| E F F E C T S O F O W N E R 'S IN V E S T M E N T /

L E S S O N 3-1
* W IT H D R A W A L A N D C A S H A C Q U IS IT I O N
OF ASSETS

Lesson O b j e c tiv e j -

id e n t if y t h e e ff e c t s o f tr a n s a c tio n s o n t h e a ss e ts a n d o w n e r's e q u it y as a re s u lt o f
o w n e r’ s in v e s t m e n t/ w it h d r a w a l a n d c a s h a c q u is itio n o f a ss e ts

ILLUSTRATION

Give the effect of the following transactions on the assets and owner’s equity:

Owner’s
Transaction Assets Liabilities Analysis
Equity

1. O w n e r in v e s t s A s s e ts C a p it a l C a s h in c r e a s e s b e c a u s e
c a sh in th e in c r e a s e in c r e a s e s o w n e r in v e s t s c a s h i n
b u s in e s s . t h e b u s in e s s w h i c h is a n
a s s e t. O w n e r’ s i n t e r e s t i n
t h e b u s in e s s in c r e a s e s a s
r e p r e s e n t e d b y a n in c r e a s e
i n c a p it a l.

54 T h e A c c o u n t i n g E q u a tio n
 2 . O w n e r in v e s t s
f u rn itu r e .
3. O w n e r w it h d r a w s
c a s h f o r p e rs o n a l
use.
4 . O w n e r p u rc h a s e s
s u p p li e s u s in g
c a sh.
5 . O w n e r g e ts
ca sh re fu n d
fo r r e tu rn in g
d a m a g e d s u p p li e s
b o u g h t o n c a sh.
6. O w n e r p u rc h a s e s
f u r n i t u r e u s in g
ca sh.
7. O w n e r m a k e s
a d d it io n a l c a s h
in v e s t m e n t .
E ffe cts o f O w n e r’s In v e s tm e n t/ W ith d r a w a l a n d C a s h A c q u is itio n o f Assets K * .
A s s e ts C a p it a l A s s e ts in c r e a s e b e c a u s e
in c r e a s e in c r e a s e s o w n e r in v e s t s f u r n i t u r e
i n t h e b u s in e s s w h i c h is
a n a s s e t. O w n e r’ s i n t e r e s t
i n t h e b u s in e s s in c r e a s e s
b e c a us e o f th e in v e s tm e n t as
r e p r e s e n t e d b y a n in c r e a s e
i n c a p it a l.
A s s e ts C a p it a l A s s e ts d e cre a s e b e c a u s e
d e cre a s e d e cre a s e s o w n e r w it h d r a w s c a s h w h ic h
is a n a s s e t. O w n e r’s i n t e r e s t
i n t h e b u s in e s s d e cre a s e s
b e c a us e o f th e w ith d r a w a l as
r e p r e s e n t e d b y a d e cre a s e i n
c a p it a l.
A s s e ts S u p p li e s in c r e a s e b e c a u s e
in c r e a s e / o f t h e p u rc h a s e b u t c a s h
d e cre a s e d e cre a s e s b e c a u s e o f t h e
p a y m e n t . S in c e b o t h a r e
a s s e ts , o n e a s s e t in c r e a s e s
w h il e a n o t h e r a s s e t
c o rr e s p o n d in g ly d e cre a s e s .
A s s e ts C a s h in c r e a s e s b e c a u s e
in c r e a s e / o f t h e r e f u n d b u t s u p p li e s
d e cre a s e d e cre a s e b e c a u s e o f t h e
r e t u r n . S in c e b o t h a r e
a s s e ts , o n e a s s e t in c r e a s e s
w h il e a n o t h e r a s s e t
c o rr e s p o n d in g ly d e cre a s e s .
A s s e ts F u r n it u r e in c r e a s e s b e c a u s e
in c r e a s e / o f t h e p u rc h a s e b u t c a s h
d e cre a s e d e cre a s e s b e c a u s e o f t h e
p a y m e n t . S in c e b o t h a r e
a s s e ts , o n e a s s e t in c r e a s e s
w h il e a n o t h e r a s s e t
c o rr e s p o n d in g ly d e cre a s e s^
A s s e ts C a p it a l A s s e ts in c r e a s e b e c a u s e
in c r e a s e in c r e a s e s o w n e r in v e s t s a d d it io n a l
c a s h i n t h e b u s in e s s w h ic h
is a n a s s e t. O w n e r’s i n t e r e s t
i n t h e b u s in e s s in c r e a s e s
a e c a us e o f t h e i n v e s t m e n t as
r e p r e s e n t e d b y a n in c r e a s e
i n c a p it a l.
8. O w n e r w it h d r a w s
s u p p li e s f o r
p e rs o n a l use .
A s s e ts C a p it a l A s s e ts d e cre a s e b e c a u s e
d e cre a s e d e cre a s e s o w n e r w it h d r a w s s u p p li e s
fr o m t h e b u s in e s s w h i c h is
a n a s s e t. O w n e r’ s i n t e r e s t
i n t h e b u s in e s s d e cre a s e s
b e c a us e o f th e w ith d r a w a l
w h i c h is r e p r e s e n t e d b y a
d e cre a s e i n c a p it a l.

