Show the effect of each transaction on the individual accounts of the expanded accounting equation: Assets=Liabilities +Owner's Equity (Capital-Drawing+Revenues-Expenses). After each transaction, show the new account total.

Question

Prepare Income Statement, Balance Sheet, and Statement of Owner's Equity

a. Cash 18000
b Office supplies 4600: 2000 cash 2600 credit
c. Prepaid Insurance 1200
d. Revenues 3300: 1300 cash 2000 credit
e. Paid cash on Office supplies 2300
f. Rent 750
g. Draw 100

I am completely confused by every word of this. I thought I had it figured out but then I ended up with the wrong total. Can someone please give me an idea of where to start and help me understand or try to understand this a little better. Thank you so much.

Answer 1

Crystal,

The basic accounting formula is "What you have" must equal "Where it came from." Use that instead of debits and credits and you can work through almost anything. "What you have" things are pluses, and "Where it came from" are minuses. You got something, and you gave up something to get it.

This list of transactions looks like it starts with "What you got" ... $18,000. So where did it come from ... equity or debt?

The second transaction looks like you got $4,600 worth of office supplies. and it came from $2,000 cash and $2,600 credit.

And so on.

Lay out out each transaction in what your instructor will call a "Tee" account with a "Tee" for each "What you have" and each "Where it came from" type of thingy. Making sure each transaction (#a through #g) balance, or add up to zero ... remember the pluses and minuses I mentioned above.

If there is only one thing mentioned (as in #g ... Draw), then you have to figure out whether it is an increase in things you got in that category (account) or an increase in what you gave up (Where it came from) and then figure the most appropriate thing it came from or the most appropriate thing you got for it.

Answer 2

Thank you so much for responding to my question. After I posted the question and worked on the problems for about 4 hours I finally finished it all by myself. I was so proud. I hate Accounting and Math...they are my worst subjects so when I did it by myself and figured it out I was so pleased. I see having more problems in the future though ;-)