18.07.2022 - 14:45

# Chaffin Consulting performed consulting services during June 2012 on account, and collections for these services were not received until August 2012. What effect did performing these services have on the accounting equation for June 2012?

Question:

Chaffin Consulting performed consulting services during June 2012 on account, and collections for these services were not received until August 2012. What effect did performing these services have on the accounting equation for June 2012?

Transaction 1: Equipment account (asset) - $286,660 Cash account (asset) -$274,000 Sales tax payable (liability) - $10,960 Transportation expense (expense) -$1,700 Explanation: The purchase of the loader is recorded in the Equipment account as an asset with a cost of $274,000 plus sales tax and transportation expenses. The sales tax payable is recorded as a liability and the transportation expense is recorded as an expense. Transaction 2: Equipment account (asset) -$288,760 Accumulated depreciation (contra-asset) - $3,750 Cash account (asset) -$7,000 Explanation: The cost of installing the air conditioning is added to the salvage value of the loader and the total is reflected in the Equipment account as an asset. The increase in estimated salvage value is accounted for as an increase in Accumulated depreciation. The cost of the installation is recorded as an expense in the Cash account. Transaction 3: Depreciation expense (expense) - $70,165 Accumulated depreciation (contra-asset) -$70,165 Explanation: Annual straight-line depreciation is recorded for the current year, based on the cost of the equipment and its estimated useful life and salvage value. Transaction 4: Equipment account (asset) - $4,300 Cash account (asset) -$4,300 Explanation: The cost of overhauling the engine is recorded in the Equipment account as an asset and reflected as an expense in the Cash account. Transaction 5: Repairs and maintenance expense (expense) - $1,075 Cash account (asset) -$1,075 Explanation: The cost of repairing the loader after an accident is recorded in the Repairs and maintenance expense account and paid for using the Cash account. Transaction 6: Depreciation expense (expense) - $70,165 Accumulated depreciation (contra-asset) -$140,330 Explanation: Annual straight-line depreciation is recorded for the current year, based on the cost of the equipment and its estimated useful life and salvage value. The accumulated depreciation account is updated to reflect the total depreciation taken since the purchase of the equipment.