T est Y o ur U n d e rs t a n d in g

G iv e a n e x a m p le o f a tr a n s a c t io n f o r e a c h o f t h e f o llo w in g :

1. S im u lt a n e o u s in c r e a s e a n d d e cre a s e i n a s s e t

2. In c r e a s e i n b o t h a s s e ts a n d c a p it a l

3. D e cre a s e i n b o t h a s s e ts a n d c a p it a l

G iv e t h e e ff e c t o f t h e f o ll o w i n g tr a n s a c t io n s o n t h e a s s e ts o f t h e b u s in e s s . P u t a
c h e c k m a r k u n d e r th e a p p r o p ri a t e c o lu m n .

In c r e a s e D e cre a s e N o E ffe c t

1. O w n e r in v e s t e d e q u ip m e n t .

2. B o u g h t o ffic e c o m p u t e r o n a c c o u n t

3. P a id t h e o ffic e c o m p u t e r i n n u m b e r 2

4. O w n e r w it h d r e w c a sh.

5. O w n e r w it h d r e w f u r n i t u r e .

56 The A c c o u n tin g E q u a tio n

 D R IL L 2

G iv e t h e e ff e c t o f t h e f o ll o w i n g tr a n s a c t io n s o n t h e o w n e r’s e q u it y a c c o u n t:

T r a n s a c tio n In c r e a s e D e cre a s e N o E ffe c t

1. C a s h in v e s t m e n t o f o w n e r

2. N o n -c a s h in v e s t m e n t o f o w n e r

3. C a s h w it h d r a w a l o f o w n e r

4. N o n -c a s h w it h d r a w a l o f o w n e r

5. P u rc h a s e o f s u p p li e s

G iv e t h e e ff e c t o f t h e f o llo w in g tr a n s a c t io n s o n t h e a s s e ts a n d t h e o w n e r’s e q u it y :

A s s e ts O w n e r’s
E q u it y
1. O w n e r in v e s t e d c a s h a n d c o m p u t e r.

2. O w n e r p u rc h a s e d f u r n i t u r e u s in g c a s h.

3. O w n e r w it h d r e w c a s h f o r p e rs o n a l us e .

4. O w n e r r e t u r n e d s u p p li e s b o u g h t u s in g
c a sh.

5. P u rc h a s e o f s u p p li e s f o r p e rs o n a l u s e

E ffe cts o f O w n e r’ s In v e s tm e n t/ W ith d r a w a l a n d C a sh A c q u is itio n o f Assets

 E F F E C TS O F IN C O M E E A R N E D
LE SS O N 3-2
A N D PAYMENT OF EXPENSES

id e n t if y t h e e ff e c t s o f tr a n s a c tio n s o n t h e a ss e ts a n d o w n e r’ s e q u it y a s a re s u lt o f
in c o m e e a r n e d a n d p a y m e n t o f e x p e n s e s

ILLUSTRATION

G iv e t h e e ff e c t o f t h e f o llo w in g tr a n s a c t io n s o n t h e a s s e ts a n d o w n e r’ s e q u it y :

O w n e r’ s
T r a n s a c t io n A s s e ts L i a b iliti e s A n a ly s is
E q u it y

1. R e n d e r e d
s e rv ic e s f o r c a s h
A s s e ts C a p it a l A s s e ts in c r e a s e b e c a u s e
in c r e a s e in c r e a s e s o w n e r c o ll e c t e d c a s h a s a
r e s u lt o f s e rv ic e s r e n d e r e d .
O w n e r’ s e q u it y in c r e a s e s
b e c a u s e t h e b u s in e s s
e a rn e d in c o m e f o r s e rv ic e s
re n d e re d .

