ACCTG 215 - Quiz Section #2 Autumn 2013 The Five Steps to Recording External Transactions Assets = Liabilities + Stockholders’ Equity = Each transaction will have a dual effect, which is the foundation of… A DOUBLE ENTRY ACCOUNTING SYSTEM Three Things Used to Determine the Effect on the Accounting Equation: 1. Account 2. Direction 3. Amount Rules of the Game: 1. Debits = Credits 2. Assets = Liabilities + Stockholders’ Equity For every debit, there will be at least one credit 1. Determine*the*effect*on*the*accounting*equation*(A*=*L*+*E)*2.*Determine*whether*to*debit*or*credit*affected*accounts*Resources*Claim s*to*R es o urces*ACCTG 215 - Quiz Section #2 Autumn 2013 To be discussed next quiz section. To be discussed next quiz section. To be discussed in lecture. 3.*Record*transactions*in*the*journal*4.*Post*transactions*to*the*ledger*5.*Prepare*a*trial*balance*ACCTG 215 - Quiz Section #2 Autumn 2013 Practice Problem Jake owns a lawn maintenance company, while Lucy owns a machine repair shop. For the month of July, the following transactions occurred. July 3 Jake provides lawn services to Lucyʼs repair shop on account, $400. July 6 One of Jakeʼs mowers malfunctions. Lucy provides repair services to Jake on account, $350. July 9 Lucy pays $400 to Jake for lawn services provided on July 3. July 14 Lucy borrows $500 from Jake by signing a note. July 18 Jake purchases advertising in a local newspaper for the remainder of July and pays cash, $100. July 20 Jake pays $350 to Lucy for services provided on July 6. July 27 Lucy performs repair services for other customers for cash, $700. July 30 Lucy pays employeesʼ salaries for month, $200. July 31 Lucy pays $500 to Jake for money borrowed on July 14. Required: Determine the effect on the accounting equation, record the transactions as journal entries, and post the journal entries to the T-accounts for Jakeʼs Lawn Maintenance Company. Assume that Jake starts the month of July with $1,000 in cash.ACCTG 215 - Quiz Section #2 Autumn 2013 Solutions Key: A = ASSET, L = LIABILITY, SE = STOCKHOLDERS’ EQUITY, R=REVENUE, E=EXPENSE 7/3 (+A) Accounts Receivable, (+R/+SE) Service Revenue 7/6 (+E/-SE) Maintenance Expense, (+L) Accounts Payable 7/9 (+A) Cash, (-A) Accounts Receivable 7/14 (+A) Notes Receivable, (-A) Cash 7/18 (+E/-SE) Advertising Expense, (-A) Cash 7/20 (-L) Accounts Payable, (-A) Cash 7/27 No Entry 7/30 No Entry 7/31 (+A) Cash, (-A) Notes
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