Table 1-3
Ace Builders had the following transactions in June: earned $4,000 "on account" that will be collected in cash next month; collected $3,000 from a customer that was owed from a previous month; incurred $500 of repair expense and paid cash to the repairman; paid $1,200 cash to a supplier that it owed from the previous month; paid out $800 in cash withdrawals to the owner.
-For Ace Builders, what is the combined effect on owner's capital from the June transactions?
A)Up $2,700
B)Up $3,500
C)Up $4,500
D)Down $800

Question

Quizplus · Accepted Answer

The combined effect on owner's capital from the June transactions is an increase of $2,700. This is calculated by adding the revenue earned ($4,000, even though it will be collected later it still increases owner's equity), subtracting the expenses paid in cash ($500 for repair expense), and subtracting the cash withdrawals by the owner ($800). The collections from a customer ($3,000) and payment to a supplier ($1,200) do not affect the owner's capital directly as they are transactions affecting only the asset accounts (cash and accounts receivable/payable). Therefore, the net effect is $4,000 - $500 - $800 = $2,700 increase in owner's capital.

Table 1-3 Ace Builders Had the Following Transactions in June: Earned $4,000