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The following transactions were completed by the company. The company completed consulting work for a client and immediately collected $7,000 cash earned. The company completed commission work for a client and sent a bill for $5,500 to be received within 30 days. The company paid an assistant $2,150 cash as wages for the period. The company collected $2,750 cash as a partial payment for the amount owed by the client in transaction b. The company paid $1,000 cash for this period's cleaning services. Required: Enter the impact of each transaction on individual items of the accounting equation. (Enter decreases to account balances with a minus sign.)

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Answer:

The Company

The Impact of Each Transaction on the Accounting Equation:

1. Assets (Cash + $7,000) = Liabilities + Equity (Retained Earnings + $7,000)

2. Assets (Accounts Receivable + $5,500) = Liabilities + Equity (Retained Earnings + $5,500)

3. Assets (Cash -$2,150) = Liabilities + Equity (Retained Earnings -$2,150)

4. Assets (Cash +$2,750 Accounts Receivable -$2,750) = Liabilities + Equity

5. Assets (Cash -$1,000) = Liabilities + Equity (Retained Earnings -$1,000)

Explanation:

The Company applies the accounting equation, which states that Assets = Liabilities + Equity.  With each transaction, the accounting equation is demonstrated as shown above.  This means that each transaction that is properly recorded affects the accounting equation in two ways.  Note that the accounting equation is the basis for the double-entry system of financial accounting.

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