The Following Transactions Were Completed By The Company

The Following Transactions Were Completed By The Companya The Compan

The following transactions were completed by the company:

  • The company completed consulting work for a client and immediately collected $5,500 cash earned.
  • The company completed commission work for a client and sent a bill for $4,000 to be received within 30 days.
  • The company paid an assistant $1,400 cash as wages for the period.
  • The company collected $1,000 cash as a partial payment for the amount owed by the client in transaction b.
  • The company paid $700 cash for this period's cleaning services.

Paper For Above instruction

The analysis of the company's transactions provides insight into its cash flow, revenue recognition, and expense management during the period. These transactions exemplify fundamental accounting principles, including revenue realization, expense recognition, and cash management, which are crucial for maintaining accurate financial records and ensuring compliance with accounting standards.

Introduction

Understanding the impact of specific transactions on a company's financial position is essential for accurate financial reporting and decision-making. The transactions in question involve cash receipts and payments, revenue recognition, and expense recording, providing a comprehensive view of typical business activities. This paper analyzes each transaction's accounting implications and their cumulative effect on the company's financial statements, including the balance sheet and income statement.

Transaction Analysis

a) Immediate cash receipt for consulting work

When the company completed consulting work and received $5,500 in cash immediately, it recognized a revenue of $5,500 and increased its cash assets. This transaction directly impacts the cash account (an asset) and the revenue account on the income statement, reflecting earned income. Since the cash was received immediately, there is no receivable to record, simplifying the recognition process.

b) Billing for commission work to be received within 30 days

The company performed commission work and issued a bill for $4,000, which is to be received within 30 days. This transaction creates an accounts receivable, an asset, representing the company's right to collect this amount in the future. Revenue is recognized at the point of service completion, adhering to the revenue recognition principle, whether cash has been received or not. The delay in payment necessitates recording an accounts receivable rather than cash.

c) Payment of wages

The company paid its assistant $1,400 in wages via cash. This expense reduces net income and cash assets. Recording this transaction involves debiting wages expense and crediting cash. The transaction reflects the company's operating costs and is vital for accurate profit calculation and financial position assessment.

d) Partial collection from client for the billed service

Of the $4,000 billed in transaction b, $1,000 was collected in cash, reducing the accounts receivable. This payment increases cash assets and decreases receivables but does not affect revenue recognition, as the revenue was already recognized at the time of billing. This transaction demonstrates cash inflow and the collection of receivable assets.

e) Payment for cleaning services

The company paid $700 cash for cleaning services, representing an operating expense. Recording this involves debiting cleaning expense and crediting cash. This expense affects net income and provides a complete picture of operational costs, which is essential for profitability analysis.

Financial Implications

The collection of revenue (transactions a and d) boosts cash and accounts receivable, respectively, indicating positive cash flow and effective receivables management. Expenses paid (transactions c and e) reduce cash and net income, reflecting operational costs necessary for business continuity. These transactions collectively contribute to the company's profitability and liquidity, critical indicators for stakeholders.

Conclusion

Analyzing these transactions highlights core accounting principles such as revenue recognition upon service completion and expense recognition when incurred, regardless of cash flow. Immediate cash transactions simplify recording, but-credit-billing and partial collections require careful tracking of receivables and cash inflows. Proper documentation and timely recording of these transactions are vital for accurate financial statements, which inform managerial decision-making and external reporting. Accurate accounting ensures the company maintains financial health and complies with applicable accounting standards.

References

  • Epstein, L., & Jermakowicz, E. (2017). International Financial Reporting Standards (IFRS): A Practical Guide. Wiley.
  • Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2019). Financial Accounting, IFRS Edition. Wiley.
  • Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2020). Financial Accounting: Tools for Business Decision Making. Wiley.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
  • Needles, B. E., & Powers, M. (2020). Financial Accounting. Cengage Learning.
  • Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management. Cengage Learning.
  • Accounting Standards Codification (ASC) 606 - Revenue from Contracts with Customers.
  • International Accounting Standards Board (IASB), IFRS 15 - Revenue from Contracts with Customers.
  • Harrison, W., & Hoque, Z. (2017). Financial Accounting and Reporting: A Strategic Approach. CRC Press.
  • Choi, F. D. S., & Meek, G. K. (2018). International Accounting. Pearson.

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