Question

Elain's Inflatables earns service revenue by providing party planning services and inflatable playscapes. Elaine?'s Inflatables is organized as a sole proprietorship and owned by Elaine Gibson. During the past? month, Elaine?'s Inflatables has the following? transactions:a. Gibson contributed $10,000 to the business in exchange for capital.
b. Purchased equipment for $5,000 on account.c. Paid $400 for office supplies.d. Earned and received $2,500 cash for service revenue.e. Paid $400 for wages to employees.f. Gibson withdrew $1,000 cash.g. Earned $1,000 for services provided. Customer has not yet paid.h. Paid $1,000 for rent.i. Received a bill for $250 for the monthly utilities. The bill has not yet been paid.QUESTION: Indicate the effects of the business transactions on the accounting equation for Elaine?'s Inflatables. Transaction? (a) is answered as a guide:a. Gibson contributed $10,000 to the business in exchange for capital.a. EXAMPLE: Increase asset (Cash) ; Increase equity (Gibson, Capital)b. Purchased equipment for $5,000 on account?b. Decrease asset? / Accounts Payable? / ; Decrease asset? / Accounts Payable?

Answer 1

Answer:

B. Purchased equipment for $5,000 on account?

Increased asset (plant, property, and equipment).

Increased liability (accounts payable)

C. Paid $400 for office supplies.

Increased asset (office supplies)

Decreased liability (cash)

D. Earned and received $2,500 cash for service revenue.

Increased asset (cash)

Increased revenue (service revenues)

E. Paid $400 for wages to employees.

Increased expense (wage expense)

Decreased asset (cash)

F. Gibson withdrew $1,000 cash.

Increased asset (cash)

Decreased asset (bank account)

G. Earned $1,000 for services provided. Customer has not yet paid

Increased asset (accounts receivable)

Increased revenue (accrued revenue)

H. Paid $1,000 for rent.

Increased expense (rent)

Decreased asset (cash)

I. Received a bill for $250 for the monthly utilities. The bill has not yet been paid.

Increased liability (accrued expense)

Increased expense (utilities)

Answer 2

The effects of the transactions on the accounting equation are as follows:

The accounting equation for Elain's Inflatables is assets = liabilities + equity.

a. Increase Assets (Cash) $10,000  

Increase Equity (Capital, Elaine Gibson) $10,000

b. Increase Assets (Equipment) $5,000  

Increase Liabilities (Accounts Payable) $5,000

c. Increase Assets (Office Supplies) $400

Decrease Assets (Cash) $400

d. Increase Assets (Cash) $2,500

Increase Equity (Service Revenue) $2,500

e. Decrease Equity (Wages Expense) $400

Decrease Assets (Cash) $400

f. Decrease Equity (Drawings, Elaine Gibson) $1,000

Decrease Assets (Cash) $1,000

g. Increase Assets (Accounts Receivable) $1,000

Increase Equity (Service Revenue) $1,000

h. Decrease Equity (Rent Expense) $1,000

Decrease Assets (Cash) $1,000

i. Decrease Equity (Utilities Expense) $250

Increase Liabilities (Accounts Payable) $250

Data Analysis:

a. Cash $10,000 Capital, Elaine Gibson $10,000

b. Equipment $5,000 Accounts Payable  $5,000

c. Office Supplies $400 Cash $400

d. Cash $2,500 Service Revenue $2,500

e. Wages Expense $400 Cash $400

f. Drawings, Elaine Gibson $1,000 Cash $1,000

g. Accounts Receivable $1,000 Service Revenue $1,000

h. Rent Expense $1,000 Cash $1,000

i. Utilities Expense $250 Accounts Payable $250

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