Grade 7: Module 4A: Unit 3: Lesson 1 Analyzing a Model Position ...
CHAPTER 3--ANALYZING CHANGES IN FINANCIAL POSITION
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Transcript of CHAPTER 3--ANALYZING CHANGES IN FINANCIAL POSITION
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CHAPTER 3--ANALYZING CHANGES IN FINANCIAL POSITION
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Business Transaction:Any financial event that
causes a change in the financial position of a businessExample
Withdraw cashPurchased asset
Originate from source documents
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Source Document:Business paper that is the
original record of a transaction; provides proof of transaction
Includes all information needed to record the transaction
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Examples of Source Documents:
Receipts
Invoices
Bills
Cheques
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Objectivity PrincipleGAAP states all accounting
transactions will be recorded based on facts and not personal opinion
Source documents provide proof/fact of transaction
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METROPOLITAN MOVERS –TRANSACTION ANALYSIS:
Using the balance sheet on p. 61 fill in the Equation Analysis Sheet for the BEGINNING BALANCES
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ASSETS LIABILITIES O.E. Cash Accounts
ReceivableEquipme
ntTrucks Account
s Payable
Laon Payabl
e
J. Hofner, Capital
B. Cava K. Lincoln Central Supply
Mercury Finance
Beg. Balances
Trans. 1 Trans. 2 Trans. 3 Trans. 4 Trans. 5 Trans. 6 Trans. 7New Balances
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ASSETS LIABILITIES O.E. Cash Accounts
ReceivableEquipme
ntTrucks Account
s Payable
Laon Payabl
e
J. Hofner, Capital
B. Cava K. Lincoln
Central Supply
Mercury Finance
Beg. Balances
13 500
1 300 2 500 11 500 24 500 1 750 18 370 33 180
Trans. 1 Trans. 2 Trans. 3 Trans. 4 Trans. 5 Trans. 6 Trans. 7New Balances
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Transaction 1Metropolitan Movers pays $1
200 cash to Mercury Finance.
Cash decreases $1 200Accounts Payable- Mercury
Finance decreases $1 200
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ASSETS LIABILITIES O.E. Cash Accounts
ReceivableEquipmen
tTrucks Account
s Payable
Laon Payabl
e
J. Hofner, Capital
B. Cava K. Lincoln
Central Supply
Mercury Finance
Beg. Balances
13 500
1 300 2 500 11 500 24 500 1 750 18 370 33 180
Trans. 1 -1 200 -1 200 Trans. 2 Trans. 3 Trans. 4 Trans. 5 Trans. 6 Trans. 7New Balances
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Transaction 2K. Lincoln, who owes Metropolitan
Movers $2 500, pays $1 100 in partial payment of the debt.
Cash increases $1 100Accounts Receivable – K. Lincoln
decreases $1 100
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ASSETS LIABILITIES O.E. Cash Accounts
ReceivableEquipmen
tTrucks Account
s Payable
Laon Payabl
e
J. Hofner, Capital
B. Cava K. Lincoln
Central Supply
Mercury Finance
Beg. Balances
13 500
1 300 2 500 11 500 24 500 1 750 18 370 33 180
Trans. 1 -1 200 -1 200 Trans. 2 +1
100 -1 100
Trans. 3 Trans. 4 Trans. 5 Trans. 6 Trans. 7New Balances
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Transaction 3 Equipment costing $1 950 is
purchased for cash.
Cash decreases $1 950Equipment increases $1 950
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ASSETS LIABILITIES O.E. Cash Accounts
ReceivableEquipmen
tTrucks Account
s Payable
Laon Payabl
e
J. Hofner, Capital
B. Cava K. Lincoln
Central Supply
Mercury Finance
Beg. Balances
13 500
1 300 2 500 11 500 24 500 1 750 18 370 33 180
Trans. 1 -1 200 -1 200 Trans. 2 +1
100 -1 100
Trans. 3 -1 950 +1 950 Trans. 4 Trans. 5 Trans. 6 Trans. 7New Balances
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Transaction 4 A new pick-up truck is purchased at a cost
of $18 000. Metropolitan Movers pays $10 000 cash and arranges a loan from Mercury Finance to cover the balance of the purchase price.
Cash decreases $10 000Truck increases $18 000Mercury Finance increases $8 000
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ASSETS LIABILITIES O.E. Cash Accounts
ReceivableEquipme
ntTrucks Accounts
PayableLaon
PayableJ.
