chapter 3: analyzing changes in financial position unit 1 test will be tue (sep 23) make sure that...
TRANSCRIPT
Chapter 3: Analyzing Changes in Chapter 3: Analyzing Changes in Financial PositionFinancial Position
Unit 1 Test will be Tue (Sep 23)Make sure that you check the answers
after you finish your homework.Ask me after checking and trying the
solutions on the website.
Analyzing Changes in Financial PositionAnalyzing Changes in Financial Position
A business transaction is a financial event that causes a change in financial position (change in values of asset, liability or owner’s equity)
Change = Owner bought a new delivery truck. But he had to borrow $20000 from bank to buy the truck. Is this a business transaction? ◦Yes this is a business transaction because
this event causes a change in asset and liability.
◦Assets (Truck) Increase by $20000◦Liabilities (Bank loan) increase by $20000
Analyzing Changes in Financial Analyzing Changes in Financial PositionPosition
Building inspector suggests some improvements to the building of your business. What are the changes in assets, liabilities or OE?
None or No change so this is not a business transaction.
Steps in Analyzing A Business Steps in Analyzing A Business TransactionTransaction
Identify all items that must be changed.
Classify each item as an asset or liability or OE.
Find out whether the items will increase or decrease. Be logical.
See if the Owner’s Equity has changed:◦Use the fundamental accounting equation : A = L + OE
Steps in Analyzing A Business Steps in Analyzing A Business TransactionTransaction
See if the Owner’s Equity has changed:◦If an item decrease Assets and it decreases
Liabilities (same amount) then OE will be unchanged.
◦If Assets are decreased and Liabilities unchanged, then OE must decrease in order to maintain = sign.
◦If the transaction is good for business, OE must increase (e.g. owner invested money into the business)
◦If the transaction is NOT good for business, OE must decrease (e.g. Owner withdrew money from the business)
Steps in Analyzing A Business Transaction
We must make sure that at least two of the individual items have changed = There can never be only one change!!!!
Make sure the fundamental accounting equation is still balanced!!!! (A = L + OE) Left side of the equation must be equal to right side of the equation.
Analyzing Changes in Financial Analyzing Changes in Financial PositionPosition
Equation Analysis SheetUsed for analyzing business transactions. All the assets, liabilities and equity are shown in columns and are in a balanced state.
TRANSACTION ANALYSISTRANSACTION ANALYSIS
Mark Doucet decides to open a computer programming service.
BANK
Softbyte
TRANSACTION ANALYSISTRANSACTION ANALYSISTRANSACTION TRANSACTION 11
On September 1, he invests $15,000 cash in the business, which he names Softbyte.
Trans. # = Liabilities +
Cash Supplies EquipmentAccounts Payable
M. Doucet, Capital
(1) 15,000 = 15,000 Investment
Owner's EquityAssets
There is an increase in the asset Cash, $15,000, and an equal increase in the
owner’s equity, M. Doucet, Capital, $15,000.
There is an increase in the asset Cash, $15,000, and an equal increase in the
owner’s equity, M. Doucet, Capital, $15,000.
TRANSACTION ANALYSISTRANSACTION ANALYSISTRANSACTION TRANSACTION 22
Softbyte purchases computer equipment for $7,000 cash.
Softbyte purchases computer equipment for $7,000 cash.
Trans. # = Liabilities +
Cash Supplies EquipmentAccounts Payable
M. Doucet, Capital
15,000 15,000 Investment
Owner's EquityAssets
Cash is decreased by $7,000, and the asset Equipment is increased by $7,000.Cash is decreased by $7,000, and the
asset Equipment is increased by $7,000.
Trans. # = Liabilities +
Cash Supplies EquipmentAccounts Payable
M. Doucet, Capital
15,000 15,000 Investment(2) (7,000) 7,000
Balance 8,000 + 7,000 = 15,000
Owner's EquityAssets
TRANSACTION ANALYSISTRANSACTION ANALYSISTRANSACTION TRANSACTION 33
Softbyte purchases computer paper and supplies expected to last several months from Chuah Supply Company for $1,600 on account.
The asset Supplies is increased by $1,600, and the liability Accounts Payable is
increased by the same amount.
The asset Supplies is increased by $1,600, and the liability Accounts Payable is
increased by the same amount.
Trans. # = Liabilities +
Cash Supplies EquipmentAccounts Payable
M. Doucet, Capital
Balance 8,000 7,000 15,000
Owner's EquityAssetsTrans. # = Liabilities +
Cash Supplies EquipmentAccounts Payable
M. Doucet, Capital
Balance 8,000 7,000 15,000(3) 1,600 1,600
Balance 8,000 + 1,600 + 7,000 = 1,600 + 15,000
Owner's EquityAssets
TRANSACTION ANALYSISTRANSACTION ANALYSISTRANSACTION TRANSACTION 66
Softbyte provides programming services of $3,500 for customers and receives cash of $1,500, with the balance payable on account.
Cash is increased by $1,500; Accounts Receivable is increased by $2,000; and M.
Doucet, Capital is increased by $3,500.
Cash is increased by $1,500; Accounts Receivable is increased by $2,000; and M.
Doucet, Capital is increased by $3,500.
Trans. # = Liabilities +
CashAccount
Receivable Supplies EquipmentAccounts Payable
M. Doucet, Capital
Balance 9,200 + 0 + 1,600 + 7,000 = 1,850 15,950
Owner's EquityAssetsTrans. # = Liabilities +
CashAccount
Receivable Supplies EquipmentAccounts Payable
M. Doucet, Capital
Balance 9,200 + 0 + 1,600 + 7,000 = 1,850 15,950
(6) 1,500 2,000 3,500 Service RevenueBalance 10,700 2,000 1,600 7,000 1,850 19,450
Owner's EquityAssets
Classwork / Homework!Classwork / Homework!
If you finish them in class, then you do not have any homework. This is classwork for today:
Pg 69 Review #4, 7, 8P 69 Exercises #1 – 3I will take up Ex #2