II. PROBLEM 2. Effects of Transactions Transactions may be classified based on their effects on the basic accounting model. These are: 1. Increase in Assets = Increase in Owner's Equity 2. Increase in Assets = Increase in Liabilities 3. Increase in one Asset = Decrease in another Asset 4. Decrease in Asset = Decrease in Owner's Equity 5. Decrease in Asset = Decrease in Liabilties 6. Increase in Liabilities = Decrease in Owner's Equity 7. Increase in one Liability = Decrease in another Liability 8. Increase in Owner's Equity = Decrease in Liability 9. Increase in one Owner's Equity = Decrease in another Owner's Equity Required: Classify the following events according to their effects on the accounting equation by indicating one of the numbers above. a. Invested Php140,000 cash and Php8,000 worth of supplies into the business b. Received Php84,000 for services rendered c. Purchased equipment on account, Php74,000 d. Paid Php15,000 for supplies e. Paid salaries, Php42,000 f. Acquired land for Php350,000 g. Paid Php40,000 on account from the letter c transaction h. Issued a promissory note for the balance of the letter c transaction i. Paid utilities, Php4,000 j. Paid Php6,000 for supplies and Php14,000 for equipment k. Received Php94,000 for services rendered 1. Withdrew Php40,000 cash for personal use m. Inventory of supplies showed Php6,000 of supplies on hand
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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