Studies in acc.

In English

Dr: Hanan Talaat

Lecture 3
Transaction analysis
To demonstrate how to analyse transaction in terms of the accounting equation.
transaction (1) : investment by owner:
ray Neal decides to open a computer programming service which he name
Softbyte. On September, 1,2018 he invests $15,000 cash in the business
this transaction results in an equal increase in assets and Owner's equity
Basic The asset cash increases $ 15,000, and Owner's equity ( identified as
Analysis Owner's equity capital) increases $ 15,000

Equation Assets Liabilities + Owner's equity

analysis Cash Capital
1 + $15,000 + $ 15,000
Total + $ 15,000 + $ 15,000
Transaction( 2) : Purchased of equipment for cash
softbye purchases computer equipment for $7,000 cash.
this transaction results in an equal increase and decrease in
total assets, though the composition of assets changes .
Basic Analysis The asset cash decreases $ 7,000, and equipment increases $ 7,000

Equation analysis Assets = Liabilities + Owner's equity

Cash + equipment Capital
1 + $15,000 + $ 15,000
2 ( $ 7,000) + $ 7,000
total $ 15,000 $ 15,000
transaction (3) : Purchased of supplies on credit
Purchased supplies for $1,600 from acme supply computer paper
other supplies expected to last several months acme agrees to
allow softbyte to pay this bill in October.
The effect on accounting equation is:assets increase and
liabilities increase
Basic Analysis The asset supplies increases $ 1,600, and liabilities accounts payable
increases by $ 1,600

Equation analysis Assets = Liabilities+ equity

Cash + equipment +supplies A/P Capital

1 + $15,000 + $ 15,000
2 ( $ 7,000) + $ 7,000
3 $ 8,000 +$ 7,000 + $ 1,600 $ 1,600 15000
Total $ 16,600 $ 1,600 $ 15,000
 Transaction 4: services performed for cash
Softbyte receives $ 1,200 cash from customers for programing
services.
The effect on accounting equation is: revenue producing activity
increase Owner's equity and increase asset cash
Basic Analysis The asset cash increases $ 1,200, and Owner's equity increases $ 1,200
due to service revenue

Equation analysis Assets = Liabilities+ Owner's equity

Cash + equipment +supplies A/P Capital + revenue

1 + $15,000 + $ 15,000
2 ( $ 7,000) + $ 7,000
3 $ 8,000 +$ 7,000 + $ 1,600 $ 1,600
4 $ 1,200 + 1,200
Total $ 9,200 + $7,000 +$ 1,600 $ 1,600 16,200
$ 17,800 17,800
Transaction 5: Purchased of advertising on credit
Softbyte receives a bill for $ 250 from the daily news for
advertising but postpones payment until a later date
The effect on accounting equation is: this transaction results in
an increase in liabilities and a decrease in Owner's equity
Basic The asset cash increases $ 1,200, and Owner's equity increases $ 1,200 due to
Analysi service revenue
s
Equation Assets = Liabilities+ Owner's equity
analysis Cash + equipment +supplies Accounts payable Capital + revenue – expensive

1 + $15,000 + $ 15,000
2 ( $ 7,000) + $ 7,000
3 $ 8,000 +$ 7,000 + $ 1,600 $ 1,600
4 $ 1,200 + 1,200
5 $ 250 ($250)
Total $ 9,200 + $7,000 +$ 1,600 $ 1,850 $15,000 + $1200 - $ 250
$ 17,800 17,800
Transactions 6: services performed for cash and credit.
Softbyte performs $ 3,500 of programming services for customers.
The company receives cash of $ 1,500 from customers, and it bills the
balance of $ 2,000 on account. This transaction results in an equal
increase in assets and Owner's equity.
Basic The asset cash increases $ 1,500, the assets accounts receivable increase $ 2,000 and
Analysis Owner's equity increases $ 3,500 due to service revenue

Equation analysis Assets = Liabilities+ Owner's equity

Cash +equipment +supplies+ A/R A/p Capital + revenue – expensive

1 + $15,000 + $ 15,000
2 ( $ 7,000) + $ 7,000
3 $ 8,000 +$ 7,000 + $ 1,600 $ 1,600
4 $ 1,200 + 1,200
5 $ 250 ($250)
6 +1,500 +$2,000 +3,500
Total $ 10,700 + $7,000 +$ 1,600 +$ 2,000 $ 1,850 $15,000 + $4700 - $ 250
$ 21,300 $ 21,300
Transaction 7: Payment of expenses.
Softbyte pays the following expenses in cash for
September , store rent $ 600, salaries and wages of
employees $ 900 and utilities $ 200. These payments
result in an equal decrease in assets and Owner's equity.
Equation Assets = Liabilities Owner's equity
analysis Cash +equipment +supplies+ A/R A/ p Capital + revenue – expensive

1 + $15,000 + $ 15,000
2 ( $ 7,000) + $ 7,000
3 $ 8,000 +$ 7,000 + $ 1,600 $ 1,600
4 $ 1,200 + 1,200
5 $ 250 ($250)
6 +1,500 +$2,000 +3,500
$ 10,700 + $7,000 +$ 1,600 +$ 2,000 $ 1,850 $15,000 + $4700 - $ 250
7 - - $ 1,700 -$ 600
-$ 900
- $ 200
Transaction 8: payment of accounts payable.
Softbyte pays its $ 250 daily news bill in cash. The
company previously in transaction (5) recorded the bill as
an increase in accounts payable and a decrease in
Owner's equity. The effect on accounting equation is: this
transaction results in an decrease in liabilities and a decrease in
assets
.
Basic The cash payment on account decreases the assets cash by $ 250 and also decreases
Analysis the liability accounts payable by $ 250

Equation Assets = Liabilities+ Owner's equity

analysis Cash +equipment +supplies+ A/R A/ p Capital + revenue – expensive

1 + $15,000 + $ 15,000
2 ( $ 7,000) + $ 7,000
3 $ 8,000 +$ 7,000 + $ 1,600 $ 1,600
4 $ 1,200 + 1,200
5 $ 250 ($250)
6 +1,500 +$2,000 +3,500

$ 10,700 + $7,000 +$ 1,600 +$ 2,000 $ 1,850 $15,000 + $4700 - $ 250

7 - - $ 1,700 -$ 1,700
8 - $ 250 $ - 250
Total $ 19,350 $ 19,350
Transaction 9: receipt of cash on account. Softbyte receives $
600 in cash from customers who had been billed for services (in
transaction 6, transaction 9 does not change total assets, but it
changes the composition of those assets.
Basic Analysis The asset cash increases $ 600 and the asset accounts receivable decreases $ 600

Equation Assets = Liabilities+ Owner's equity

analysis Cash +equipment +supplies+ A/R Accounts payable Capital + revenue – expensive

1 + $15,000 + $ 15,000
2 ( $ 7,000) + $ 7,000
3 $ 8,000 +$ 7,000 + $ 1,600 $ 1,600
4 $ 1,200 + 1,200
5 $ 250 ($250)
6 +1,500 +$2,000 +3,500

$ 10,700 + $7,000 +$ 1,600 +$ $ 1,850 $15,000 + $4700 - $ 250

2,000
7 - - $ 1,700 -$ 1,700
8 - - $ 250 - $ - 250
9 + $600 - $ 600

Total $ 19,350 $ 19,350