Book 1 - Chapter 8

8-3, continued

Transaction	Assets increased or liabilities decreased?	Revenue?	Why is it a revenue or not a revenue?	A	=	L	+	OE
g. The accountant collects $2,000 cash from the accounts receivable.	Yes (The asset Cash increases and the asset Accounts Receivable decreases.)	No	Simply an exchange of one kind of asset for another kind of asset.
h. A magazine publisher mails magazines to its subscribers who prepaid subscriptions.	Yes (The liability Unearned Revenue decreases.)	Yes	Merchandise is delivered when the magazines are mailed out to customers.
i. A computer consultant is paid $1,000 immediately after finishing a job.	Yes (The asset Cash increases.)	Yes	Assets increased because services were performed.

8-4. No sale has been made. A revenue must meet two requirements: (1) it must increase
owner’s equity, and (2) it must be caused by making a sale of services or goods. None of the
examples meet both requirements. Except for owner’s investment, none of the transactions affect
owner’s equity. The investment increases owner’s equity but not because of a sale being made.

8-5. None of the transactions involve operations. An expense must meet two requirements:
(1) it must decrease owner’s equity, and (2) it must be caused by operations. None of the examples
meet both requirements. Except for owner’s drawing, none of the transactions affect owner’s
equity. The withdrawal does decrease owner’s equity but not because of operations.

Learning Goal 8, continued

SOLUTIONS

Learning Goal 8: Explain the Four Basic Changes in Owner’s Equity

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