VG demonstrate how trans affect acct equation1

Transaction Analysis © Dale R Geiger 2011 Terminal Learning Objective • Action: Demonstrate How Transactions Affect the Accounting Equation • Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors • Standard: With at least 80% accuracy: • Explain accounting terminology • Analyze transactions for effects on the accounting equation • Enter transactions into the accounting equation © Dale R Geiger 2011 Lacy’s Lemonade Stand • Lacy Simmons receives a $200 transfer from the family to start a lemonade stand • The lemonade stand will run as a revolving fund • User fees must cover costs • Uses Accrual Basis of Accounting • How will this be recorded in the Family’s financial equation? © Dale R Geiger 2011 What’s the Difference? Plan Order Receive Pay Asset & Liability  Remove Liability  © Dale R Geiger 2011 Consume Expense Review: Financial Position • The following equation represents financial position: • Assets = Liabilities + Financial Position • What is an asset? • Something owned that represents future benefit • What is a liability? • Something owed or a creditor’s claim against assets • Financial position can also be called equity, net assets, or fund balance © Dale R Geiger 2011 Review: Financial Position • The following equation represents financial position: • Assets = Liabilities + Financial Position • What is an asset? • Something owned that represents future benefit • What is a liability? • Something owed or a creditor’s claim against assets • Financial position can also be called equity, net assets, or fund balance © Dale R Geiger 2011 Review: Financial Position • The following equation represents financial position: • Assets = Liabilities + Financial Position • What is an asset? • Something owned that represents future benefit • What is a liability? • Something owed or a creditor’s claim against assets • Financial position can also be called equity, net assets, or fund balance © Dale R Geiger 2011 Review: Financial Position • The following equation represents financial position: • Assets = Liabilities + Financial Position • What is an asset? • Something owned that represents future benefit • What is a liability? • Something owed or a creditor’s claim against assets • Financial position can also be called equity, net assets, or fund balance © Dale R Geiger 2011 Review: Financial Activity • The following equation represents financial activity: Revenue – Cost = Change in Financial Position • What is a revenue? •Represent earnings received in cash •Increase Assets and Increase Financial Position • What is a cost? •Represent cash payments for goods and services received Decrease Assets and Decrease Financial Position â Dale R Geiger 2011 Review: Financial Activity • The following equation represents financial activity: Revenue – Cost = Change in Financial Position • What is a revenue? •Represent earnings received in cash •Increase Assets and Increase Financial Position • What is a cost? •Represent cash payments for goods and services received Decrease Assets and Decrease Financial Position â Dale R Geiger 2011 10 Additional Transactions • Receives $5 cash toward the IOUs Transaction Description Balance Forward Cash + 115 + Other Assets = 105 = + Financial + Position + 200 + Liab © Dale R Geiger 2011 Rev – 35 – Exp 15 47 Additional Transactions • Receives $5 cash toward the IOUs Transaction Description Balance Forward Cash + Other Assets = Liab + Financial + Position Rev – 115 + 105 = + 200 + 35 – Receives $5 toward IOUs +5 + -5 = + + - New Balance 120 + 100 = + 200 + 35 - © Dale R Geiger 2011 Exp 15 15 48 Additional Transactions • Opens a charge at the grocery store with a $50 limit • This has no effect on the equation because no exchange of resources has yet taken place © Dale R Geiger 2011 49 Additional Transactions • Purchases $40 in supplies on account at the grocery store Transaction Description Balance Forward Cash Other + Assets 120 + = 100 = Financial + Position + Liab + © Dale R Geiger 2011 200 + Rev – 35 - Exp 15 50 Additional Transactions • Purchases $40 in supplies on account at the grocery store Transaction Description Balance Forward Buy Supplies on Account $40 New Balance Cash Other + Assets = Financial + Position + Liab Rev – 120 + 100 = + 200 + 35 - + +40 = +40 + + - 120 + 140 = 40 + 200 + 35 - © Dale R Geiger 2011 Exp 15 15 51 Additional Transactions • Makes cash sales of $50 Transaction Description Balance Forward Cash + 120 + Other Assets = 140 = + Financial + Position 40 + 200 + Liab © Dale R Geiger 2011 Rev – 35 - Exp 15 52 Additional Transactions • Makes cash sales of $50 Transaction Description Cash + Other Assets = Liab + Financial + Position Rev – Balance Forward 120 + 140 = 40 + 200 + 35 - Cash Sales $50 +50 + = + + +50 - New Balance 170 + 140 = 40 + 200 + 85 - © Dale R Geiger 2011 Exp 15 15 53 Additional Transactions • Pays the grocery bill in full Transaction Description Balance Forward Cash + Other Assets 170 + = 140 = Liab + Financial + Position 40 + © Dale R Geiger 2011 200 + Rev – 85 - Exp 15 54 Additional Transactions • Pays the grocery bill in full Transaction Description Cash + Other Assets = + Financial + Position Liab Balance Forward 170 + 140 = 40 + Pays Grocery Bill -40 + = -40 + New Balance 130 + 140 = + © Dale R Geiger 2011 Rev – Exp 200 + 85 - 15 200 + 85 - 15 55 Additional Transactions • Pays the grocery bill in full Transaction Description Cash + Other Assets = + Financial + Position Liab Balance Forward 170 + 140 = 40 + Pays Grocery Bill -40 + = -40 + New Balance 130 + 140 = + 270 Rev – Exp 200 + 85 - 15 200 + 85 - 15 270 © Dale R Geiger 2011 56 Learning Check • How does borrowing money from the bank to purchase equipment affect the accounting equation? • How does providing services on account affect the accounting equation? © Dale R Geiger 2011 57 Practical Exercise © Dale R Geiger 2011 58 Transaction Worksheet Enter transaction data into the columns Balances will calculate automatically © Dale R Geiger 2011 59 Transaction Worksheet Out of Balance notification will appear if transaction does not balance © Dale R Geiger 2011 60 Practical Exercise © Dale R Geiger 2011 61 ...Terminal Learning Objective • Action: Demonstrate How Transactions Affect the Accounting Equation • Condition: You are a cost advisor technician with... • A transaction represents an EXCHANGE of RESOURCES that affects two or more accounts • External transactions involve exchanging resources with parties outside the organization • Internal transactions... • A transaction represents an EXCHANGE of RESOURCES that affects two or more accounts • External transactions involve exchanging resources with parties outside the organization • Internal transactions