Introduction to Accounting Preparing for a User’s Perspective Identify the impact of common transactions on a new company’s financial statements By Kevin C. Kimball, CPA Debits and Credits Trainer with support from www.canvas.net Free Jan. 2014 Available on the Google Play Store
Idea (USHC), Management Skill Idea (USHC), Management Skill? (just a beginner), Resources (where to get them?)
Assets Piggybank But where can he get the $ he needs to get started? Dad (as lender or investor)
Assets How did he finance the assets? What does the company have? Liabilities (i.e. borrowings) Assets Equity (i.e. owner’s claims) How did he finance the assets? What does the company have? Who has claims on the assets?
= + Assets Liabilities Equity $51 $0 $51 #1 – Original owner invests On 1/1/X6 Spencer invested $51 of his own (piggybank) money into Utah Straw Hat Co (USHC) thereby obtaining 100% ownership. = + Assets Liabilities Equity $51 $0 $51
= + Assets Liabilities Equity $51 $0 $51 _____ $49 _____ _____ $49 #2 – Partner invests 1/2/X6 Dad becomes a partner and invests $49 thus receiving 49% ownership. (Spencer’s ownership now only claims 51% of USHC’s assets). = + Assets Liabilities Equity $51 $0 $51 _____ $49 _____ _____ $49 $100 $0 $100
= + Assets Liabilities Equity $100 $ 0 $100 $200 _____ _____ $200 # 3 – Bank loans 1/3/X6 USHC borrows $200 from St. George Intl. Bank (SGIB) for one year at 12% simple interest to be paid annually. = + Assets Liabilities Equity $100 $ 0 $100 $200 _____ _____ $200 _____ $300 $200 $100
!!No Current Impact on Financials!! # 4 – Co. orders inventory 1/4/X6 USHC creates and sends a purchase order to China Hat Company (CHC), its vendor, to purchase 100 hats at $.50 per hat. = + Assets Liabilities Equity $300 $200 $100 !!No Current Impact on Financials!! BUT it will be recorded in his accounting system (such as Quickbooks) 1) to remember it, 2) to document its authorization, 3) to receive the goods.
= + Assets Liabilities Equity $300 $200 $100 $ 60 _____ _____ $ 60 # 5 – Co. receives inventory 1/5/X6 CHC delivers 100 hats (Invoice #452). Total invoice amount is $60 as follows $50 hats, $7 shipping, $3 sales tax. = + Assets Liabilities Equity $300 $200 $100 $ 60 _____ _____ $ 60 _____ $360 $260 $100
+ = Assets Liabilities Equity $360 $260 $100 $ 21 $ 1 $ 20 $ (6) $ (6) # 6 – Co. sells inventory 1/6/X6 USHC sells 10 hats, on account, to Ali’i Turf Co. for $21 ($20 sales price plus $1 sales tax). The 10 hats cost $6 (i.e. ($60/100)*10) + Assets = Liabilities Equity $360 $260 $100 $ 21 $ 1 $ 20 $ (6) $ (6) _____ _____ _____ $375 $261 $114
= + Assets Liabilities Equity $375 $261 $114 $ (60) $ (60) _____ _____ # 7 – Co. pays for inventory 1/7/X6 USHC writes check number 1 to pay off the $60 invoice from CHC. = + Assets Liabilities Equity $375 $261 $114 $ (60) $ (60) _____ _____ _____ $315 $201 $114
= + Assets Liabilities Equity $201 $315 $114 $ 21 $ (21) _____ _____ # 8 – Co. receives customer payment 1/8/X6 USHC received payment for sale to Ali’i Turf in the amount of $21. Assets Liabilities Equity = $201 + $315 $114 $ 21 $ (21) _____ _____ _____ $315 $201 $114
Co. prepares draft of unadjusted financial statements Additional information: Interest expenses have not been recorded yet. They will be recorded at the end of the month when the “adjusted” financial statements are prepared.
Introduction to Accounting Preparing for a User’s Perspective Identify the impact of common transactions on a new company’s financial statements By Kevin C. Kimball, CPA Debits and Credits Trainer with support from www.canvas.net Free Jan. 2014 Available on the Google Play Store