Speedy Delivery Service is owned and operated by Kris Meyers. The following selected transactions were completed by Speedy Delivery during March:

Question

Indicate the effect of each transaction on the following accounting equation elements (Assets, Liabilities, Common Stock, Dividends, Revenue, and Expense). Also indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) follows:

1) Asset (Cash) increases by $30,000; Common Stock increases by $30,000.

Line Item Description Element Item Direction
1. Received cash in exchange for common stock, $30,000. Asset Cash Increases
Common Stock Increases
2. Paid advertising expense, $3,500.



3. Purchased supplies on account, $2,500.



4. Billed customers for delivery services on account, $18,750.



5. Received cash from customers on account, $14,150.

Answer 1

Here’s the effect of each transaction on the accounting equation elements for Speedy Delivery Service:

2. Paid advertising expense, $3,500.

| Line Item Description | Element | Item | Direction | |------------------------------------------------------------|------------------|----------------|-----------| | Paid advertising expense, $3,500. | Expense | Advertising Expense | Increases | | | Asset | Cash | Decreases |

3. Purchased supplies on account, $2,500.

| Line Item Description | Element | Item | Direction | |------------------------------------------------------------|------------------|----------------|-----------| | Purchased supplies on account, $2,500. | Asset | Supplies | Increases | | | Liabilities | Accounts Payable | Increases |

4. Billed customers for delivery services on account, $18,750.

| Line Item Description | Element | Item | Direction | |------------------------------------------------------------|------------------|----------------|-----------| | Billed customers for delivery services on account, $18,750.| Asset | Accounts Receivable | Increases | | | Revenue | Service Revenue | Increases |

5. Received cash from customers on account, $14,150.

| Line Item Description | Element | Item | Direction | |------------------------------------------------------------|------------------|----------------|-----------| | Received cash from customers on account, $14,150. | Asset | Cash | Increases | | | Asset | Accounts Receivable | Decreases |

To summarize:

• Transaction 2 decreases cash and increases advertising expense.
• Transaction 3 increases supplies and increases accounts payable.
• Transaction 4 increases accounts receivable and service revenue.
• Transaction 5 increases cash and decreases accounts receivable.