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Source vs. Use Transactions. ACG 2021 Spring 2004 Prof. John N. Rallis II, CPA Valencia Community College. Why do we care?. We are trying to isolate a transaction’s effect ON CASH balances.
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Source vs. Use Transactions ACG 2021 Spring 2004 Prof. John N. Rallis II, CPA Valencia Community College
Why do we care? • We are trying to isolate a transaction’s effect ON CASH balances. • Cash includes currency (of course), checking accounts, etc. Is not literally “cash” as in bills and coins.
Analyze this! MEMORIZE…
What Does It Mean? • If ASSETS go UP (remember, we are looking at assets OTHER THAN cash, since it is the effect ON CASH we care about), then think: “we bought new assets.” SO IT’S A USE TRANSACTION (as in: “use of cash.”
What Does It Mean? • If ASSETS go DOWN then think: “we sold some assets.” SO IT’S A SOURCE TRANSACTION (as in: “source of cash.”
What Does It Mean? • If you can memorize the logic regarding ASSETS, you only need to remember that LIABILITIES and EQUITY are the exact opposite!
What Does It Mean? • So…If LIABILITIES or EQUITY go UP then think: “we borrowed $” or “we received more $ from our owners.” SO IT’S A SOURCE TRANSACTION (as in: “source of cash.”
What Does It Mean? • and…If LIABILITIES or EQUITY go DOWN then think: “we paid back what we borrowed” or “we gave $ (e.g., dividends) back to our owners.” SO IT’S A USE TRANSACTION (as in: “use of cash.”