Hofner, Capital
B. Cava K. Lincoln
Central Supply
Mercury Finance
Beg. Balances
13 500 1 300 2 500 11 500 24 500 1 750 18 370 33 180
Trans. 1 -1 200 -1 200 Trans. 2 +1 100 -1
100
Trans. 3 -1 950 +1 950 Trans. 4 -10 000 +18
000 +8
000
Trans. 5 Trans. 6 Trans. 7New Balances
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Transaction 5 Metropolitan Movers completes a storage
service for B. Cava at a price of $1 500. A bill is sent to B. Cava to indicate the additional amount that Cava owes.
Accounts Receivable increases $1 500
J. Hofner, Capital increases $1 500
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ASSETS LIABILITIES O.E. Cash Accounts
ReceivableEquipme
ntTrucks Accounts
PayableLaon
PayableJ.
Hofner, Capital
B. Cava K. Lincoln
Central Supply
Mercury Finance
Beg. Balances
13 500 1 300 2 500 11 500 24 500 1 750 18 370 33 180
Trans. 1 -1 200 -1 200 Trans. 2 +1 100 -1
100
Trans. 3 -1 950 +1 950 Trans. 4 -10 000 +18
000 +8
000
Trans. 5 +1 500
+1 500
Trans. 6 Trans. 7New Balances
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Transaction 6 J. Hofner, the owner, withdraws $500 for
personal use.
Cash decreases $500 J. Hofner, Capital decreases $500
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ASSETS LIABILITIES O.E. Cash Accounts
ReceivableEquipme
ntTrucks Accounts
PayableLaon
PayableJ.
Hofner, Capital
B. Cava K. Lincoln
Central Supply
Mercury Finance
Beg. Balances
13 500 1 300 2 500 11 500 24 500 1 750 18 370 33 180
Trans. 1 -1 200 -1 200 Trans. 2 +1 100 -1
100
Trans. 3 -1 950 +1 950 Trans. 4 -10 000 +18
000 +8
000
Trans. 5 +1 500
+1 500
Trans. 6 -500 -500 Trans. 7New Balances
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Transaction 7 Truck requires engine repair. J. Hofner
pays $75 cash when the truck is picked up.
Cash decreases $75J. Hofner, Capital decreases
$75
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ASSETS LIABILITIES O.E. Cash Accounts
ReceivableEquipme
ntTrucks Accounts
PayableLaon
PayableJ.
Hofner, Capital
B. Cava K. Lincoln
Central Supply
Mercury Finance
Beg. Balances
13 500 1 300 2 500 11 500 24 500 1 750 18 370 33 180
Trans. 1 -1 200 -1 200 Trans. 2 +1 100 -1
100
Trans. 3 -1 950 +1 950 Trans. 4 -10 000 +18
000 +8
000
Trans. 5 +1 500
+1 500
Trans. 6 -500 -500 Trans. 7 -75 -75New Balances
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New Balance
Calculate the new balances of each column.
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ASSETS LIABILITIES O.E. Cash Accounts
ReceivableEquipme
ntTrucks Accounts
PayableLaon
PayableJ.
Hofner, Capital
B. Cava K. Lincoln
Central Supply
Mercury Finance
Beg. Balances
13 500 1 300 2 500 11 500 24 500 1 750 18 370 33 180
Trans. 1 -1 200 -1 200 Trans. 2 +1 100 -1
100
Trans. 3 -1 950 +1 950 Trans. 4 -10 000 +18
000 +8
000
Trans. 5 +1 500
+1 500
Trans. 6 -500 -500 Trans. 7 -75 -75New Balances
875 2 800 1 400
13 450 42 500 1 750 25 170 34 105
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Do the total Assets = Total Liabilities + Owner’s Equity?
Total Assets= Total Liabilities + Owner’s Equity
61 025 = 26 920 + 34 105
61 025
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Summary of Steps in Analyzing a transaction:1. Identify all items (A,L,OE) that must be
changed & make necessary changes (increase or decrease)
2. Make sure at least 2 accounts are affected (ie. A & A, A & L, A & OE)
3. Accounting Equation must balance after each transaction
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*OE is NOT always affected in each transaction If O.E. has changed:
Increase $ earned (Revenue) Increase owner investment (Capital) Decrease owner withdrawal (Drawings) Decrease Costs of operating business
(expense) Decrease loss on sale (expense)