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    Date Transaction: Cash Bike Parts Accounts Receivable Accounts Payable Peddler, Capital Revenue (Expenses)

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    Mellie Sa
    The document discusses the basics of double-entry accounting. It provides an example of transactions for a new bicycle repair shop over its first month of operations. Each transaction affects at least two accounts - increasing one while decreasing another to maintain the accounting equation that total assets must equal total liabilities plus owner's equity. Journal entries record the transactions by date in debits and credits to update the shop's balance sheet, showing assets, liabilities, and owner's equity at the end of the month.

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    Date Transaction: Cash Bike Parts Accounts Receivable Accounts Payable Peddler, Capital Revenue (Expenses)

    Uploaded by

    Mellie Sa
    38 views3 pages
    The document discusses the basics of double-entry accounting. It provides an example of transactions for a new bicycle repair shop over its first month of operations. Each transaction affects at least two accounts - increasing one while decreasing another to maintain the accounting equation that total assets must equal total liabilities plus owner's equity. Journal entries record the transactions by date in debits and credits to update the shop's balance sheet, showing assets, liabilities, and owner's equity at the end of the month.

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    Original Title

    Accounting 1

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    The document discusses the basics of double-entry accounting. It provides an example of transactions for a new bicycle repair shop over its first month of operations. Each transaction affects at least two accounts - increasing one while decreasing another to maintain the accounting equation that total assets must equal total liabilities plus owner's equity. Journal entries record the transactions by date in debits and credits to update the shop's balance sheet, showing assets, liabilities, and owner's equity at the end of the month.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    38 views3 pages

    Date Transaction: Cash Bike Parts Accounts Receivable Accounts Payable Peddler, Capital Revenue (Expenses)

    Uploaded by

    Mellie Sa
    The document discusses the basics of double-entry accounting. It provides an example of transactions for a new bicycle repair shop over its first month of operations. Each transaction affects at least two accounts - increasing one while decreasing another to maintain the accounting equation that total assets must equal total liabilities plus owner's equity. Journal entries record the transactions by date in debits and credits to update the shop's balance sheet, showing assets, liabilities, and owner's equity at the end of the month.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 3

    1. Measure the event in monetary terms.

    2. Determine which accounts the transaction affects.

    3. Determine whether the transaction increases or decreases the balances in those


    accounts.

    4. Record the transaction in the ledgers.

    Most larger business accounting systems utilize the double entry method. Under double
    entry, instead of recording a transaction in only a single account, the transaction is
    recorded in two accounts.

    To illustrate this concept, take the following example. Mike Peddler decides to open a
    bicycle repair shop. To get started he rents a shop, purchases an initial inventory of bike
    parts, and opens for business. Here are the transactions for the first month:

    Date Transaction
    Sep 1 Owner contributes $7500 in cash to capitalize the business.
    Sep 8 Purchased $2500 in bike parts on account, payable in 30 days.
    Sep 15 Paid first month's shop rent of $1000.
    Sep 17 Repaired bikes for $1100; collected $400 cash; billed customers for the $700
    balance.
    Sep 18 $275 in bike parts were used.
    Sep 25 Collected $425 from customer accounts.
    Sep 28 Paid $500 to suppliers for parts purchased earlier in the month.
    These transactions affect the accounting equation as shown below.

    Assets = Liabilities + Owner's Equity


    Bike Accounts Accounts Peddler, Revenue
    Cash + Parts + Receivable = Payable + Capital + (Expenses)

    Sep 1 7500 = 7500

    Sep 8 2500 = 2500


    Sep 15 (1000) = (1000)

    Sep 17 400 700 = 1100

    Sep 18 (275) = (275)

    Sep 25 425 (425) =


    Sep 28 (500) = (500)
    Totals: 6825 + 2225 + 275 = 2000 + 7500 + (175)

    $9325 = $9325

    At the end of the month of September, the balance sheet for the business would appear
    as follows:

    Peddler's Bikes
    Statement of Financial Position
    September 30, 2000
    Liabilities &
    Assets
    Owner's Equity
    Cash 6825 Accounts Payable 2000
    Accounts Receivable 275 Peddler, Capital 7325
    Bike Parts 2225

    Total Assets $9325 Total Liabilities $9325


    The bike parts are considered to be inventory, which appears as an asset on the
    balance sheet. The owner's equity is modified according to the difference between
    revenues and expenses. In this case, the difference is a loss of $175, so the owner's
    equity has decreased from $7500 at the beginning of the month to $7325 at the end of
    the month.

    Journal Entries

    Transactions enter the accounting system in the form of journal entries. Journal entries
    serve as a chronological record of business transactions and include the date, the
    names of the affected accounts, an optional short description of the transaction, and the
    debits and credits for the transaction. Debits are the entries on the left side of a T-
    account; credits are the entries on the right side.

    Recommended Reading

    Eisen, Peter J., Accounting the Easy Way

    Dixon, Robert L., and Harold E. Arnet The McGraw-Hill 36-Hour Accounting Course

    Accounting Concepts
    Underlying Assumptions, Principles, and Conventions
    Financial accounting relies on several underlying concepts that have a significant
    impact on the practice of accounting.
    Assumptions

    The following are basic financial accounting assumptions:

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