Indicate the effect on the accounting equation and on the debit-credit analysis. Aug. 1 Opens an office as a financial advisor, investing $8,000 in cash. 4 Pays insurance in advance for 6 months, $1,800 cash. 16 Receives $3,600 from clients for services performed. 27 Pays secretary $1,000 salary.

Please refer to Explanation

Explanation:

A. Aug. 1 Opens an office as a financial advisor, investing $8,000 in cash.

This is an investment by the owner so the following will happen.

The Cash account will INCREASE by $8,000

The Owner's Equity Account will INCREASE by $8,000 as well.

Cash is an Asset and when it INCREASES you DEBIT it. So DEBIT Cash by $8,000.

Owners Equity is an Equity Account and when INCREASED you CREDIT it. So Credit Cash by $8,000.

B. 4 Pays insurance in advance for 6 months, $1,800 cash.

This is a Prepaid Expense which means that it is an Asset because it represents that we are owed for service.

The Prepaid Insurance Account will Increase

The Cash Account will Decrease as the money from paid from it.

Prepaid Expense is an Asset which INCREASED so DEBIT it by $1,800.

Cash is an Asset as well and when Assets DECREASE you CREDIT them so CREDIT Cash by $1,800.

C. 16 Receives $3,600 from clients for services performed.

This is Revenue because the company is receiving money for service performed.

Revenue brings Cash into the business so the Cash account will INCREASE by $3,600

The Revenue Account will INCREASE by $3,600 to signify that Revenue came in.

Cash as an Asset will be DEBITED for $3,600 to signify that it has INCREASED.

Revenue will be CREDITED because it is an Equity Account to signify that it has INCREASED as well.

D. 27 Pays secretary $1,000 salary.

Payment of salary is an expense.

Expenses are paid from the Cash Account so this means that Cash has DECREASED by $1,000.

The Salaries and Wages Expense is INCREASED by $1,000.

Expenses are generally DEBITED when they increase so the Salaries and Wages Expense will be DEBITED by $1,000.

Cash as an asset will be CREDITED to reflect the DECREASE in the amount by $1,000.

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