Question

The following transactions occur for the Hamilton Manufacturers. (a) Provide services to customers on account for $4,900. (b) Purchase equipment by signing a note with the bank for $10,300. (c) Pay advertising of $2,000 for the current month. Analyze each transaction and indicate the amount of increases and decreases in the accounting equation. (Enter "0" wherever required.)

Answer 1

Accounting equation is as follows:

Total assets = Total liabilities + Stockholder's equity

(a) Providing services to the customers on account will increase the stockholders equity in terms of service revenue by $4,900 and increases the total assets in terms of account receivable by $4,900.

(b) Purchasing an equipment at a cost of $10,300 by signing a note with the bank will increase the total assets in terms of equipment by $10,300 and also increases the liabilities in terms of notes payable by $10,300.

(c) Payment of advertising expenses for the current month reduces the total assets in terms of cash by $2,000 and also decreases the stockholder's equity by $2,000.