Analyze the effect of transactions.
Selected transactions for Thyme Advertising Company, Inc. are listed here.
1. Issued common stock to investors in exchange for cash received from investors.
There was an increase in Cash assets and also an increase in stockholders' equity. Both increasing by the amount of the investment. Debits increased the assets and the credits increased the stockholders' equity.
2. Paid monthly rent.
The Rent Expense account is increased by the amount of the monthly rent, this payment pertains only to the current month at hand. The Cash asset is decreased by the amount of the monthly rent. The Debit increases the expense and the Credit decreases the assets. Decreasing cash and increasing expenses maintains the balance of the accounting equation.
3. Received cash from customers when service was performed.
When services are performed for cash, assets are increased and stockholders' equity is also increased.
4. Billed customers for services performed.
Services will be paid at a later date. Revenue is recorded when services are performed. Revenues will increase when services are performed, even though cash has not been received. Instead of receiving cash, an accounts receivable is documented. Accounts receivable represent the right to receive payment at a later date.
5. Paid dividend to stockholders.
Dividends reduce stockholders' equity but not an expense. Dividends are not included in the calculation of net income. Instead, a dividend is a distribution of the company's assets to its stockholders.
6. Incurred advertising expense on account.
There will be an increase in liabilities and a decrease in owner's equity
7. Received cash from customers billed in (4).
Accounts Receivable decreases by amount of the charge for the services, and Cash increases by that same amount.
8. Purchased additional equipment for cash.
The Equipment asset increased by the total amount of equipment. The Cash asset decreased by the total amount of the equipment. The debit, equipment, increased assets and the credit, cash, decreased assets. This transaction results in an equal increase and decrease
9. Purchased equipment on account.
Received equipment that it will pay for at a later date. This transaction increases both an asset (equipment) and a liability (accounts payable).
Instructions -
Describe the effect of each transaction on assets, liabilities, and stockholders' equity. For example, the first answer is (1) Increase in assets and increase in stockholders' equity.
Analyze the effect of transactions on assets, liabilities, and stockholders' equity.
Attachment:- Assignment.rar