Question

In: Accounting

Business Transactions for each company: (OAKLEY and Columbia Sportswear), based on the accounts described in the...

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).

Solutions

Expert Solution

There are three main variables of an accounting equation:-

1) Total Asset :- It includes the following Assets

Current Assets

  • Cash
  • Accounts Receivable
  • Prepaid Expense

Fixed Assets

  • Vehicle
  • Buildings

Intangible Assets

  • Goodwill
  • Copyrights
  • Patents

2) Total Liabilities : It includes the following Assets:-

  • Accounts payable
  • Bank loans
  • Lines of Credit
  • Personal Loans
  • Officer Loans
  • Unearned income

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.

ekkarill92 answered 1 year ago
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