accounting basis l 4
TRANSCRIPT
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ACCOUNTING BASISLecture 4
Accounting for business transactions
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Assets
Liabilities &
Equity
ACCOUNTING EQUATION
LiabilitiesLiabilities EquityEquityAssetsAssets = +
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TRANSACTION ANALYSIS EQUATION
The accounting equation MUST remain in balance after each transaction.
LiabilitiesLiabilities EquityEquityAssetsAssets = +
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What is a business transaction?
A business transaction is any economic event that affects to financial position of the business and can
be measured reliably.
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External Transactions occur between the
organization and an outside party.
Internal Transactions occur within the
organization.
TRANSACTIONS AND EVENTS
Exchanges of economic consideration between two parties.
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Assets LiabilitiesOwners’Equity
-Owner’s withdrawal
-Expenses+Revenue
= +
The Accounting EquationA = L + OE
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Different procedure for accounting equation
• A=L+O.E • L= A- O.E• O.E= A- L•Expenses are always less from owner’s equity•Revenues are always add to owner’s equity
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Transaction analysis
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On December 1, Chuck Taylor forms an athletic shoe consulting business. He sets it up as a Co.ltd..
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TRANSACTION ANALYSIS – 1
Taylor personally invests $30,000 cash in the new company, the cash in a bank account opened under the name of FastForward, Inc.
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Chuck Taylor invests $30,000 in the company .1
The accounts involved are:
-Cash /Asset/
-Owner’s Equity
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Chuck Taylor invests $30,000 in the company .
Assets = Liabilities + O/Equity
Cash Supplies EquipmentAccounts Payable
Notes Payable O/Equity
(1) 30,000$ 30,000$
30,000$ -$ -$ -$ -$ 30,000$
30,000$ = 30,000$
1
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FastForward purchases $2,500 of supplies for cash.2
The accounts involved are:
- Supplies / Asset/
- Cash / Asset/
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FastForward purchases $2,500 of supplies for cash.
Assets = Liabilities + Equity
Cash Supplies EquipmentAccounts Payable
Notes Payable Equity
(1) 30,000$ 30,000$ (2) (2,500) 2,500
27,500$ 2,500$ -$ -$ -$ 30,000$
30,000$ = 30,000$
2
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FastForward purchases $26,000 equipment for testing athletic shoes.3
The accounts involved are:
- Equipment / Asset/
- Cash / Asset/
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FastForward purchases $26,000 equipment for testing athletic shoes.
Assets = Liabilities + Equity
Cash Supplies EquipmentAccounts Payable
Notes Payable Equity
(1) 30,000$ 30,000$ (2) (2,500) 2,500(3) (26,000) 26,000
1,500$ 2,500$ 26,000$ -$ -$ 30,000$
30,000$ = 30,000$
3
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FastForward purchased $7,100 of supplies on credit.4
The accounts involved are:
- Supplies / Asset/
- Account payable / Liabilities/
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FastForward purchased $7,100 of supplies on credit.
Assets = Liabilities + Equity
Cash Supplies EquipmentAccounts Payable
Notes Payable Equity
(1) 30,000$ 30,000$ (2) (2,500) 2,500(3) (26,000) 26,000(4) 7,100 7,100
1,500$ 9,600$ 26,000$ 7,100$ -$ 30,000$
37,100$ = 37,100$
4
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FastForward provides consulting services to an athletic club and collects $4,200 in cash.
5The accounts involved are:
- Cash / Asset/
- Service revenue / Owner’s equity/
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FastForward provides consulting services to an athletic club and collects $4,200 in cash.
Assets = Liabilities + Equity
Cash Supplies EquipmentAccounts Payable
Notes Payable Equity
(1) 30,000$ 30,000$ (2) (2,500) 2,500(3) (26,000) 26,000(4) 7,100 7,100(5) 4,200 4,200
5,700$ 9,600$ 26,000$ 7,100$ -$ 34,200$
41,300$ = 41,300$
5
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FastForward pays $1,000 rent of the building where its store is located.6
The accounts involved are:
- Rent expense / Owner’s Equity/
- Cash / Asset/
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FastForward pays $1,000 rent of the building where its store is located.
