Introduction to Accounting

Introductionto Accounting

ASSIGNMENT04

A01

PartA (30 points)

Recordthe following transactions in the basic accounting equation:

a.Brian invests $10,000 cash to begin an accounting service.

b.The company buys office furniture for cash, $600.

c.The company buys additional office furniture on account, $300.

d.The company makes a payment on the office furniture, $200.

Brian`sAccounting Service

ASSETS = LIABILITIES + OWNER`S EQUITY

Cash+ Office Furniture = Accounts Payable + Brian`s Capital

  1. The cash invested by Brian increases the Cash account and acts as his Capital

$10,000+ $0 = $0 + $10,000

  1. The office furniture bought in cash reduces the Cash account while it increases the Office Furniture account by the same amount. The capital is not affected.

($10,000-$600)+ $600 = $0 + $10,000

$9,400+$600 = $0 + $10,000

  1. The office furniture bought on account increases the Office Furniture account and increases the Accounts Payable by the same amount

$9,400+($600+$300 ) = $0+$300 + $10,000

$9,400+$900 = $300 + $10,000

  1. The payment made for the office furniture reduces the Cash and reduces the Accounts Payable.

($9,400-$200)+$900 = $300-$200 + $10,000

$9,200+$900 = $100 + $10,000

$10,100 = $100 + $10,000

PartB (40 points)

Thefollowing is a list of accounts and their balances for Benson Companyfor the month ended June 30, 20xx. Prepare a trial balance in goodform.

Cash $1,370 Benson,Withdrawals $ 500

AccountsPayable 770 Accounts Receivable 1,600

OfficeEquipment 900 Service Fees 2,730

Benson,Capital 1,500 Salaries Expense 630

Response

Benson Company

Trial Balance

June 30, 20xx

Account Title

Debit

Credit

Cash

$1,370

&nbsp

Accounts Receivable

$1,600

&nbsp

Office Equipment

$900

&nbsp

Benson, Capital

&nbsp

$1,500

Benson, Withdrawals

$500

&nbsp

Accounts Payable

&nbsp

$770

Salaries Expense

$630

&nbsp

Service Fees

&nbsp

$2,730

Total

$5,000

$5,000

Asa general rule, capital and liabilities are recorded as credit whileassets and expenses are recorded as debit. Cash currency isconsidered as an asset, hence has to be recorded on the debit side.On the other hand, accounts receivable increases cash and aredebited. Being fixed assets, the office equipment is also recorded onthe debit side. On the credit side, we record the Benson, Capital. Inaccounting, it is known that accounts payable reduces cash, thus hasto be credited on the trial balance. Moreover, the expenses forsalaries diminishes the capital hence should be debited. The BensonCompany gains service fees as revenue. These revenues increase thecapital of the company. All increments to the capital are recorded onthe credit side. It can be noticed from the table that there is abalance on both sides. This implies that the trial balance iscomplete.

PartC (30 points)

a.Tyler invested $6,500 in the bike service from his personal savingsaccount.

b.Bought office equipment for cash, $900.

c.Performed bike service for a customer on account, $1,000.

d.Company cell phone bill received, but not paid, $80.

e.Collected $500 from customer in transaction c.

f.Tyler withdrew $300 for personal use.

Response

T-Accountsare generated by recording transactions on either the debit (Dr.) orcredit (Cr.) side of the respective accounts. Each transaction mustappear in at least two accounts, on the debit side of one and thecredit side of the other. However, a single transaction can affectmore than one account. All cash transactions affect the cash account.As a general rule, increments in assets, dividends (withdrawals),losses and expenses accounts are increased by debiting and reduced bycrediting, while stockholder or owner’s equity, gains, revenues,income and liabilities accounts are increased by crediting andreduced by debiting (Tracy&amp Barrow, 2011). By investing $6,500 from his personal savingsaccount in the Campus Cycle Shop bike service, Tyler increased thecash, so the cash account is debited by $6,500. This amount alsoincreased the owner’s equity (capital), so the Tyler’s, Capitalaccount is credited with $6,500.

Buyingoffice equipment in cash reduced the cash therefore the cash accountis credited with $900. The office equipment (which is an asset)increased, therefore, the office equipment account is debited by thesame amount. Performing a bike service for a customer onaccount led to an increase in accounts receivable therefore theaccounts receivable is debited with $1000. There was no effect oncash account. However, the bike fees account is affected by thetransaction. Since the payment has not been received, the bike feesaccount is credited with the amount. The cell phone bill for thecompany that has not been paid increases the telephone expenses andthe accounts payable. The telephone expenses account is creditedwhile the accounts payable is debited by $80. The collection of $500from the customer as part of the payment for the bike service reducesthe accounts receivable, increases the cash and bike fees. Therefore,the accounts receivable is credited by $500, the cash account isdebited by $500 and the bike fees account is debited by $500. WhenTyler withdrew $300 for personal use, he reduced the cash therebyincreasing his withdrawals. The cash account is therefore creditedwith $300 while Tyler’s withdrawals account is debited by$300. The balance is calculated by obtaining the totals on thedebit side and the credit side then getting the difference betweenthe two totals. The difference is recorded as balance (Bal.) on theside with the higher value. For example, in the cash account, thetotal on the debit side is $7,000 while that on the credit side is$1,200. The difference between the two is $5,800, which is recordedas Balance on the debit side, which is higher in value. In theaccounts receivable T-account, the balance on the debit side is morethan that on the credit side, so the difference is recorded on thedebit side. On the bike fees account, the amount on the credit sideis more than that on the debit side. The difference is thereforerecorded on the credit side as the balance. Withdrawals reduce thecapital and are therefore debited.

Cash

&nbsp

111

Accounts Receivable

&nbsp

112

dr.

cr.

dr.

cr.

a

$6,500

b

$900

c

$1,000

&nbsp

f

$300

&nbsp

e

$500

e

$500

&nbsp

$7,000

$1,200

&nbsp

Bal.

$5,800

Bal.

$500

&nbsp

&nbsp

Office Equipment

&nbsp

112

Accounts Payable

&nbsp

211

dr.

cr.

dr.

cr.

b

$900

&nbsp

d

$80

&nbsp

&nbsp

Tyler`s, Capital

&nbsp

311

Tyler`s Withdrawals

&nbsp

312

dr.

cr.

dr.

cr.

&nbsp

a

$6,500

f

$300

f

&nbsp

&nbsp

&nbsp

&nbsp

Bike Fees

&nbsp

411

Telephone Expenses

&nbsp

512

dr.

cr.

dr.

cr.

&nbsp

c

$1,000

d

$80

e

$500

&nbsp

&nbsp

&nbsp

&nbsp

Bal.

$500

&nbsp

References

Tracy, J. &amp Barrow, C. (2011). Understanding Business Accounting For Dummies. Hoboken: John Wiley &amp amp Sons.