Question

The following transactions occur for Badger Biking Company during the month of June: Provide services to customers on account for $39,000. Receive cash of $31,000 from customers in (a) above. Purchase bike equipment by signing a note with the bank for $24,000. Pay utilities of $3,900 for the current month. Analyze each transaction and indicate the amount of increases and decreases in the accounting equation. (Decreases to account classifications should be entered as a negative.)

Answer 1

Accounting equation is stated as follows:

Assets = Liabilities + Stockholder's Equity

Transaction 1

Providing services will increase revenue, which will increase stockholder's equity. And since it is on account it will increase assets by the same amount = $39,000

Transaction 2

Cash received will increase cash in assets and will decrease accounts receivables in assets. Net effect = 0

Transaction 3

Purchase of equipment will increase equipment that is asset by $24,000 and further it is purchased through a note payable, it will increase liability with the same amount.

Transaction 4

This will decrease cash as paid in cash which will decrease assets, and further this will be expense for the period which will decrease the revenue and will decrease the stockholder's equity.