CACC 414 CH03 - CACC414 CH03 ACCOUNTING TRANSACTIONS...

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CACC414 CH03ACCOUNTING TRANSACTIONSDouble-entry accounting system: A system that records the dual effect of each transaction in appropriate accountsAccounting information systemThe system that: 1.Collects and processes transaction dataAccounting transaction occurs when assets, liabilities, or shareholder’s equity items change as a result of economic event2.Communicates financial information to decision makerAnalyzing TransactionsRecall: 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 balancePayments 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 RulesCash is received for the service and:1.Service has not yet been completedRecord:Asset – Cash increaseLiability – Unearned Service Revenue increase2.Service has been completedRecord:Asset – Cash increaseLiability – Unearned Service Revenue increaseTypes of Transaction and the Account(s) it effects(1) Investment of Cash by shareholdersOct 2: Cash of $10,000 was invested in exchange for $10,000 of common shares’ from company XAssets – Cash (+$10, 000)Shareholders’ Equity – Common Shares (+$10, 000)(2) Issue of Note PayableOct 2: Company X borrows $5,000 from bank, promising to repay the note, plus 6% interest, in 3 monthsAssets – Cash (+$5,000)Liabilities – Notes Payable (+$5,000)(3) Purchase of Office EquipmentOct 3: Company X acquired office equipment by paying $5,000 cash to Company Y
CACC414 CH03Assets – Cash (−$5,000)Assets – Office Equipment (+$5,000)(4) Receipt of CashIn Advancefrom CustomerOct 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/yyyyAsset– Cash (+$1,200)Liability– Unearned Service Revenue (+$1,200)(5) Payment of RentOct 5: $900 office rent was paid in cashAssets – Cash (+$900)Shareholder Equity – Rent Expense (+$900)(6) Purchase of InsuranceOct 6: Company X paid $600 for a one-year insurance policy that will expire next year on Sept. 30Assets– Cash (−$600)Assets– Prepaid Insurance (+$600)(7) Hiring of New EmployeesInfo:$500 per week/per person, 5-day (Mon-Fri) work weekOct 6:Company X hired 4 new employees to begin work on Monday, October 9Oct 20 (Friday):First pay chequeOct 6: Nothing is recordedOct 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 SuppliesOct 9: Company X purchased supply of advertising materials on accountfrom Company A for $2500the account is due in 30 daysAssets– Advertising Supply (+$2500)Liability– Accounts Payable (+$2500)(9)Services Performed on AccountOct 13:Company X performed $10,000 of advertising services for Copa Ltd

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Term
Winter
Professor
Unknown
Tags
Accounting, Generally Accepted Accounting Principles, office equipment, Oct

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