ACC 201

Analyze the effects of business transactions on the financial statements

Name: Patricia Kinsell

Date: 09/20/2017

1. What are business transactions? --

Business transactions are recorded events of a business that affect the financial position
of a company.

2. What are accounts?

Accounts are a record of debit & credit entries that reflect financial transactions of a
particular company

3. How are accounts organized into types?

Accounts are organized into types by using the Chart of Accounts.

4. What is the definition of each account type?

Asset accounts lists the value of things owned by the company.
Liabilities account reflects how much the company owes.
Equity accounts represent the value of the owners interests in a company's assets.

5. What are Debits and Credits?

Debits and Credits represent the left and the right side of a ledger account

6. What are the debit and credit rules for the different account types?
The debit and credit rules are: an increase or decrease on one side have equal net
effects on the other side, for assets, the left side is the normal balance side, while the
right side is the normal balance side for liabilities and equity.
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7. What’s the difference between a dividend and an expense?

The difference between a dividend and an expense is that while dividends reduce equity,
they are not reported as expenses because they are not a part of the company's
earnings. An expense also reduce equity but are the costs of providing services to
customers and are so are listed on the expense sheet

8. List the three financial statements describing the account types that appear on each
statement.
Three financial statements are:
1. Income statement - which describes a company's earnings and expenses over a
period of time. Revenue and expenses are listed on this statement. 2.
Balance sheet - This sheet reports the financial standing of a company on the last day of
the year. Assets, liabilities and equity are listed on this statement. 3.
Statement of cash flows - this statement shows a company’s cash flow over a period of
time, coming in and going out.
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9. Explain how each of the following independent transactions would affect the financial
statements. Explain what statements would be affected and how.

a. A person invests cash into a company in exchange for common stock. The
statement that would be affected would be the balance sheet. There would be an
increase the total amount of cash and also under equity, specifically common
stock.

b. The law firm receives a retainer from a client in advance of services to be

rendered.
The statement that would be affected would be the balance sheet. There would
be an increase to cash (under assets), and to unearned revenue (under
liabilities).

c. A company occupies office space for the month but forgot to pay the rent. It paid
for it in the following month. The accounting period is monthly.

- The statement that would be affected would be the income statement and the
balance sheet. There would be an increase in the rent expense on the income
statement, and an increase in the rent payable account under liabilities on the
balance sheet.

d. A company performs services and receives cash.

The statement that would be affected would be the income statement. It would be
listed under revenue, specifically service revenue.
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e. At the beginning of the year, a company purchases equipment for $10,000 with
no expected salvage value and a 5 year life. As a result of this transaction what
would you expect to see in the financial statements at the end of the year?
- The income
statement would have an entry for depreciation expense in the amount of $2,000
and on the balance sheet there would be an entry for less accumulated
depreciation in the amount of $10,000.