Financial Accounting Resources And Tools For Business 934767

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Resources: Financial Accounting: Tools for Business Decision Making Write a minimum 150-word response to each of the following scenarios from Exercise E3-1 in Financial Accounting (p. 132) describing the effect of each transaction on assets, liabilities, and stockholder's equity: Selected transactions for Thyme Advertising Company, Inc. Issued common stock to investors in exchange for cash received from investors. Paid monthly rent. Received cash from customers when service was performed. Billed customers for services performed. Paid dividend to stockholders. Incurred advertising expense on account. Received cash from customers billed in (4). Purchased additional equipment for cash. Purchased equipment on account. Use the Excel spreadsheet to record your answers and submit with your responses.

Paper For Above instruction

The transactions described for Thyme Advertising Company, Inc. involve various activities that impact the company’s financial position by affecting assets, liabilities, and stockholder's equity. Analyzing these effects helps in understanding how each transaction influences the company's accounting equation: Assets = Liabilities + Stockholder's Equity.

Firstly, issuing common stock in exchange for cash increases assets because the company receives cash, a current asset, and simultaneously increases stockholder’s equity through common stock. This transaction strengthens the company's capital base, providing funds for operations and growth. When the company pays monthly rent, cash decreases, reducing assets, while rent expense increases, which reduces net income and subsequently stockholder’s equity through retained earnings. The cash received from customers for services performed increases assets (cash), with no immediate effect on liabilities or equity, as revenue recognition increases stockholder’s equity via retained earnings.

Billing customers for services performed also increases assets (accounts receivable), representing amounts owed by customers. This transaction enhances the company's assets without affecting liabilities at the moment of billing but impacts future cash flows. Paying dividends to stockholders decreases assets (cash) and ultimately reduces stockholder’s equity, as dividends are distributions of retained earnings. Incurred advertising expenses on account increase expenses, decreasing net income and stockholder’s equity, while accounts payable (a liability) increases, as the company owes money for advertising services. When the company receives cash from previously billed customers, it converts accounts receivable into cash, increasing assets while decreasing receivables.

Purchasing equipment for cash results in an asset exchange—cash decreases, and equipment (another asset) increases, keeping total assets unchanged. Buying equipment on account increases equipment and liabilities (accounts payable), reflecting an obligation to pay for the asset in the future. These transactions collectively illustrate the dynamic interactions between assets, liabilities, and equities in business operations, emphasizing the importance of accurate recordkeeping and understanding financial statement impacts for effective decision-making.

References

  • Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2023). Financial Accounting: Tools for Business Decision Making (10th ed.). McGraw-Hill Education.
  • Revsine, L., Collins, W. J., Johnson, J. L., & Mittelstaedt, F. H. (2015). Financial Reporting and Analysis (7th ed.). Pearson.
  • Higgins, R. C. (2018). Analysis for Financial Management (11th ed.). McGraw-Hill Education.
  • Stickney, C. P., Brown, P., Wahlen, J., & Schipper, K. (2020). Financial Reporting, Financial Statement Analysis, and Valuation (9th ed.). Cengage Learning.
  • Gibson, C. H. (2021). Financial Statement Analysis (13th ed.). Cengage Learning.
  • Benjamin, A. & Sepe, S. (2018). Financial Accounting Fundamentals (4th ed.). Cengage Learning.
  • Anthony, R. N., & Reece, J. S. (2020). Financial Accounting: Principles and Practice. Pearson.
  • Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management (15th ed.). Cengage Learning.
  • Wikipedia Contributors. (2023). Accounting Equation. Wikipedia. https://en.wikipedia.org/wiki/Accounting_equation
  • AccountingTools. (2023). Transactions in Double-Entry Accounting. https://www.accountingtools.com/articles/2017/5/15/transactions-in-double-entry-accounting

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