Question

Current Attempt in Progress On July 1, 2022, Sheridan Co. pays $11,040 to Windsor, Inc. for a 2-year insurance contract. Both companies have fiscal years ending December 31. For Sheridan Co., enter the July 1 transaction and the December 31 adjustment in the tabular summary that follows. (If a transaction results in a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign for parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced.) Assets Liabilities Cash Prepd. Ins. Com. Stock Jul. 1 Dec. 31 I Adj. Bal. e Textbook and Media

Answer 1

1. Accounting Equation -

= Accounting Equation Liabilities Common Liabilities Stock Stockholder's Equity Expense Revenue (Insurance) II + Assets Prepaid Cash + Insurance $(11,040) $ 11,040 $ (5,520) + Dividend July 1 Dec 31 $ 5,520 $(11,040) + $ 5,520 $ $ + $ $ $ 5,520 $

Explanation -

Accounting Equation -

(1) 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.

(2) 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.

(3) Learnings of Accounting Equation is very important as without understanding of posting of transaction into proper fields accounting equation cannot be balanced.

Assets = Liabilities + Equity

Every transaction affect the equations in the equal manner and without understanding it no one can match the balance between them.