Accounting for a Service Business Unit 1.3 Transactions

What is a Transaction? An event that occurs during the operation of a business and results in a financial change A business transaction always includes an exchange of value Something of value is given Something of value is received Transaction

Transaction Analysis Using the totals from a Balance Sheet, transactions can be examined and their effects will be immediately reflected on the net worth of a business Transactions usually take place between accounting periods  The period of time covered by an accounting statement

Questions to ask regarding a transaction… Which items change in value as a result of the transaction?  At least two accounts must be affected in order for a transaction to be valid How much do these items change? Do the items increase or decrease in value? After the change is recorded, does the balance sheet equation still balance?

Transaction Analysis Template Found on the Share Drive Print out a copy to fill in the numbers manually or input the numbers directly on the computer Use the latest Balance Sheet to create the Opening Balance

Goldman Gym – Transaction Analysis Transaction 1  Purchased new training equipment for $500 cash Training Equipment will increase by $500 Cash will decrease by $500 Cash now has a balance of $4,500 Equipment now has a balance of $95,000 Assets still equal Liabilities plus Equity

Goldman Gym – Transaction Analysis Transaction 2  Purchased office supplies for $55, on credit, from Central Supply Co. Office Supplies increase by $55 Money owed (Accounts Payable) increases by $55 Office Supplies now has a balance of $555 Accounts Payable now has a balance of $4,055 Assets still equal Liabilities plus Equity

Goldman Gym – Transaction Analysis Transaction 3  Received $3,000 from customers who owed money to the business Cash balance increases by $3,000 Accounts Receivable (money owed from customers) decreases by $3,000 New Cash balance is $7,500 New Accounts Receivable balance is $3,000 Assets still equal Liabilities plus Equity

Goldman Gym – Transaction Analysis Complete the remaining transactions (page 18) yourself As a hint…Total Assets = $242,480 at the end of the exercise

Preparing a New Balance Sheet Transfer the new balances from the transaction analysis sheet to a new balance sheet Make sure the date reflects the changes in the account balances