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Purchased new equipment for $3,350 by issuing a check for $2,100 as a down payment with the balance due in 30 days. Returned damaged supplies and received a $105 cash refund. Purchased supplies for $310 on account. Provided services for $7,350 on credit. Issued a check for $920 to pay a creditor on account. Issued checks for $3,500 to pay the employees their monthly salaries. Issued a check for $320 to pay the monthly telephone bill. Determine the accounts and amounts to be debited and credited for the above transactions for Madison's Clock Repair.

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Capricious23

Answer:

All workings and explanations are in the explanation section.

Explanation:

Transaction 1:

Purchased new equipment for $3,350 by issuing a check for $2,100 as a down payment with the balance due in 30 days.

Debit: Fixed asset account - Equipment $3,350

Credit: Bank account $2,100

Credit: Current liabilities - $1,250

Explanation:

  • Equipment is a fixed asset, when an asset is increased, it is debited.
  • Partial payment was made by bank- bank is a current asset, a decrease to the asset is a credit item.
  • The remaining balance is current liability, since payable within 30 days, an increase in liability is a credit item.

Transaction 2:

Returned damaged supplies and received a $105 cash refund.

Debit: Cash - $105

Credit: Supplies - $105

Explanation:

  • Cash refund is an increase in cash - current assets, it is a debit item
  • Supplies are decreased, and supplies is also a current asset, a decrease in current assets is a credit item.

Transaction 3:

Purchased supplies for $310 on account.

Debit - supplies - $310

Credit - payables - $310

Explanation:

  • Supplies are current assets - an increase in supplies is a debit item.
  • They are purchased on account means it is a current liability, therefore, an increase in liabilities is a credit item.

Transaction 4:

Provided services for $7,350 on credit.

Debit: Receivable - $7,350

Credit: Sales revenue - $7,350

Explanation:

  • Receivables are current assets - an increase in receivables is a debit item.
  • Sales revenue is credit item, an increase in revenue is credit.

Transaction 5:

Issued a check for $920 to pay a creditor on account.

Debit - payables - $920

Credit - Bank -$920

Explanation:

  • A decrease in creditors is a debit item
  • A decrease in bank, is a credit item

Transaction 6:

Issued checks for $3,500 to pay the employees their monthly salaries.

Debit Wages - $3,500

Credit Bank - $3,500

Explanation:

  • Wages are an expense. An increase in the expense is a debit item.
  • Bank is a current asset, a decrease in bank is a credit item.

Transaction 7:

Issued a check for $320 to pay the monthly telephone bill.

Debit - Utilities -$320

Credit - Bank - $320

Explanation:

  • Utilities are an expense. An increase in the expense is a debit item.
  • Bank is a current asset, a decrease in bank is a credit item.

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