Introducing Transactions

1. Introducing Transactions Using Transaction Analysis Sheets

2. 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 Transaction Something of value is given Something of value is received

3. 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 periods • An accounting period is the period of time covered by an accounting statement

4. Sample Transaction Analysis Sheet

5. 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?

6. Start with your Balance Sheet

7. Copy Account Values to Sheet

8. Transaction One • The first transaction occurred July 2nd • Purchased new physiotherapy equipment for $500 cash • Physiotherapy Equipment will increase by $500 • Cash 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

9. Transaction Two • The second transaction occurred July 5th • Purchased office supplies for $55, on credit, from Central Office Supply Co. • Office Supplies increase by $55 • Money owed (Accounts Payable) increases by $55 • Office Supplies now has a balance of $555 • Accounts Payable now has a balance of $4,055 • Assets still equal Liabilities plus Equity

10. Transaction Three • The third transaction occurred July 10th • Received $3,000 from patients (customers) who owed money to the business • Cash balance increases by $3,000 • Accounts Receivable (money owed from customers) decreases by $3,000 • New Cash balance is $7,500 • New Accounts Receivable balance is $3,000 • Assets still equal Liabilities plus Equity

11. 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

12. 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

13. 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

14. Completed Transaction Analysis Sheet

15. 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

16. Start with your Balance Sheet