Transaction Analysis For Decision Makers

Transaction Analysisc213 Accounting For Decision Makersfor Each Trans

For each transaction below, indicate the amount the affected accounts increase (treat amount as positive number) or decrease (treat amount as negative number). Balance Sheet Transaction Analysis Assets = Liabilities + Owners' Equity Income Statement.

Transactions:

1. Received $400,000 in cash from Tom Maudi and issued common stock to him.
2. Purchased land for $30,000 cash.
3. Borrowed $45,000 from the bank and signed a note.
4. Purchased $80,000 of inventory on account.
5. Sold some of the inventory in #4 for $50,000 on account.
6. Expensed inventory sold in #5. Cost of goods sold equals 60% of sales.
7. Purchased supplies on account for $1,000.
8. Paid $55,000 on accounts payable.
9. Paid property tax expense of $1,000.
10. Paid office employee salaries of $2,500.
11. Received $12,000 on accounts receivable.
12. Purchased 12-month insurance policy for $15,000.
13. Sold some of the inventory in #4 for $40,000 in cash.
14. Expensed inventory sold in #13. Cost of goods sold equals 60% of sales.
15. Purchased office building and warehouse for $200,000. Signed a note with the bank.
16. Paid $100 interest.
17. Paid $200 utilities.

Paper For Above instruction

The provided transactions involve diverse activities typical in corporate accounting, impacting various accounts and requiring accurate analysis to reflect the financial position correctly. This analysis highlights how each transaction affects the balance sheet accounts and income statement components, demonstrating core accounting principles used by decision-makers in financial reporting.

Transaction 1 depicts an influx of cash and issuance of common stock, increasing both assets and owners' equity. The cash account (asset) increases by $400,000, and common stock (owners' equity) increases by the same amount. This transaction signifies equity financing, providing capital to the company without affecting liabilities or expenses.

Purchasing land for $30,000 cash (Transaction 2) results in a decrease in cash (assets) and an increase in land (property, plant, and equipment). Specifically, cash decreases by $30,000, and land increases by $30,000. Since land is a long-term asset, it impacts the balance sheet without immediate effect on income statements.

Transaction 3 involves borrowing $45,000, which increases cash (asset) and notes payable (liability). The transaction increases assets by $45,000 and liabilities by $45,000, reflecting a promissory note that obligates future repayment, with no immediate effect on the income statement.

Purchasing inventory on account for $80,000 (Transaction 4) increases inventory (assets) by $80,000 and accounts payable (liability) by $80,000, illustrating an increase in assets financed through an obligation to pay later, with no effect on the income statement at this point.

Sale of inventory for $50,000 on account (Transaction 5) increases accounts receivable (assets) and recognizes sales revenue on the income statement. The accounts receivable increases by $50,000, and sales revenue increases by the same amount, contributing to income recognition. Cost of goods sold (COGS), calculated at 60% of sales ($30,000), decreases inventory (assets) correspondingly, reflecting the expense of inventory used in the sale.

Expensing the inventory sold in #5 (Transaction 6) involves recording COGS as an expense reducing net income. The COGS expense increases by $30,000, decreasing retained earnings through net income reduction, with inventory decreasing by the same amount.

Purchasing supplies for $1,000 on account (Transaction 7) increases supplies (assets) and accounts payable (liability) by $1,000, representing an obligation to pay for supplies later, with no immediate income statement impact.

Paying $55,000 on accounts payable (Transaction 8) decreases cash (assets) and accounts payable (liability) by $55,000. This reduces liabilities and cash, with no direct effect on income statement items.

Paying property tax expense of $1,000 (Transaction 9) decreases cash and recognizes property tax expense on the income statement, decreasing net income and retained earnings.

Paying office employee salaries of $2,500 (Transaction 10) decreases cash and increases salaries expense, reducing net income and retained earnings.

Receiving $12,000 on accounts receivable (Transaction 11) increases cash and decreases accounts receivable by the same amount, with no effect on income statement.

Purchasing a 12-month insurance policy for $15,000 (Transaction 12) increases prepaid expenses (asset) and decreases cash. The expense recognition occurs over the insurance period, affecting income statement over time.

Sale of inventory for $40,000 in cash (Transaction 13) increases cash and recognizes sales revenue; COGS (60% of sales, $24,000) decreases inventory. These entries increase assets and income, reflecting operational revenue.

Expensing the inventory sold in #13 (Transaction 14) involves recording $24,000 COGS and decreasing inventory accordingly, impacting net income.

Purchasing an office building and warehouse for $200,000 (Transaction 15) increases property, plant, and equipment (assets) and decreases cash. The note payable increases by $200,000, showing financing but no immediate income statement impact.

Paying $100 interest (Transaction 16) decreases cash and records interest expense, reducing net income and retained earnings.

Paying utilities for $200 (Transaction 17) decreases cash and recognizes utilities expense, decreasing net income.

Overall, these transactions exemplify fundamental financial activities of a business, demonstrating the dual-effect principles of accounting, where each transaction impacts at least two accounts, maintaining the accounting equation's balance. Proper analysis ensures accurate financial reporting, supporting decision-makers' understanding of the company's financial health.

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