Question

Tiny Town Kennel earns service revenue by caring for the pets of customers. Tiny

Town Kennel is organized as a corporation. During the past month, Tiny Town

Kennel has the following transactions:

a. Received \(520 cash for service revenue earned.

b. Paid \)325 cash for salaries expense.

c. Received a \(1,000 contribution in exchange for common stock.

d. Earned \)640 for service revenue, but the customer has not paid Tiny Town

Kennel yet.

e. Received utility bill of \(85, which will be paid next month.

f. Cash dividends of \)100 were paid to stockholders.

Indicate the effects of the business transactions on the accounting equation for Tiny

Town Kennel. Transaction (a) is answered as a guide.

Increase asset (Cash); Increase equity (Service Revenue)

Short answer

(a) Increase asset (Cash); Increase equity (Service Revenue)

(b) Decrease asset (Cash); Decrease equity (Expense)

(c) Increase asset (Cash); Increase equity (Common Stock)

(d) Increase asset (Accounts Receivable); Increase equity (Service Revenue)

(e) Increase liability (Accounts Payable); Decrease equity (Expense)

(f) Decrease asset (Cash); Decrease equity (Dividends)

Step-by-step solution

Explanation on Accounting Equation

Accounting equation is the general tool of accounting, which measures the available resource of the business and the claim on the resources.

Explanation on Asset, Liability and Equity

Assets indicates the resources of the business, that it owns and provides economic benefits in future. It includes cash, building, land, accounts receivable, inventories, etc.

Liabilities are the obligations or debts that the business has to repay it to the creditors or lenders. It includes accounts payable, notes payable, interest payable, etc.

Equity indicates the claim of the owners of the entity on the assets of the entity. It includes common stock, revenues, retained earnings, expenses, etc.