Accounting … Chapter 1

Transaction analysis
Transaction (1): investment by owner:-
 The owner invests $ 15,000 cash to start the business.
Asset = liabilities + owner's equity
(cash) + $ 15,000 = -0- + $ 15,000 (capital)

Transaction (2) : purchase supplies for cash :-

 Matrix purchase for $ 1,600 from B company computer paper and other
supplies for cash.
A = L + O'E
(Cash) - $ 1600 = -0-
(Supplies) + $ 1600 =

Transaction (3) : purchase equipment for cash :-

 Matrix purchase computer equipment for $ 7,000 cash.
A = L + O'E
(Cash) - $ 7000 = -0-
(Equipment) + $ 7000 =

Transaction (4) : purchase supplies and equipment for credit ( on account ) :-

 Matrix purchases supplies of $ 400 and equipment of $ 700 on account
from B Company.
A = L + O'E
(Supplies) + $ 400 = + $ 1,100 (account payable) + -0-
(Equipment) + $ 700 =

Transaction (5) : services provided for cash :-

 Matrix receives $ 1,200 cash from customers for programming services.
A = L + O'E
(Cash) + $ 1,200 = - 0 - + $ 1,200 ( service revenue )

Transaction (6) : purchase of advertising on credit :-

 Matrix receives a bill for advertising from daily news.
A = L + O'E
-0- = (Account payable) + $ 250 - $ 250 (advertising expense)

Mr : Kareem Abo Zeed

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Accounting … Chapter 1

Transaction (7) : services provided for cash and credit :-

 Matrix provides $ 3,500 of programming services.
 Receive cash of $ 1,500 and $ 2,000 is billed on account.
A = L + O'E
(cash) + $ 1,500 = - 0 - + $ 3,500 ( services revenue)
(account receivable) + $ 2,000

Transaction (8) : payment of expenses :-

 Matrix paid in cash rent of $ 800 and salaries of employees of $ 900.
A = L + O'E
(Cash) - $ 1700 = -0- - $ 800 (rent expense)
- $ 900 (salaries expense)

Transaction (9) : payment of account payable :-

 Matrix pays a bill of $ 250 for advertising to daily news in cash.
A = L + O'E
(Cash) - $ 250 = - $ 250 (account payable) + -0–

Transaction (10): receipt of cash on account:-

 Matrix receives $ 600 from customers who have been billed for services
before on account.
A = L + O'E
(Cash) + $ 600 = -0-
(Account receivable) - $ 600 =

Transaction (11):- withdrawal of cash by owner:-

 The owner withdraws $ 1,300 in cash from the company for his
personal. use.
A = L + O'E
(Cash) - $ 1,300 = - 0 - + - $ 1,300 (drawings)

Mr : Kareem Abo Zeed

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Accounting … Chapter 1
Examples
 Given the following information about matrix company :-
1. The owner invested $ 15,000 cash to start the business.
2. Purchased supplies from B Company for $ 1,600 cash.
3. Purchased computer equipment for $ 7,000 cash.
4. Purchased supplies of $ 400 and equipment of $ 700 on account from
B Company.
5. Received $ 1,200 cash from customers for programming services.
6. Made an advertising of $ 250 in the daily news on account.
7. Provided a programming services of $ 3,500 received cash of $ 1,500
and $2,000 on credit.
8. Paid rent and employees salaries of $ 800, $ 900 in accordance.
9. Paid a account of $ 250 for advertising to daily news.
10. Received $ 600 from customers for services before on account.
11. With drew $ 1,300 cash from the company for personal use.

 Required :-
1) Prepare the summary of all transactions. And Display the balance
sheet at the end of transactions.
2) Compute the net profit.
 Solve
1)
Assets Liabilitie Owner's equity
s
Cash Supplie Equipme Account Account Capit With- Revenue Expens
s nt receivabl payable al drawl s e
e s
1 15,00 15,00
0 0
2 (1,600 1,600
)
3 (7,000 7,000
)
4 400 700 1,100
5 1,200 1,200
6 250 (250)
7 1,500 2,000 3,500
8 (1,700 (800)
) (900)

Mr : Kareem Abo Zeed

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Accounting … Chapter 1
9 (250) (250)
1 600 (600)
0
1 (1,300 (1,300
1 ) )
6,450 2,000 7,700 1,400 1,100 15,00 (1300 4,700 (1,950)
0 )
$ 17,550 $ 17,550
2) income statement :-
 Matrix company income statement Dec. 31,2008

