Queens Delivery Service Is Owned And Operated By Lisa Dewar

Queens Delivery Service Is Owned And Operated By Lisa Dewar The Follo

Queens Delivery Service is owned and operated by Lisa Dewar. The following selected transactions were completed by Queens Delivery Service during June 1. Received cash in exchange for capital stock $18,000. 2. Paid creditors on account, $1,800. 3. Billed customers for delivery services on account, $12,500. 4. Received cash from customers on account, $6,900. 5. Paid Cash dividends, $4,000. Indicated the effect of each transaction on the accounting equation elements (Assets, Liabilities, Stockholders’ Equity, Dividends, Revenue, and Expenses). Also indicated the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) is shown below. (1) Asset (Cash) increases by $18,000; Stockholders’ Equity (Capital Stock) increases by $18,000.

Paper For Above Instruction

Introduction

The accounting equation, fundamental to accounting practices, states that Assets = Liabilities + Stockholders’ Equity. Every financial transaction must maintain this balance, affecting various components such as assets, liabilities, equity, revenue, and expenses. Analyzing each transaction for Queens Delivery Service, owned by Lisa Dewar, provides insight into how business activities alter this fundamental equation. This paper examines five transactions completed on June 1 and their specific effects on the components of the accounting equation.

Transaction 1: Receipt of Capital Stock

The first transaction involves Queens Delivery Service receiving cash of $18,000 in exchange for issuing capital stock. This transaction increases the company's assets by $18,000 due to the cash received. Concurrently, Stockholders' Equity increases by $18,000 because issuing stock enhances the owner’s equity in the firm. Specifically, the asset account "Cash" records an increase, and the stockholders' equity account "Capital Stock" likewise increases. This transaction demonstrates the infusion of owner's equity into the business, expanding the company's resources without incurring liabilities.

Transaction 2: Payment to Creditors on Account

In the second transaction, the company pays $1,800 to creditors on account. This reduces its liabilities, specifically accounts payable, by $1,800, reflecting the settlement of debts. Correspondingly, the company’s assets, particularly "Cash," decrease by the same amount. The effect on the accounting equation is a decrease in both assets and liabilities, maintaining the balance: Assets decrease by $1,800, and Liabilities decrease by $1,800.

Transaction 3: Billing Customers for Services on Account

The third transaction involves billing customers $12,500 for delivery services. This action increases revenue, which in turn increases Stockholders’ Equity via retained earnings or directly through a revenue account. Simultaneously, it increases "Accounts Receivable," an asset account, by $12,500. As revenue is earned, assets increase through accounts receivable, and stockholders' equity increases through retained earnings. This transaction enhances the company's resources and profitability, with no immediate cash exchange.

Transaction 4: Receipt of Cash from Customers on Account

Next, Queens Delivery Service receives $6,900 cash from customers who were billed previously. This transaction converts accounts receivable into cash, decreasing "Accounts Receivable" by $6,900 and increasing "Cash" by the same amount. The net effect on total assets is neutral; however, it improves the company's liquidity as cash increases, and receivables decrease. There is no impact on liabilities or stockholders' equity directly from this transaction.

Transaction 5: Payment of Cash Dividends

The final transaction involves paying $4,000 in dividends. Cash decreases by $4,000, reducing total assets. Dividends are distributions to owners and are recorded as a decrease in Stockholders’ Equity, specifically reducing retained earnings. This transaction reflects profit distribution rather than operational expense, thus decreasing equity without affecting liabilities or revenue.

Conclusion

Each transaction taken individually impacts elements of the accounting equation in specific ways, but collectively they showcase the dynamic financial activities within Queens Delivery Service. Increases in assets from owner contributions and revenues are balanced by decreases due to payments and dividends. Paying creditors reduces liabilities, maintaining the equation’s integrity. Recognizing how each transaction affects assets, liabilities, and equity helps in understanding the overall financial health of the business. Proper application of the accounting equation ensures accurate financial statement preparation and insightful business analysis.

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