Question

Swifty Corporation has the following transactions during August of the current year. Aug. 1 Issues shares of common stock to investors in exchange for $10,730. Aug. 4 Pays insurance in advance for 3 months, $1,230. Aug. 16 Receives $930 from clients for services rendered. Aug. 27 Pays the secretary $650 salary. Indicate the basic analysis and the debit-credit analysis.

Answer 1

Answer:

Aug. 1

Dr. Cash                   $10,730  Increase in Assets

Cr. Common Stock $10,730  Increase in Equity

Aug. 4

Dr. Prepaid Insurance  $1,230  Increase in Assets

Cr. Cash                        $1,230  Decrease in Assets

Aug. 16

Dr. Cash                     $930  Increase in Assets

Cr. Service Revenue $930  Increase in Equity

Aug. 27

Dr. Salary Expense   $650  Decrease in Equity

Cr. Cash                     $650  Decrease in Assets

Explanation:

Asset accounts have debit nature, so a to increase an asset we need to debit the asset account and to decrease it we need to credit it. e.g cash, property plant and equipment etc.

Liability accounts have credit nature, so a to increase an asset we need to credit the asset account and to decrease it we need to debit it e.g Account Payable, short term loan etc.

Equity accounts have credit nature, so a to increase an asset we need to credit the asset account and to decrease it we need to debit it e.g common stock account, retained earning etc.