Transaction Analysis Transaction (1): Investment by Owner. Ray Neal decides to open a computer programming service which he names Softbyte. On September 1, 2014, Ray Neal invests $15,000 cash in the business. Transaction (2): Purchase of Equipment for Cash. Softbyte purchases computer equipment for $7,000 cash. Transaction (3): Purchase of Supplies on Credit. Softbyte purchases for $1,600 from Acme Supply Company computer paper and other supplies expected to last several months. The purchase is made on account. Transaction (4): Services Performed for Cash. Softbyte receives $1,200 cash from customers for programming services it has provided. Transaction (5): Purchase of Advertising on Credit. Softbyte receives a bill for $250 from the Daily News for advertising but postpones payment until a later date. Transaction (6): Services Performed for Cash and Credit. Softbyte provides $3,500 of programming services for customers. The company receives cash of $1,500 from customers, and it bills the balance of $2,000 on account. Transaction (7): Payment of Expenses. Softbyte pays the following expenses in cash for September: store rent $600, salaries of employees $900, and utilities $200. Transaction (8): Payment of Accounts Payable. Softbyte pays its $250 Daily News bill in cash. Transaction (9): Receipt of Cash on Account. Softbyte receives $600 in cash from customers who had been billed for services [in Transaction (6)]. Transaction (10): Withdrawal of Cash by Owner. Ray Neal withdraws $1,300 in cash from the business for his personal use. The following events and transactions occurred in Dennis business: Transaction (1): Dennis invested $10,000 cash in the company Transaction (2): Hired two employees to work in the warehouse. They will be paid each $2,000. Transaction (3): Purchase equipment costing $30,000. The cash payment of $15,000 was made immediately; the remaining will be paid later. Transaction (4): Paid $4,000 for telephone bill. Transaction (5): Purchase office supplies for $7,000 an credit. Transaction (6): Total revenues earned were $12,000;$7,000 cash and $5,000 on account. Transaction (7): Paid suppliers $2,000 for accounts payable due. Transaction (8): Received $4,000 from customers in payments of accounts receivable. Transaction (9): Paid monthly salaries of two employees, totaling $8,000. Transaction (10): Owner withdrew $7,000 in cash for his own personal use. Transaction (11): Received $11,000 cash for services completed. Transaction (12): Received a $9,000 equipment from customer for providing him with service. Transaction (13): Received $3,000 cash for fees earned. Transaction (14): Paid advertising expenses $2,500. Transaction (15): Invested worth of $11,000 equipment in the company Required: Analyze the above transactions. Analyze the effects of business transactions on the accounting equation. Rule of thumb Transactions Transactions are the economic events of the enterprise recorded. Transactions may be identified as either external or internal transactions. Each transaction has a dual effect on the equation. For example, if an individual asset is increased, there must be a corresponding: a. Decrease in another asset, or b. Increase in a specific liability, of c. Increase in owner's equity. A tabular summary may be prepared to show the cumulative effect of transactions on the basic accounting equation. The summary demonstrates that: a. Each transaction must be analyzed in terms of its effect on (1) the three components of the equation and (2) specific types of items within each component. b. The two sides of the equation must always be equal. c. The causes of each change in the owner's claim on assets must be indicated in the owners' equity column. d. Invest: Increase in Capital. e. Earned: Provide Service. f. Purchase: Increase in Assets 8. Paid: Decrease in Cash h. On Credit: Will pay later i. Received Cash: Increase in Cash j. Provide service or fees earned or service completed: Increase in Revenue k. Owner withdrawal for his personal use: Decrease in Owner's Equity 1. Accounts payable is the money a company owes its vendors. m. Accounts receivables is the money that is owed to a company. \begin{tabular}{|c|c|c|c|c|c|c|c|c|c|} \hline \multicolumn{3}{|c|}{ Assets } & Labilities & \multicolumn{3}{c|}{ Owner's Equity } \\ \hline & Cash & AccountsReceivable & Supplies & Equipment & AccountsPayable & OwnersCapital & OwnersDrawing & Revenue & Expenses \\ \hline 1 & +$15,000 & & & & & +$15,000 & & & \\ \hline 2 & 7,000 & & & +$7,000 & & & & & \\ \hline 3 & & & +$1,600 & & +$1,600 & & & & \\ \hline 4 & +1,200 & & & & & & & +$1,200 & \\ \hline 5 & & & & & +250 & & & & $250 \\ \hline 6 & +1,500 & +$2,000 & & & & & & +3,500 & \\ \hline 7 & 1,700 & & & & & & & & 1,700 \\ \hline 8 & -250 & & & & -250 & & & & \\ \hline 9 & +600 & -600 & & & & & & & \\ \hline 10 & 1,300 & & & & & & $1,300 & & \\ \hline NetBalance & $8,050 & $1,400 & $1,600 & $7,000 & $1,600 & $15,000 & $1,300 & $4,700 & $1,950 \\ \hline \end{tabular}