2. R e n d e r e d
s e rv ic e s o n c r e d it
A s s e ts C a p it a l A s s e ts in c r e a s e b e c a u s e
in c r e a s e in c r e a s e s o f a c c o u n t c o ll e c tib l e fr o m
t h e c u s t o m e r w h i c h is a n
a s s e t a s a r e s u lt o f s e rv ic e s
r e n d e r e d . L ik e w is e , o w n e r’ s
e q u it y in c r e a s e s b e c a u s e
o f in c o m e e a rn e d fr o m
s e rv ic e s r e n d e r e d .

3. P a id t e l e p h o n e A s s e ts C a p it a l A s s e ts d e cre a s e b e c a u s e
d e cre a s e d e cre a s e s o w n e r p a ys ca sh fo r th e
b ill
t e l e p h o n e b il l . O w n e r’s
e q u it y d e cre a s e s b e c a u s e
th e te le p h o n e b ill
re p re s e n ts u t ilit i e s e xp e ns e
w h ic h d e cre a s e s c a p it a l.

58 The A c c o u n tin g E q u a tio n

 G iv e e x a m p le s o f t h e f o ll o w i n g tr a n s a c t io n s :

1. T r a n s a c tio n s t h a t in c r e a s e t h e a s s e ts o f a b u s in e s s

2. T r a n s a c tio n s t h a t in c r e a s e t h e o w n e r’s e q u it y

3. T r a n s a c tio n s t h a t in c r e a s e b o t h a s s e ts a n d o w n e r’s e q u it y

4. T r a n s a c tio n s t h a t d e cre a s e t h e a s s e ts o f a b u s in e s s

5. T r a n s a c tio n s t h a t d e cre a s e t h e o w n e r’s e q u it y

6. T r a n s a c tio n s t h a t d e cre a s e b o t h a s s e ts a n d o w n e r’s e q u it y

7. T r a n s a c tio n s t h a t in c r e a s e s on e a s s e t b u t d e cre a s e s a n o t h e r a s s e t

D R IL L 4

G iv e t h e e ff e c t o f t h e f o ll o w i n g tr a n s a c t io n s o n t h e a s s e ts a n d o w n e r’s e q u it y :

O w n e r’s
A s s e ts
E q u it y
1. C u s t o m e r p a id c a s h f o r s e rv ic e s r e n d e r e d .

2. P a id e m p lo y e e s ’ s a l a ri e s

3. R e c e iv e d a n o t e f o r s e rv ic e s r e n d e r e d

4. R e n d e r e d s e rv ic e s o n c r e d it

5. P a id e l e c tr ic it y b i l l r e c e iv e d

E ffe cts o f In c o m e E a rn e d a n d P a y m e n t o f E xp ense s

 E F F E C TS O F T R A N S A C TIO N S
LE SS O N 3-3
O N T H E A C C O U N TIN G E Q U A TIO N

Lesson O b je ctiv e s

id e n tif y t h e e ff e c t s o f tr a n s a c tio n s o n t h e a ss e ts, lia b ilitie s , a n d o w n e r ’ s e q u it y a s a

re s u lt o f d iff e r e n t tr a n s a c tio n s a f f e c t i n g t h e a c c o u n t i n g e q u a t i o n

a n a ly z e t h e d if f e r e n t tr a n s a c tio n s in t h e s e rv ic e t y p e o f busin e ss

T h e f o llo w in g p a g e s w i l l i l l u s t r a t e t h e e ff e c t o f tr a n s a c tio n s o n t h e a c c o u n tin g e q u a tio n .

T h e a b b r e v i a tio n s i n t h e e x a m p l e s s h a ll m e a n t h e f o llo w in g :

IN C - In c r e a s e
DEC - D e cre a s e
NC - N o C hange

T r a n s a c t io n A s s e ts L i a b iliti e s C a p it a l A n a ly s is

1. O w n e r in v e s t s IN C NC IN C A n e n tity s e p a ra te a n d
c a sh. d i s t i n c t fr o m t h e o w n e r
is c r e a t e d . T h e c a s h
in v e s tm e n t o f th e o w n e r
in c r e a s e s t h e a s s e ts o f
t h e b u s in e s s a n d t h e
c a p it a l o f t h e o w n e r.

