Introducing Financial Accounting - CCSN Computer Graphics Program
Introducing Financial Accounting - CCSN Computer Graphics Program Introducing Financial Accounting - CCSN Computer Graphics Program
wiL27041_ch01_002-047.indd Page 17 10/4/10 7:12:39 PM user-f499 /Volumes/204/MHBR211/wiL27041_disk1of1/0073527041/wiL27041_pagefiles Chapter 1 Introducing Financial Accounting 17 have no future benefits after December). These transactions also use up an asset (cash) in carrying out FastForward’s operations. The accounting equation shows that both transactions reduce cash and equity. The far right column identifies these decreases as Expenses. Assets 5 Liabilities 1 Equity Cash 1 Supplies 1 Equipment 5 Accounts 1 Common 1 Revenues 2 Expenses Payable Stock Old Bal. $5,700 1 $9,600 1 $26,000 5 $7,100 1 $30,000 1 $4,200 (6) 21,000 _______ ______ _______ ______ _______ _______ 2 $1,000 ________ Bal. 4,700 1 9,600 1 26,000 5 7,100 1 30,000 1 4,200 2 1,000 (7) 2 700 2 700 _______ ______ _______ ______ _______ _______ ________ New Bal. $4,000 1 $9,600 1 $26,000 5 $7,100 1 $30,000 1 $4,200 2 $ 1,700 ⎧ ⎪ ⎪ ⎨ ⎪ ⎩ ⎧ ⎪ ⎪ ⎨ ⎪ ⎪ ⎩ $39,600 $39,600 Transaction 8: Provide Services and Facilities for Credit FastForward provides consulting services of $1,600 and rents its test facilities for $300 to a podiatric services center. The rental involves allowing members to try recommended footwear and accessories at FastForward’s testing area. The center is billed for the $1,900 total. This transaction results in a new asset, called accounts receivable, from this client. It also yields an increase in equity from the two revenue components reflected in the Revenues column of the accounting equation: Assets 5 Liabilities 1 Equity By definition, increases in expenses yield decreases in equity. Cash 1 Accounts 1 Supplies 1 Equipment 5 Accounts 1 Common 1 Revenues 2 Expenses Receivable Payable Stock Old Bal. $4,000 1 1 $9,600 1 $26,000 5 $7,100 1 $30,000 1 $4,200 2 $1,700 (8) 1 $1,900 1 1,600 1 300 ______ _______ ______ _______ ______ _______ ______ ________ New Bal. $4,000 1 $ 1,900 1 $9,600 1 $26,000 5 $7,100 1 $30,000 1 $6,100 2 $1,700 ⎧ ⎪ ⎨ ⎪ ⎩ ⎧ ⎪ ⎨ ⎪ ⎩ $41,500 $41,500 Transaction 9: Receipt of Cash from Accounts Receivable The client in transaction 8 (the podiatric center) pays $1,900 to FastForward 10 days after it is billed for consulting services. This transaction 9 does not change the total amount of assets and does not affect liabilities or equity. It converts the receivable (an asset) to cash (another asset). It does not create new revenue. Revenue was recognized when FastForward rendered the services in transaction 8, not when the cash is now collected. This emphasis on the earnings process instead of cash flows is a goal of the revenue recognition principle and yields useful information to users. The new balances follow: Assets 5 Liabilities 1 Equity Point: Receipt of cash is not always a revenue. Cash 1 Accounts 1 Supplies 1 Equipment 5 Accounts 1 Common 1 Revenues 2 Expenses Receivable Payable Stock Old Bal. $4,000 1 $1,900 1 $9,600 1 $26,000 5 $7,100 1 $30,000 1 $6,100 2 $1,700 (9) _______ 11,900 2 _______ 1,900 ______ _______ ______ _______ ______ ______ New Bal. $5,900 1 $ 0 1 $9,600 1 $26,000 5 $7,100 1 $30,000 1 $6,100 2 $1,700 ⎧ ⎪ ⎨ ⎪ ⎩ ⎧ ⎪ ⎨ ⎪ ⎩ $41,500 $41,500 Transaction 10: Payment of Accounts Payable FastForward pays CalTech Supply $900 cash as partial payment for its earlier $7,100 purchase of supplies (transaction 4), leaving $6,200 unpaid. The accounting equation shows that this transaction decreases FastForward’s cash by $900 and decreases its liability to CalTech Supply by $900. Equity does not change. This event does not create an expense even though cash flows out of FastForward (instead the expense is recorded when FastForward derives the benefits from these supplies).
