When business transactions occur, at least three of the individual balance sheet items must change.
A transaction takes place, leaving a business in a better financial position. Therefore Capital has most likely increased.
When equipment valued at $4000 is sold for $1000 cash, the items affected are Cash and Equipment. HINT: why would the values be different? What else could be changing?
The objectivity princple is an accounting standard related to source documents.
The owner’s withdrawal of cash for personal use reduces Cash and Owner's Equity.
What is a business transaction?
Drag the transactions to show what effect the following transactions have on the TOTAL assets. Do they increase, decrease, or have no change.
Hint: the change is on the total ASSETS.
Owner invested $85 000 cash in his business.
Purchased a delivery truck for $10 000, paying $2000 cash and the balance to be paid in 90 days.
Borrowed $10 000 from a bank.
Purchased equipment for $2000 cash.
Collected an account receivable, $500 cash.
Sold a building for cash at a price lower than its cost.
Increase
Decrease
No Change
P. Lang’s business owned property that had originally cost $40 000. He sold this property for $75 000. Lang recorded this transaction by increasing Cash by $75 000 and decreasing Property by $75 000. Explain why his analysis is incorrect.
Indicate the effect each of the following transactions has on the total assets, the total liabilities, or the equity, by using the drop-down menu options.
Example: A cash payment is made to Ace Supplies, a creditor.
Total Assets: Decrease
Total Liabilities: Decrease
Owner's Equity: No Change
HINT: There will always be ONE no change in your answers.
A new desk for the office is purchased for cash from Equipment Supply Co.
Total Assets:
Total Liabilities:
Owner's Equity:
The business performs a service for a customer, J. Rothfels, who pays in full with cash.
Total Assets:
Total Liabilities:
Owner's Equity:
The business purchases a new truck from Pine Motors and pays one-third of the cost in cash as a down payment.
Total Assets:
Total Liabilities:
Owner's Equity:
Stationery and supplies are purchased from Angeloff’s Stationers but are not paid for at the time of purchase.
Total Assets:
Total Liabilities:
Owner's Equity:
The owner, J. Lemaire, takes a sum of money (cash) from the business for his personal use.
Total Assets:
Total Liabilities:
Owner's Equity:
Land is sold for cash at a price less than its cost.
Total Assets:
Total Liabilities:
Owner's Equity: