Summary of Transactions No sound (narration from me) in this set of slides (yea !)

Summary of Transactions No narration from me in this set of slides (yea !) These next slides take you through “transaction analysis” (sounds painful don’t it). Analyze each transaction, in terms of its effect on: Assets = Liabilities + Stockholders (Owners) Equity Focus on which specific accounts are affected. FYI: at least 2 “accounts” are affected (could be more but at least two) Pay attention to the EQUAL sign in the equation. Each side MUST be = when you are done. If they are not = you are wrong! Note: we are NOT looking for two plusses or two minuses or one minus and one plus. We want a combination that keeps the equation equal. The “answers“ and explanations are on the slide following each one that you will do)

Transaction Analysis #1 … On Sept 01, 2017, Ray invests $15,000 cash in exchange for common stock to begin a business. Common stock indicates an “ownership” interest … which is also called “equity” in business and finance). Transaction results in an equal increase in both assets and stockholders’ equity. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Common Stock + Retained Earnings Rev. – Exp. – Div. 1. +15,000 +15,000

Transaction Analysis #1 … On Sept 01, 2017, Ray invests $15,000 cash in exchange for common stock to begin a business. Since Ray is starting a new business (a corp), he basically gives himself common stock. He gives up CASH and receives COMMON STOCK … so both accounts are increased. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable Common Stock + Retained Earnings Rev. – Exp. – Div. + 1. +15,000 +15,000 For you over-achievers - If Ray started a business (a sole-proprietorship) his ownership account would be called CAPITAL (not common stock). He still gives up CASH and receives CAPITAL.

#2 … Business buys equipment for $7,000 in cash. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Common Stock + Retained Earnings Rev. – Exp. – Div. 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 8. -250 -250 9. +600 -600 10. -1,300 -1,300 + + + = + + - - $8,050 $1,400 $1,600 $7,000 $1,600 $15,000 $4,700 $1,950 $1,300

#2 … Business buys equipment for $7,000 in cash. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable Supplies Equipment = Accounts Payable Common Stock Retained Earnings Rev. – Exp. – Div. + 1. +15,000 +15,000 2. -7,000 +7,000 The business is basically “trading” the asset cash for the asset equipment. Cash is paid (decreased) while Equipment is purchased (increased).

#3 … Business buys $ 1,600 of supplies ON CREDIT (also called “On Account”) (the accessories are expected to last several months). Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Common Stock + Retained Earnings Rev. – Exp. – Div. 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 8. -250 -250 9. +600 -600 10. -1,300 -1,300 + + + = + + - - $8,050 $1,400 $1,600 $7,000 $1,600 $15,000 $4,700 $1,950 $1,300

#3 … Business buys $ 1,600 of supplies ON CREDIT (also called “On Account”) (the accessories are expected to last several months). Assets = Liabilities + Stockholders’ Equity Trans- action Cash Accounts Receivable Supplies + Equipment = Accounts Payable + Common Stock + Retained Earnings Rev. – Exp. – Div. 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 Here the business is buying an asset Supplies … BUT no cash is involved. The business will OWE the $1,600 to the supplier of the supplies (like WalMart, Office-Max, Staples?). Over-achievers: Buying “on account” (same as “on credit”) is VERY typical in a “business-to-business” transaction. Staples decides IF they will give credit to a new business. If not, then new business must pay cash. (My ability to buy “on account” means that I have CASH to use for other things to improve or expand my business).

#4 … Business receives $1,200 from customers for work that has been completed. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Common Stock + Retained Earnings Revenue – Exp. – Div. 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 8. -250 -250 9. +600 -600 10. -1,300 -1,300 + + + = + + - - $8,050 $1,400 $1,600 $7,000 $1,600 $15,000 $4,700 $1,950 $1,300

#4 … Business receives $1,200 from customers for work that has been completed. Assets = Liabilities + Stockholders’ Equity Trans- action Cash Accounts Receivable Supplies Equipment = Accounts Payable + Common Stock Retained Earnings Revenue – Exp. – Div. 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 The business completed work for a customer and EARNED Revenue. In this case the business instantly received the revenue in the form of Cash.

