CACC 414 CH03

CACC 414 CH03 - CACC414 CH03 ACCOUNTING TRANSACTIONS...

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CACC414 CH03 ACCOUNTING TRANSACTIONS Double-entry accounting system: A system that records the dual effect of each transaction in appropriate accounts Accounting information system The system that: 1. Collects and processes transaction data Accounting transaction occurs when assets, liabilities, or shareholder’s equity items change as a result of economic event 2. Communicates financial information to decision maker Analyzing Transactions Recall: Assets = Liabilities + Shareholder’s Equity = Liabilities + (Common Shares + Retained Earnings) = Liabilities + (Common Shares) + (Revenue – Expense – Dividend) Each transaction has a dual (double sided) effect on the equation because accounting equation must always balance Payments of expense that will benefit for more than one accounting period are identified as “prepaid expense” or “prepayments” (Ex: look under types of transaction (6) – insurance) Revenue Rules Cash is received for the service and: 1. Service has not yet been completed Record: Asset – Cash increase Liability – Unearned Service Revenue increase 2. Service has been completed Record: Asset – Cash increase Liability – Unearned Service Revenue increase Types of Transaction and the Account(s) it effects (1) Investment of Cash by shareholders Oct 2: Cash of $10,000 was invested in exchange for $10,000 of common shares’ from company X Assets – Cash (+$10, 000) Shareholders’ Equity – Common Shares (+$10, 000) (2) Issue of Note Payable Oct 2: Company X borrows $5,000 from bank, promising to repay the note, plus 6% interest, in 3 months Assets – Cash (+$5,000) Liabilities – Notes Payable (+$5,000) (3) Purchase of Office Equipment Oct 3: Company X acquired office equipment by paying $5,000 cash to Company Y
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CACC414 CH03 Assets – Cash (−$5,000) Assets – Office Equipment (+$5,000) (4) Receipt of Cash In Advance from Customer Oct 4: Cash of $1,200 received in advance from Company Z (a client) for advertising services that are expected to be completed before mm/dd/yyyy Asset – Cash (+$1,200) Liability – Unearned Service Revenue (+$1,200) (5) Payment of Rent Oct 5: $900 office rent was paid in cash Assets – Cash (+$900) Shareholder Equity – Rent Expense (+$900) (6) Purchase of Insurance Oct 6: Company X paid $600 for a one-year insurance policy that will expire next year on Sept. 30 Assets – Cash (−$600) Assets – Prepaid Insurance (+$600) (7) Hiring of New Employees Info: $500 per week/per person, 5-day (Mon-Fri) work week Oct 6: Company X hired 4 new employees to begin work on Monday, October 9 Oct 20 (Friday): First pay cheque Oct 6: Nothing is recorded Oct 20: Employees worked 2-weeks, earning = $4000 = (4 employees x $500/wk x 2-weeks) Assets – Cash (−$4000) Shareholder Equity– Salary Expense (+$4000) (8) Purchase of Supplies Oct 9: Company X purchased supply of advertising materials on account from Company A for $2500 the account is due in 30 days
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This note was uploaded on 03/27/2012 for the course ACC 414 taught by Professor Unknown during the Winter '09 term at Ryerson.

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CACC 414 CH03 - CACC414 CH03 ACCOUNTING TRANSACTIONS...

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