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Financial Act Demonsration Problem #1

Financial Act Demonsration Problem #1 - Demonstration...

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Demonstration Problem #1 (Balance Sheet Accounts) Cainas Company CPA January 20XX Jennifer Cainas decides to decides to open her own CPA firm and form a corporation. The following transactions take place during the month of January: January 1: Jennifer Cainas invests $10,000 to open Cainas Company CPA Firm (a corporation). eL ces 1. Transaction: Owner is investing money in the business. Cash (in the business) is increasing, Equity in the business is increasing. 2. Rules: Cash is an asset account, increases to assets are debited. Equity is increasing. Increases to equity are credited. 3. Journal entry: Debit to Cash, Credit to Equity Dr. Cr. Jan 1 Cash 10,000 Common Stock (equity) 10,000 4. Post to the general ledger: Cash Common Stock 1/1 10,000 1/1 10,000 January 2: Hires a part-time, administrative assistant, for $250 a week salary. There is no business transaction here! Although this is important information, there is no expense recorded until Cainas Company, CPAs has incurred an expense (owes the asst. for her work. No entries! January 2: Signs three year lease to rent commercial space, and pays two months of rent, $800 in advance. 1. Transaction: Paying rent in advance, so amount paid a future economic benefit (for next two months). Asset is increasing (Prepaid Rent) and Asset is decreasing (Cash).
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