chp 3 - Chapter 3 Accounting is the process of identifying...

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1 3 Chapter Accounting is the process of identifying TRANSACTIONS that have an economic impact on the business entity. These transactions are classified, recorded and reported. The reported information is used in making economic decisions. Accounting Transactions... Economic events that must be recorded in the financial statements because they affect assets, liabilities and/or stockholders’ equity.
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2 Accounting Transactions... Transaction Analysis Transaction Analysis determines the impact of the transaction on the accounting equation. Assets = Liabilities + Stockholders’ Equity Accounting Analysis... Analyze the effect of business transactions on the basic accounting equation: Assets = Liabilities + Stockholders’ Equity Must always balance.
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3 The following transactions occurred for the Bastian Retail Sales Inc. during the month of July, 2007, its first month of operations. Common stock was issued for $230,000 cash. Cash of $60,000 was paid for one year’s rent. Computer equipment that cost $100,000 was acquired. $40,000 was paid in cash and a note for the balance was signed. A two years insurance policy was obtained with a cash outlay of $24,000. Inventory was purchased for cash of $35,000. Additional inventory with a cost of $190,000 was acquired on account. Merchandise that cost $160,000 was sold for $30,000 in cash and $170,000 on account. $35,000 of the receivables were collected in cash and $80,000 of the amount owed to the supplier was paid Depreciation expense for the month was $2,000. Cash CS 230 Prpd Rent Equp AR Inv Prepd Insur AP NP 230 RE -60 60 100 -40 60 -24 24 -35 35 190 190 30 170 200 -160 -160 -35 35 -80 -80 -2 -2 -5 -5 -1 -1 ASSETS = Liabilities + Equity -40 Cash -60 -24 -35 30 35 56 Bastian Company 230 In accounting for cash, there were only two things that happened. 230 - 60 35 -80 -80
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4 Cash -60 -24 -35 30 35 56 Bastian Company 230 230 60 - 24 -35 35 30 35 56 Account balance is the total of all entries in the account to date. -40 40 -80 80 Assets = Liabilities + SE Cash AR Inv Ppd Rnt Ppd Ins Equip AP NP CS RE 230 230 60 60 40 60 100 24 24 35 35 190 190 Sales Rev.
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