Accounting Transaction Analysis Quiz

An accounting equation demonstrates the relationship between assets, liabilities, and owner's equity. It can be expressed as Assets = Liabilities + Owner's Equity and helps to understand the financial position of a business.

When Benjamin invests cash into the business, it increases the business's cash assets and also increases the owner's equity (represented by Benjamin's capital).

Purchasing office equipment with cash increases the business's assets (office equipment) but decreases the cash assets. The total assets remain the same.

When services are rendered to Mr. Elias on account, it means Mr. Elias owes the business money. This increases the business's Accounts Receivable (an asset) and also increases the business's Income.

Buying furniture on account means the business is buying furniture on credit, creating a liability. This increases the business's Accounts Payable (a liability) and reduces the Furniture asset (because it's being bought on credit).

Receiving cash for services rendered increases the business's cash assets and decreases the business's earned income. This reflects that the income has been realized by receiving cash.

Receiving proceeds from a loan increases the business's assets (cash from the loan) and also increases the business's liabilities (the loan amount owed).

When assets increase, it means the business has more resources. As owner's equity represents the owner's claim on the business's assets, it also increases.

A transaction must involve an exchange of value, resulting in a change in the accounting equation. Transactions are not limited to only tangible assets.

When assets decrease it means the business has fewer resources. As owner's equity represents the owner's claim on the business's assets, it also decreases.

When a business renders services on account, it means the business will receive payment later. This increases the Service Income account, reflecting the revenue earned from the services rendered.

When a business receives cash from rendering services, it increases the Cash account, as the business receives payment for the services rendered.

If assets increase, and liabilities remain the same, then the owner's equity must increase to maintain the balance of the accounting equation. (Assets = Liabilities + Owner's Equity)

Miss Madrid withdrew ₱35,000.00 for personal use, which is indicated in the transaction on January 28.

On January 15, the transaction shows a cash receipt of ₱3,500.00 from photocopying services rendered.

The account 'Madrid's, Capital' represents the owner's initial investment in the business, shown as ₱275,000.00 in the beginning balance.

After buying supplies costing ₱5,000.00 on January 18, the total assets would be ₱280,000.00. This is calculated by adding the initial asset value (₱275,000.00) and the cost of supplies (₱5,000.00).

The transaction on January 8 mentions hiring a helper on a commission basis of 10% of sales. This indicates that the helper's payment is based on the business's sales revenue.