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Questions and Answers
Which transaction results in a decrease in owner's equity?
What is the effect of receiving $8,000 cash for services performed on the accounting equation?
In the transaction where the owner invested $25,000 cash in the business, which of the following occurs?
Which transaction involves the business acquiring an obligation?
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What is the effect of paying $850 for this month’s rent on the accounting equation?
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What is the consequence of Ray Neal withdrawing $1,300 from the business for personal use?
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What constitutes a transaction for a business?
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Which statement correctly identifies a transaction that does not affect liabilities?
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Which transaction reflects an increase in revenues?
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Which of the following options illustrates the dual effect on the accounting equation when a company invests cash?
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What happens when Softbyte purchases computer equipment for cash?
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When Softbyte orders headsets and computer accessories with a delayed payment, how is this transaction classified?
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Which statement describes transactions that are not recorded in accounting records?
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What effect does a cash investment by an owner have on a business's financial statements?
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What distinguishes an external transaction from an internal transaction?
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When are economic events recorded as transactions?
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What type of transaction is represented by Softbyte receiving $1,200 cash from customers for services performed?
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When Softbyte receives a bill for advertising services but postpones payment, which account is affected by this transaction?
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How is the transaction where Softbyte performs $3,500 of services but only receives $1,500 in cash categorized?
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What type of transactions are recorded when Softbyte pays $600 for office rent, $900 for salaries, and $200 for utilities?
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What happens to the accounts when Softbyte pays the $250 bill from Daily News that was previously recorded?
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Which statement describes the nature of the transaction when Softbyte performs services worth $3,500 but bills $2,000?
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In the transaction where Softbyte receives $1,200 cash for development services, what overall effect does this transaction have on the accounting equation?
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Which of the following best describes the nature of the transaction when Softbyte bills customers for services rendered?
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Study Notes
Understanding Transactions
- Business transactions are economic events recorded by accountants, which can be external or internal.
- Not every activity qualifies as a transaction; valid transactions have a dual effect on the accounting equation.
Transaction Examples from Softbyte
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Investment by Owner:
- Ray Neal invests $15,000 cash on September 1, 2020, increasing both assets and owner's equity.
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Equipment Purchase:
- Softbyte purchases computer equipment for $7,000 cash, increasing assets.
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Purchase of Accessories:
- Acquires headsets and accessories worth $1,600, with payment postponed until October.
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Revenue from Services:
- Receives $1,200 cash for app development services, increasing both cash assets and revenue.
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Advertising Bill:
- Receives a $250 bill from Daily News for advertising, increasing accounts payable without immediate payment.
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Service Revenue Breakdown:
- Performs $3,500 in services, receiving $1,500 in cash and billing $2,000, impacting cash and accounts receivable.
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Expense Payments:
- Cash payments include office rent ($600), salaries and wages ($900), and utilities ($200), reflecting cash expenditures.
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Clearing Liabilities:
- Pays the previously recorded $250 advertising bill in cash, decreasing accounts payable.
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Cash Collection from Customers:
- Receives $600 cash from customers for services previously billed, increasing cash assets.
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Owner's Withdrawal:
- Ray Neal withdraws $1,300 for personal use, representing a decrease in owner's equity.
Summary of Transactions
- Transaction analysis focuses on their effects on the accounting equation elements: assets, liabilities, and owner’s equity.
- The accounting equation must be balanced; decreases on one side correspond with increases on the other.
- Owner’s capital, withdrawals, revenues, and expenses highlight changes in owner’s claims on business assets.
Additional Transaction Analysis
- Virmari & Co. provides additional transactions for assessment:
- Owner invests $25,000 cash.
- Buys $7,000 office equipment on credit, increasing liabilities.
- Earns $8,000 cash for services, boosting revenue.
- Pays $850 rent for the month, impacting cash reserves.
- Owner withdraws $1,000, affecting owner's equity.
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Description
Explore the fundamental concepts of analyzing business transactions through this quiz. Understand the dual effects these transactions have on the accounting equation and identify the differences between various types of economic events. Test your knowledge of expenses relating to salaries and wages.