In: Accounting
Business Transactions for each company: (OAKLEY and Columbia Sportswear), based on the accounts described in the financial statements, hypothesize at least five types of business transactions the company may have and the effect on the accounting equation).
There are three main variables of an accounting equation:-
1) Total Asset :- It includes the following Assets
Current Assets
Fixed Assets
Intangible Assets
2) Total Liabilities : It includes the following Assets:-
3) Capital.
Accounting Equation is as follows:-
Total Assets = Total Liabilities + Capital
The effects of business transactions on accounting equation as follows:-
1) Transactions affecting only one element.
2) Transaction affecting any two of the three elements.
3) Transactions affecting all the three elements.
Types of Business Transaction and effect on Accounting Equation
1) Purchase of Some Furniture amounting $2500 by OAKLEY and Columbia Sportswear.
Effect on Assets only
Cash/Bank will be reduced by $2500 (-) and Furniture will be added by $2500 (+) on the Total Asset Side.
2) Purchase of Goods on Credit amounting $1000 by OAKLEY and Columbia Sportswear.
Effect on Liability Side and Asset Side.
Stock will be added on Asset Side by $1000 (+) and Liability will be increased by $1000.
3) Payment to creditor amounting $500 by OAKLEY and Columbia Sportswear.
Effect on Liability Side and Asset Side.
Cash/Bank will be reduced by $2500 (-) and Liability will be reduced by $500(-).
4) Sale of Furniture amounting $1500by OAKLEY and Columbia Sportswear.
Effect on Assets only
Cash/Bank will be added by $1500 (+) and Furniture will be reduced by $1500 (-) on the Total Asset Side.
5) Brought in a cash of $ 1,00,000 as additional capital contribution for the business.
Effect on Assets only
Capital will be added by $100,000(+) and Cash will be added by $100,000 (+) on the Total Asset Side.