Matrix company balance sheet Dec. 31,2008

Revenues :
 Service revenue $ 4700
Expenses :
 Advertising expense 250
 Rent expense 800
 Salary expense 900
Net income $ 2,750

3) Statement of owner's equity :

Matrix company balance sheet Dec. 31,2008

Capital – beginning -- 0 –
+ investments $ 15,000
+ net income 2,750
(-) withdrawals (1,300)
= capital – ending $ 16,450

4) The balance sheet :

Matrix company balance sheet Dec. 31,2008

Assets : Liabilities :
 Cash 6,450  Account payable $ 1,100
 Supplies 2,000 Equity :
 equipment 7,700  Capital $16,450
 A/R 1,400

Mr : Kareem Abo Zeed

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Accounting … Chapter 1
total liabilities and
Total Assets $ 17,550 equity $17,550

Example

The following below includes some information about financial

transaction through October 2009:
1.Ali invested $ 20,000 in his business.
2. Ali Purchased inventory by $ 2,000 cash.
3. He Purchased vehicle is amounted to $ 3,500 on account.
4. He received $ 1,100 cash from fees of services provided to
customers.
5. He pays $ 250 for expense as follows ($ 100 rent, $ 100
salary and $ 50 utility).
6. He withdraws $ 200 cash for his personal use.
7. He received $ 3,000 from fees of services provided as
follows ($2,000 cash, $ 1,000 on credit).
 Required :-
1) Prepare the summary of all transactions
2) Compute the net profit.
3) Display the balance sheet at the end of transactions.

Mr : Kareem Abo Zeed

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 Accounting … Chapter 1

2-1 .
Assets Liabilitie Owner's equity
s
Cash inventor vehicl Account Account Capita drawing Revenue Expens
y e receivabl payable l s s e
e
1 20,00 20,00
0 0
2 (2,000 2,000
)
3 3,500 3,500
4 1,100 1,100
5 (250)
6 (200) (200) (250)
7 2,000 1,000 3,000
20,65 2,000 3,500 1,000 3,500 20,00 (200) 4,100 (250)
0 0
Total Assets $ Total liabilities and owner 's equity $
27,150 27,150
2-2

Ali's income statement October,2009

Revenues :
 Service revenues $ 4,100
Expenses :
 Rent expense 100
 Salaries expense 100
 Utilities expense 50 (250)
Net income $ 3,850
2-3

Ali's Statement of owner's equity October ,2009

Mr : Kareem Abo Zeed

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Accounting … Chapter 1
Capital – beginning -- 0 –
+ investment $ 20,000
+ net income 3,850
(-) Drawings (200)
= capital – ending $ 23,650
2-4

Ali's balance sheet October 31,2009

Assets : Liabilities :
 Cash 20,650  Account payable $ 3,500
 inventory 2,000 Owner's equity :
 vehicle 3,500  Ending Capital $23,650
 Account receivable 1,000
Total Assets $ 27,150 total liabilities and equity $27,150
Four financial statement

Income statement Owner's equity Balance Statement of cash

statement statement flow
 Statement of cash flow
 Any increase in cash  in flow
 Any decrease in cash  out flow

Types of business activities

Operating activities Investing activities Financial activities

1) Operating activities :-
All activities related to current Assets and current liabilities in the
balance sheet and related to revenues and expenses in the income
statement.
 Sales and revenues  in flow
 Costs and expenses  out flow
2) Investing activities :-
All activities related to purchase and sale of fixed Assets
 Purchase of fixed Assets  out flow
 Sale of fixed Assets  in flow
3) Financial activities :-
All activities related to
a- Owner investment,
b- Borrowing, and
c- Owner withdrawals

Mr : Kareem Abo Zeed

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Accounting … Chapter 1

Examples
 Given the following information about matrix company :-
1) The owner invested $ 15,000 cash to start the business.
2) Purchased supplies from B Company for $ 1,600 cash.
3) Purchased computer equipment for $ 7,000 cash.
4) Purchased supplies of $ 400 and equipment of $ 700 on account
from B Company.
5) Received $ 1,200 cash from customers for programming services.
6) Made an advertising of $ 250 in the daily news on account.
7) Provided a programming services of $ 3,500 received cash of $
1,500 and $2,000 on credit.
8) Paid rent and employees salaries of $ 800, $ 900 in accordance.
9) Paid a bill of $ 250 for advertising to daily news.
10) Received $ 600 from customers for services on account.
11) With drew $ 1,300 cash from the company for personal use.

