CHAPTER 3--ANALYZING CHANGES IN FINANCIAL POSITION

Report
CHAPTER 3-ANALYZING
CHANGES IN
FINANCIAL
POSITION
Business Transaction:
Any
financial event that causes
a change in the financial
position of a business
Example
Withdraw
cash
Purchased asset
Originate from
source documents
Source Document:
Business
paper that is the
original record of a
transaction; provides proof of
transaction
Includes
all information
needed to record the
transaction
Examples of Source
Documents:
 Receipts
 Invoices
 Bills
 Cheques
Objectivity Principle
GAAP
states all accounting
transactions will be recorded
based on facts and not
personal opinion
Source
documents provide
proof/fact of transaction
METROPOLITAN MOVERS –
TRANSACTION ANALYSIS:
Using
the balance sheet on p. 61
fill in the Equation Analysis Sheet
for the BEGINNING BALANCES
ASSETS
Cash
Accounts
Receivable
B. Cava
Beg.
Balances
Trans. 1
Trans. 2
Trans. 3
Trans. 4
Trans. 5
Trans. 6
Trans. 7
New
Balances
K. Lincoln
Equipment Trucks
LIABILITIES
O.E.
Account
Laon J. Hofner,
s Payable Payable
Capital
Central
Supply
Mercury
Finance
ASSETS
Cash
Accounts
Receivable
B. Cava
Beg.
Balances
Trans. 1
Trans. 2
Trans. 3
Trans. 4
Trans. 5
Trans. 6
Trans. 7
New
Balances
13 500 1 300
Equipment Trucks
K.
Lincoln
2 500
LIABILITIES
Account
Laon J. Hofner,
s Payable Payable
Capital
Central
Supply
11 500
O.E.
24 500 1 750
Mercury
Finance
18 370
33 180
Transaction 1
Metropolitan
Movers pays $1
200 cash to Mercury Finance.
Cash
decreases $1 200
Accounts Payable- Mercury
Finance decreases $1 200
ASSETS
Cash
Accounts
Receivable
B. Cava
Beg.
Balances
13 500 1 300
Trans. 1
-1 200
Trans. 2
Trans. 3
Trans. 4
Trans. 5
Trans. 6
Trans. 7
New
Balances
Equipment Trucks
K.
Lincoln
2 500
LIABILITIES
Account
Laon J. Hofner,
s Payable Payable
Capital
Central
Supply
11 500
O.E.
24 500 1 750
Mercury
Finance
18 370
-1 200
33 180
Transaction 2
 K.
Lincoln, who owes Metropolitan
Movers $2 500, pays $1 100 in partial
payment of the debt.
 Cash
increases $1 100
 Accounts Receivable – K. Lincoln
decreases $1 100
ASSETS
Cash
Accounts
Receivable
B. Cava
Beg.
Balances
13 500 1 300
Trans. 1
-1 200
Trans. 2
+1 100
Trans. 3
Trans. 4
Trans. 5
Trans. 6
Trans. 7
New
Balances
Equipment Trucks
K.
Lincoln
2 500
LIABILITIES
Account
Laon J. Hofner,
s Payable Payable
Capital
Central
Supply
11 500
24 500 1 750
Mercury
Finance
18 370
-1 200
-1 100
O.E.
33 180
Transaction 3
Equipment
costing $1 950 is
purchased for cash.
Cash
decreases $1 950
Equipment increases $1 950
ASSETS
Cash
Accounts
Receivable
B. Cava
Beg.
Balances
13 500 1 300
Trans. 1
-1 200
Trans. 2
+1 100
Trans. 3
-1 950
Trans. 4
Trans. 5
Trans. 6
Trans. 7
New
Balances
Equipment Trucks
K.
Lincoln
2 500
LIABILITIES
Account
Laon J. Hofner,
s Payable Payable
Capital
Central
Supply
11 500
24 500 1 750
Mercury
Finance
18 370
-1 200
-1 100
+1 950
O.E.
33 180
Transaction 4
A
new pick-up truck is purchased at a
cost of $18 000. Metropolitan Movers
pays $10 000 cash and arranges a loan
from Mercury Finance to cover the
balance of the purchase price.
 Cash
decreases $10 000
 Truck increases $18 000
 Mercury Finance increases $8 000
ASSETS
Cash
Accounts
Receivable
B. Cava
Beg.
Balances
13 500
Trans. 1
-1 200
Trans. 2
+1 100
Trans. 3
