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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Cornerstone Exercise 2-20 Transaction Analysis

Four transactions are listed below. CORNERSTONE 2.2

  1. Sold goods to customers on credit.
  2. Collected amounts due from customers.
  3. Purchased supplies on account.
  4. Used supplies in operations of the business.

Required:

Prepare three columns labeled assets, liabilities, and stockholders’ equity. For each of the transactions, indicate whether the transaction increased (+). decreased (-). or had no effect (NE) on

Assets, liabilities, or stockholders’ equity.

To determine

Concept Introduction:

Transaction Analysis- The first step involved in the process of recording economic events in any business is to analyze the transaction. Transaction analysis is the process of analyzing each transaction to determine the effect of each transaction in two parts or dual effect on each element of an accounting equation so that the equation is in balance. This is shown as:

  Assets=liabilities+Stockholdersequity

Requirement 1:

To indicate the effect of transaction on assets, liabilities and stockholder’s equity when goods are sold to customers on credit.

Explanation

When an entity sells goods to customers for which payment will be received later it is known as ‘sale on account’. The entity is not receiving cash but a promise to pay. This right to collect money from customer creates an asset called accounts receivable. Also, this credit sale represents revenue generated for selling goods the customer. The effect of this transaction on accounting equation is
Assets=liabilities Stockholdersequity Con<

To determine

Concept Introduction:

Transaction Analysis- The first step involved in the process of recording economic events in any business is to analyze the transaction. Transaction analysis is the process of analyzing each transaction to determine the effect of each transaction in two parts or dual effect on each element of an accounting equation so that the equation is in balance. This is shown as:

  Assets=liabilities+Stockholdersequity

Requirement 2:

To indicate the effect of transaction on assets, liabilities and stockholder’s equity when amounts are collected due from customers.

To determine

Concept Introduction:

Transaction Analysis- The first step involved in the process of recording economic events in any business is to analyze the transaction. Transaction analysis is the process of analyzing each transaction to determine the effect of each transaction in two parts or dual effect on each element of an accounting equation so that the equation is in balance. This is shown as:

  Assets=liabilities+Stockholdersequity

Requirement 3:

To specify the effect of transaction on assets, liabilities and stockholder’s equity when supplies are purchased on account.

To determine

Concept Introduction:

Transaction Analysis- The first step involved in the process of recording economic events in any business is to analyze the transaction. Transaction analysis is the process of analyzing each transaction to determine the effect of each transaction in two parts or dual effect on each element of an accounting equation so that the equation is in balance. This is shown as:

  Assets=liabilities+Stockholdersequity

Requirement 4:

To indicate the effect of transaction on assets, liabilities and stockholder’s equity when supplies are used for operations in business.

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