Required:-
 Prepare the statement of cash flow.
 Statement of cash flow
 Operating activities :-
+ cash in flow: 1,200 + 1,500 + 600 = 3,300
-- Cash out flow: 1,600+ 800 + 900 + 250 = 3,550
= net cash flow: $(250)
 Investing activities :-

Mr : Kareem Abo Zeed

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Accounting … Chapter 1
+ Cash in flow:
-- Cash out flow: 7,000
= net cash flow: $ (7,000)
 Financial activities :-
+ cash in flow: 15,000
-- Cash out flow: 1,300
= net cash flow: $ (13,700)

 Total net cash flow $ 6,450

+ Beginning cash balance -0-
= ending cash balance $ 6,450
Example:
Laura stiner started her own consulting firm, stiner consulting, on May 1,
2005. The following transaction occurred during the month of May.
May .
 1 Stiner invested $8,000 cash in the business.
 2 Paid $800 for office rent for the month.
 3 Purchased $500 of supplies on account.
 5 Paid $50 to advertise in the County News.
 9 Received $3,000 cash for services provided.
 12 Withdrew $700 cash for personal use.
 15 Performed $3,300 of services on account.
 17 Paid $3,000 for employee salaries.
 20 Paid for the supplies purchased on account on May 3.
 23 Received a cash payment of $2,000 for services provided on account
on May 15.
 26 Borrowed $5,000 from the bank on a note payable.
 29 Purchased office equipment for $2,400 on account.
 30 Paid $150 for utilities.

1- Prepare summary of all transactions in tabular form

2- Prepare an income statement , and owner's equity statement ,
statement of cash flows and balance on May 31, 2005

Mr : Kareem Abo Zeed

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 Accounting … Chapter 1

1 .

Assets Liabilities Owner's equity

Cash Supplie Equipmen Account Accoun Notes Capital Drawing Revenue expense
s t receivabl t payabl s s s
e payable e
1 8,000 8,000
2 (800) (800)
3 500 500
5 (50) (50)
9 3,000 3,000
1 (700) (700)
2
1 3,300 3,300
5
1 (3,000) (3,000)
7
2 (500) (500)
0
2 2,000 (2,000)
3
2 5,000 5000
6
2 2,400 2,400
9
3 (150) (150)
0
$12,80 $ 500 $2,400 $ 1,300 $ $ $8,00 $ (700) $ 6,300 $
0

Mr : Kareem Abo Zeed

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 Accounting … Chapter 1
2,400 5000 0 (4,000)
Total Assets $ 17,000 Total liabilities and owner's equity $ 17,000

2
Laura stiner income statement
Revenues :
 Service revenues $ 6,300
Expenses :
 Rent expense 800
 Advertising expense 50
 Salaries expense 3,000
 Utilities expense 150 (4,000)
Net income $ 2,300

3
Statement of owner's equity
Capital – beginning -- 0 –
+ investment $ 8,000
+ net income 2,300
(-) Drawings (700)
= capital – ending $ 9,600
4
Laura stiner balance sheet May 31, 2005
Assets : Liabilities :
 Cash 12,800  Account payable $ 2,400
 supplies 500  Notes payable $ 5,000
 equipment 2,400 Owner's equity :
 Account receivable 1,300  Capital $ 9,600
Total Assets $ 17,000 total liabilities and $17,000
owner's equity

Statement of cash flow : -

 Operating activities :-
+ cash in flow: 3,000 + 2,000 = $5,000
-- Cash out flow: 800+ 50 + 3,000 +500+ 150 = $4,500

Mr : Kareem Abo Zeed

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Accounting … Chapter 1
= net cash flow: $500
 Investing activities :-
+ Cash in flow:
-- Cash out flow:
= net cash flow: -0-
 Financial activities :-
+ cash in flow: $8,000+ 5,000 = $ 13,000
-- Cash out flow: $700 = $700
= net cash flow: $12,300

 Total net cash flow $ 12,800

+ Begging cash balance -0-
= ending cash balance $ 12,800

Mr : Kareem Abo Zeed

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