wiL27041_ch01_002-047.indd Page 18 10/4/10 7:12:39 PM user-f499 /Volumes/204/MHBR211/wiL27041_disk1of1/0073527041/wiL27041_pagefiles 18 Chapter 1 Introducing Financial Accounting Assets 5 Liabilities 1 Equity Cash 1 Accounts 1 Supplies 1 Equipment 5 Accounts 1 Common 1 Revenues 2 Expenses Receivable Payable Stock Old Bal. $5,900 1 $ 0 1 $9,600 1 $26,000 5 $7,100 1 $30,000 1 $6,100 2 $1,700 (10) ______ 2 900 ________ ______ _______ ______ 900 2 _______ ______ ______ New Bal. $5,000 1 $ 0 1 $9,600 1 $26,000 5 $6,200 1 $30,000 1 $6,100 2 $1,700 ⎧ ⎪ ⎨ ⎪ ⎩ By definition, increases in dividends yield decreases in equity. ⎧ ⎪ ⎨ ⎪ ⎩ $40,600 $40,600 Transaction 11: Payment of Cash Dividend FastForward declares and pays a $200 cash dividend to its owner. Dividends (decreases in equity) are not reported as expenses because they are not part of the company’s earnings process. Since dividends are not company expenses, they are not used in computing net income. Assets 5 Liabilities 1 Equity Cash 1 Accounts 1 Supplies 1 Equipment 5 Accounts 1 Common 2 Dividends 1 Revenues 2 Expenses Receivable Payable Stock Old Bal. $5,000 1 $ 0 1 $9,600 1 $26,000 5 $6,200 1 $30,000 1 $6,100 2 $1,700 (11) 2 ______ 200 ______ ______ _______ ______ _______ 2 $200 _____ ______ ______ New Bal. $4,800 1 $ 0 1 $9,600 1 $26,000 5 $6,200 1 $30,000 2 $200 1 $6,100 2 $1,700 ⎧ ⎪ ⎨ ⎪ ⎩ ⎧ ⎪ ⎨ ⎪ ⎩ $40,400 $40,400 Summary of Transactions We summarize in Exhibit 1.9 the effects of these 11 transactions of FastForward using the accounting equation. First, we see that the accounting equation remains in balance after each transaction. Second, transactions can be analyzed by their effects on components of the EXHIBIT 1.9 Summary of Transactions Using the Accounting Equation Assets 5 Liabilities 1 Equity Cash 1 Accounts 1 Supplies 1 Equipment 5 Accounts 1 Common 2 Dividends 1 Revenues 2 Expenses Receivable Payable Stock (1) $30,000 5 $30,000 (2) 2 ________ 2,500 1 $2,500 _______ ________ Bal. 27,500 1 2,500 5 30,000 (3) 226,000 ________ _______ 1 $26,000 __ ________ ________ Bal. 1,500 1 2,500 1 26,000 5 30,000 (4) ________ 1 _______ 7,100 __ ________ 1$7,100 _________ ________ Bal. 1,500 1 9,600 1 26,000 5 7,100 1 30,000 (5) 1 ________ 4,200 _______ __ ________ _________ ________ 1 $4,200 ______ Bal. 5,700 1 9,600 1 26,000 5 7,100 1 30,000 1 4,200 (6) 2 ________ 1,000 _______ __ ________ _________ ________ ______ 2 _______ $1,000 Bal. 4,700 1 9,600 1 26,000 5 7,100 1 30,000 1 4,200 2 1,000 (7) 2 ________ 700 _______ __ ________ _________ ________ ______ 2 _______ 700 Bal. 4,000 1 9,600 1 26,000 5 7,100 1 30,000 1 4,200 2 1,700 (8) 1 $1,900 1 1,600 ________ _______ _______ __ ________ _________ ________ 1 ______ 300 _______ Bal. 4,000 1 1,900 1 9,600 1 26,000 5 7,100 1 30,000 1 6,100 2 1,700 (9) 1 ________ 1,900 2 _______ 1,900 _______ __ ________ _________ ________ ______ _______ Bal. 5,900 1 0 1 9,600 1 26,000 5 7,100 1 30,000 1 6,100 2 1,700 (10) 2 ________ 900 _______ _______ __ ________ 2 _________ 900 ________ ______ _______ Bal. 5,000 1 0 1 9,600 1 26,000 5 6,200 1 30,000 1 6,100 2 1,700 (11) 2 ________ 200 _______ _______ __ ________ _________ ________ 2 $200 _____ ______ _______ Bal. $ 4,800 1 $ 0 1 $ 9,600 1 $ 26,000 5 $ 6,200 1 $ 30,000 2 $ 200 1 $6,100 2 $ 1,700
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wiL27041_ch01_002-047.indd Page 18 10/4/10 7:12:39 PM user-f499 /Volumes/204/MHBR211/wiL27041_disk1of1/0073527041/wiL27041_pagefiles<br />
18 Chapter 1 <strong>Introducing</strong> <strong>Financial</strong> <strong>Accounting</strong><br />
