John Arrow is an architect who operates his own business. The accounts and transactions for the business follow.

INSTRUCTIONS

(1) Analyze the transactions for January 2016. Record each in the appropriate T accounts. Use plus and minus signs in front of the amounts to show the increases and decreases. Identify each entry in the T account by writing the letter of the transaction next to the entry.

(2) Determine the account balances. Prepare a trial balance, an income statement, a statement of owner’s equity, and a balance sheet.

ASSETS

Cash

Accounts Receivable

Office Furniture

Office Equipment

LIABILITIES

Accounts Payable

OWNER’S EQUITY

John Arrow, Capital

John Arrow, Drawing

REVENUE

Fees Income

EXPENSES

Advertising Expense

Utilities Expense

Salaries Expense

Telephone Expense

Miscellaneous Expense

TRANSACTIONS

a. John Arrow invested $40,000 in cash to start the business.

b. Paid $4,000 for advertisements in a design magazine.

c. Purchased office furniture for $4,600 in cash.

d. Performed services for $9,100 in cash.

e. Paid $420 for the monthly telephone bill.

f. Performed services for $3,120 on credit.

g. Purchased a fax machine for $650; paid $150 in cash with the balance due in 30 days.

h. Paid a bill for $1,100 from the office cleaning service.

i. Received $4,260 from clients on account.

j. Purchased additional office chairs for $1,090; received credit terms of 30 days.

k. Paid $8,000 for salaries.

l. Issued a check for $550 in partial payment of the amount owed for office chairs.

m. Received $4,600 in cash for services performed.

n. Issued a check for $920 for utilities expense.

o. Performed services for $4,300 on credit.

p. Collected $1,800 from clients on account.

q. John Arrow withdrew $5,000 in cash for personal expenses.

r. Paid $1,200 to Quick Copy Service for photocopy work performed during the month.

Analyze: Using the basic accounting equation, what is the financial condition of John Arrow’s business at month-end? 

(1) Post the above transactions into the appropriate T accounts.