Question

Michelle Walker opened a law office on July 1, 2020. On July 31, the balance sheet showed Cash $5,300, Accounts Receivable $2,000, Supplies $500, Equipment $6,100, Accounts Payable $3,500, and Owner's Capital $10,400. During August, the following transactions occurred. 1.Collected $1,700 of accounts receivable. 2.Paid $2,400 cash on accounts payable. 3.Recognized revenue of $7,300, of which $2,900 is collected in cash and the balance is due in September. 4.Purchased additional equipment for $2,100, paying $300 in cash and the balance on account. 5.Paid salaries $2,300, rent for August $1,200, and advertising expenses $450. 6.Withdrew $800 in cash for personal use. 7.Received $1,900 from Standard Federal Bank—money borrowed on a note payable. 8.Incurred utility expenses for month on account $230.

Answer 1

The business transactions mentioned, involving collection of receivables, payment of liabilities, revenue recognition, purchasing assets, paying expenses, owner withdrawals, borrowing, and incurring payables, all have varying impacts on a business's balance sheet, altering the balances of assets, liabilities, and owner's equity.

Step-by-step explanation:

The scenario described involves calculating the effects of various business transactions on the balance sheet of Michelle Walker's new law office. To address the business transactions, we must analyze and adjust the balance sheet accordingly. Here is how each transaction affects the balance sheet components:

• Collecting accounts receivable increases Cash and decreases Accounts Receivable.
• Paying accounts payable reduces Cash and Accounts Payable.
• Recognizing revenue increases Revenue and Accounts Receivable or Cash, depending on the collection.
• Purchasing equipment increases Equipment and either decreases Cash or increases Accounts Payable.
• Paying salaries, rent, and advertising expenses decreases Cash.
• Withdrawing cash for personal use reduces Cash and Owner's Capital (Owner's Draw).
• Borrowing money increases Cash and Notes Payable.
• Incurring utility expenses increases Utilities Expense and Accounts Payable.

By posting these transactions to the balance sheet, we can determine the company's financial position at the end of August. Transactions such as these reflect day-to-day business activities and demonstrate how business operations impact financial statements.