Question

1. purchased on sept 1 a one year insurance policy for 1,200

2. provided services to customers during sept and recieved $30,000 cash

Using the equation, write what category (ie cash, A/R, etc) is increased, decreased or no effect for these sections:

Assets=Liabilities+Stockholder's Equity

2nd part//////

using the same formula, assets=liabilities+stockholder's equity, the company needs to record the following ADJUSTING transactions to update their records AT THE END OF THE MONTH

1. the company did a pysical count of suplies and deteremined 1k of supplies are still on hand. record the use of supplies.

2. te company provided services of 1,000 to the customer paid in advance (previously, they recieved a 5,000 cash advance from a customer for services not yet received which resulted cash +5000, unearned revenue +5000)

3. depreciation expense on equipment of $500 needs to be recorded.

4. record insurance expense for the month of october.

5. record accural of interest expense on note payable for the month of october.

Answer 1

By the given information:

Assets = Liabilities + equity

1) purchased on sept 1 a one year insurance policy for 1,200

Prepaid insurance Dr	1200
To cash		1200
(being insurance purchased)

There would be only increase and decrease in Assets which will create no impact on total value. Insurance is a long term expense hence is treated as prepaid. Here both prepaid insurance and cash are current assets and the equation will be-

1200 - 1200 = 0 + 0

2) provided services to customers during sept and received $30,000 cash

Cash Dr	30000
To service revenue		30000
(being revenue received in cash)

There would be only increase in Assets ( cash) and service revenue will be treated as income and is posted in equity and the equation will be-

1200 = 0 + 1200

ADJUSTING TRANSACTIONS:

1 )the company did a physical count of supplies and determined 1k of supplies are still on hand record the use of supplies.

The adjusting entry will be-

Supplies expense	1000
To supplies		1000
(being expense paid)

The balance left will be posted to asset side of balance sheet and will be carried over to next accounting period.

2) the company provided services of 1,000 to the customer paid in advance (previously, they received a 5,000 cash advance from a customer for services not yet received which resulted cash +5000, unearned revenue +5000

Here amount is received for which services are not yet made which is treated as income received in advance.

The adjusting entry will be-

Cash Dr	1000
To unearned revenues		1000
(being cash received in advance)

It will increase assets (cash) and increase liabilities (unearned revenues). Thus, the equation will be-

1000 = 1000 + 0

3) depreciation expense on equipment of $500 needs to be recorded.

Depreciation is an expense which is levied on assets. It will decrease the book value of assets and hence the total value of assets. Also it is an expense which will decrease the net income of the company.

The adjusting entry will be-

Depreciation  Dr	500
To asset		500
(being depreciation expense is recorded)

It will Decrease assets (Fixed asset) and decrease equity (net income). Thus, the equation will be-

-500 = 0 - 500

4)  record insurance expense for the month of october.

As the expense is of october and calculations are made for september it will treated as prepaid expense.

1) purchased on sept 1 a one year insurance policy for 1,200

Prepaid insurance Dr	1200
To cash		1200
(being insurance purchased)

There would be only increase and decrease in Assets which will create no impact on total value of assets. Insurance is a expense for october hence is treated as prepaid. Here both prepaid insurance and cash are current assets and the equation will be-

1200 - 1200 = 0 + 0