Business Transactions

E1A. Concept Austin owns and operates a minimart. Which of Austin's actions described below are business transactions? Explain why any other actions are not considered business transactions.

1. Austin reduces the price of a gallon of milk in order to match the price offered by a competitor.

2. Austin pays a high school student cash for cleaning up the driveway behind the market.

3. Austin fills his son's car with gasoline in payment for his son's restocking the vending machines and the snack food shelves.

4. Austin pays interest to himself on a loan he made to the business three years ago.

Accounting Concepts

E2A. Concept Financial accounting uses money measures to gauge the impact of business transactions on a separate business entity. Indicate whether each of the following words or phrases relates most closely to (a) a business transaction, (b) a separate entity, or (c) a money measure.

1. U.S. dollars 6. Corporation

2. Indian rupees 7. Sales of products

3. Partnership 8. Owner's investments

4. Receipt of cash 9. Japanese yen

5. Sole proprietorship 10. Purchase of supplies

Preparation and Interpretation of Financial Statements

P1. A list of financial statement items follows.

Utilities expense Accounts receivable

Building Accounts payable

Owner's capital Rent expense

Net income Withdrawals

Land Fees earned

Equipment Cash

Revenues Wages expense

Supplies

Required

1. Indicate whether each item is found on the income statement (IS), statement of owner's equity (OE), and/or balance sheet (BS)

2. Business Application Which statement is most closely associated with the goal of profitability?

Preparation and Interpretation of Financial Statements

P3. Fuel Designs' financial accounts follow. The company has just completed its tenth year of operations, which ended December 31, 2014

Accounts Payable $ 3,600

Accounts Receivable 4,500

Cash 71,700

Commission Sales Revenue 400,000

Commissions Expense 225,000

Commissions Payable 22,700

Equipment 59,900

Marketing Expense 20,100

Office Rent Expense 36,000

Owner's Capital, December 31, 2013, 64,300

Supplies 700

Supplies Expense 2,600

Telephone and Computer Expenses 5,100

Wages Expense 32,000

Withdrawals 33,000

Required

1. Prepare Fuel Designs' income statement, statement of owner's equity, and balance sheet. There were no investments by the owner during the year.

2. Accounting Connection The owner is considering expansion. What other financial statement would be useful to the owner in assessing whether the company's operations are generating sufficient funds to support the expenses? Why would it be useful