Here is a list of transactions for a newly-formed corporation that provides professional tax services:
Organized the business as a professional corporation, investing $28,000 cash in the business and issuing 1,000 shares of no-par common stock.
Purchased $500 in pens, pencils, paper, staples, and other such items on account and purchased an office desk, chair, and bookcase for $2,600 on account from an office supply store.
Received $1,500 in cash from a client for preparing a tax return and providing tax planning.
Purchased land for $22,000.
Billed a client $800 for preparing tax returns.
Paid the office manager’s weekly salary of $650.
Paid $2,600 for the office furniture mentioned in #2.
Paid $110 for the electric bill.
Received a check from the client mentioned in #5 for one-half of the amount due.
Billed a client $900 for preparing tax returns.
Paid the phone bill of $130.
Received $1,800 from a client for providing tax preparation and planning services.
Paid the office manager’s weekly salary of $650.
Paid the monthly rent of $700.
Declared and paid a $2,200 cash dividend.
Record the foregoing transactions using the accounting equation, Assets = Liabilities + Stockholders’ Equity, making sure that you keep the accounting equation in balance. Given that this is a new business, the accounting equation starts out as: Assets of zero equal Liabilities of zero plus Stockholders’ Equity of zero. Transactions #1, #5, and #6 are completed for you. In #1, both cash and common stock are being increased. In #5, accounts receivable (AR) is being increased, and retained earnings is being increased due to service revenue being increased. In #6, both cash and retained earnings are being decreased. Retained earnings is being decreased due to an INCREASE in salaries expense. Whenever you have an increase or decrease to retained earnings, you need to indicate what the increase or decrease is due to by recording it in the far right side. Use the account title, Utilities Expense, for any of the expenses that pertain to utilities.