Question

Whispering Winds Corp. has the following transactions during August of the current year. Aug. 1 Issues shares of common stock to investors in exchange for $10,800. Aug. 4 Pays insurance in advance for 3 months, $1,200. Aug. 16 Receives $730 from clients for services rendered. Aug. 27 Pays the secretary $580 salary. Indicate the basic analysis and the debit–credit analysis.

Answer 1

Answer:

Aug. 1 Issues shares of common stock to investors in exchange for $10,800.

Accounting equation:

Asset + 10,800

Equity +10,800

Journal entry:

cash   18,000 debit

  common stock   18,000 credit

Aug. 4 Pays insurance in advance for 3 months, $1,200.

Accounting equation:

Asset  + 1,200

Assets - 1,200

Net              0

Journal entry:

prepaid rent    1,200 debit

          cash              1,200 credit

Aug. 16 Receives $730 from clients for services rendered.

Accounting equation:

Asset  + 730

Equity +730

Journal entry:

cash       730 debit

  revenues   730 credit

Aug. 27 Pays the secretary $580 salary

Accounting equation:

Asset  - 580

Equity - 580

Journal entry:

salaries expense  580 debit

         cash                    580 credit

Explanation:

We need to disclose how the impact in the accounting equation and the journal entry should be done:

Aug 1st the common stock is an equity account that is increasing

we receive cash that is an asset

August 4th we are using our cash to pay in advance the rent.

this gives a right to use the rental space for 3-months thus, it is not an expense is a new asset. There is no change in the accounting equation only the composition of assets changed.

August 16th we recognize earnings through revenues account this increases the equity of the company as well as assets.

August 27th in this case we pay the salaries which are an incurred cost, therefore, expense. This decreases equity.

We also use cash making assets to decrease as well.