Question

On June 1 of the current year, Pamela Schatz established a business to manage rental property. She completed the following transactions during June:
a. Opened a business bank account with a deposit of $55,000 from personal funds.
b. Purchased office supplies on account, $3,300.
c. Received cash from fees earned for managing rental property, $18,300.
d. Paid rent on office and equipment for the month, $8,300.
e. Paid creditors on account, $2,290. f. Billed customers for fees earned for managing rental property, $30,800. g. Paid automobile expenses (including rental charges) for the month, $1,380, and miscel-laneous expenses, $1,800.
h. Paid office salaries, $7,300.
i. Determined that the cost of supplies on hand was $1,250; therefore, the cost of sup-plies used was $2,050.
j. Withdrew cash for personal use, $13,800.


Instructions:

1. Indicate the effect of each transaction and the balances after each transaction, using the Accounting equation. (note, I have set up the header in Excel – just document the balances below each heading)
2. Briefly explain why the owner’s investment and revenues increased owner’s equity, while withdrawals and expenses decreased owner’s equity.
3. Determine the net income for June.
4. How much did June’s transactions increase or decrease Pamela Schatz’s capital?
 

Answer 1

1. Accounting Equation -

2. Explanation -

Owner's Equity includes Capital introduced by the owner Less amount withdrawan for personal use because company is seperate legal entity and money introduced should be added and money withdrawal should be reduced.

Net Income is company's profit that needs to be added to the owner's equity. Also accumulated every year. Also note that loss should be deducted. Revenue is added to the owner's Equity and expenses should be deducted.

3. Computation of Net Income -

4. Schatz’s Capital Computation -

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