How will this financial transaction effect the accounting equation? Incurred advertising expense for May of $3,420 on account. Thanks?
The accrued (not paid) expense becomes an Account Payable, increasing Liabilities. A = L + E, thus... A - L = E Thus the increase in liabilities decreases equity.
How would the following (inside) affect the accounting equation?
a. Acquired, but haven't yet paid for, equipment costing $320. b. Recorded spa treatment revenues of $1,500 on account. c. Incurred advertising expense of $40, paid in cash. d. Accrued $750 for utility bills. e. Received $50,000 cash from an investor in exchange for company shares. f. Received $2,500 cash by signing a note payable. g. Recorded $1,800 in depreciation expense. h. Customers used $200 gift certificates to pay for spa services. 1. Complete the following table, indicating the effects (account, amount, and direction) of each transaction. Use + for increase, - for decrease, and NE for no effect. example: Transaction...Assets . Liabilities . Stockholder's Equity a. .................. + ............... + ............ NE b. .................. + ................ - ............ NE etc. Please help! I don't understand how some of the transactions affect the equation. Thanks!
Incurred advertising expense on account?? QUICK!?
The advertisement appeared in the same month as the prepayment. It's on the same balance sheet, so it would not be considered a pre-payment. When an item cannot be shown on the same page, it would be considered a prepayment for the service, ie payment for the ad in Feb for an ad running in Mar.
How would paying salaries affect the accounting equation?
I love this question because it confuses so many people, so lets see if this helps.There are actually multiple transactions that take place when you run pays, not one as most people think.The first is the actual RUNNING of the pays inside your accounting system and the second is the actual PAYMENT of the pays to your staff (or yourself).Here’s how it works - let’s say you are running a pay where the staff member is being paid $1300.00 gross and $300.00 is being withheld in tax so that they are getting paid $1000.00 in their bank account.Here’s how the RUNNING of the pays looks -Debit - Wages - $1300.00 (gross wages)Credit - Payroll Liability $1000.00 (net wages) and Credit - Withholding Liability $300.00 (tax withheld).The sum of the Debit side is $1300.00/the sum of the Credit side is $1300.00 ($1000.00 plus $300.00) - the Debit minus the Credit equals zero so the journal balances - correct!!!Later that day you pay your staff member - here’s how the PAYMENT of their pay looks -Debit - Payroll Liability $1000.00 (the Payroll Liability goes back to zero - correct!!!)Credit - Bank $1000.00 (the bank account reduces by $1000.00 when the staff member is paid and the Payroll Liability goes back to zero - Debit amount minus Credit amount equals zero ($1000.00 minus $1000.00) so the journal balances - correct!!!Now, there is still $300.00 sitting in the Withholding Liability - lets assume that at the end of the month this withholding gets paid to the tax department -Debit - Withholding Liability $300.00 (the Withholding Liability goes back to zero - correct!!!)Credit - Bank $300.00 (the bank reduces by $300.00 when the tax department is paid and the Withholding Liability goes back to zero - Debit minus Credit amounts equals zero ($300.00 minus $300.00) so the journal balances - correct!!!As you can see there is a lot more to the journals behind pays than just “running” pays - I hope this helps.
Transactions for accoutning?
not quite sure what you are asking. journal entries s follows: cash 8000 capital 8000 insurance expense 300 prepaid insurance 1500 cash 1800 cash 3400 sales 3400 salaries expense 1700 cash 1000 balance sheet Assets liabilities cash 8,600 prepaid 1,500 capital 8,000 income 2,100 10,100 10,100 Income statement Sales 3,400 expenses salaries 1,000 insurance 300 total expenses 1,300 net income 2,100 assets = liabilities + capital $10,100 = $0 + 10,100 hope this helps
Accounting HW help: Determine whether each transaction effects common stock, dividends, revenue, expense, or..?
I already answered some but couldn't figure out the rest... Determine whether each transaction effects common stock (s) , dividends (d), revenue (r), expense (e), or does not effect stock holder equity(Nse). provide titles for the revenue and expense: a) cost incurred for advertising b) Assets received for services performed c) cost incurred for insurance d) Amounts payed to employees e) cash distributed to stock holders f) assets received for exchange for allowing the use of the company's building g) costs incurred for utilities used h) paid cash to purchase equipment i) received cash from investors in exchange 4 common stock This is what ive got: a) E b)R e) D g)E h)E also, what does "provide titles for the revenue and expense" mean at the end of the question?
Can one help me to explain why the accounting equation should always balance?
