Supplies, unearned revenue, and the financial statements model Hart, Attorney at Law,...


Supplies, unearned revenue, and the financial statements model

Hart, Attorney at Law, experienced the following transactions in 2016, the first year of operations:

1. Accepted $36,000 on April 1, 2016, as a retainer for services to be performed evenly over the next 12 months.

2. Performed legal services for cash of $54,000.

3. Purchased $2,800 of office supplies on account.

4. Paid $2,400 of the amount due on accounts payable.

5. Paid cash dividend to the stockholders of $5,000.

6. Paid cash for operating expenses of $31,000.

7. Determined that at the end of the accounting period $200 of office supplies remained on hand.

8. On December 31, 2016, recognized the revenue that had been earned for services performed in accordance with Transaction 1.


Show the effects of the events on the financial statements using a horizontal statements model like the following one. In the Cash Flows column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, and NC for the net change in cash.

What Is The Accounting Equation:

The Accounting Equation is one of the most important fundamental concepts in accounting. The Accounting Equation states that, for every transaction, the total impact on assets is the same as on liabilities and shareholder's equity.

Answer and Explanation: 1

See below. Blank cells mean no impact. All amounts are in dollars.

TransactionAssetsLiabilitiesEquityRevenueExpensesCash flow
1+36,000 +36,000 +36,000 OA
2+54,000 +54,000+54,000 +54,000 OA
3 +2,800 +2,800
4 -2,400 -2,400 -2,400 OA
5-5,000 -5,000 -5,000 FA
6-31,000 -31,000 -31,000-31,000 OA
7 -2,600 -2,600 -2,600
8 (Note 1) -27,000+27,000+27,000

Note 1:



Learn more about this topic:

The Accounting Equation: Definition & Components


Chapter 3 / Lesson 1

Learn about the accounting equation. Understand what the accounting equation is, learn the elements of the basic accounting equation, and see examples.

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