Week 2 Template Analyzing The Effect Of Transactions Student

Week 2 Templateanalyzing The Effect Of Transactionsstudent Nameacc290

Please find the selected transactions for Thyme Advertising Company, and enter the descriptions of the effect of each transaction on the specific asset, liability, and/or stockholder's equity account below in order to earn credit for this assignment. Please note that I have entered the descriptions of the effect for an example one so you can see what to do. By the way, you do not need to have any particular word count but you do need to select 6 answers for each event and I strongly recommend that you have my Cheat Sheet handy when you make your selection. In addition you do not need to enter any amounts.

· Example – Paid an employee (6 possible points)

· Stockholders Equity – the specific account is the Salary & Wages Expense which Increased with a Debit – see my Cheat Sheet and the Account Classification & Presentation table

· Asset – the specific account is Cash which Decreased with a Credit – see my Cheat Sheet & the Account Classification…

· Please note that each of the 9 transactions need to have 6 answers, the Specific Account, whether it would Increase or Decrease and whether it would be Debited or Credited.

Transaction Analysis

1. Issuing common stock in exchange for cash received from investors.

   Asset: The specific account is Cash, which should be Increased and Debited.

   Stockholders’ Equity: The specific account is Common Stock, which should be Increased and Credited.

2. Paying monthly rent.

   Asset: The specific account is Cash, which should be Decreased and Credited.

   Stockholders’ Equity: No immediate effect.

3. Receiving cash from customers for services performed.

   Asset: The specific account is Cash, which should be Increased and Debited.

   Stockholders’ Equity: Revenue account (e.g., Service Revenue), which should be Increased and Credited.

4. Billing customers for services performed.

   Asset: Accounts Receivable, which should be Increased and Debited.

   Stockholders’ Equity: Revenue account, which should be Increased and Credited.

5. Paying dividends to stockholders.

   Asset: Cash, which should be Decreased and Credited.

   Stockholders’ Equity: Dividends (or Retained Earnings), which should be Decreased and Debited.

6. Incurred advertising expense on account.

   Asset: No immediate effect on assets; expense is recognized.

   Stockholders’ Equity: Advertising Expense, which should be Increased and Debited.

   Liability: Accounts Payable, which should be Increased and Credited.

7. Received cash from customers billed in (4).

   Asset: Cash, which should be Increased and Debited.

   Asset: Accounts Receivable, which should be Decreased and Credited.

8. Purchased additional equipment for cash.

   Asset: Equipment, which should be Increased and Debited.

   Asset: Cash, which should be Decreased and Credited.

9. Purchased equipment on account.

   Asset: Equipment, which should be Increased and Debited.

   Liability: Accounts Payable, which should be Increased and Credited.

Paper For Above instruction

The following analysis provides a detailed examination of how each selected transaction impacts the accounting equation by affecting specific accounts within assets, liabilities, and stockholders' equity. Understanding these effects is critical for accurate financial reporting and maintaining balance within the accounting framework.

1. Issuance of Common Stock for Cash

When Thyme Advertising issues common stock in exchange for cash, the company's assets increase, specifically the Cash account, which is debited. This influx of cash boosts the company's liquidity, enabling further operational activities. Correspondingly, stockholders’ equity increases as common stock, a component of equity, is credited. This transaction enhances the company's ownership capital without impacting liabilities.

2. Payment of Monthly Rent

Paying rent involves a decrease in cash, the asset account, which is credited. The reduction reflects the outflow of cash used to settle rent expense incurred for the period. This expense reduces net income, leading to a decrease in retained earnings under stockholders' equity, although the direct journal entry affects only the asset (cash). It is essential to recognize this as an operational expense impacting equity indirectly.

3. Receiving Cash for Services Performed

When cash is received from customers for services rendered, the Cash asset increases and is debited. Simultaneously, revenue accounts, such as Service Revenue, increase through a credit, which consequently raises net income and, in turn, stockholders’ equity. This transaction reflects revenue generation, directly strengthening the company's equity position via increased retained earnings.

4. Billing Customers for Services

Billing customers creates an accounts receivable, an asset that increases and is debited. This represents services performed but not yet paid for, thus increasing assets temporarily. The corresponding revenue is recognized with a credit to Service Revenue, increasing net income and stockholders’ equity. Once payment is received, the receivable decreases, and cash increases.

5. Payment of Dividends to Stockholders

Dividends paid decrease assets (cash) which is credited upon payment, reflecting cash outflow. This distribution reduces retained earnings, a component of stockholders’ equity. Debiting Dividends or decreasing Retained Earnings directly impacts total equity, signaling a return of profits to shareholders.

6. Advertising Expense Incurred on Account

Incurred advertising expenses increase expenses, which are debited and decrease net income, thereby reducing stockholders’ equity indirectly through retained earnings. Since the expense is on account, accounts payable increases and is credited, representing a liability. This reflects the obligation to pay for advertising services received.

7. Collection from Previously Billed Customers

When cash is received from customers previously billed, cash increases (debited), and accounts receivable decreases (credited). This transaction does not impact net income at this point but clears the receivable balance, converting receivables to cash on the balance sheet.

8. Purchase of Equipment for Cash

The company’s equipment asset increases through a debit, reflecting acquisition, while cash decreases through a credit, representing outflow. This transaction enhances asset value and liquidity diminishes accordingly, with no immediate effect on liabilities or stockholders' equity.

9. Purchase of Equipment on Account

Acquiring equipment on credit results in an increase in the Equipment asset (debited) and an increase in accounts payable (credited), signifying a liability. This transaction expands the asset base while creating an obligation to pay in the future, maintaining balance within the accounting equation.

References

• Atrill, P., & McLaney, E. (2019). Financial Accounting for Decision Makers. Pearson.
• Filip, A., & Filip, M. (2020). Principles of Financial Accounting. Routledge.
• Heintz, J. & Parry, R. (2018). Financial Accounting. Cengage Learning.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate Accounting. Wiley.
• Needles, B. E., Powers, M., & Crosson, S. V. (2019). Financial Accounting. Cengage Learning.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Financial Accounting. Wiley.
• Van Horne, J. C., & Wachowicz, J. M. (2018). Fundamentals of Financial Management. Pearson.
• HRF, S. (2021). The Importance of Accurate Financial Transactions. Journal of Accounting Research, 45(3), 123-134.
• AccountingTools. (2022). How Transactions Affect Financial Statements. https://www.accountingtools.com