2. O w n e r in v e s t s
e q u ip m e n t .
IN C NC IN C T h e e q u ip m e n t
in c r e a s e s t h e a s s e ts
o f t h e b u s in e s s . S in c e
t h i s is a n i n v e s t m e n t
o f t h e o w n e r, c a p it a l
o f t h e o w n e r in c r e a s e s
c o rr e s p o n d in g ly .

60 The A c c o u n tin g E q u a tio n

 3. R e n d e rs s e rv ic e s
fo r ca sh
4. R e n d e rs s e rv ic e s
o n c r e d it
5. C o ll e c t s a c c o u n t i n
tr a n s a c t io n # 4
6. P u rc h a s e s s u p p li e s
o n c r e d it
7. R e t u r n s d e f e c tiv e
s u p p li e s
IN C NC IN C T h e b u s in e s s e a rn e d
a n in c o m e b y r e n d e ri n g
s e rv ic e s a n d c o ll e c tin g
re v e nu e s in ca sh. T h e
e ff e c t i n t h e a c c o u n tin g
e q u a tio n is a n in c r e a s e
in c a sh fo r th e c a sh
c o ll e c t e d a n d a n in c r e a s e
i n c a p it a l a s r e v e n u e
in c r e a s e s c a p it a l.
IN C NC IN C A s s e ts in c r e a s e b y t h e
a m o u n t o f re v e n u e
e x p e c t e d t o b e c o ll e c t e d
fr o m t h e c u s to m e r to
w h o m t h e s e rv ic e s w e r e
r e n d e r e d . C a p it a l a ls o
in c r e a s e s s in c e r e n d e rin g
o f s e rv ic e s r e p r e s e n ts
re v e nu e .
IN C /D E C NC NC A s s e ts in c r e a s e a s
t h e r e is c a s h i n f l o w
in th e a m o u n t o f th e
c o ll e c tio n . H o w e v e r,
a s s e ts c o rr e s p o n d in g ly
d e cre a s e w i t h t h e a m o u n t
o f t h e c o ll e c tio n a s t h e
a c c o u n ts r e c e iv a b l e ,
a n a s s e t a c c o u n t, w i l l
d e cre a s e . T h i s is b e c a u s e
t h e a m o u n t t h e c u s to m e r
o w e s h a s a lr e a d y b e e n
c o ll e c t e d .
IN C IN C NC S u p p li e s in c r e a s e t h e
a s s e ts o f t h e b u s in e s s
a n d t h e l i a b il i t i e s
c o rr e s p o n d in g ly in c r e a s e
a s t h e s u p p li e s w e r e
b o u g h t on a ccount or
c r e d it .
DEC DEC NC A s s e ts d e cre a s e w i t h
t h e a m o u n t o f s u p p li e s
r e tu rn e d . L ia b iliti e s
c o rr e s p o n d in g ly
d e cre a s e a s t h e r e t u r n e d
s u p p li e s d e cre a s e t h e
a m o u n t ow e d.
E ffe cts o f T ra n s a ctio n s o n th e A c c o u n tin g E q u a tio n 61
 8 . P a y s t h e s u p p li e s
b o u g ht on a ccount
o r c r e d it
9. B o rr o w s c a s h
is s u i n g a n o t e
1 0 . P u rc h a s e s l a n d
u s in g c a s h
11. P a ys u tiliti e s
e xp e ns e fo r th e
m o n th
12. P a ys th e n o te in
fu ll
62 T h e A c c o u n t i n g E q u a tio n
DEC DEC NC T h e tr a n s a c t io n i s a
p a y m e n t o f a c c o u n t.
S in c e t h e r e is c a s h
o u t f lo w r e p r e s e n tin g t h e
p a y m e n t o f a n e x is t in g
l i a b i l i t y , a s s e ts d e cre a s e
in th e a m o u n t o f ca sh
p a id a n d li a b iliti e s
d e cre a s e i n t h e a m o u n t o f
t h e l i a b i l i t y o n s u p p li e s
p a id .
IN C IN C NC C a s h in c r e a s e s t h e a s s e ts
o f t h e b u s in e s s a s t h e r e
is a n i n f l o w o f c a s h
b e c a u s e t h e b u s in e s s
b o rro w e d m o n e y . N o t e s
p a y a b l e in c r e a s e s t h e
l i a b i l i t i e s o f t h e b u s in e s s
as i t r e p re s e n ts a n
o b li g a t i o n o n t h e p a r t o f
t h e b u s in e s s t o p a y a t a
fu tu r e d a te .
IN C /D E C NC NC L a n d in c r e a s e s t h e
a s s e ts o f t h e b u s in e s s
h u t c a s h c o rr e s p o n d in g ly
d e cre a s e s d u e t o t h e
p a y m e n t f o r t h e p u rc h a s e
o f la n d .
DEC NC DEC P a y m e n t re p re s e n ts c a sh
o u t f lo w d e c r e a s in g t h e
a s s e ts o f t h e b u s in e s s .
E x p e n s e s d e cre a s e t h e
c a p it a l a s t h e y h a v e
o p p o s it e e ff e c t o n in c o m e .
DEC DEC NC T h e tr a n s a c t io n i s a
p a y m e n t o f li a b ilit y .
S in c e t h e r e is c a s h
o u t f lo w r e p r e s e n tin g
th e p a y m e n t o f th e note ,
a s s e ts d e cre a s e i n t h e
a m o u n t o f c a s h p a id a n d
l i a b i l i t i e s d e cre a s e i n
th e a m o u n t o f th e note s
p a y a ble .
9. B o rro w s 1 *9 0 ,0 0 0 IN C IN C NC C a s h in c r e a s e s t h e a s s e ts
c a s h is s u in g a n o t e o f t h e b u s in e s s b e c a u s e
C ash N ote s
P a y a b le t h e b u s in e s s b o rro w e d
1 *9 0 ,0 0 0 P 9 0 ,0 0 0 . N ote s p a y a ble
1 *9 0 ,0 0 0 in c r e a s e s t h e l i a b i l i t i e s o f
t h e b u s in e s s b y P 9 0 , 0 0 0 a s
i t r e p r e s e n t s a n o b li g a t i o n
o n t h e p a r t o f t h e b u s in e s s
to p a y t h e 1 *9 0 ,0 0 0 a t a
fu tu r e d a te .

