Selected transactions for D. Reyes, Inc., an interior decorating firm, in its fi

Question

Selected transactions for D. Reyes, Inc., an interior decorating firm, in its first month of business, are as follows.

Jan.


2
Invested $10,000 cash in business in exchange for common stock.


3
Purchased used car for $4,000 cash for use in business.


9
Purchased supplies on account for $500.


11
Billed customers $1,800 for services performed.


16
Paid $200 cash for advertising.


20
Received $700 cash from customers billed on January 11.


23
Paid creditor $300 cash on balance owed.


28
Declared and paid a $1,000 cash dividend.

Instructions

For each transaction indicate the following.

(a) The basic type of account debited and credited (asset, liability, owner's 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.

Account Debited Account Credited
(a) (b) (c) (d) (a) (b) (c) (d)
Date Basic Type Specific Account Effect Normal Balance Basic Type Specific Account Effect Normal Balance
Jan. 2 Asset Cash Increase Debit Stockholder's Equity Common Stock Increase Credit
3
9
11
16
20
23
28

Explanation / Answer

Abbreviations for the following: Dr = Debit, Cr = Credit; I = Increased; D = Decreased; NB = Normal balance; A = Asset; L = Liability; SE = stockholders’ equity) Here are the journal entries: Jan. 2 Invested $10,000 cash in the business in exchange for common stock Dr Cash (A, I, NB is Dr) Cr Common stock (SE, I, NB is Cr) 3 Purchased used car for $4,000 cash for use in business Dr Motor vehicle (A, I, NB is Dr) Cr Cash (A, D, NB is Dr) 9 Purchased supplies on account for $500 Dr Supplies (A, I, NB is Dr) Cr Accounts payable (L, I, NB is Cr) 11 Billed customers $1,800 for services performed Dr Accounts receivable (A, I, NB is Dr) Cr Services revenue (SE, I, NB is Cr) 16 Paid $200 cash for advertising Dr Advertising expense (SE, D, NB is Cr) Cr Cash (A, D, NB is Dr) 20 Received $700 cash from customers billed on January 11 Dr Cash (A, I, NB is Dr) Cr AR (A, D, NB is Dr) 23 Paid creditor $300 cash on balance owed Dr AP (L, D, NB is Cr) Cr Cash (A, D, NB is Dr) 28 Declared and paid a $1,000 cash dividend Dr Dividend (SE, D, NB is Dr) Cr Cash (A, D, NB is Dr)

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