Selected transactions for Home Place, an interior decorator corporation, in its

Question

Selected transactions for Home Place, an interior decorator corporation, in its first month of business, are as follows. 1. Issued stock to investors for $15,000 in cash. 2. Purchased used car for $10,000 cash for use in business. 3. Purchased supplies on account for $300. 4. Billed customers $3,700 for services performed. 5. Paid $200 cash for advertising start of the business. 6. Received $1,100 cash from customers billed in transaction (4). 7. Paid creditor $300 cash on account. 8. Paid dividends of $400 cash to stockholders. For each transaction indicate the basic type of account debited and credited (asset, liability, stockholders

Explanation / Answer

First of all, whatever increases an account is its normal balance, whether it's debit or credit. 1. Issued stock to investors for $17,245 in cash. Dr Cash (asset, increase) Cr Common Stock (Equity, increase) 2. Purchased used car for $9,258 cash for use in business. Dr Car (asset, increase) Cr Cash (asset, decrease) 3. Purchased supplies on account for $325. Dr Supplies (asset, increase) Dr Accounts Payable (liability, increase) 4. Billed customers $4,487 for services performed. Dr Accounts Receivable (asset, increase) Cr Service Fees (equity, increase) 5. Paid $274 cash for advertising start of the business. Dr Advertising Expense (equity, decrease) Cr Cash (asset, decrease) 6. Received $2,405 cash from customers billed in transaction (4). Dr Cash (asset, increase) Cr Accounts Receivable (asset, decrease) 7. Paid creditor $406 cash on account. Dr Accounts Payable (liability, decrease) Cr Cash (asset, decrease) 8. Paid dividends of $491 cash to stockholders. Dr Retained Earnings (or Dividends) (equity, decrease) Cr Cash (asset, decrease)

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