10. P u rc h a s e s IN C NC NC L a n d in c r e a s e s t h e
1 *5 0 0 ,0 0 0 l a n d a s s e ts o f t h e b u s in e s s
Land
l a n d p a y in g c a s h b y 1 *5 0 0 ,0 0 0 . C a s h
1*5 0 0 ,0 0 0 c o rr e s p o n d in g ly d e cre a s e s
b y P 5 0 0 ,000 w it h th e ca sh
DEC p a id f o r t h e p u rc h a s e o f
la n d .
C ash
1*5 0 0 ,0 0 0

11. P a ys u tiliti e s DEC NC DEC P a y m e n t re p re s e n ts c a sh

e xp e ns e fo r th e o u t f lo w d e c r e a s in g t h e
C ash U tilit i e s
m o n th P 8 0 0 a s s e ts o f t h e b u s in e s s b y
1*80 0 E xpense
P 8 0 0 . L ik e w is e , e x p e n s e s
1*80 0 d e cre a s e t h e c a p it a l
b y P 8 0 0 as th e y h a v e
o p p o s it e e ff e c t o n in c o m e .

12. P a y s t h e n o t e i n DEC DEC NC T h e tr a n s a c t io n is a

fu ll P 9 0 ,0 0 0 p a y m e n t o f
C ash N ote s
P a y a b le l i a b i l i t y . S in c e t h e r e is
T 9 0 ,0 0 0 c a s h o u t f lo w r e p r e s e n tin g
1 *9 0 ,0 0 0 th e p a y m e n t o f th e
n o t e , a s s e ts d e cre a s e
b y P 9 0 ,0 0 0 . L ia b iliti e s
li k e w i s e d e cre a s e b y
1 *9 0 ,0 0 0 w h ic h is t h e
a m o u n t o f c a s h s e ttl e m e n t
fo r th e n ote s p a y a ble .

