121_02 - CHAPTER 2 BUSINESS TRANSACTIONS Transactions...

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CHAPTER 2 Processing Accounting Information BUSINESS TRANSACTIONS Transactions change ± Assets ± Liabilities ± Equity ACCRUAL ACCOUNTING Assets, liabilities, revenues, expenses recorded when the transaction occurs, not when cash paid or received Required by GAAP SOURCE DOCUMENTS Evidence needed in an accounting system to record transactions Purchase Invoice Cash Register Receipt Sales Invoice Receiving Document Payroll Records Shipping Document Checks ACCOUNTING EQUATION Assets = Liabilities + Equity Creditors' Claims Owners' Claims Resources = + ACCOUNTING EQUATION Assets = Liabilities + Owners’ Equity What did you get? = How did you get it? What do you own? = How are you financing it?
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ACCOUNTING EQUATION A = L + OE Borrow money Sell stock to public Pay debt Pay cash for equip. ± ACCOUNTING EQUATION A = L + OE Revenue on account Revenue for cash Expense pay cash Expense on account Cash dividend PRACTICE QUESTIONS Question 1 BUSINESS TRANSACTIONS Air & Sea Travel, Inc. TRANSACTION 1 Owners invest $50,000 cash, corporation issued common stock Assets =L i a b i l i t i e s + Stockholders' Equity Cash Common Stock (1) +50,000 +50,000 ACCOUNTS Cash Equipment Inventory Notes Payable
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TRANSACTION 2 Purchase land, pay $40,000 cash Assets Liabilities + Stockholders' Equity Cash + Land Common Stock (1) 50,000 = +50,000 (2) -40,000 + 40,000 _______ 10,000 40,000 50,000 TRANSACTION 3 Buy office supplies on account, $500 Assets Liabilities + Stockholders' Equity Office Accounts Cash + Supplies + Land Payable + Common Stock Bal. 10,000 40,000 = 50,000 (3) _____ +500 _____ +500 _____ Bal. 10,000 500 40,000 500 50,000 TRANSACTION 4 Earn revenue $5,500, receive cash Assets Liabilities + Stockholders' Equity Office Accounts Retained Cash + Supplies + Land Payable + Common Stock + Earnings Bal. 10,000 500 40,000 = 500 50,000 (4) +5,500 _____ _____ _____ _____ +5,500 Bal. 15,500 500 40,000 500 50,000 5,500 TRANSACTION 5 Perform services on account, $3,000 Assets Liabilities Stockholders' Equity Accounts Office Accounts Retained Cash + Receivable + Supplies + Land Payable + Common Stock + Earnings Bal. 15,500 500 40,000 = 500 50,000 5,500 (5) _____ +3,000 _____ _____ _____ _____ +3,000 Bal. 15,500 3,000 500 40,000 500 50,000 8,500 TRANSACTION 6 Rent expense $1,100 Salary expense $1,200 Utility expense $ 400 Cash paid $2,700 Assets Liabilities Stockholders' Equity Accounts Of ice Accounts Retained Cash + Receivable + Supplies + Land Payable + Common Stock + Earnings Bal. 15,500 3,000 500 40,000 500 50,000 8,500 (6) -1,100 = -1,100 -1,200 -1,200 -400 _____ _____ _____ _____ _____ -400 Bal. 12,800 3,000 500 40,000 500 50,000 5,800 TRANSACTION 7 Paid $400 on account for supplies purchased in Transaction 3 Assets Liabilities Stockholders' Equity Accounts Of ice Accounts Retained Cash + Receivable + Supplies + Land Payable + Common Stock + Earnings Bal. 12,800 3,000 500 40,000 = 500 50,000 5,800 (7) -400 _____ _____ _____ -400 _____ _____ Bal. 12,400 3,000 500 40,000 100 50,000 5,800
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TRANSACTION 8 Owners remodel home $30,000, pay cash from personal funds Transaction of personal entity, not business No transaction is recorded for Air & Sea Travel TRANSACTION 9 Business collects $1,000 from a customer on account Assets Liabilities + Stockholders' Equity Accounts Of ice Accounts Retained Cash + Receivable + Supplies + Land Payable + Common Stock + Earnings Bal. 12,400 3000 500 40,000 = 100 50,000 5,800 (9) +1,000 -1,000 _____ _____ _____ _____ _____ Bal. 13,400 2000 500 40,000 100 50,000 5,800
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This note was uploaded on 10/24/2010 for the course ACCOUNTING 31609 taught by Professor R.ambrose during the Fall '09 term at San Mateo Colleges.

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121_02 - CHAPTER 2 BUSINESS TRANSACTIONS Transactions...

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