Professional Documents
Culture Documents
Principles
Second Canadian Edition
Weygandt Kieso Kimmel
Trenholm
Prepared by:
Carole Bowman, Sheridan College
CHAPTER
ACCOUNTING IN ACTION
ILLUSTRATION 1-1
THE ACCOUNTING PROCESS
Communication
Identification Recording Account
ing
Reports
Ger
7 M ald Tr
a e
Fre cCau nholm
de r l
icto y Driv
nN e
B
200
0
Prepare
accounting reports
SOFTBYTE
Annual Report
Will the company be able to pay its debts as they come due?
BOOKKEEPING DISTINGUISHED
FROM ACCOUNTING
Accounting
1. Includes bookkeeping
2. Also includes much more
Bookkeeping
1. Involves only the recording of economic
events
2. Is just one part of accounting
THE ACCOUNTING PROFESSION
Liabilities
are claims against assets.
They are existing debts and obligations.
OWNERS EQUITY AS
A BUILDING BLOCK
Owners Equity is equal to total assets minus
total liabilities.
Owners Equity represents the ownership claim
on total assets.
Subdivisions of Owners Equity:
1. Capital
2. Drawings
3. Revenues
4. Expenses
INVESTMENTS BY OWNERS
AS A BUILDING BLOCK
INCREASES DECREASES
Investments
Investments Withdrawals
Withdrawals
by
byOwner
Owner by
byOwner
Owner
Owners
Equity
Revenues
Revenues Expenses
Expenses
TRANSACTION ANALYSIS
BANK
Softbyt
e
TRANSACTION ANALYSIS
TRANSACTION 1
On September 1, he invests $15,000 cash in the
business, which he names Softbyte.
There
Thereisis an
an increase
increase inin the
the asset
asset Cash,
Cash, $15,000,
$15,000, and
and
an
an equal
equal increase
increase in
in the
the owners
ownersequity,
equity,M.
M. Doucet,
Doucet,
Capital,
Capital, $15,000.
$15,000.
TRANSACTION ANALYSIS
TRANSACTION 2
Cash
Cash isis decreased
decreased $7,000,
$7,000, and
and the
the asset
asset
Equipment
Equipment isis increased
increased $7,000.
$7,000.
TRANSACTION ANALYSIS
TRANSACTION 3
Softbyte purchases computer paper and supplies expected to last
several months from Chuah Supply Company for $1,600 on account.
The
The asset
asset Supplies
Supplies isis increased
increased $1,600,
$1,600, and
and the
the liability
liability
Accounts
Accounts Payable
Payable isis increased
increased by
by the
the same
same amount.
amount.
TRANSACTION ANALYSIS
TRANSACTION 4
Softbyte receives $1,200 cash from customers for
programming services it has provided.
Cash
Cash isis increased
increased $1,200,
$1,200, and
and
M.
M. Doucet,
Doucet, Capital
Capital isis increased
increased $1,200.
$1,200.
TRANSACTION ANALYSIS
TRANSACTION 5
Softbyte receives a bill for $250 for advertising its business
but pays the bill on a later date.
Accounts
Accounts Payable
Payable isis increased
increased $250,
$250, and
and M.
M.
Doucet,
Doucet, Capital
Capital isis decreased
decreased $250.
$250.
TRANSACTION ANALYSIS
TRANSACTION 6
Softbyte provides programming services of $3,500 for
customers and receives cash of $1,500, with the balance
payable on account.
Trans. # Assets == Liabilities
Liabilities ++ Owner's
Owner's Equity
Account
Account Accounts
Accounts M.
M. Doucet,
Doucet,
Cash Receivable
Receivable Supplies
Supplies Equipment
Equipment Payable
Payable Capital
Capital
Balance 9,200
9,200 ++ 00 ++ 1,600
1,600 ++ 7,000
7,000 == 1,850
1,850 15,950
15,950
(6) 1,500 2,000 3,500 Service Revenue
Balance 10,700 2,000 1,600 7,000 1,850 19,450
Cash
Cash isis increased
increased $1,500;
$1,500; Accounts
Accounts Receivable
Receivable isis
increased
increased $2,000;
$2,000; and
and M.
M. Doucet,
Doucet, Capital
Capital isis
increased
increased $3,500.
$3,500.
TRANSACTION ANALYSIS
TRANSACTION 7
Expenses paid in cash for September are store rent,
$600, salaries of employees, $900, and utilities, $200.
Cash
Cash isis decreased
decreased $1,700
$1,700 and
and M.
M. Doucet,
Doucet,
Capital
Capital isis decreased
decreased the
the same
same amount.
amount.
TRANSACTION ANALYSIS
TRANSACTION 8
Softbyte pays its advertising bill of $250 in cash.
Cash
Cash isis decreased
decreased $250
$250 and
and Accounts
Accounts
Payable
Payable isis decreased
decreased the
the same
same amount.
amount.
TRANSACTION ANALYSIS
TRANSACTION 9
The sum of $600 in cash is received from customers who
have previously been billed for services in Transaction 6.
Trans. # Assets = Liabilities + Owner's Equity
Account Accounts M. Doucet,
Cash Receivable Supplies Equipment Payable Capital
Balance 8,750 + 2,000 + 1,600 + 7,000 = 1,600 + 17,750
(9) 600 (600)
Balance 9,350 + 1,400 + 1,600 + 7,000 = 1,600 + 17,750
Cash
Cash isis increased
increased $600
$600 and
and Accounts
Accounts
Receivable
Receivable isis decreased
decreased by
bythe
the same
same amount.
amount.
TRANSACTION ANALYSIS
TRANSACTION 10
Marc Doucet withdraws $1,300 in cash from
the business for his personal use.
Trans. # Assets = Liabilities
Liabilities ++ Owner's
Owner's Equity
Account Accounts
Accounts M.
M. Doucet,
Doucet,
Cash Receivable Supplies Equipment
Equipment Payable
Payable Capital
Capital
Balance 9,350 1,400 1,600
1,600 7,000
7,000 1,600
1,600 17,750
17,750
(10) (1,300) (1,300) Doucet, Drawings
Balance 8,050 + 1,400 + 1,600 + 7,000 = 1,600 + 16,450
Cash
Cash isis decreased
decreased $1,300
$1,300 and
and M.
M. Doucet,
Doucet,
Capital
Capital isis decreased
decreased by
by the
the same
same amount.
amount.
FINANCIAL STATEMENTS
Annual Reports
Non-financial
information
Financial
information
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