Battistella Couture & Design Co. began operations in 2012. During January 2014, the company had the following transactions:

Jan. 2 Paid January rent, $475.

4 Finished sewing a suit, delivered it to the customer, and collected $975 cash.

5 Purchased supplies for $250 on account.

7 Received an order from another customer to design and sew a leather jacket for $885.

10 Agreed to sew a wedding dress for a customer for $1,000. Received $500 cash from the customer as a down payment.

12 The owner, Karen Battistella, withdrew $700 cash for personal use.

18 Finished sewing the leather jacket (see January 7 transaction), and delivered it to the customer. The customer, a friend of Karen's, asked if she could pay at the end of the month. Karen agreed.

25 Paid for the supplies purchased on January 5.

27 The customer billed on January 18 paid the amount owing.

28 Borrowed $2,000 cash from the bank and signed a one-year, 5% note payable.

29 Used $1,950 of the bank loan to purchase a new pressing machine.

Instructions

(a) For each transaction, indicate:

(1) The basic type of account debited and credited (asset, liability, or owner's equity);

(2) The specific account debited and credited (Cash, Rent Expense, Service Revenue, etc.); and

(3) Whether each account is increased (1) or decreased (2), and by what amount. Use the following format, in which the first transaction is given as an example:

(b) Prepare a journal entry for each transaction.
TAKING IT FURTHER Karen is confused about why credits are used to decrease cash. She tells you that when she gets her bank statements, the bank uses credits when the balance in her bank account is increased. Explain.

Transcribed Image Text:

Account Debited Account Credited Basic Specific Basic Specific Transaction Type Jan. 2 Effect ype Effect $475 Owners Cash Rent Expense +$475 Asset Equity