Question

Martinez Corp. has the following transactions during August of the current year. Aug. 1 Issues shares of common stock to investors in exchange for $11,400. Aug. 4 Pays insurance in advance for 3 months, $1,400. Aug. 16 Receives $800 from clients for services rendered. Aug. 27 Pays the secretary $570 salary. Indicate the basic analysis and the debit-credit analysis.

Answer 1

Answer:

Aug 1.

Basic analytics - Cash increases by $11,400 and so does owner's equity

Debit-credit analysis - Debit cash account by $11,400 and credit common stock by $11,400

Aug 4.

Basic analytics - Cash decreases by $1,400 while prepaid insurance increases by $1,400

Debit-credit analysis - Debit Prepaid insurance by $1,400 and Credit cash account by $1,400

Aug 27.

Basic analytics - Cash decreases by $570 while Salaries expense increases by $570

Debit-credit analysis - Debit Salaries expense by $570 and Credit cash account by $570

Explanation:

When a company sell shares for cash, cash increases and the corresponding effect is that owner's equity increases by the same amount. Increase in assets is a debit to the asset account while an increase in equity is a credit to the account.

When insurance is paid in advance, cash is given up for another asset called prepaid insurance. A credit to cash is an outflow and a debit to prepaid insurance is an increase.

when revenue is earned and cash is received, the revenue balance increases and so does the cash balance.

For salaries paid, it is an expense that results in cash reduction.