Part 1 Determine The Account Type: Asset, Liability, Or Owne

Part 1determine The Account Type Asset Liability Or Owners Equity

Part 1determine The Account Type Asset Liability Or Owners Equity

PART 1: Determine the account type (Asset, Liability, or Owner's Equity) for each of the account names listed in the Excel workbook in the T-account worksheet. Identify the normal balance (debit or credit) for the account. PART 2: Analyze the given transactions using the T-accounts provided. Remember that each transaction will affect at least 2 accounts and your debits must equal your credits after each transaction! November Business Transactions: 3rd: J.

Jones visits her local bank and withdraws $50,000 from her personal savings account, depositing the cash into a new bank account in the name of the business, Smith Consultants. 5th: Jones Consultants issues check 1001 for $2,000 to purchase computer equipment from Digital Warehouse, Inc. 6th: Jones Consultants issues check 1002 to Property, Inc. to pay the current month's rent due of $1,000 as well as prepay rent (at $1,000 per month) for the months of December and January. 10th: Jones Consultants issues check 1003 to purchase office furniture in the amount of $3,500 from Furniture Depot. 11th: Jones Consultants purchases $4,000 of computer equipment from Elite Computing on account due in 90 days.

Elite Computing issues invoice 7964. 14th: Jones Consultants performs services to cash clients for $1,200. 17th: Jones Consultants performs services to charge account client, Speedy Freight, in the amount of $3,000. Invoice 101 is issued and is receivable in 30 days. 19th: Jones Consultants issues check 1004 to State Power Company for the November utility bill in the amount of $500. 20th: Jones Consultants performs services to cash clients for $6,000. 25th: Jones Consultants issues J. Jones check 1005 as a draw for her personal use in the amount of $4,000.

Paper For Above instruction

The task involves two primary objectives: first, to determine the classification of various accounts as assets, liabilities, or owners' equity; second, to analyze and record business transactions using T-accounts while ensuring that debits equal credits after each entry. This process facilitates understanding of the accounting equation and maintains the integrity of financial records.

Part 1: Classifying Accounts and Normal Balances

Identifying whether an account is an asset, liability, or owners' equity is fundamental in accounting. Assets are resources owned by the business, such as cash, equipment, and furniture. Liabilities are obligations that the business owes to outsiders, like accounts payable and loans. Owners' equity represents the owners' claims to the assets after all liabilities are deducted, including capital accounts and withdrawals.

In this scenario, typical classifications include:

- Bank Accounts (cash) – Asset

- Computer Equipment and Office Furniture – Asset

- Accounts Payable or Utilities Payable – Liability

- J. Jones' Drawing Account – Owners' Equity (specifically, a contra-equity account affecting owner’s claim)

The normal balance for assets is a debit, as increases in assets are recorded on the debit side. Conversely, liabilities and owners’ equity accounts typically carry a credit balance, with increases recorded on the credit side.

Part 2: Analyzing Transactions Using T-Accounts

The second part involves applying the accounting principle of double-entry bookkeeping, wherein each transaction impacts at least two accounts, maintaining the equality of debits and credits.

1. Withdrawal and Deposit:

Jones withdraws $50,000 from her savings account (asset decrease — credit), depositing into the business account (asset increase — debit). This transaction increases the business’s cash assets and reflects a capital contribution.

2. Purchase of Computer Equipment:

The purchase of computer equipment for $2,000 decreases cash (credit) and increases equipment assets (debit). This records the acquisition of a long-term asset.

3. Payment for Rent:

Paying $1,000 for current rent and prepayment for future months affects cash (credit) and rent prepayment asset (debit). Prepaid rent is an asset until used.

4. Office Furniture Purchase:

The $3,500 expense increases furniture assets (debit) and decreases cash (credit).

5. Computer Equipment on Account:

Purchasing $4,000 of computer equipment on credit raises assets (debit) and accounts payable (credit).

6. Service to Cash Clients:

Earning $1,200 cash service revenue increases cash (debit) and revenue (credit). While not directly asked, recording revenue affects owner’s equity.

7. Service on Credit:

Providing $3,000 services on account increases accounts receivable (debit) and revenue (credit).

8. Utility Bill Payment:

Paying $500 utility bill decreases cash (credit) and increases utility expense, which reduces owners’ equity.

9. Cash Service Revenue:

Revenue of $6,000 increases cash (debit) and revenue (credit).

10. Owner’s Draw:

J. Jones withdraws $4,000, decreasing owner’s equity (debit in owner drawing account) and cash (credit).

Throughout these transactions, the dual recording ensures debits equal credits, maintaining the accounting equation's balance.

In conclusion, managing account classifications and transaction analysis are crucial for accurate financial reporting and ensuring the integrity of a company's financial statements. Using T-accounts to visualize these changes helps in understanding the flow of resources and obligations within the business, illustrating the core principles of accrual accounting and double-entry bookkeeping.

References

  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2020). Financial accounting (11th ed.). Wiley.
  • Horngren, C. T., Sundem, G. L., & Elliott, J. A. (2018). Introduction to Financial Accounting. Pearson.
  • Nobles, W. L., Mattison, D. R., & Matsumura, L. C. (2019). Financial Accounting. Cengage Learning.
  • Robinson, T., & Schlage, J. (2017). Managerial Accounting. Pearson.
  • Burke, R., & Mazur, R. (2021). Accounting Principles. McGraw-Hill Education.
  • Anthony, R., & Govindarajan, V. (2019). Management Control Systems. McGraw-Hill Education.
  • Wild, J. J., & Shaw, K. W. (2019). Financial Accounting. McGraw-Hill Education.
  • Gibson, C. H. (2020). Financial Reporting & Analysis. Cengage.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
  • AccountingTools. (2023). Basic accounting principles. https://www.accountingtools.com

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