Question

Transactions made by Pharoah Company for the month of March are shown below.

1. The company performed $23.660 of services for customers on account.
2. The company received $23,660 in cash from customers who had been billed for services [in transaction (1)].
3. The company received a bill for $2,470 of advertising but will not pay it until a later date.
4. Pharoah Company paid a cash dividend of $2,930.
Prepare a tabular analysis that shows the effects of these transactions on the expanded accounting equation.

Answer 1

To show the effects of Pharoah Company's transactions on the expanded accounting equation, each transaction's impact on assets, liabilities, and equity is analyzed. Performance of services on account increases assets and equity, while receipt of cash affects the composition of assets. Receiving a bill increases liabilities and payment of dividends decreases assets and equity.

Step-by-step explanation:

To prepare a tabular analysis for Pharoah Company's March transactions based on the expanded accounting equation, we'll analyze the effects of each transaction on the company's assets, liabilities, and equity components. We consider assets to include cash and accounts receivable, liabilities to include accounts payable, and equity to consist of common stock, retained earnings, and dividends.

Here's how each transaction affects the accounting equation:

1. Performance of services for $23,660 on account increases assets (accounts receivable) and increases equity (retained earnings).
2. Receiving $23,660 in cash from customers affects assets by increasing cash and decreasing accounts receivable by the same amount, as the obligation has been settled.
3. Receiving an advertising bill of $2,470 increases liabilities (accounts payable) and decreases equity (retained earnings), as this will be an expense.
4. Payment of a $2,930 cash dividend decreases assets (cash) and decreases equity (dividends), reflecting a distribution of earnings to shareholders.

The balance of each component after these transactions would be calculated by adding or subtracting the relevant amounts from their respective categories.