-1 950
Trans. 4
-10 000
Trans. 5
Trans. 6
Trans. 7
New
Balances
1 300
LIABILITIES
Equipment
Trucks
K.
Lincoln
2 500
11 500
24 500
Accounts
Payable
Laon
Payable
Central Supply
Mercury
Finance
1 750
18 370
-1 200
-1 100
+1 950
+18 000
+8 000
O.E.
J.
Hofner,
Capital
33 180
Transaction 5
 Metropolitan
Movers completes a storage
service for B. Cava at a price of $1 500. A bill
is sent to B. Cava to indicate the additional
amount that Cava owes.
 Accounts
Receivable increases $1 500
 J. Hofner, Capital increases $1 500
ASSETS
Cash
Accounts
Receivable
B. Cava
Beg.
Balances
13 500
Trans. 1
-1 200
Trans. 2
+1 100
Trans. 3
-1 950
Trans. 4
-10 000
Trans. 5
Trans. 6
Trans. 7
New
Balances
1 300
LIABILITIES
Equipment
Trucks
K.
Lincoln
2 500
11 500
24 500
Accounts
Payable
Laon
Payable
Central Supply
Mercury
Finance
1 750
18 370
O.E.
J.
Hofner,
Capital
33 180
-1 200
-1 100
+1 950
+18 000
+1 500
+8 000
+1 500
Transaction 6
 J.
Hofner, the owner, withdraws $500 for
personal use.
 Cash
decreases $500
 J. Hofner, Capital decreases $500
ASSETS
Cash
Accounts
Receivable
B. Cava
Beg.
Balances
13 500
Trans. 1
-1 200
Trans. 2
+1 100
Trans. 3
-1 950
Trans. 4
-10 000
Trans. 5
Trans. 6
Trans. 7
New
Balances
1 300
Equipment
Trucks
K.
Lincoln
2 500
11 500
24 500
Accounts
Payable
Laon
Payable
Central Supply
Mercury
Finance
1 750
18 370
O.E.
J.
Hofner,
Capital
33 180
-1 200
-1 100
+1 950
+18 000
+1 500
-500
LIABILITIES
+8 000
+1 500
-500
Transaction 7
 Truck
requires engine repair. J. Hofner
pays $75 cash when the truck is picked
up.
Cash
decreases $75
J. Hofner, Capital decreases
$75
ASSETS
Cash
Accounts
Receivable
B. Cava
Beg.
Balances
13 500
Trans. 1
-1 200
Trans. 2
+1 100
Trans. 3
-1 950
Trans. 4
-10 000
Trans. 5
1 300
LIABILITIES
Equipment
Trucks
K.
Lincoln
2 500
11 500
24 500
Accounts
Payable
Laon
Payable
Central Supply
Mercury
Finance
1 750
18 370
O.E.
J.
Hofner,
Capital
33 180
-1 200
-1 100
+1 950
+18 000
+1 500
+8 000
+1 500
Trans. 6
-500
-500
Trans. 7
-75
-75
New
Balances
New Balance
Calculate
the new
balances of each column.
ASSETS
Cash
Accounts
Receivable
B. Cava
Beg.
Balances
13 500
Trans. 1
-1 200
Trans. 2
+1 100
Trans. 3
-1 950
Trans. 4
-10 000
Trans. 5
1 300
LIABILITIES
Equipment
Trucks
K.
Lincoln
2 500
11 500
24 500
Accounts
Payable
Laon
Payable
Central Supply
Mercury
Finance
1 750
18 370
O.E.
J.
Hofner,
Capital
33 180
-1 200
-1 100
+1 950
+18 000
+8 000
+1 500
+1 500
Trans. 6
-500
-500
Trans. 7
-75
-75
New
Balances
875
2 800 1 400
13 450
42 500
1 750
25 170
34 105
Do the total Assets = Total
Liabilities + Owner’s Equity?
Total Assets = Total Liabilities + Owner’s Equity
61 025
=
26 920
+
61 025
34 105
Summary of Steps in Analyzing
a transaction:
1.
2.
3.
Identify all items (A,L,OE) that must be
changed & make necessary changes
(increase or decrease)
Make sure at least 2 accounts are
affected (ie. A & A, A & L, A & OE)
Accounting Equation must balance after
each transaction
*OE is NOT always affected in
each transaction
 If





O.E. has changed:
Increase $ earned (Revenue)
Increase owner investment (Capital)
Decrease owner withdrawal (Drawings)
Decrease Costs of operating business
(expense)
Decrease loss on sale (expense)

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