Question

Below are several transactions for Scarlet Knight Corporation. A junior accountant, recently employed by the company, proposes to record the following transactions.

External Transaction Accounts Debit Credit
1. Owners invest $12,500 in the company and receive common stock. Common Stock 12,500
Cash 12,500
2. Receive cash of $3,500 for services provided in the current period. Cash Service Revenue 3,500
3,000
3. Purchase office supplies on account, $250. Supplies 250
Cash 250

4. Pay $550 for next month's rent. Rent Expense 550
Cash 550

5. Purchase office equipment with cash of $1,950. Cash 1,950
Equipment 1,950

Required:
Assess whether the junior accountant correctly proposes how to record each transaction. If incorrect, provide the correction.

Answer 1

Scarlet Knight Corporation

Correct postings:

Accounts Debit Credit

1. Cash 12,500

Common Stock 12,500

2. Cash 3,500

Service Revenue 3,500

3. Supplies 250

Cash 250

4. Rent Expense 550

Cash 550

5. Equipment 1,950

Cash 1,950

Step-by-step explanation:

a) Data and Calculations:

Accounts Debit Credit

1. Common Stock 12,500

Cash 12,500

2. Cash 3,500

Service Revenue 3,000

3. Supplies 250

Cash 250

4. Rent Expense 550

Cash 550

5. Cash 1,950

Equipment 1,950

b) The accounting rule is to debit the value receiver and to credit the value giver. Generally, assets, expenses, and losses normally have debit balances while liabilities, equities, incomes, and gains have credit balances.