The following selected transactions were completed by Cota Delivery Service during July:

Question

Indicate the effect of each transaction on the accounting equation by choosing the appropriate letter from the following list:

Increase in an asset, decrease in another asset.
Increase in an asset, increase in a liability.
Increase in an asset, increase in stockholders' equity.
Decrease in an asset, decrease in a liability.
Decrease in an asset, decrease in stockholders' equity.
1. Received cash in exchange for common stock, $50,000.

2. Purchased supplies for cash, $1,800.

3. Paid rent for July, $4,500.

4. Paid advertising expense, $1,200.

5. Received cash for providing delivery services, $11,500.

6. Billed customers for delivery services on account, $33,970.

7. Paid creditors on account, $900.

8. Received cash from customers on account, $27,500.

9. Determined that the cost of supplies on hand was $300 and $1,500 of supplies had been used during the month.

10. Paid cash dividends, $1,000.

Answer 1

Let's analyze each transaction and determine its effect on the accounting equation using the options provided:

1. Received cash in exchange for common stock, $50,000.

   • Effect: Increase in an asset, increase in stockholders' equity.

2. Purchased supplies for cash, $1,800.

   • Effect: Increase in an asset, decrease in another asset. (Increase in supplies, decrease in cash)

3. Paid rent for July, $4,500.

   • Effect: Decrease in an asset, decrease in stockholders' equity. (Decrease in cash, decrease in retained earnings due to expense)

4. Paid advertising expense, $1,200.

   • Effect: Decrease in an asset, decrease in stockholders' equity. (Decrease in cash, decrease in retained earnings due to expense)

5. Received cash for providing delivery services, $11,500.

   • Effect: Increase in an asset, increase in stockholders' equity. (Increase in cash, increase in retained earnings)

6. Billed customers for delivery services on account, $33,970.

   • Effect: Increase in an asset, increase in stockholders' equity. (Increase in accounts receivable, increase in retained earnings)

7. Paid creditors on account, $900.

   • Effect: Decrease in an asset, decrease in a liability. (Decrease in cash, decrease in accounts payable)

8. Received cash from customers on account, $27,500.

   • Effect: Increase in an asset, decrease in another asset. (Increase in cash, decrease in accounts receivable)

9. Determined that the cost of supplies on hand was $300 and $1,500 of supplies had been used during the month.

   • Effect: This is an adjustment and does not involve cash, but it indicates that supplies have been used, affecting retained earnings. However, there is no direct transaction effect.
   • For tracking purposes, you might note that it decreases stockholders' equity indirectly through the expense recognized.

10. Paid cash dividends, $1,000.

    • Effect: Decrease in an asset, decrease in stockholders' equity. (Decrease in cash, decrease in retained earnings)

Here is a summary of the effects on the accounting equation for each transaction:

1. C
2. A
3. E
4. E
5. C
6. C
7. D
8. A
9. No direct effect or adjustment
10. E

If you need more information or explanations, feel free to ask!