Question

Part 1: ACCOUNTING EQUATION 10 POINTS Jan. 1, 2020 William Kelly started Kelly's Computer Service by investing $10,000. Jan. 3 the business borrowed $10,000 from a creditor and executed a Note payable with the principal and interest to be due in one year Jan. 5 the business purchased $12,000 of equipment for cash. Jan. 8 Kelly's rendered service to his first corporate client and earned $2,500 in cash. Jan. 12 Kelly's incurred repair expense of $1,200 and promised to pay the repair contractor the following month Jan. 18 Kelly's rendered service to a new client in the amount of $6,000 "on account," (the client promised to pay the following month). Jan 31 Kelly took a withdrawal of $1,000. Analyze the transactions for January using the accounting equation. I

Answer 1

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1. Accounting Equation -

Accounting Equation = Assets = Liabilities + Equity

Every company needs to follow the equation to balance the financial statement if the company miss to follow the accounting equation financial statement will not get match.

Every financial statement contains debit and credit transactions of the transactions and balances.

Every Transaction affect the accounting equation like every transaction has debit effect and credit effect. Hence to match the equation one need to understand the effect of those transaction.

We needs to understand golden rules -

1. Real Account - Debit what comes in and Credit What Goes out

2. Personal Account - Debit the receiver and Credit the Giver.

3. Nominal Account - Debit All Expense and Losses and Credit all income and Gains.

Application of these three principles according to the transaction.

Solution -

Income Statement Date Assets Accounts Receivable Kelly's Computer Service Accounting Equation Balance Sheet Liabilities Owner's Equity Notes Accounts Owner's Kelly's Payable Payable Capital Withdrawal $ 10,000 $ 10,000 Net Cash + + + Equipment - + + + + Service Revenue Repair Expenses - Income Jan 1 Jan 3 $ 10,000 $ 10,000 $ 12,000) $ 2,500 Jan 5 $ 12,000 $ 2,500 Jan 8 Jan 12 Jan 18 $ 1,200 $ 1,200 $ 2,500 $ (1,200) $ 6,000 $ 6,000 $ 6,000 Jan 31 $ (1,000) $ 1,000 $ 9,500 + $ 6,000 + $ 12.000 $ 10,000 + $ 1,200 + $ 10,000 $ 1,000 + $ 8,500 $ 1,200 $ 7,300