Changes in Financial Statement

Business Transactions Any event that causes the financial position of a business to change. E.g. buying a truck

Source Document When an asset, liability, or equity item is recorded for accounting purposes, a business paper or document is required to verify the dollar amount. The business paper is called a source document. E.g. hydro bills, telephone bills, cheque copies, store receipts, cash register summaries, and credit card slips. Points to remember…... Accounting entries are made from business papers known as source documents Source documents are kept on file for reference purposes and are proof of transactions

Objectivity Principle This Principle requires that a business’s accounting be recorded on the basis of clear, verifiable evidence not on personal feelings, opinions or emotions.

Transaction analysis Sheet Is a tool for displaying individual transactions and the new financial position resulting from each transaction. It is ideal for analyzing and recording changes in financial position.

2 Things that cause Owner’s Equity to increase Investment of assets by owner into the business Revenue

2 Things that cause owner’s Equity to decrease Withdrawals of assets by the owner out of the business Expenses

Transaction analyses Scott invests $20000 to start the business The accounts involved are Cash(asset) Owner’s Capital(Equity)

Assets = Liabilities + Owner’s Equity Cash Supplies Equipment Accounts payable Notes Payable Owner’s Capital 20000 $20000 $20000

Transaction analysis Purchased supplies paying $1000 cash Cash (asset) Supplies (asset)

Assets = Liabilities + Owner’s Equity Cash Supplies Equipment Accounts Payable Notes payable 20000 (1000) 1000 19000 $20000 $20000

Transaction Analyses Purchased an Equipment for $15000 The Accounts Involved are Cash(asset) Equipment(asset)

Assets = Liabilities + Owner’s Equity Cash Supplies Equipment Accounts Payable Notes payable Owner’s Capital 20000 (1000) 1000 (15000) 15000 4000 $20000 $20000

Transaction Analysis Purchased supplies of $200 and Equipment of $1000 on account The accounts Involved are Supplies(asset) Equipment(asset) Accounts Payable(liability)

Assets = Liabilities + Owner’s Equity Cash Supplies Equipment Accounts Payable Notes payable Owner’s Capital 20000 (1000) 1000 (15000) 15000 200 1200 4000 16000 $21200 $21200