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Selected transactions for L. Takemoto, an interior decorating firm, in its first month of business, are as follows.Jan. 2 Invested $15,000 cash in the business in exchange for common stock.3 Purchased used car for $8,200 cash for use in the business.9 Purchased supplies on account for $500.11 Billed customers $1,800 for services performed.16 Paid $200 cash for advertising.20 Received $780 cash from customers billed on January 11.23 Paid creditor $300 cash on balance owed.28 Declared and paid a $500 cash dividend.For each transaction, indicate the following.(a) The basic type of account debited and credited (Asset, Liability, Stockholders’ Equity).(b) The specific account debited and credited (Cash, Rent Expense, Service Revenue, etc.).(c) Whether the specific account is increased or decreased.(d) The normal balance of the specific account.

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Answer:

Answer:

Date      Type                   Specific Account           Effect       Normal Balance

Jan 2     Asset                     Cash                                 Increase     Debit

             Equity                    Common Stock                Increase     Credit

Jan 3     Asset                     Motor Car                         Increase     Debit

             Asset                     Cash                                 Decrease   Debit

Jan 9    Asset                     Supplies                            Increase     Debit

            Liability                  Trade Payable                  Increase     Credit

Jan 11   Equity                     Service Revenue              Increase     Credit

            Asset                      Trade Receivable             Increase     Debit

Jan 16  Asset                      Cash                                  Decrease    Debit

            Equity                     Advertising                       Decrease     Credit

Jan 20 Asset                     Cash                                   Increase       Debit

           Asset                      Trade Receivable              Decrease     Debit

Jan 23 Asset                     Cash                                    Decrease     Debit

           Liability                  Trade Payable                    Decrease     Credit

Jan 28 Equity                   Dividend Payable                Decrease     Credit

           Asset                     Cash                                    Decrease     Debit

           

Explanation:

All Asset accounts have debited balances while all liability and equity accounts have credit balances.

Income and Expense are subset of equity account. Hence any item relating to them will be categorized under equity.

Explanation:

1.The owner invests $15,000 of cash in business by exchange of common stock.

Current Asset will increase by $15,000 Debit and Common stock will increase in Equity as Credit.

2.  Purchased used car for $8,200 cash for use in the business.

Current Asset, Cash will decrease as Credit by $8,200 and Non current Asset, vehicle will increase by $8,200 as Debit.

3. Purchased supplies on account for $500.

Current Asset, Office Supplies will increase as Debit by $500 and Current Asset, Cash will decrease as Credit by $500.

4. Billed customers $1,800 for services performed.

Current Asset, Accounts Receivable will increase as Debit by $1,800 and Equity, Revenue will increase as Credit by  $1,800 .

5. Paid $200 cash for advertising.

Expense will increase causing current Asset Cash to decrease as Credit by $500.

6. Received $780 cash from customers billed on January 11.

Current Asset, Cash will increase as Debit by $780 and Current Asset, Accounts Receivable will decrease as Credit by $780

7. Paid creditor $300 cash on balance owed.

Current Liability Accounts Payable will decrease as Debit by $300 and current Asset Cash will decrease as Credit by $300.

8. Declared and paid a $500 cash dividend

Equity Retained Earnings will decrease by $500 and Current Asset, Cash will decrease by $500.

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