Business Transactions BAF3M1 – Mr. Meechem

Business Transactions Many transactions can occur in one business day for a company. These transactions tend to cause changes in the financial position of a company. For example, if a customer owes a company $3 000 and decides one day to pay this debt, the total Accounts Receivable would be reduced by $3 000 while the Cash of the company would increase by $3 000.

Business Transaction??? In order for a business transaction to exist, a dollar figure must be associated with the items involved. If there is no dollar figure, it is not a business transaction.

Business Transactions Consider the two following scenarios and decide whether or not they are considered business transactions: An email is sent out to the company employees announcing a meeting. The company pays one of its employees $800.

Business Transactions When an asset, liability, or equity item is recorded for accounting purposes, a “source document” is required to verify the dollar amount. This document is the original record of the transaction. EXAMPLES: - hydro bills - telephone bills cheque copies - store receipts cash register summaries - credit card slips - bank statements - sales invoice

Business Transactions Source documents are kept on file for reference purposes and are proof of transactions. From a source document comes another GAAP, the objectivity principle. The objectivity principle states: Accounting will be recorded on the basis of objective evidence.

Transaction Examples The company purchases an Automobile ($15 000) for cash Affected Accounts: Bank - decrease by $15 000; Automobiles - increase by $15 000.

Transaction Examples The company pays a creditor $650. Affected Accounts: Bank - decrease by $ 650; Accounts Payable - decrease by $650.

Transaction Examples The company performs a $2 000 service for a customer on credit. (“On credit” means the customer did not pay right away. Sometimes this type of transaction is called “on account.”) Affected Accounts: Accounts Receivable - increase by $2 000; Capital - increase by $ 2 000.

Transaction Examples The owner invests $4 000 into the company Affected Accounts: Bank - increase by $4 000; Capital - increase by $4 000.

Transaction Examples The owner withdraws $1 000 of the company's money for personal use Affected Accounts: Bank - decrease by $1 000; Capital - decrease by $1 000.

Transaction Examples The company buys $5 000 of equipment on credit. (The company did not pay right away. Sometimes “on credit” is referred to as “on account.”) Affected Accounts: Accounts Payable - increase by $5 000; Equipment - increase by $5 000.

Transaction Examples A customer pays $500 of his/her debt owed to the company Affected Accounts: Bank - increase by $500; Accounts Receivable - decrease by $500.

Transaction Examples It was discovered that $100 worth of supplies were stolen from the company Affected Accounts: Supplies - decrease by $100; Capital - decrease by $100.

Transaction Assignment Your Turn