Reference no: EM132323757

Question

Under the double-entry accounting system, when a financial transaction occurs, it affects at least two accounts. This is demonstrated by looking at the basic accounting equation or the expanded accounting equation and conducting a transaction analysis using these equations. The expanded accounting equation is particularly helpful because it allows us to see the effect when the transaction involves revenues and/or expenses, as well as transactions that affect owner's capital or owner's withdrawals.

Basic Accounting Equation: Assets = Liabilities + Owner's Equity

Expanded Accounting Equation:

Assets = Liabilities + Owner's Capital - Owner's Withdrawals + Revenues - Expenses

Using the Transaction Analysis Table which depicts the expanded accounting equation, identify the effect that each of the six (6) transactions has on the equation. For each transaction, indicate in a cell on the table whether it is an increase or a decrease to that category and indicate the amount of money.

Please note: The first transaction has been completed for you as an example so you only need to complete the analysis for transactions 2 through 6.

Transaction

Number

Assets

Liabilities

Owner's Capital

Owner's Withdrawals

Revenues

Expenses

1 Increase 20,000

Increase 20,000

2

3

4

5

6

Transactions:

1. Dr. Sam Smile invests $20,000 to open a business account for his dental practice-Sam Smile, D.D.S.

2. Dr. Smile purchases a parcel of land for $50,000. He puts $5,000 down in cash and signs a note payable for $45,000.

3. Dr. Smile purchases $5,000 in dental equipment for his practice with cash.

4. Dr. Smile withdraws $250 from his business for personal use.

5. Dr. Smile provides dental services to a patient in the amount of $1,500. The patient pays $500 in cash and agrees to pay the remaining amount of $1,000 within 30 days.

Dr. Smile receives cash in the amount of $1,000 as payment for the dental services provided to a patient in transaction #5 above