#5 … Business receives a bill for $250 to advertise on a website #5 … Business receives a bill for $250 to advertise on a website. (The business postpones payment until a later date). Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Common Stock Retained Earnings Rev. – Expense. – Div. + 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 8. -250 -250 9. +600 -600 10. -1,300 -1,300 + + + = + + - - $8,050 $1,400 $1,600 $7,000 $1,600 $15,000 $4,700 $1,950 $1,300

#5 … Business receives a bill for $250 to advertise on a website #5 … Business receives a bill for $250 to advertise on a website. (The business postpones payment until a later date). Assets = Liabilities + Stockholders’ Equity Trans- action Cash Accounts Receivable Supplies Equipment = Accounts Payable + Common Stock Retained Earnings Revenue – Exp. – Div. 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 The business has “used up” the advertising therefore this is an “expense”. (How do I know the advertising was “used-up”? Because the ad company sent us a bill – indicating they had completed the work). Regardless of when I pay this amount, the “expense” occurred in this period (month) and I recognize it (enter it in my books) as such. However, since I am not paying this bill until later I will also acknowledge that this bill is a “debt” that I owe hence the accounts payable.

#6 … Business provides $3,500 of services to a customer #6 … Business provides $3,500 of services to a customer. (Business receives cash of $1,500 and bills “the balance” on account). Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Common Stock Retained Earnings Revenue – Exp. – Div. + 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 8. -250 -250 9. +600 -600 10. -1,300 -1,300 + + + = + + - - $8,050 $1,400 $1,600 $7,000 $1,600 $15,000 $4,700 $1,950 $1,300

#6 … Business provides $3,500 of services to a customer #6 … Business provides $3,500 of services to a customer. Business receives cash of $1,500 and sends a bills for “the balance” on account. (In this context, “the balance” is the rest of the amount owed) Assets = Liabilities + Stockholders’ Equity Trans- action Accounts Receivable Supplies Equipment = Accounts Payable + Common Stock Retained Earnings Revenue – Exp. – Div. 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 The business has “completed work” for a customer therefore has EARNED Revenue of 3,500. The Revenue is partially in the form of Cash, the 1,500 … and partially in the form of an account receivable 2,000 (which is my Right-To-Collect from the customer since I completed the work) Over-achievers only: Does my account “receivable” (my right-to-collect from a customer) mean that my customer has a debt (obligation to pay) … as in my customers now has an account “payable” … yep.

#7 … Business pays these expenses in cash for Sept #7 … Business pays these expenses in cash for Sept.: office rent $600, salaries & wages of $900, and utilities $200. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Common Stock + Retained Earnings Rev. – Expense – Div. 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 8. -250 -250 9. +600 -600 10. -1,300 -1,300 + + + = + + - - $8,050 $1,400 $1,600 $7,000 $1,600 $15,000 $4,700 $1,950 $1,300

#7 … Business pays these expenses in cash for Sept #7 … Business pays these expenses in cash for Sept.: office rent $600, salaries & wages of $900, and utilities $200. Assets = Liabilities + Stockholders’ Equity Trans- action Cash Accounts Receivable Supplies Equipment = Accounts Payable + Common Stock Retained Earnings Revenue – Exp. – Div. 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 I added the amounts from 3 checks since each is subtracted from Cash. Could I have used three separate minus amounts (-600 then -900 then -200) instead of just the one -1,700 … yes (if you like to write more than you have to). Then why use three separate “expenses” why not just one “catch-all” expense account. (A manager cannot control one huge “expense” account – the manager wants and needs “details”. They need to know that “gas exp” is up while “rent exp” is down etc. If you did not want the detail – you could use just one massive “expense” account.

#8 … Business pays its $250 “News” bill (from #5) in cash #8 … Business pays its $250 “News” bill (from #5) in cash. Company had recorded bill as increase in Accounts Payable. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Common Stock Retained Earnings Rev. – Exp. – Div. + 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 8. -250 -250 9. +600 -600 10. -1,300 -1,300 + + + = + + - - $8,050 $1,400 $1,600 $7,000 $1,600 $15,000 $4,700 $1,950 $1,300

#8 … Business pays its $250 “News” bill (from #5) in cash #8 … Business pays its $250 “News” bill (from #5) in cash. Company had recorded bill as increase in Accounts Payable. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment Accounts Payable Common Stock + Retained Earnings Rev. – Exp. – Div. 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 8. -250 -250 You pay off your debt (the word “pay” or “paid” in the transaction) tells you Cash is decreased. But isn’t this also an “expense” – yes … which you already entered that in your records back in transaction #5

