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    Effect of accounting transactions on the accounting equation

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    P1-3A Hannah Banks started her own consulting firm, Banks Consulting, Inc., on May 1, 2002.
    The following transactions occurred during the month of May.

    May 1 Stockholders invested $15,000 cash in the business.

    2 Paid $800 for office rent for the month.
    3 Purchased $700 of supplies on account.
    5 Paid $200 to advertise in the Daily News.
    9 Received $1,000 cash for services provided.
    12 Paid $300 cash dividend.
    15 Performed $5,000 of services on account.
    17 Paid $2,500 for employee salaries.
    20 Paid for the supplies purchased on account on May 3.
    23 Received a cash payment of $2,000 for services provided on account on May 15.
    26 Borrowed $5,000 from the bank on a note payable.
    29 Purchased office equipment for $3,500 on account.
    30 Paid $250 for utilities.

    a) Show the effects of the previous transactions on the accounting equation using the following format:
    Assets = Liabilities + Stockholders' Equity
    Cash + Receivables + Supplies + office Equipment = Notes Payable + Accounts Payable + Common Stock + Retained Earnings
    Include explanations for any changes in the Retained Earnings Account in your analysis.
    b) Prepare an Income Statement for the month of May
    c) Prepare a balance sheet at May 31, 2002

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    Solution Preview

    Please note that the full solutions are on the attached word and excel files.

    The best way to solve this, is by first journalizing the transactions, this will show you which accounts would increase and which would decrease.

    The way to remember which accounts are debited when they ...

    Solution Summary

    The solution addresses the effects of some transactions on the accounting equation as well as explanations for changes in the Retained Earnings Account. The solution includes a word file and an excel file that show calculations.