basics-of-accounting-information-processing

Purchased 30000 of equipment agreeing to pay for it

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Unformatted text preview: . 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 EDELWEISS CORPORATION Balance Sheet December 31, 20X3 (after indicated transaction) $ 35,000 40,000 35,000 125,000 400,000 250,000 + $30,000 1 0,000 $895,000 + $30,000 Liabilities * A ccounts payable L oans payable Total liabilities Stockholders’ equity C apital stock R etained earnings Total stockholders’ equity Total liabilities and equity $ 5 0,000 1 25,000 $120,000 6 00,000 $175,000 + $30,000 + $0 7 20,000 $895,000 + $ 30,000 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 35,000 125,000 400,000 280,000 1 0,000 $925,000 $ 5 0,000 1 55,000 $120,000 6 00,000 $205,000 7 20,000 $925,000 Please click the advert Free online Magazines Click here to download SpeakMagazines.com Download free eBooks at bookboon.com 16 Basics of Accounting & Information Processing How Transactions Impact the Accounting Equation This illustration shows that equipment (an asset) increased from $250,000 to $280,000, and loans payable (a liability) increased from $125,000 to $155,000. As a result, both total assets and total liabilities increased by $30,000, but assets still equal liabilities plus equity. 4.3 Edelweiss Provides Services to a Costumer on Account What would happen if Edelweiss Corporation did some work for a customer in exchange for the customer’s promise to pay $5,000? This requires further explanation; try to follow this logic closely! You already know that retained earnings is the income of the business that has not been distributed to the owners of the business. When Edelweiss Corporation earned $5,000 (which they will collect later) by providing a service to a customer, it can be said that they generated revenue of $5,000. Revenue is the enhancement to assets resulting from providing goods or services to customers. Revenue will bring about an increase to income, and income is added to retained earnings. Can you follow that? As you examine the balance sheet on the top of the next page, notice that accounts receivable and retained earnings went up by $5,000 each, indicating that the business has more assets and more retained earnings. And, guess what: assets still equal liabilities plus equity. 4.4 Edelweiss Pays Expenses With Cash It would be nice if you could run a business without incurring any expenses. However, such is not the case. Expenses are the outflows and obligations that arise from producing goods and services. Imagine that Edelweiss paid $3,000 for expenses. The lower set of balance sheets on the following page shows this impact. 4.5 Generalizing About the Impact of Transactions There are countless types...
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This document was uploaded on 09/24/2013.

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