#9 … Business receives $600 in cash from customers who had been billed for services (in Transaction 6). Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Common Stock Retained Earnings Rev. – Exp. – Div. + 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 8. -250 -250 9. +600 -600 10. -1,300 -1,300 + + + = + + - - $8,050 $1,400 $1,600 $7,000 $1,600 $15,000 $4,700 $1,950 $1,300

#9 … Business receives $600 in cash from customers who had been billed for services (in Transaction 6). Assets = Liabilities + Stockholders’ Equity Trans- action Cash Accounts Receivable Supplies Equipment Accounts Payable Common Stock Retained Earnings Rev. – Exp. – Div. 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 8. -250 -250 9. +600 -600 When do I no longer have “the right-to-collect? … When I actually collect – (the customer pays which in his books, eliminate HIS debt (the customers account payable) as well as my right-to-collect (my accounts receivable.)

#10 … Business pays a dividend of $1,300 in cash. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Common Stock + Retained Earnings Rev. – Exp. – Dividend 1. +15,000 +15,000 2. -7,000 +7,000 3. +1,600 +1,600 4. +1,200 +1,200 5. +250 -250 6. +1,500 +2,000 +3,500 7. -1,700 -600 -900 -200 8. -250 -250 9. +600 -600 10. -1,300 -1,300 + + + = + + - - $8,050 $1,400 $1,600 $7,000 $1,600 $15,000 $4,700 $1,950 $1,300 $18,050 $18,050

(Homework will give you another chance). The following few slides gives you a chance to work one of these problems on your own (Homework will give you another chance).

4 Tabular Analysis Transactions made by Virmari & Co., a public accounting firm, for the month of August are shown below. Prepare a tabular analysis which shows the effects of these transactions on the expanded accounting equation, similar to that shown in Illustration 1-9. Stockholders purchased shares of stock for $25,000 cash. The company purchased $7,000 of office equipment on credit. The company received $8,000 cash in exchange for services performed. The company paid $850 for this month’s rent. The company paid a dividend of $1,000 in cash to stockholders. LO 4

4 Tabular Analysis Stockholders purchased shares of stock for $25,000 cash. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Equipment = Accounts Payable + Common Stock + Retained Earnings Rev. – Exp. – Div. 1. +25,000 +25,000 2. +7,000 +7,000 3. +8,000 +8,000 4. -850 -850 5. -1,000 -1,000 + = + + - - $31,150 $7,000 $7,000 $25,000 $8,000 $850 $1,000 $18,050 $18,050 LO 4

4 Tabular Analysis The company purchased $7,000 of office equipment on credit. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Equipment = Accounts Payable + Common Stock + Retained Earnings Rev. – Exp. – Div. 1. +25,000 +25,000 2. +7,000 +7,000 3. +8,000 +8,000 4. -850 -850 5. -1,000 -1,000 + = + + - - $31,150 $7,000 $7,000 $25,000 $8,000 $850 $1,000 $18,050 $18,050 LO 4

4 Tabular Analysis The company received $8,000 cash in exchange for services performed. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Equipment = Accounts Payable + Common Stock + Retained Earnings Rev. – Exp. – Div. 1. +25,000 +25,000 2. +7,000 +7,000 3. +8,000 +8,000 4. -850 -850 5. -1,000 -1,000 + = + + - - $31,150 $7,000 $7,000 $25,000 $8,000 $850 $1,000 $18,050 $18,050 LO 4

4 Tabular Analysis The company paid $850 for this month’s rent. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Equipment = Accounts Payable + Common Stock + Retained Earnings Rev. – Exp. – Div. 1. +25,000 +25,000 2. +7,000 +7,000 3. +8,000 +8,000 4. -850 -850 5. -1,000 -1,000 + = + + - - $31,150 $7,000 $7,000 $25,000 $8,000 $850 $1,000 $18,050 $18,050 LO 4

4 Tabular Analysis The company paid a dividend of $1,000 in cash to stockholders. Assets = Liabilities + Stockholders’ Equity Trans- action Cash + Equipment = Accounts Payable + Common Stock + Retained Earnings Rev. – Exp. – Div. 1. +25,000 +25,000 2. +7,000 +7,000 3. +8,000 +8,000 4. -850 -850 5. -1,000 -1,000 + = + + - - $31,150 $7,000 $7,000 $25,000 $8,000 $850 $1,000 $38,150 $38,150 LO 4