Question

For each of the following transactions of Spotlighter, Inc., for the month of January, indicate the accounts, amounts, and direction of the effects on the accounting equation. A sample is provided. (Enter any decreases to account balances with a minus sign.) a. (Sample) Borrowed $3,940 from a local bank on a note due in six months. b. Received $4,630 cash from investors and issued common stock to them. c. Purchased $1000 in equipment, paying $200 cash and promising the rest on a note due in one year. d. Paid $300 cash for supplies. e. Bought and received $700 of supplies on account.

Answer 1

The answers are as follows:

Equity = Assets - Liabilities

Transaction a:

_ Cash +$3940 Notes Payable* +$3940

Transaction b:

Owners

equity +$4,630 Cash +$4,630 _

Transaction c:

_ Equipment +$1,000 _

_ Cash -$200 Notes Payable* +$800

Transaction d:

_ Supplies +$300 _

_ Cash -$300 _

Transaction e:

_ Supplies +700 Accounts payable +$700

* short term

Step-by-step explanation:

In accounting for transactions, the double entry system (for every debit there must be an equal credit) is employed. The accounting equation is the basis of this system and it dictates that the total owners' or shareholders' equity (profits available for distribution) in a business is equal to the business assets (what the business owns) less its liabilities (what the business owes). Using this equation, the direction of the effects of the transactions to Spotlighter, Inc.'s financial position will be as follows:

Equity = Assets - Liabilities

_ Cash +$3940 Notes Payable*+$3940

Owners

equity +$4,630 Cash +$4,630 _

_ Equipment +$1,000 _

_ Cash -$200 Notes Payable* +$800

_ Supplies +$300 _

_ Cash -$300 _

_ Supplies +700 Accounts payable+$700

$4, 630 = $10, 070 - $5,440

Answer 2

Accounting equation is as follows:

Assets = Liabilities + Stockholder's equity

(a) Cash $3,940 Notes payable $3940

(b) Cash $4,630 Common stock $4,630

(c) Equipment $1,000

Cash (-$200) Notes payable(ST) $800

(d) Supplies $300

Cash (-$300)

(e) Supplies $700 Accounts payable $700