Ch 2 Recording Business Transactions and Financial Statement Preparation adapted from MBA

Ch 2 Recording Business Transactions and Financial Statement Preparation adapted from MBA

Info icon This preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Recording Business Transactions Financial Statement Preparation Chapter 2 MBA Prep Course
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Explain how business transactions can be stated in terms of the resulting changes in the basic elements of the accounting equation. Business Transaction #1 You own proprietary technology and wish to start a new business with it. You convince a venture capitalist to invest $100,000 and have $50,000 of your own money to begin. You file the necessary paper work to incorporate and deposit $150,000 in a separate checking account in the name of the business in exchange for stock of the newly formed corporation on June 1 st 2008. Show this transaction in the books of the new business. Assets = Liabilities + Equity Cash Capital Stock $150,000 $150,000
Image of page 2
Business Transaction #2 The business purchases $60,000 worth of equipment paying $10,000 in cash and signing a note (liability) for the remainder. Assets = Liabilities + Equity . Cash Equipment Note Payable Capital Stock $150,000 $150,000 (10,000) 60,000 $50,000 . $140,000 + 60,000 = $50,000 + $150,000 Both Sides of the Accounting Equation equal $200,000. After every business transaction, total Assets must = total Liabilities + total Equity
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Business Transaction #3 The Business purchases office supplies for $2,000 for cash. Assets = Liabilities + Equity Cash Equipment Office Supplies Note Payable Capital Stock $140,000 60,000 = $50,000 $150,000 -2,000 + 2,000 = . $138,000 60,000 2,000 = $50,000 $150,000 Total on both sides = $200,000
Image of page 4
Business Transaction #4 The business pays several expenses with cash: Rent expense $3,000 Insurance expense $1,500 Miscellaneous expenses $3,500 Total: $8,000 Assets = Liabilities + Equity . Office Note Capital Retained Cash Equipment Supplies Payable Stock Earnings $138,000 60,000 2,000 $50,000 $150,000 - 3,000 rent exp - 1,500 insur exp -8,000 -3,500 misc exp $130,000 60,000 2,000 $50,000 $150,000 (8,000) Total on both sides = $192,000 Expenses always decrease Retained Earnings and Revenues increase it.
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Business Transaction #5 The business provided services for $35,000 and the customer paid in cash. Assets = Liabilities + Equity . Office Note Capital Retained Cash Equipment Supplies Payable Stock Earnings $130,000 60,000 2,000 $50,000 $150,000 (8,000) 35,000 35,000 revenue $165,000 60,000 2,000 $50,000 $150,000 27,000 Total = $227,000 on both sides Notice that revenues increase Retained Earnings.
Image of page 6
Business Transactions #6 The company paid 5,000 in Cash Dividends to Shareholders. Assets = Liabilities + Equity . Office Note Capital Retained Cash Equipment Supplies Payable Stock Earnings $165,000 60,000 2,000 $50,000 $150,000 27,000 -5,000 -5,000dividends $160,000 60,000 2,000 $50,000 $150,000 22,000 Total = $222,000 on both sides Notice that dividends reduces Retained Earnings, but dividends are not considered an Expense.
Image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Summary of Accounting Equation Assets = Liabilities + Equity . Office Note Capital Retained Cash Equipment Supplies Payable Stock Earnings +150,000 + 150,000 0 -10,000 +60,000 +50,000 -2,000 +2,000 - 3,000 -3,000 rent exp - 1,500 -1,500 ins. exp - 3,500 -3,500 misc exp +35,000 35,000 revenue - 5,000 -5,000 dividend $160,000 60,000 2,000 $50,000 $150,000 $22,000 The next step is to prepare financial statements.
Image of page 8
Order of Financial Statement Preparation 1. Income Statement: Revenues – Expenses = Net Income Assets = Liabilities + Equity . Office Note Capital Retained Cash Equipment Supplies Payable Stock Earnings +150,000 + 150,000 0 -10,000 +60,000 +50,000 -2,000 +2,000 - 3,000 -3,000 rent exp - 1,500 -1,500 ins. exp - 3,500 -3,500 misc exp +35,000 35,000 revenue - 5,000 -5,000 dividend $160,000 60,000 2,000 $50,000 $150,000 $22,000 The next step is to prepare financial statements.
Image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Name of Company Income Statement For the month ending June 30, 2008 Revenues: Fees Earned Revenue $35,000 Less: Operating Expenses: Rent Expense $3,000 Insurance Expense 1,500 Miscellaneous Expense 3,500 Total Expenses (8,000) Net Income $27,000
Image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern