Question

Analyse the effect of each transaction and show that both the sides of the accounting equation (Assets = Liabilities + Equity) remain equal:
Introduced $800,000 as cash and $50,000 by stock. Purchased plant for $300,000 by paying $15,000 in cash and balance at a later date. Deposited $600,000 into the bank. Purchased office furniture for $100,000. Purchased goods worth $80,000 for cash and for $35,000 in credit. Goods amounting to $45,000 was sold for $60,000 on cash basis. Withdrawal of $350 by the owner for personal use.

Answer 1

Explanation:

You gained a basic understanding of both the basic and expanded accounting equations, and looked at examples of assets, liabilities, and stockholder’s equity in Define and Examine the Expanded Accounting Equation and Its Relationship to Analyzing Transactions. Now, we can consider some of the transactions a business may encounter. We can review how each transaction would affect the basic accounting equation and the corresponding financial statements.

As discussed in Define and Examine the Initial Steps in the Accounting Cycle, the first step in the accounting cycle is to identify and analyze transactions. Each original source must be evaluated for financial implications. Meaning, will the information contained on this original source affect the financial statements? If the answer is yes, the company will then analyze the information for how it affects the financial statements. For example, if a company receives a cash payment from a customer, the company needs to know how to record the cash payment in a meaningful way to keep its financial statements up to date.

Monetary Value of Transactions