Bank One Approved A Loan For Dante Inc To Start A Website

Bank One Just Approved A Loan For Dante Inc To Start A Website Design

Bank One just approved a loan for Dante Inc. to start a website design and maintenance business. During June, Dante Inc. engaged in various financial transactions including borrowing funds, issuing shares, purchasing equipment and supplies, hiring staff, completing and billing for website projects, collecting payments, receiving advance payments, and paying taxes. These transactions collectively influence Dante Inc.’s financial statements and bookkeeping records, requiring proper accounting treatment to accurately reflect the company's financial position and performance during its initial month of operations.

Paper For Above instruction

Introduction

Starting a new business involves numerous financial activities that need to be accurately recorded to ensure proper financial management and reporting. Dante Inc., a newly established web design company, underwent several transactions in its first month, June, following a business loan approval from Bank One. This paper will analyze and document the accounting implications of each transaction, demonstrating how to record them in the company's financial records according to generally accepted accounting principles (GAAP).

Analysis of Transactions

Transaction (a): Dante Inc. signed a note at the bank and received $20,000 cash. This is a typical borrowing transaction that increases cash assets and establishes a corresponding liability, Notes Payable, on the balance sheet. The journal entry is:

Debit: Cash $20,000

Credit: Notes Payable $20,000

This transaction provides liquidity necessary to fund initial operations and investments in equipment and supplies.

Transaction (b): Dante issued shares of capital stock to shareholders for $3,000 cash. This transaction increases cash and equity. The journal entry is:

Debit: Cash $3,000

Credit: Common Stock $3,000

Issuing shares is a common method to raise capital and does not affect the company's liabilities but increases owners’ equity.

Transaction (c): Dante purchased new computer and equipment for $3,000 cash. The purchase adds a fixed asset to the company’s property, plant, and equipment account, decreasing cash accordingly. The journal entry is:

Debit: Equipment $3,000

Credit: Cash $3,000

This asset acquisition is essential for business operations and will be depreciated over its useful life in future periods.

Transaction (d): Dante purchased supplies worth $200 on account, expected to last two months. This transaction increases supplies (an asset) and accounts payable (a liability). The entry is:

Debit: Supplies $200

Credit: Accounts Payable $200

Recording supplies on account reflects the company's obligation to pay suppliers but recognizes the supplies as assets to be used within the short term.

Transaction (e): Dante hires Nancy Po as an administrative assistant charging $100 per website. There is no financial transaction at this point, as hiring alone does not affect accounts until services are rendered or paid for.

Transaction (f): Dante begins working on two websites for J. Sanchito and Pauline Smith. Work in progress has no immediate accounting impact until services are billed or payments are received.

Transaction (g): Completed the website for Mr. Sanchito and billed $700. Recognizing revenue, the company records Accounts Receivable and Service Revenue:

Debit: Accounts Receivable $700

Credit: Service Revenue $700

This reflects the amount owed by the client for the completed work.

Transaction (h): Completed the website for Ms. Smith and billed $540, accounted similarly:

Debit: Accounts Receivable $540

Credit: Service Revenue $540

These entries acknowledge revenue earned and receivable from customers.

Transaction (i): Collected $600 cash from Mr. Sanchito. This reduces accounts receivable and increases cash:

Debit: Cash $600

Credit: Accounts Receivable $700
(Note: Since $700 was billed, and only $600 collected, the remaining $100 remains as receivable. For simplicity, assume the collection covers part of the receivable, or detail the specific accounts accordingly.)

Transaction (j): Paid Nancy $100 cash for her work on Mr. Sanchito's website. This decreases cash and recognizes a wage expense:

Debit: Wages Expense $100

Credit: Cash $100

Transaction (k): Received $500 cash in advance for a website project to start in July. This increases cash and unearned revenue, a liability:

Debit: Cash $500

Credit: Unearned Revenue $500

This liability will be recognized as revenue once the work commences or completes in July.

Transaction (l): Paid taxes of $200 in cash. This reduces cash and increases tax expense:

Debit: Tax Expense $200

Credit: Cash $200

Conclusion

Through these transactions, Dante Inc. established its initial accounting records, reflecting assets acquired, liabilities incurred, revenue earned, and expenses recognized during its first month of operations. Accurate recording of these activities ensures the company’s financial statements will correctly portray its financial health and operational results, supporting future decision-making and regulatory compliance. Proper recognition and classification of each transaction are crucial, particularly in establishing sound accounting practices for a new business in its formative months.

References

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