Effect of transactions

The following selected transactions were completed by Madelon Lee Delivery Service during July
2006:

______1. Cash received from delivery services, P92,700

______2. Paid creditors on account, P20,000
______3. Received cash from owner as additional investment, P600,000
______4. Paid advertising expense, P5,000
______5. Billed customers for delivery services on account, P55,200
______6. Purchased supplies for cash, P6,000
______7. Paid rent for July, P20,000
______8. Received cash from customers on account, P25,440
______9. Determined that the cost of supplies on hand was P1,440 so P4,560 of supplies
were used during the month.
______10. Owner withdrew cash for personal use, P20,000

Indicate the effects of each transaction on the space provided.

a. Increase an asset, decrease another asset.

b. Increase an asset, increase a liability.
c. Increase an asset, increase an owner's equity.
d. Decrease an asset, decrease a liability.
e. Decrease an asset, decrease owner's equity.

ANSWER
1. c 6. a
2. d 7. e
3. c 8. a
4. e 9. e
5. c 10. a

True or False: Write TRUE if the statement is true and FALSE if not before the number.

1. Accumulated Depreciation accounts may be referred to as contra-asset accounts.

2. Book value is the original cost of a building less depreciation for the year.
3. The adjustment to record depreciation of property and equipment consists of a debit
to Depreciation Expense and a Credit to Accumulated Depreciation.
4. The adjusting entry to recognize earned revenues which was received in advance will
cause total liabilities to decrease.
5. Accrued revenue is a term used to describe revenue that has been received but not
yet earned.
6. Adjusting entry includes at least one balance sheet account and at least one income
statement account.
7. The adjusting entry to recognize and expense which is unrecorded and unpaid will
cause total assets to increase.
8. An adjusting entry includes at least one balance sheet account and at least one
income statement account.
9. Recording incurredbut unpaid expense is an example of an accrual.
10. Adjusting Entries affect cash flows in the current period.
11. Assets become liabilities when they expire.
12. The amount of accrued revenues is recorded by debiting an asset account and
crediting an income account.
13. Applying accrual accounting results in more accurate measurements of profit for
the period than does the cash basis of accounting.
14. The adjusting entry to recognize part of the cost of one-year fire insurance policy to
expense will cause total asset to increase.
15. The adjusting entries recognize earned commission revenues not previously
recorded or billed will cause total asset to increase.
16. Accounting periods should be of equal length to facilitate comparisons between
periods.
17. A Deferral is the recognition of an expense that has arisen but has not yet been
recorded.
18. A compan's fiscal year must correspond the calendar year.
19. When there is a no direct connection between revenues and costs, the cost are
systematically allocaated among the periods benefited.
20. Revenue cannot recognized unless delivery of goods has occurred or services have
been rendered.

ANSWER

1. TRUE 6. TRUE 11. FALSE 16. TRUE

2. TRUE 7. FALSE 12. TRUE 17. FALSE
3. TRUE 8. TRUE 13. TRUE 18. FALSE
4. TRUE 9. TRUE 14. FALSE 19. TRUE
5. TRUE 10. FALSE 15. TRUE 20. TRUE