Question

Milea Inc. experienced the following events in Year 1, its first year of operations:

Received $20,000 cash from the issue of common stock.
Performed services on account for $56,000.
Paid the utility expense of $2,500.
Collected $48,000 of the accounts receivable.
Recorded $10,000 of accrued salaries at the end of the year.
Paid a $2,000 cash dividend to the stockholders.

Required:
Record the events in general ledger accounts under an accounting equation.

Answer 1

The Accounting equation is Assets = Liabilities + Equity.

a. Assets (Cash) $20,000 = Liabilities + Equity (Common Stock) $20,000

b. Assets (Accounts Receivable) $56,000  = Liabilities + Equity (Service Revenue) $56,000

c. Assets (Cash) ($2,500) = Liabilities + Equity (Utility Expense) ($2,500)

d. Assets (Cash) $48,000 + (Accounts Receivable) ($48,000) = Liabilities + Equity

e. Assets = Liabilities (Salaries Payable) $10,000 + Equity (Salaries Expense) ($10,000)

f. Assets (Cash) ($2,000) = Liabilities + Equity (Dividend) ($2,000)

Data Analysis:

a. Cash $20,000 Common Stock $20,000

b. Accounts Receivable $56,000 Service Revenue $56,000

c. Utility Expense $2,500 Cash $2,500

d. Cash $48,000 Accounts Receivable $48,000

e. Salaries Expense $10,000 Salaries Payable $10,000

f. Dividend $2,000 Cash $2,000

Thus, the general ledger accounts, in bracket, record the events under the accounting equation as showed above in the books of Milea Inc.

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