Sample Problem Chapter 2

4 Analyzing the effects of transactions on the accounting equation. On September 1, Mireya Cortez opened Self Images Tutoring Service. Instructions Analyze the following transactions. Use the fundamental accounting equation form to record the changes in property, claims of creditors, and owner’s equity. (Use plus, minus, and equals signs.) Transactions The owner invested $9,000 in cash to begin the business. Purchased equipment for $4,000 in cash. Purchased $1,500 of additional equipment on credit. Paid $750 in cash to creditors. The owner made an additional investment of $1,500 in cash. Performed services for $1,080 in cash. Performed services for $780 on account. Paid $650 for rent expense. Received $550 in cash from credit clients. Paid $775 in cash for office supplies. The owner withdrew $1,000 in cash for personal expenses.

Assets = Liabilities + Owner’s Equity Transaction #1 Assets = Liabilities + Owner’s Equity Cash +$9,000 +$9,000

Assets = Liabilities + Owner’s Equity Transaction #2 Assets = Liabilities + Owner’s Equity Cash $9,000 $9,000 Equipment + 4,000 - 4,000

Assets = Liabilities + Owner’s Equity Transaction #3 Assets = Liabilities + Owner’s Equity Cash 9,000 -4,000 5,000 Equipment 4,000 9,000 Equipment Account Payable +1,500 +1,500

Assets = Liabilities + Owner’s Equity Transaction #4 Assets = Liabilities + Owner’s Equity Cash 5,000 Equipment 4,000 +1,500 Accounts Payable 5,500 1,500 9,000 Cash Accounts Payable -750 -750

Assets = Liabilities + Owner’s Equity Transaction #5 Assets = Liabilities + Owner’s Equity Cash Account Payable 5,000 1,500 - 750 - 750 4,250 750 Equipment 5,500 9,000 Cash Investment +1,500 +1,500

Assets = Liabilities + Owner’s Equity Transaction #6 Assets = Liabilities + Owner’s Equity Cash 4,250 9,000 +1,500 +1,500 5,750 10,500 Equipment Accounts Payable 5,500 750 Cash Revenue +1,080 +1,080

Assets = Liabilities + Owner’s Equity Transaction #7 Assets = Liabilities + Owner’s Equity Cash 5,750 10,500 +1,080 +1,080 6,830 11,580 Equipment Accounts Payable 5,500 750 Account Receivable Revenue +780 +780

Assets = Liabilities + Owner’s Equity Transaction #8 Assets = Liabilities + Owner’s Equity Cash 6,830 Account Receivable 11,580 780 + 780 Equipment Account Payable 12,360 5,500 750 Cash Expense -650 -650

Assets = Liabilities + Owner’s Equity Transaction #9 Assets = Liabilities + Owner’s Equity Cash 6,830 12,360 - 650 - 650 6,180 11,710 Accounts Receivable 780 Equipment Accounts Payable 5,500 750 +550 Account Receivable -550

Assets = Liabilities + Owner’s Equity Transaction #10 Assets = Liabilities + Owner’s Equity Cash 6,180 + 550 6,730 Accounts Receivable 780 -550 230 Equipment Accounts Payable 5,500 750 11,710 -775 Supplies +775

Assets = Liabilities + Owner’s Equity Transaction #11 Assets = Liabilities + Owner’s Equity Cash 6,730 - 775 5,955 Accounts Receivable 230 Equipment 5,500 Supplies Accounts Payable 775 750 11,710 Cash Withdrawal -1,000 -1,000

Assets = Liabilities + Owner’s Equity Final Balances Assets = Liabilities + Owner’s Equity Cash Accounts Payable 5,955 750 11,710 -1,000 -1,000 4,955 10,710 Accounts Receivable 230 Equipment 5,500 Supplies 775

Analysis Transaction 3 increased the company’s debt by $1,500