Ex1-File (2)

EXERCISE 1: Analysis of business transactions
To illustrate accounting for business transactions, let us assume that Gary Lyon has
recently become a CPA and opens his own accounting practice. Because the business has a
single owner, it is a proprietorship.
1. Gary Lyon’s invests $50,000 of his money to begin the business.
This transaction increased Asset (Cash), so Debit Cash account. This also
increased OE (Capital), so Credit Capital account.
Cash $50,000
Capital $50,000
Asset (Cash) = Liabilities + O.E(Capital)
+$50,000 = 0 + $50,000
Ledge:
Cash Bill Payable
(1) $50,000 (1) $50,000
Bal. $50,000 Bal. $50,000
2. Lyon purchases land for a future office location, paying cash of $40,000.
This transaction increased Asset (land), so Debit Land account. This also
decreased Asset (cash), so Credit Cash account.
Land $40,000
Cash $40,000
Asset = Liabilities + O.E
+$40,000(Land) - $40,000(Cash) = 0
Ledge:
Cash Land
Bal. $50,000 (2)$40,000
(2)$40,000
Bal. $10,000 Bal. $40,000
3. Lyon buys office supplies, agreeing to pay $500 within 30 days.

This transaction increased Asset (office supplies), so Debit Office supplies
account. This also increased Liability (Account Payable), so Credit Acc Payable.
Office supplies $500
Acc Payable $500
+$500(Office supplies) = + $500(Acc Payable) + 0
Ledge:
Office supplies Acc Payable
1
(3)$500 (3)$500
Bal. $500 Bal. $500
4. Gary Lyon earns service revenue $5,500 cash.

This transaction increased Asset (cash), so Debit Cash account. This also
increased O.E (Service revenue), so Credit Service revenue account.
Cash $5,500
Service revenue $5,500
+$5,500(Cash) = 0 + $5,500(Service revenue)
Ledge:
Cash Service revenue
Bal. $10,000 (4)$5,500
(4)$5,500
Bal. $15,500 Bal. $5,500
5. Lyon receives the client’s promise to pay the $3,000 amount within one month.
This transaction increased Asset (Account Receivable), so Debit Acc
Receivable. This also increased O.E (Service revenue), so Credit Service
Revenue account.
Acc Receivable $3,000
Service revenue $3,000
+$3,000 (Acc receivable) = 0 + $3,000(Service revenue)
Ledge:
Acc Receivable Service revenue
(5) $3,000 Bal. $5,500
(5)$3,000
Bal. $3,000 Bal.$8,500
6. During the month, Lyon pays $ 2,700 in cash expenses: office rent, $1,100;
employee salary, $1,200 (for a part-time assistant); and total electricity and gas,
$400.
This transaction decreased O.E (Rent expense, Salary expense, Electricity and
gas expense), so Debit Rent expense account, Debit Salary expense
accoumt,Debit Elec&Gas expense account. This also decreased Asset (cash), so
Credit Cash account.
Rent expense $1,100
Salary expense $1,200
2
Elec&Gas expense $400
Cash $2,700
-$2,700(Cash) = 0 - $1,100(rent exp) - $1,200(salary exp)- $400(Elec&gas exp)
Ledge:
Cash Rent expense
Bal. $15,500 (6)$1,100
(6)$2,700
Bal. $12,800 Bal. $1,100
Salary expense Elec&gas expense

(6) $1,200 (6)$400
Bal. $1,200 Bal. $400
7. Lyon pays $400 on account.

This transaction decreased Liability (Account Payable), so Debit Acc Payable.
This transaction also decreased Asset (cash), so Credit Cash account.
Acc Payable $400
Cash $400
-$400 (Cash) = -$400(Acc Payable) + 0
Ledge:
Cash Acc Payable
Bal. $12,800 Bal. $500
(7)$400 (7)$400
Bal. $12,400 Bal.$100
8. Lyon remodels his home at a cost of $30,000, paying cash from his personal funds.
This transaction decreased O.E(remodel expense), so Debit Remodel expense
account. This also decreased Asset(Cash), so Credit Cash account.
Remodel expense $30,000
Cash $30,000
-$30,000 (Cash) = 0 - $30,000(Model expense)
Ledge:
Cash Remodel expense
Bal. $12,400 (8)$30,000
(8)$30,000
Bal. $17,600 Bal. $30,000
3
9. Gary collects $1,000 from the client.
decreased Asset (Account Receivable), so Credit Acc Receivable.
Cash $1,000
Acc Receivable $1,000
+$1,000(Cash) - $1,000 (Acc receivable) = 0
Ledge:
Cash Acc Receivable
Bal. $17,600 Bal. $3,000
(9)$1,000 (9)$1,000
Bal. $16,600 Bal. $2,000
10. Lyon a sale price of $22,000 which is equal to Lyon’s cost of the land.
decreased Asset (land), so Credit Land account.
Cash $22,000
Land $22,000
+$22,000 (Cash) - $22,000(Land) = 0
Ledge:
Cash Land
Bal. $16,600 Bal. $40,000
(10)$22,000 (10)$22,000
Bal. $5,400 Bal. $18,000
11. Lyon withdraws $2,100 cash.

This transaction decreased O.E (Drawings), so Debit Drawing account. This also
decreased Asset (cash), so Credit Cash account.
Drawings $2,100
Cash $2,100
-$2,100 (Cash) = 0 - $2,100(Drawings)
Ledge:
Cash Drawings
Bal. $5,400 (11)$2,100
(11)$2,100
Bal. $3,300 Bal. $2,100
4
POSTING TO LEDGER:
TRIAL BALANCE OF GARY LYON

On 31st, August, 20x5
Accounts Debit balances Credit balances
(USD) (USD)
Cash 3,300
Land 18,000
Office Supplies 500
Account Receivable 2,000
Bill Payable 50,000
Account Payable 100
Service revenue 8,500
Rent expense 1,100
5
Salary expense 1,200
Elec&Gas expense 400
Remodel expense 30,000
Drawings 2,100
TOTAL 58,600 58,600

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EXERCISE 1: Analysis of business transactions

3. Lyon buys office supplies, agreeing to pay $500 within 30 days.

Bal. $500 Bal. $500

4. Gary Lyon earns service revenue $5,500 cash.

Salary expense Elec&gas expense

Bal. $1,200 Bal. $400

7. Lyon pays $400 on account.

11. Lyon withdraws $2,100 cash.

TRIAL BALANCE OF GARY LYON

TOTAL 58,600 58,600

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