Week 2 - 2.2 Module

Week 2 - 2.2 Module - [Type text] [Type text] Question 1...

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[Type text] [Type text] Question 1 Please Describe how the following transaction affects the accounting equation Paid Cash Dividends to owners Assets = Liabilities + Owners Equity Decrease No Change Decrease Cash is an asset and Dividends are an owner’s equity item So in this case the owners equity would decrease. This is because the company is returning equity to the owner’s through dividends. Assets decrease because cash decreases and Owners Equity decreases because Dividends increase. Module 2.2 B-1 Wally’s Watch Started business on January 1, 20XX. On that day the company issued common stock in exchange for $30,000. So we debit cash and credit stock for $30,000. Prepare the Journal entry for this transaction Account Title Debit Credit Cash 30,000 Common Stock 30,000 By issuing common stock assets and the owners equity increased by $30,000 so we debit cash and credit common stock for $30,000 Module 2.2 B – 2 Revenues affect owners equity Increase assets with a debit entry and increase liability and owners equity with a credit Wally’s customers paid for their purchases in cash so cash increases the owners equity. Account Title Debit Credit Cash 30,000 Revenue 30,000
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By earning revenues the owners equity (specifically retained earnings) increased by $30,000, so we credit revenues for $30,000. We debit cash for $30,000 because the customers paid fully in cash. Module 2.2 B – 3 Wally’s watch company started business on January 1, 20XX. At the beginning of January, Wally’s paid $2,000 for supplies. Prepare the journal entry for this transaction. Account Title Debit Credit Supplies 2,000 Cash 2,000 For this journal entry the number of debits can be changed and the number of credits can also be changed you can not submit the answer without having something in both boxes. Wally’s Pays $2,000 at the beginning of January, so we credit cash. In exchange, Wally’s supplies are worth $2,000 so we debit supplies. Module 2.2 B – 4 Wally’s watch company started business on January 1, 20XX. During January, Wally’s sold watches costing the company a total of $25,000 to produce. Prepare the journal entry to handle the reduction of inventory. Account Title Debit Credit Cost of Goods Sold 25,000 Inventory 25,000 By selling the watches, Wally’s inventory deceased by $25,000. Wally’s must also recognize an expense which reduces the owner’s equity, so we debit cost of goods sold for $25,000. Module 2.2 B – 5
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[Type text] [Type text] Wally’s watch company started business on January 1, 20XX. At the beginning of January, Wally’s paid $20,000 for the next 5 months rent for the building where it sells watches. Account Title Debit Credit Pre-Paid Rent 20,000 Cash 20,000 Wally’s pays $20,000 at the beginning of January, so we credit cash. In exchange, Wally’s gets the right to use the building for the next 5 months, so we debit pre paid rent. Module 2.2 B – 6
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Week 2 - 2.2 Module - [Type text] [Type text] Question 1...

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