EX 1-12 Transactions The following selected transactions were completed by Silve
ID: 2510834 • Letter: E
Question
EX 1-12 Transactions The following selected transactions were completed by Silverado Delivery Service during February: 08.4 1. Received cash from owner as additional investment, $25,000. 2. Purchased supplies for cash, $750. 3. Paid rent for February, $3,000. 4. Paid advertising expense, $1,500 5. Received cash for providing delivery services, $16,800. 6. Billed customers for delivery services on account, $32,500 7. Paid creditors on account, $1,400. 8. Received cash from customers on account, $23,770. 9. Determined that the cost of supplies on hand was $275 and $475 of supplies had been used during the month. 10. Paid cash to owner for personal use, $5,000. Indicate the effect of each transaction on the accounting equation by listing the num- bers identifying the transactions, (1) through (10), in a column and inserting at the right of each number the appropriate letter from the following list: a. Increase in an asset, decrease in another asset. b. Increase in an asset, increase in a liability. c. Increase in an asset, increase in owner's equity. d. Decrease in an asset, decrease in a liability e. Decrease in an asset, decrease in owner's equity.Explanation / Answer
Silverado Delivery Service
Indicating the effect of each transaction on the accounting equation:
Transaction
Effect
1
Received cash from owner as additional investment
C
2
Purchased Supplies for Cash
A
3
Paid Rent for February, $3,000
E
4
Paid advertising expenses, $1,500
E
5
Received cash for delivery service, $16,800
C
6
Billed Customers for delivery services on account, $32,500
C
7
Paid Creditors on account, $1,400
D
8
Received cash from customers on account
A
9
determined cost of supplies on hand was $275 and $475 of supplies had been used
E
10
Paid cash to owner for personal use
E
List –
A Increase in an asset, decrease in another asset.
B Increase in an asset, increase in a liability.
C Increase in an asset, increase in owner’s equity.
D Decrease in an asset, decrease in a liability.
E Decrease in an asset, decrease in owner’s equity.
Explanation:
Payment transactions relating to expenses would cause decrease in cash as well as the expense indicates decrease in income, which results in decrease in equity. Hence, advertising expense, rent expense payments result in decrease in asset and decrease in equity.
Revenue earned and customers billed increase asset account (either cash or accounts receivable) as well as increase equity.
Cost of supplies used and supplies balance at the end of the financial year indicate reduction in asset (Supplies account) and since supplies used is an expense account, it causes decrease in equity.
Supplies purchased for cash indicates use of cash, hence cash decreases and supplies account (asset) increases. Hence, the effect is increase in one asset and decrease in another asset.
Payment made to creditors results in decrease in cash (asset) and decrease in accounts payable (liability).
Received cash from customer, indicates increase in cash (asset) and decrease in accounts receivable (asset).
Payment to owner for personal use, causes reduction in cash (asset account) and reduction in Capital (equity account).
Transaction
Effect
1
Received cash from owner as additional investment
C
2
Purchased Supplies for Cash
A
3
Paid Rent for February, $3,000
E
4
Paid advertising expenses, $1,500
E
5
Received cash for delivery service, $16,800
C
6
Billed Customers for delivery services on account, $32,500
C
7
Paid Creditors on account, $1,400
D
8
Received cash from customers on account
A
9
determined cost of supplies on hand was $275 and $475 of supplies had been used
E
10
Paid cash to owner for personal use
E
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