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ACC10 Introduction to Accounting C.

Gomez Discussion and Illustrations Basics of Financial Statements & the Accounting Equation

Steps in Analyzing and Recording Transactions

Illustration
1. June 1 Manolo B. decided to start a business. He wanted to put up a kiosk that offered shoe shine services in a provincial bus station in Cubao. He made a cash investment in the small enterprise he decided to call Manolo B. Shoe Shine amounting to P10,000. 2. June 2 Manolo B. Shoe Shine purchased, in cash, shoe polish, shine cloths, and several brushes worth P1,500 from Shopwise. 3. June 3 To set up the kiosk, the Company purchased a table and monobloc chairs. Manolo B. Shoe Shine spent P4,500 for this purchase from Ace Hardware. 4. June 4 Since Manolo B. already had two small wooden stools he was not using, he decided to just use it in the business, for his customers to sit down on while waiting for service. The stools had a value of P3,000. 5. June 5 - The kiosk was set up and Manolo B. Shoe Shine began its first day of operation. 6. June 5 Manolo B. Shoe Shine was able to sell services worth P3,250 to its customers who, in turn, paid in cash on its opening day. 7. June 7 As supplies were already running low, Manolo B. Shoe Shine purchased, on credit, additional shoe polish and cloths, amounting to P2,000 from Shopwise. 8. June 8 Manolo B. Shoe Shine paid the rent it owed the owner of the bus terminal. The rent amounted to P2,500. 9. June 9 Manolo B. Shoe Shine paid the amount it owed to Shopwise. 10. June 10 Two kids on their way to school, Steve M. and Jimmy C., went to have their shoes cleaned at the kiosk, but when they got to there, they had no money. Manolo B. Shoe Shine still shined their shoes and the services were worth P75. The kids promised to pay the next day. 11. June 11 Steve and Jimmy settled their account. 12. June 12 Manolo B. decided to withdraw P500 from Manolo B. Shoe Shines account.

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ACC10 Introduction to Accounting C. Gomez Discussion and Illustrations Basics of Financial Statements & the Accounting Equation

June 1 Investment by the owner in cash Step 1 Identify


a. Is it a transaction or event of a financial character? b. Is the event measurable in terms of money? c. If so, how much is/are the amount/s involved?

Step 2 Analyze
a. b. c. d. Were ASSETS affected? LIABILITIES? EQUITY? What account in particular? Increase/Decrease? After considering the amounts involved, is the accounting equation still balanced or equal?
ASSETS = LIABILITIES + EQUITY

June 2 Purchase of supplies in cash


ASSETS June 2 = LIABILITIES + EQUITY

June 3 Purchase of equipment in cash


ASSETS June 3 = LIABILITIES + EQUITY

June 4 Investment by the owner through a non-cash transaction


ASSETS June 4 = LIABILITIES + EQUITY

June 5 Cash sales


ASSETS June 5 = LIABILITIES + EQUITY

June 7 Purchase of supplies on credit


ASSETS June 7 = LIABILITIES + EQUITY

June 8 Payment of expense in cash


ASSETS June 8 = LIABILITIES + EQUITY

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ACC10 Introduction to Accounting C. Gomez Discussion and Illustrations Basics of Financial Statements & the Accounting Equation

June 9 Payment of liability


ASSETS June 9 = LIABILITIES + EQUITY

June 10 Credit sales


ASSETS June 10 = LIABILITIES + EQUITY

June 11 Collection of accounts receivable


ASSETS June 11 = LIABILITIES + EQUITY

June 12 Withdrawal by owner


ASSETS June 12 = LIABILITIES + EQUITY

Summary Table
Prepare a summary of your analysis, using the format illustrated on PAGE 17 (Exhibit 1.9) of your TEXTBOOK (Chiappetta)

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