Introducing Transactions

Using Transaction Analysis Sheets

What is a Transaction?

An event that occurs during the operation of a business and results in a financial change

A business transaction is always an exchange of things of value

Something of value is given

Something of value is received

Transaction

Transaction Analysis

Using the totals from a Balance Sheet, transactions can be examined and their effects will be immediately reflected on the net worth of a business

A transaction analysis sheet can be used to assist in the examination of transactions and their effects on the balance sheet

Transactions usually take place between accounting periodsAn accounting period is the period of time covered by

an accounting statement

Sample Transaction Analysis Sheet

Transaction Analysis Considerations

Which items change in value as a result of the transaction?Remember, with double entry bookkeeping, at least two

accounts must be affected in order for a transaction to be valid

How much do these items change?

Do the items increase or decrease in value?

After the change is recorded, does the balance sheet equation still balance; do assets still equal liabilities plus owner’s equity?

Start with your Balance SheetPhysio Central

Balance Sheet

June 30, 2013

Assets Liabilities

Cash $ 5,000 Accounts Payable $ 4,000

Accounts Receivable 6,000 Bank Loan 65,000

Office Supplies 500 Mortgage Payable 80,000

Land 25,000 Total Liabilities $ 149,000

Building 110,000

Physiotherapy Equipment 63,000 Owner’s Equity

Office Equipment 31,500 P. Ramdas, Capital $ 92,000

Total Assets $ 241,000Total Liabilities and Owner’s Equity $ 241,000

Copy Account Values to SheetPhysio Central

Balance Sheet

June 30, 2013

Assets Liabilities

Cash $ 5,000 Accounts Payable $ 4,000

Accounts Receivable 6,000 Bank Loan 65,000

Office Supplies 500 Mortgage Payable 80,000

Land 25,000 Total Liabilities $ 149,000

Building 110,000

Physiotherapy Equipment 63,000 Owner’s Equity

Office Equipment 31,500 P. Ramdas, Capital $ 92,000

Total Assets $ 241,000Total Liabilities and Owner’s Equity $ 241,000

Transaction One

The first transaction occurred July 2nd Purchased new physiotherapy equipment for

$500 cashPhysiotherapy Equipment will increase by $500Cash will decrease by $500

Cash now has a balance of $4,500 Equipment now has a balance of $95,000

Assets still equal Liabilities plus Equity

Transaction Two

The second transaction occurred July 5thPurchased office supplies for $55, on credit,

from Central Office Supply Co.Office Supplies increase by $55Money owed (Accounts Payable) increases by $55

Office Supplies now has a balance of $555Accounts Payable now has a balance of $4,055

Assets still equal Liabilities plus Equity

Transaction ThreeThe third transaction occurred July 10th

Received $3,000 from patients (customers) who owed money to the businessCash balance increases by $3,000Accounts Receivable (money owed from customers)

decreases by $3,000

New Cash balance is $7,500New Accounts Receivable balance is $3,000

Assets still equal Liabilities plus Equity

Additional Transactions

July 15th Sold some unused office equipment for $400 cash

July 18th Paid $375 cash to Central Supply Co. for an Account Payable that had become due

July 21st Owner invested an additional $800 cash in the business

July 25th Purchased more physiotherapy equipment for the clinic from Niagara Health Equipment Ltd. for $3000; $2000 was paid in cash and $1000 will be paid in 30 days

Additional Transactions – Solutions

July 15th Sold some unused office equipment for $400 cash

Cash increases by $400 and office equipment decreases by $400

July 18th Paid $375 cash to Central Supply Co. for an Account Payable that had become due

Accounts Payable decreases by $375 and Cash decreases by $375

Additional Transactions

July 21st Owner invested an additional $800 cash in the business

Cash increases $800 and Owner’s Equity increases by $800

July 25th Purchased more physiotherapy equipment for the clinic from Niagara Health Equipment Ltd.

for $3000; $2000 was paid in cash and $1000 will be paid in 30 days

Physiotherapy Equipment increases by $3000, Cash decreases by $2000, and Accounts Payable increases by $1000

Completed Transaction Analysis Sheet

Preparing a New Balance Sheet

Transfer the new balances from the transaction analysis sheet to a new balance sheet

Make sure the date reflects the changes in the account balances

Start with your Balance SheetPhysio Central

Balance Sheet

July 31, 2013

Assets Liabilities

Cash $ 6,325 Accounts Payable $ 4,680

Accounts Receivable 3,000 Bank Loan 65,000

Office Supplies 555 Mortgage Payable 80,000

Land 25,000 Total Liabilities $ 149,680

Building 110,000

Physiotherapy Equipment 66,500 Owner’s Equity

Office Equipment 31,100 P. Ramdas, Capital $ 92,800

Total Assets $ 242,480Total Liabilities and Owner’s Equity $ 242,480