Instructor Response Discussion Week 2 Instructor Alkhateeb

An Instructor Responsediscussion Week 2instructor Alkhateeb4172016

Business event analysis and the resulting impact on a business due to an event is new to virtually everyone. Let's practice and improve our skills by examining additional business events, but this time let's focus on expressing the impact in terms of debits and credits. Note that learning how to express a business transaction in terms of debits and credits is a critical skill you need to succeed in Accounting I, Accounting II, additional accounting courses, in your career as an accountant, and in your career in business where you will be working with accountants.

Also note that the process of recording a transaction using debits and credits and verifying that total debits in the transaction equal total credits in the transaction ensures that the accounting equation remains in balance. For a business entity of your choice, a real or fictitious business, identify a typical business activity, an individual transaction where the business “gives up” something to “get” something else. For your example (note: use specific dollar amounts ): In your own words, describe the business transaction (i.e., event). Identify the specific accounts (e.g., cash, telephone expense) that are affected by the exchange. Are they assets, liability, or equity accounts?

Describe how the accounts are affected in terms of debits and credits. In other words, what account is debited and what account is credited? Is the accounting equation in balance? I urge you to practice by posting an example that no other student has posted. Examples that repeat examples posted by others are most likely to be evaluated as low value posts.

Paper For Above instruction

In accounting, understanding how individual business transactions impact financial statements through debits and credits is fundamental. This exercise aims to deepen comprehension by analyzing a specific business activity, identifying affected accounts, and demonstrating the correct application of double-entry accounting principles while ensuring the balance of the accounting equation.

Let us consider a fictitious retail business, "Quick Buy Inc.," engaging in a typical cash purchase. Suppose Quick Buy Inc. purchases inventory worth $5,000 in cash. This transaction reflects an exchange where the business gives up cash to acquire inventory, an asset. Initially, cash (an asset) decreases, and inventory (another asset) increases. However, since cash is being used to purchase inventory, the total assets remain balanced.

In this transaction, the specific accounts affected are Cash and Inventory. Cash is a current asset, and Inventory is also a current asset. The overall impact on the accounting equation must keep assets in balance or reflect the correct change in asset composition.

Applying the rules of debits and credits, Cash (an asset) decreases, so it is credited. Conversely, Inventory (another asset) increases, so it is debited. The journal entry for this transaction would be as follows:

  • Debit: Inventory $5,000
  • Credit: Cash $5,000

This double-entry confirms that total debits equal total credits, maintaining the fundamental accounting principle. The accounting equation (Assets = Liabilities + Equity) remains balanced because the total assets are unaffected in net value, merely changing form from cash to inventory. This example demonstrates an understanding of the debits and credits process, how accounts are affected, and the importance of maintaining balance in financial reporting.

Practicing with unique examples helps reinforce comprehension and prepares students to accurately record real-world transactions. For example, if Quick Buy Inc. instead paid for phone service of $200 with cash, the account "Telephone Expense" (an expense) would be debited, and Cash (asset) credited, further illustrating how various transaction types impact different account categories.

References

  • Horngren, C. T., Sundem, G. L., Elliott, J. A., & Philbrick, D. R. (2014). Introduction to Financial Accounting (11th ed.). Pearson.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting (10th Ed.). Wiley.
  • Nobles, R., Mattison, P., & Matsumura, P. (2014). Financial Accounting (11th ed.). Cengage Learning.
  • Schneider, D. M. (2016). Accounting Principles (12th ed.). McGraw-Hill Education.
  • Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2014). Financial Statement Analysis (11th ed.). McGraw-Hill Education.
  • Healy, P. M., & Palepu, K. G. (2012). Business Analysis & Valuation: Using Financial Statements (4th ed.). Cengage Learning.
  • Riggs, R. (2012). Accounting: An Introduction (2nd ed.). Pearson.
  • Boynton, W. C., & Johnson, R. (2019). Modern Auditing & Assurance Services (8th ed.). Cengage Learning.
  • Lambert, R. (2015). Managerial and Financial Accounting: The Integration of Financial and Managerial Accounting. Routledge.
  • Epstein, L., & Jermakowicz, E. (2010). IFRS: A Practical Guide. John Wiley & Sons.

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