Question

Debbie's Dance Studio is an incorporated business run by Debbie Star. During its first month of operations, the following transactions occurred:

1. Debbie starts the business by investing cash of $7,000 and $1,400 in supplies in exchange for $8,400 in company shares.

2. Debbie's Dance Studio reached an agreement with the local school to provide dance lessons for $1,400 a month, starting next month.

3. Debbie's Dance Studio purchased audio equipment for $2,200, on account.

4. Debbie's Dance Studio billed customers $2,000 for dance lessons, with 80% received in cash and the rest charged on account .

5. Debbie's Dance Studio received a $5,000 loan from her aunt

6. Debbie's Dance Studio paid $300 cash for supplies.

7. Debbie's Dance Studio collected the amount owing from customers billed in #4.

8. Debbie's Dance Studio paid $1,000 cash to pay down the amount owing from #3.

9. Debbie's Dance Studio received $1,400 advance payment from the local school, for dance lessons to be given next month.

10. Debbie's Dance Studio paid $1600 cash to rent studio space for the current and subsequent months.

Using the table provided here, show how each transaction affects the accounting equation.

Answer 1

		Debbies Dance Studio
		TRANSACTIONS FOR MONTH
			Assets			=			Liabilities		+	Stock Holder's Equity
Date	Cash	Accounts Receivable	Equipments	Prepaid rent	Supplies			Acconuts Payable	Advance Received			Capital Stock	Retained earnings
1	7000				1400							8400
Balance	7000				1400							8400
2 (note1)	NA	NA	NA		NA		NA	NA		NA		NA	NA
Balance	7000				1400							8400
3			2200					2200
Balance	7000		2200		1400			2200				8400
4	1600	400											2000
Balance	8600	400	2200		1400			2200				8400	2000
5	5000							5000
Balance	13600	400	2200		1400			7200				8400	2000
6	-300				300			-
Balance	13300	400	2200		1700			7200				8400	2000
7	400	-400
Balance	13700	0	2200		1700			7200				8400	2000
8	-1000							-1000
Balance	12700	0	2200		1700			6200				8400	2000
9	1400								1400
Balance	14100	0	2200		1700			6200	1400			8400	2000
10	-1600			1467									-133
Balance	12500	0	2200	1467	1700			6200	1400			8400	1867

Explanation :

1. Cash will Increase by 7000$ and Supplies will increase by 1400$ - Credit to Common stock as shares are issued in return - $8400

2. No entry, it is just an agreement no transaction has been made

3. Audio equipment will be received - hence asset will increase and it is purchased on credit basis, so credit to Accounts payable

4. Revenue will increase by $2000 , Hence it is shown as increase in retained earnings and cash received = 2000$*80% = $1600, so cash is increased by this amount and remaining $400 will be debited to Accounts receivable

5. $ 5000 Loan received - Cash will increase and Accounts payable or it can be shown separately as loan will also get Increases - Liability

6. $300 Cash will get reduced and $300 value supplies will get Increased

7. Cash will get Increased $400 and Accounts receivable will get reduced by $400

8. Accounts payable $1000 will get reduced and Cash $1000 will get reduced

9. Advance received will be shown as liability until the revenue is earned

10. 1600*1/12 = 133 - for current month, hence shown as expense - retained earnings get reduced

1600*11/12 = 1467$ - advance or prepaid rent - Shown as Asset and will be recognised as expense as and when incurred for subsequent ,months and Cash will get reduced by $1600

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