Book 1 - Chapter 8

LG 8-3.

Transaction	Assets increased or liabilities decreased?	Revenue?	Why is it a revenue or not a revenue?	A	=	L	+	OE
a. An accountant performs $2,000 of accounting services and is paid in cash.	Yes (The asset Cash increases.)	Yes	Assets increase because services are performed for a customer, so it is a revenue transaction.
b. The accountant borrows $2,000 from her bank.	Yes (The asset Cash increases.)	No	Assets increase because of a loan, so it is not a revenue transaction.
c. An accountant receives a $2,000 cash advance from a client as a prepayment for future services.	Yes (The asset Cash increases.)	No	Assets increase as a result of a liability, so it is not a revenue (revenue not earned yet).
d. The accountant fully performs all the services for the client who prepaid her in (c) above.	Yes (The liability Unearned Revenue decreases.)	Yes	Services were performed, so revenue was earned.
e. The accountant invests an additional $5,000 in her business.	Yes (The asset Cash increases.)	No	Owner’s equity increases, but not because of a sale of services or goods. Investment is not revenue.
f. In September, the accountant performs $2,500 of services “on account.”	Yes (The asset Accounts Receivable increases.)	Yes	Accounting services were performed.

Learning Goal 8, continued

SOLUTIONS

Section II · Transactions—Analyzing and Visualizing

Home

Home || Book Publications || Professor’s Office || Student Info & Resources || Useful Links

Worthy & James Publishing is a provider of basic accounting books covering fundamental accounting principles, business accounting, and business math. Topics in financial accounting and business accounting covered include the balance sheet, the income statement, financial ratios, and bank reconciliation.