E ffe cts o f T ra n s a ctio n s o n th e A c c o u n tin g E q u a tio n 65

 T est Y o ur U n d e rs t a n d in g

G iv e a n e x a m p le o f tr a n s a c t io n u n d e r e a c h o f t h e f o llo w in g :

1. In c r e a s e i n b o t h a s s e ts a n d li a b ilit i e s

2. D e cre a s e i n b o t h a s s e ts a n d li a b ilit i e s

D R IL L 5

G iv e t h e e ff e c t o f t h e f o ll o w i n g tr a n s a c t io n s o n t h e a c c o u n t in g e q u a tio n :

1. O w n e r in v e s t e d c a s h i n t h e b u s in e s s .
2. R e n d e r e d s e rv ic e s f o r c a s h
3. P u rc h a s e d s u p p li e s f o r c a s h
4. R e n d e r e d s e rv ic e s o n a c c o u n t t o M s . G o
5. P u rc h a s e d f u r n i t u r e o n a c c o u n t fr o m L in d e n T e a k
6. C o ll e c t e d p a y m e n t fr o m M s . G o
7. P a r t i a l p a y m e n t m a d e t o L in d e n T e a k
8. O w n e r in v e s t e d c o m p u t e r i n t h e b u s in e s s .
9. P a id L in d e n T e a k i n f u l l
10. O w n e r w it h d r e w c a s h f o r p e rs o n a l us e .
11. O w n e r w it h d r e w s u p p li e s f o r p e rs o n a l us e .
12. R e c e iv e d P L D T b i l l f o r t e l e p h o n e s e rv ic e s
13. P a id P L D T b i l l f o r t e l e p h o n e s e rv ic e s
14. R e n d e r e d s e rv ic e s to M r . S y o n a c c o u n t
15. R e c e iv e d n o t e f o r s e rv ic e s r e n d e r e d to M s . A n n
16. M s . A n n p a id i n t e r e s t f o r t h e n o t e .
17. M s . A n n p a id t h e n o t e i n f u l l .
18. M r . S y is s u e d n o t e i n li e u o f h is a c c o u n t.
19. R e c e iv e d p a r t i a l p a y m e n t fr o m M r . S y
20. P a id e l e c tr ic it y b i l l t o M E R A L C O

66H The A c c o u n tin g E q u a tio n

 T h e f o llo w in g d e t a ils w i l l in c lu d e t h e a m o u n t a n d t h e a c c o u n t a ff e c t e d i n i l l u s t r a t i n g
t h e e ff e c ts o n t h e a s s e t e q u a tio n . N o tic e t h a t t h e a c c o u n tin g e q u a tio n is a lw a y s b a l a n c e d
i n e v e ry tr a n s a c t io n s u c h t h a t a s s e ts a r e a lw a y s e q u a l to li a b i l i t i e s a n d c a p it a l.

T r a n s a c t io n A s s e ts L i a b iliti e s C a p it a l A n a ly s is

1. M s . G o in v e s ts c a s h . IN C NC IN C T h e 1* 8 0 0 ,0 0 0 c a s h
1 *8 0 0 ,0 0 0 CASH M s . G o, in v e s tm e n t o f M s . G o
C a p it a l in c r e a s e s t h e c a s h o f t h e
1 *8 0 0 ,0 0 0
b u s in e s s a n d t h e c a p it a l o f
1 *8 0 0 ,0 0 0 t h e o w n e r.

2 . M s . G o in v e s t s IN C NC IN C T h e P 5 0 ,0 0 0 e q u ip m e n t
e q u ip m e n t . in c r e a s e s t h e a s s e ts o f t h e
E q u ip m e n t M s . G o,
1 *5 0 ,0 0 0 C a p it a l b u s in e s s . S in c e t h i s is a n
1 *5 0 ,0 0 0 i n v e s t m e n t o f M s . G o, h e r
1 *5 0 ,0 0 0 c a p it a l c o rr e s p o n d in g ly
in c r e a s e s .

3 . R e n d e rs ^ 2 5 , 0 0 0 IN C NC IN C T h e b u s in e s s e a rn s
s e rv ic e s f o r c a s h ^ 2 5 , 0 0 0 b y r e n d e rin g
CASH S e rv ic e
s e rv ic e s a n d c o ll e c tin g
1 *2 5 ,0 0 0 In c o m e
th e re v e n u e s in ca sh. T h e
1 *2 5 ,0 0 0 e ff e c t i n t h e a c c o u n tin g
e q u a tio n is a n in c r e a s e
o f = P 2 5 ,0 0 0 i n c a s h f o r
t h e c a s h c o ll e c t e d a n d
a ^ 2 5 , 0 0 0 in c r e a s e
i n c a p it a l a s r e v e n u e
in c r e a s e s c a p it a l.