Assets 5 Liabilities 1 Equity<br />
Cash 1 Accounts 1 Supplies 1 Equipment 5 Accounts 1 Common 1 Revenues 2 Expenses<br />
Receivable Payable Stock<br />
Old Bal. $5,900 1 $ 0 1 $9,600 1 $26,000 5 $7,100 1 $30,000 1 $6,100 2 $1,700<br />
(10) ______ 2 900 ________ ______ _______ ______ 900 2<br />
_______ ______ ______<br />
New Bal. $5,000 1 $ 0 1 $9,600 1 $26,000 5 $6,200 1 $30,000 1 $6,100 2 $1,700<br />
⎧<br />
⎪<br />
⎨<br />
⎪<br />
⎩<br />
By definition, increases in dividends<br />
yield decreases in equity.<br />
⎧<br />
⎪<br />
⎨<br />
⎪<br />
⎩<br />
$40,600 $40,600<br />
Transaction 11: Payment of Cash Dividend FastForward declares and pays a $200<br />
cash dividend to its owner. Dividends (decreases in equity) are not reported as expenses because<br />
they are not part of the company’s earnings process. Since dividends are not company expenses,<br />
they are not used in computing net income.<br />
Assets 5 Liabilities 1 Equity<br />
Cash 1 Accounts 1 Supplies 1 Equipment 5 Accounts 1 Common 2 Dividends 1 Revenues 2 Expenses<br />
Receivable Payable Stock<br />
Old Bal. $5,000 1 $ 0 1 $9,600 1 $26,000 5 $6,200 1 $30,000 1 $6,100 2 $1,700<br />
(11) 2 ______ 200 ______ ______ _______ ______ _______ 2 $200 _____ ______ ______<br />
New Bal. $4,800 1 $ 0 1 $9,600 1 $26,000 5 $6,200 1 $30,000 2 $200 1 $6,100 2 $1,700<br />
⎧<br />
⎪<br />
⎨<br />
⎪<br />
⎩<br />
⎧<br />
⎪<br />
⎨<br />
⎪<br />
⎩<br />
$40,400 $40,400<br />
Summary of Transactions<br />
We summarize in Exhibit 1.9 the effects of these 11 transactions of FastForward using the<br />
accounting equation. First, we see that the accounting equation remains in balance after each<br />
transaction. Second, transactions can be analyzed by their effects on components of the<br />
EXHIBIT 1.9<br />
Summary of Transactions Using the <strong>Accounting</strong> Equation<br />
Assets 5 Liabilities 1 Equity<br />
Cash 1 Accounts 1 Supplies 1 Equipment 5 Accounts 1 Common 2 Dividends 1 Revenues 2 Expenses<br />
Receivable Payable Stock<br />
(1) $30,000 5 $30,000<br />
(2) 2 ________ 2,500 1 $2,500 _______ ________<br />
Bal. 27,500 1 2,500 5 30,000<br />
(3) 226,000 ________ _______ 1 $26,000 __ ________ ________<br />
Bal. 1,500 1 2,500 1 26,000 5 30,000<br />
(4) ________ 1 _______ 7,100 __ ________ 1$7,100 _________ ________<br />
Bal. 1,500 1 9,600 1 26,000 5 7,100 1 30,000<br />
(5) 1 ________ 4,200 _______ __ ________ _________ ________ 1 $4,200 ______<br />
Bal. 5,700 1 9,600 1 26,000 5 7,100 1 30,000 1 4,200<br />
(6) 2 ________ 1,000 _______ __ ________ _________ ________ ______ 2 _______ $1,000<br />
Bal. 4,700 1 9,600 1 26,000 5 7,100 1 30,000 1 4,200 2 1,000<br />
(7) 2 ________ 700 _______ __ ________ _________ ________ ______ 2 _______ 700<br />
Bal. 4,000 1 9,600 1 26,000 5 7,100 1 30,000 1 4,200 2 1,700<br />
(8) 1 $1,900 1 1,600<br />
________ _______ _______ __ ________ _________ ________ 1 ______ 300 _______<br />
Bal. 4,000 1 1,900 1 9,600 1 26,000 5 7,100 1 30,000 1 6,100 2 1,700<br />
(9) 1 ________ 1,900 2 _______ 1,900 _______ __ ________ _________ ________ ______ _______<br />
Bal. 5,900 1 0 1 9,600 1 26,000 5 7,100 1 30,000 1 6,100 2 1,700<br />
(10) 2 ________ 900 _______ _______ __ ________ 2 _________ 900 ________ ______ _______<br />
Bal. 5,000 1 0 1 9,600 1 26,000 5 6,200 1 30,000 1 6,100 2 1,700<br />
(11) 2 ________ 200 _______ _______ __ ________ _________ ________ 2 $200 _____ ______ _______<br />
Bal. $ 4,800 1 $ 0 1 $ 9,600 1 $ 26,000 5 $ 6,200 1 $ 30,000 2 $ 200 1 $6,100 2 $ 1,700
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