basics-of-accounting-information-processing

Basic equality of the overall balance sheet financial

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Unformatted text preview: or equity accounts; but, 4. How Transactions Impact the Accounting Equation they will not disturb the equality of the accounting equation. So, how does this happen? To reveal the answer to this question, let’s look at four specific Receivable 4.1 Edelweiss Collects an Accounttransactions for Edelweiss Corporation. You will see how each transaction collected $10,000 from a customer on an equity accounts, without upsetting If Edelweiss Corporation impacts the individual asset, liability, and existing account receivable (i.e., the a new sale, just the overall balance sheet. not basic equality ofthe collection of an amount that is due from some previous transaction), then the balance sheet would be revised as follows: 4.1 Edelweiss Collects an Account Receivable If Edelweiss Corporation collected $10,000 from a customer on an existing account receivable (i.e., not a new sale, just the collection of an amount that is due from some previous transaction), then the balance sheet would be revised as follows: E DELWEISS CORPORATION Balance Sheet December 31, 20X3 (before indicated transaction) Assets C ash A ccounts receivable * I nventories L and B uilding E quipment O ther assets Total assets * Liabilities A ccounts payable L oans payable Total liabilities Stockholders’ equity C apital stock R etained earnings Total stockholders’ equity Total liabilities and equity EDELWEISS CORPORATION Balance Sheet December 31, 20X3 (after indicated transaction) $ 2 5,000 50,000 35,000 125,000 400,000 250,000 1 0,000 $895,000 $ 5 0,000 1 25,000 $120,000 6 00,000 $175,000 7 20,000 $895,000 + $10,000 - $10,000 + $0 + $0 + $0 A ssets C ash A ccounts receivable I nventories L and B uilding E quipment O ther assets Total assets Liabilities A ccounts payable L oans payable Total liabilities Stockholders’ equity C apital stock R etained earnings Total stockholders’ equity Total liabilities and equity $ 35,000 40,000 35,000 125,000 400,000 250,000 1 0,000 $895,000 $ 5 0,000 1 25,000 $120,000 6 00,000 $175,000 7 20,000 $895,000 The illustration plainly shows that cash (an asset) increased from $25,000 to $35,000, and accounts receivable (an asset) decreased from $50,000 to $40,000. As a result total assets did not change, and liabilities and equity accounts were unaffected. Thus, assets still equal liabilities plus equity. The illustration plainly shows that cash (an asset) increased from $25,000 to $35,000, and accounts receivable (an asset) decreased from $50,000 to $40,000. As a result total assets did not change, and liabilities and equity accounts were unaffected. Thus, assets still equal liabilities plus equity. Download free eBooks at bookboon.com 15 Basics of Accounting & Information Processing How Transactions Impact the Accounting Equation 4.2 Edelweiss Buys Equipment With Loan Proceeds If Edelweiss Corporation purchased $30,000 of equipment, agreeing to pay for it later (i.e. taking out a loan), then the balance sheet would be further revised as follows...
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This document was uploaded on 09/24/2013.

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