Question

During 2017, Sarasota Corp. entered into the following transactions.

(1) Borrowed $58,100 by issuing a note.
(2) Paid $8,960 cash dividend to stockholders.
(3) Received $14,200 cash from a previously billed customer for services performed.
(4) Purchased supplies on account for $4,200.

Using the following tabular analysis, show the effect of each transaction on the accounting equation. For Retained Earnings, use separate columns for Revenues, Expenses, and Dividends if necessary.

Answer 1

(1) Borrowings through note:

This will increase cash by $58,100 that is asset,

And this will increase liability in form of notes payable by $58,100

+ Assets ($58,100) = + Liability ($58,100) And No Effect On Equity

(2) Paid Cash Dividend

This will decrease cash by $8,960 that is asset,

And this will decrease retained earnings by $8,960, which is part of equity.

- Assets ($8,960) = Liabilities No effect, - Retained Earnings ($8,960) which is equity.

(3) Cash received from customer

Cash is received, therefore, it will increase by $14,200, which is an asset

Payment is received from customer, which is decrease in accounts receivables, which is asset by $14,200.

Thus, it will increase and decrease asset, therefore, no effect on accounting equation.

(4) Purchased supplies on account

This will increase supplies which are inventory, and therefore, will increase assets by $4,200.

And since purchased on account this will increase liability in the form of accounts payable by $4,200.

+ Assets $4,200 = + Liabilities $4,200, No effect on equity.