Final answer:
The transactions of Cross Country Delivery Service can be broken down to illustrate their impact on the accounting equation, affecting assets, liabilities, and owner's equity differently depending on the nature of each transaction.
Step-by-step explanation:
Understanding the effects of transactions on the accounting equation is fundamental in the field of accounting. The transactions mentioned by Cross Country Delivery Service impact the company's assets, liabilities, and owner's equity. I will provide a breakdown of these effects:
- Assets decrease by $6,750 (Advertising Expense Paid) and Owner's Equity (Pedro Gonzalez, Drawing) decreases by $6,750, reflecting the payment of expenses.
- Liabilities increase by $2,920 (Accounts Payable) and Assets (Supplies) increase by $2,920, representing the purchase of supplies on credit.
- Assets (Accounts Receivable) increase by $20,460 and Owner's Equity (Revenue) increases by $20,460, indicating the revenue earned from services billed on the account.
- When cash is received from customers on account, Assets (Cash) increase and Assets (Accounts Receivable) decrease by the same amount, which settles the receivable without affecting the owner's equity.
These entries are examples of how daily transactions impact a company's financial position and underscore the importance of accurate bookkeeping in managing a business's finances.