Let me try to answer your question by sharing a blog that I wrote to explain the idea of Accounting Equation. Here it is -Venn diagrams (named after John Venn's 1880 paper 'On the Diagrammatic and Mechanical Representation of Propositions and Reasonings' in the Philosophical Magazine and Journal of Science) are used to describe logical relationship between two or more finite sets. Sounds good but Accounting Equation and Venn diagram! Is everything fine here?Let me elaborate. Soon after I completed my this year's introductory class of accounting, a girl comes over to my office to share an interesting observation about the classic accounting equation [Assets = Capital + Liabilities] discussed by us in the class. "I'm an engineer. I think your accounting equation can easily be represented by using a Venn diagram." She pulled out her notebook and scribbled something in a geeky fashion, which looked like this -She said, "If the value of Assets is equal to the value of Capital and Liabilities put together, the set of Assets must include the subsets of Capital and Liabilities."It took me a while to understand what she was trying to say. This was my first encounter with accounting equation drawn in a Venn diagram. This was one of those 'mein kaha hu' moments of my life! As I gathered courage to give my reaction on this petrified occasion, a divine force kindled a random thought inside my head. So, here is what I said. "I think your logic is wrong. Assets and Liabilities are equal and opposite forces. One cannot encompass the other. In my opinion, a better analogy would be that of a coin. Assets and Liabilities are two sides of the same coin. Infact, as in the case of a coin, we don't measure worth of a company as a sum of Assets + Liabilities. Just like the coin which has two sides but one value, we measure only a single unified aspect (Networth) as the eventual worth of assets and liabilities."To my utter surprise, without any further confrontation, she extended my analogy (another shock!) and said, "That sounds good. In case of a coin, diameters of both the sides are perfectly equal. Hence Assets = Liabilities. One side of the coin cannot be larger than the other." Balance Sheet is like a coin with two sides having equal diameters but one value.Here is the link to that blog -Random WalkAnil Kshatriya
Accounting True or False Questions? :)?
1. Payments for advertising, equipment repairs, utilities, and rent are liabilities. False 2. When an owner withdraws cash from the business, the transaction affects both assets and owner’s equity. True 3. A negative amount for net worth would reflect more debt than assets, something a creditor would favor. False (creditors would run away from this) 4. The most common type of withdrawal by an owner from a business is the withdrawal of cash. True 5. After each transaction, the accounting equation must remain in balance. True 6. A transaction for the sale of goods or services results in a decrease in owner’s equity. False (would increase owner's equity) 7. The accounting equation is most often stated as Assets + Liabilities = Owner’s Equity. False (Assets = Liabilities + Owner's equity) 8. When two asset accounts are changed in a transaction, there must be an increase and a decrease. True 9. Keeping separate financial records for a business and for its owner’s personal belongings is an application of the Business Entity accounting concept. True 10. When items are bought and paid for at a future date, another way to state this is to say these items are bought on account. True 11. A withdrawal is an expense. False (it decreases owner's capital) 12. Business ethics are the principles of right and wrong that guide an individual in making personal decisions. False (in making business decisions) 13. Total assets are the amount the owner has invested in the business. False 14. An expense is a decrease in owner’s equity resulting from the operation of a business. True 15. Detailed information about changes in owner’s equity is needed by owners and managers to make sound business decisions. True
Accounting: How to record Bank fees?
Well first if we are doing Alex's books, how the bank records revenue is irrelevant so throw out your second entry. The journal entry looks like this:DR Cash $100DR Bank Fee Expense 2 CR Due to Credit Card $102Alex's balance sheet looks likeCash $100Total Assets $100Due to Credit Card $102Retained Earnings Current Year Income $(2)Total Liability and Equity $100
In accounting, why do we debit expenses and credit revenues?
Debit means left and credit means right. That's it.Why we debit expenses and credit revenues, is a function of the above and some other basic principles. One is that every entry must balance on both sides, ie: the left and right side. So the sum total of debits and credits has to equal not the number. I can have one debit and many credits or vice versa, the entry is fine as long as in total the two balance.The next point is another axiomatic point in accounting which is A = L + OE, where A = Assets, L=Liability and OE = Owner's Equity. Assets can increase but in exchange either Liability and/or Owner's Equity must increase as well. You can pay for your assets in 2 ways, either by borrowing money or through funds you've generated.This leads to the "natural" side of accounts. For a Balance Sheet where things have to balance, on the left side we have assets and on the right side we have liabilities and owners equity. These days these are all on separate pages but if you take a look at some very old reports, you'll see this pattern.Now consider a basic item, you sell $100 worth of merchandise for cash. Cash sits on the left side, so you debit to increase, you have to balance the entry so you need to credit something and that ends up being revenues. At the end of the period, you have to close out all the items on the income statement. The reason is that the income statement has a time component, for example, for the year ended, quarter ended etc. At the end of the period you have to reduce the value in the income statement accounts to zero. So you debit revenues, credit all the expenses and if you're lucky, your debits are greater and the difference is put into Owner's Equity (as profit.)I hope that helps.Getting the basics right in accounting can take some time but if you can manage the axioms, it becomes much easier.