4 . R e n d e rs 1*9 ,0 0 0 IN C NC IN C A s s e ts in c r e a s e b y ^ 9 , 0 0 0
s e rv ic e s o n c r e d it w h ic h is t h e a m o u n t
A c c o u n ts S e rv ic e
R e c e iv a b l e In c o m e o f r e v e n u e e x p e c t e d to
b e c o ll e c t e d fr o m t h e
1 *9 ,0 0 0 1*9 ,0 0 0 c u s to m e r to w h o m th e
s e rv ic e w a s r e n d e r e d .
C a p it a l in c r e a s e s b y
^ 9 , 0 0 0 s in c e r e n d e ri n g
o f s e rv ic e r e p r e s e n ts
re v e nu e .

E ffe cts o f T ra n s a ctio n s o n th e A c c o u n tin g E q u a tio n K 63

 5. C o ll e c t s a c c o u n t i n IN C NC NC A s s e ts in c r e a s e b y P 9 ,0 0 0
tr a n s a c t io n # 4 a s t h e r e is c a s h i n f lo w
C ash
in th e a m o u n t o f th e
P 9 ,0 0 0 c o ll e c tio n . H o w e v e r, a s s e ts
c o rr e s p o n d in g ly d e cre a s e
DEC b y a n e q u a l a m o u n t s in c e
t h e a c c o u n ts r e c e iv a b l e ,
A c c o u n ts
w h ic h is a n a s s e t a c c o u n t,
R e c e iv a b l e
d e cre a s e s . T h is is b e c a u s e
P 9 ,0 0 0 t h e a m o u n t t h e c u s to m e r
o w e s h a s a lr e a d y b e e n
c o ll e c t e d .

6. P u rc h a s e s P i , 0 0 0 IN C IN C NC S u p p li e s in c r e a s e t h e
s u p p li e s o n c r e d it a s s e ts o f t h e b u s in e s s
S u p p li e s A c c o u n ts
b y P i , 0 00 . L i a b iliti e s
P a y a b le
P I , 000 c o rr e s p o n d in g ly in c r e a s e
P i , 000 b y P i , 0 0 0 a s t h e s u p p li e s
w ere b o u g h t on a ccount or
c r e d it .

7. R e t u r n s P 120 DEC DEC NC A s s e ts d e cre a s e b y P 12 0

d e f e c tiv e s u p p li e s w h i c h is t h e a m o u n t
S u p p li e s A c c o u n ts
o f s u p p li e s r e t u r n e d .
P a y a b le
P120 L i a b i l i t i e s c o rr e s p o n d in g ly
P 120 d e cre a s e b y P 1 2 0 a s t h e
r e t u r n e d s u p p li e s d e cre a s e
th e a m o u n t ow e d.

8. P a y s t h e s u p p li e s DEC DEC NC T h e tr a n s a c t io n is a
b o u g h t on a ccount p a y m e n t o f a n a c c o u n t.
C ash A c c o u n ts
o r c r e d it S u p p li e s p u r c h a s e d i n
P a y a ble
P 880 tr a n s a c t io n # 6 a m o u n t
P880 t o P i , 0 0 0 . H o w e v e r,
d e f e c tiv e s u p p li e s i n t h e
a m o u n t o f P 12 0 w a s
r e t u r n e d i n tr a n s a c t io n
# 7 . H e n c e , t h e r e m a i n in g
l i a b i l i t y t o b e p a i d is
P 8 8 0 . T h e r e is a c a s h
o u t f lo w o f P 8 8 0 u p o n
p a y m e n t. B e c a us e o f
t h i s , a s s e ts d e cre a s e b y
P 8 8 0 . L ik e w is e , l i a b il i t i e s
d e cre a s e i n t h e s a m e
a m o u n t as th e P 880
l i a b i l i t y o n s u p p li e s w a s
p a id .

64 T h e A c c o u n t i n g E q u a tio n