Question

Tiny Town Kennel earns service revenue by caring for the pets of customers. T Town Kennel is organized as a sole proprietorship and owned by Earle Martin the past month, Tiny Town Kennel has the following transactions: a. Received $520 cash for service revenue earned. iny b. Paid $325 cash for salaries expense. c. Martin contributed $1,000 to the business in exchange for capital. d. Earned $640 for service revenue, but the customer has not paid Tiny Town Kennel yet. e. Received utility bill of $85, which will be paid next month. f. Martin withdrew $100 cash. Indicate the effects of the business transactions on the accounting equation for Town Kennel. Transaction (a) is answered as a guide. a. Increase asset (Cash): Increase equiy (Service Revenue

Answer 1

Accounting equation : Equity + Liability = Assets or Equity=Assets - Liability.

(a) Increase asset (Cash): Increase equity (Service Revenue) by $520

(b) Decrease asset (Cash): Decease equity (Salaries Expense) by $325

(c) Increase asset (Cash): Increase equity (Capital) by $1,000

(d) Increase asset (Debtor): Increase equity (Service Revenue) by $640

(e) Increase liability (utility bills payable): Decease equity (utility bill Expense)

by $85

(f) Decrease asset (Cash): Decease equity (Drawing) by $100

Step-by-step explanation:

The accounting equation is the basis of the double-entry in accounting. Accounting equation ensure Statement of Financial position(i.e. balance sheet) balance all the time. It shows balance sheet. It shows that sum of assets equals to the addition of liabilities and equity.

With the aid of accounting equation, we establised that for every debit (affecting asset or expense) entry, there must be corresponding credit (affacting liability or equity).