Question

Use the following transactions to answer the below questions.

1. Mr. Douglas invested $25,000 cash in the business.
2. Purchased equipment worth $7,000 with a $500 down payment. The remainder is due in 30 days.
3. Paid $900 cash for a six-month insurance policy.
4. Received $3,000 cash from customers for services rendered.
5. Paid wages, $1,750.
6. Received and paid advertising bill of $100.
7. Performed services worth $2,500 for credit customers.
8. Received $1,700 cash from customers previously billed on account.
9. Mr. Douglas withdrew $5,300 cash for personal use.
10. Paid utility bill, $205. Required: Record each transactions in the T accounts below. Indicate next to each entry the number for that transaction the accounts where necessary and enter the balances in the proper places.

Answer 1

To record the given transactions in T-accounts, each transaction affects at least two accounts, such as Cash, Equipment, Owner's Equity, Accounts Payable, Prepaid Insurance, Service Revenue, Wages Expense, Advertising Expense, Accounts Receivable, and Utilities Expense, demonstrating the dual-entry accounting system.

Step-by-step explanation:

When recording transactions in T-accounts, each transaction impacts at least two accounts, representing the dual effect of every financial activity. In this scenario, transaction #1 where Mr. Douglas invests $25,000 cash into the business would lead to an increase in the Cash account and an equal rise in the Owner's Equity account. Transaction #2 involves the purchase of equipment and would see the Equipment account debited by $7,000 and Cash credited by $500, with the remainder $6,500 recognized as Accounts Payable.

The payment for the insurance policy in #3 would reduce Cash and increase Prepaid Insurance. Receiving cash for services in #4 increases Cash and Service Revenue. Transaction #5 decreases Cash and credits Wages Expense. Paying an advertising bill in #6 reduces Cash and credits Advertising Expense. In #7, services performed for credit would increase Accounts Receivable and Service Revenue. Transaction #8 would decrease Accounts Receivable while increasing Cash. Mr. Douglas's withdrawal in #9 leads to a reduction in Cash and a decrease in Owner’s Equity. Finally, paying the utility bill in #10 deducts from Cash and credits Utilities Expense.

Note: Balances are not recorded here since the T-accounts are not visually represented in this format.