Assets = Liabilities + Equity
Cash Supplies EquipmentAccounts Payable
Notes Payable Equity
(1) 30,000$ 30,000$ (2) (2,500) 2,500(3) (26,000) 26,000(4) 7,100 7,100(5) 4,200 4,200(6) (1,000) (1,000)
4,700$ 9,600$ 26,000$ 7,100$ -$ 33,200$
40,300$ = 40,300$
6
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FastForward pays the biweekly $700 salary of the company’s only employee.
7The accounts involved are:
- Salary expense / Owner’s Equity/
- Cash / Asset/
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FastForward pays the biweekly $700 salary of the company’s only employee.
Assets = Liabilities + Equity
Cash Supplies EquipmentAccounts Payable
Notes Payable Equity
(1) 30,000$ 30,000$ (2) (2,500) 2,500(3) (26,000) 26,000(4) 7,100 7,100(5) 4,200 4,200(6) (1,000) (1,000)(7) (700) (700)
4,000$ 9,600$ 26,000$ 7,100$ -$ 32,500$
39,600$ = 39,600$
7
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FastForward provides consulting services of $1,600 on account.8
The accounts involved are:
- Accounts receivable / Asset/
- Service revenue / Owner’s equity/
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FastForward provides consulting services of $1,600 on account .
Assets = Liabilities + Equity
CashAccounts
Rec Supplies EquipmentAccounts Payable
Notes Payable Equity
(1) 30,000$ 30,000$ (2) (2,500) 2,500(3) (26,000) 26,000(4) 7,100 7,100(5) 4,200 4,200(6) (1,000) (1,000)(7) (700) (700)(8) 1,600 1,600
4,000$ 1,600$ 9,600$ 26,000$ 7,100$ -$ 34,100$
41,200$ = 41,200$
8
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The client in transaction 8 pays $1,600 to FastForward.9
The accounts involved are:
- Cash / Asset /
- Accounts receivable / Asset /
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The client in transaction 8 pays $1,900 to FastForward.
Assets = Liabilities + Equity
CashAccounts
Rec Supplies EquipmentAccounts Payable
Notes Payable Equity
(1) 30,000$ 30,000$ (2) (2,500) 2,500(3) (26,000) 26,000(4) 7,100 7,100(5) 4,200 4,200(6) (1,000) (1,000)(7) (700) (700)(8) 1,600 1,600(9) 1,600 (1,600)
5,600$ $0 9,600$ 26,000$ 7,100$ -$ 34,100$
41,200$ = 41,200$
9
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FastForward pays $900 to CalTech Supply as partial payment for its earlier $7,100 purchase of supplies.
10The accounts involved are:
- Accounts payable / Liabilities /
- Cash / Asset /
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FastForward pays $900 to CalTech Supply as partial payment for its earlier $7,100 purchase of supplies.
Assets = Liabilities + Equity
CashAccounts
Rec Supplies EquipmentAccounts Payable
Notes Payable Equity
(1) 30,000$ 30,000$ (2) (2,500) 2,500(3) (26,000) 26,000(4) 7,100 7,100(5) 4,200 4,200(6) (1,000) (1,000)(7) (700) (700)(8) 1,600 1,600(9) 1,600 (1,600)(10) (900) (900)
4,700$ $0 9,600$ 26,000$ 6,200$ -$ 34,100$
40,300$ = 40,300$
10
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Owner withdrawal $600 cash for personal needs.1
1The accounts involved are:
- Owner’s withdrawal /Owner’s equity/
- Cash / Asset /
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Owner withdrawal $600 cash for personal needs.
Assets = Liabilities + Equity
CashAccounts
Rec Supplies EquipmentAccounts Payable
Notes Payable Equity
(1) 30,000$ 30,000$ (2) (2,500) 2,500(3) (26,000) 26,000(4) 7,100 7,100(5) 4,200 4,200(6) (1,000) (1,000)(7) (700) (700)(8) 1,600 1,600(9) 1,600 (1,600)(10) (900) (900)(11) (600) (600)
4,100$ $0 9,600$ 26,000$ 6,200$ -$ 33,500$
39,700$ = 39,700$
11
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ACCOUNTING TRANSACTIONSOn march 1, 2011, David opened his business . During the march , the business engaged in the following transactions.-David invested $20,000 of personal cash to start the business.- The business purchased equipment for $8000.- The business purchased Goods costing $12,000 on account.- The business sold goods costing $6000 for $8500 .- The business purchased supplies for $800.- The business paid for rent $600.- The business paid for salary $900.- The business sold goods costing $4000 for $5300 on account.- The business withdrew $500 for personal use.
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