thus on the assets side there will be + $2,600 and - $2,600 making it neutral.

No effect on the right side, as net effect on left side of equation = 0

Statement (e)

Cash paid for cleaning expense will decrease assets by $940,

And also this will decrease retained earnings and accordingly stockholder's equity will decrease by $940.