Hello and welcome back now we discuss the transactions that only affect the  balance sheet, since each transaction affecting a business entity must be  recorded in the accounting records. Analyzing this transaction before actually  recording it is an important part of the financial accounting, an error in  transaction analysis results in incorrect financial statements. To illustrate the  analysis of transactions and their effects on the basic accounting equation, the  activities of Metro Courier, Inc, that led to the statements an exhibit in the  upcoming slides, the first set of transactions for June one, a, two, a and so on  are repeated in the summary of transactions exhibit three, part A. The second  set of transactions for July 1b, through 6b are repeated in Exhibit four part A  when Metro Courier was organized as a corporation on June 120 10, the  company issued shares of capital stock for 30,000 US dollars cash to Ron  Cheney and his wife and Their son. The transaction increased assets of Metro  by 30,000 and increase equities, the capital stock element of stockholders  equity, by 30,000 Consequently, the transaction yields the following basic  accounting equation. As you can see, they invested $30,000 in cash. So it's  affecting your cash or receiving 30,000 and then the credit is recorded in the  stockholders equity, which is your investment. Okay? And again, you keep your  in balance of your accounting equation 30,000 assets, and then 30,000 on the  stockholders equity and the liabilities. The company borrowed $6,000 from  Cheney's father. Cheney signed the note for the company. The note bore no  interest, and the company promised to repay the amount borrowed within one  year after including the effects of this transaction. The basic accounting equation is so you have your 30,000 original and then you're going to borrow money. So  you're adding 6000 to your cash and you are creating a new liability, which is a  note payable for with a credit balance of six. So you have your debit and you  have your credit, and again, you're staying in balance at $36,000 on each side.  Metro paid $20,000 cash for two used delivery trucks, $1,500 for office  equipment. The trucks and office equipment are assets because the company  uses them to earn revenues in the future. Know that this transaction does not  change the total amount of assets and the basic equation, but only changes the  composition of the assets. This transaction decreased cash and increased  trucks and office equipment by the total amount of cash, decreased Metro  received two assets and gave up one asset of equal value. Total Assets are still  36,000 and now you can see it in the account equation. So as you can see, they their cash of 36,000 and then they spent $2,105 with a balance of 14 five and  they increased their assets. Like you said, took away the asset of cash and  increase with trucks and office equipment. And as you can see, you're still  remaining in balance. And you've decreased by 21,500 on your cash, but you  also increased your assets by 2000 or $21,500 so you're still remaining in  balance on both sides. Metro purchased an additional $1,000 of office  equipment on account agreeing to pay within 10 days after receiving the bill. 

This transaction increased assets, which was the office equipment and the  liabilities, which is the accounts payable by $1,000 as stated earlier, accounts  payables are amounts owed to suppliers for items purchased on credit. Now you can see the $1,000 increase in the assets and liabilities as follows. Eight days  after receiving the bill, Metro paid $1,000 for the office equipment purchased on  account the transaction reduced cash by 1000 and reduced accounts payable  by 1000 thus the assets and liabilities both are reduced by 1000 and the  equation again balances as follows. So as you can see, he paid $1,000 for.  Cash on transaction five A and you decreased your liabilities by 1000 as well. So on both sides, you decreased by $1,000 you decreased your assets and you  decreased your liabilities. So this is a summary of all of our transactions. The  stockholders invested the 30,000 which is cash and stockholders equity. Okay,  your second transaction, you borrowed money, which reduced your cash and  increased your liability of $6,000 and then you purchased a truck and some  office equipment. So you've spent total $21,500 cash. Which is a negative asset, but you increase your asset as well by buying the truck and the office equipment for the same amount. Okay? And then you purchase office equipment on  account $14,500 I apologize. I'm sorry, $1,000 of office equipment so that adds  to your assets, and you also add it to your liability by accounts payable on credit, therefore remaining in balance on your assets and your liabilities, and then your  end of the month balances. If you add them together, they all remain in balance  at $36,000 part. A is a summary of transactions prepared in accounting equation on the accounting equation form for June. A summary of transactions is a  teaching tool used to show the effects of transactions on the accounting  equation. Note that the stockholders equity has remained at $30,000 this  amount changes as the business begins to earn revenues or incur expenses.  You can see how the totals at the bottom of part A of exhibit three tie into the  balance sheet shown in part B. The date on the balance sheet is June 30, 2010  these totals become the beginning balances for July 2010 and as you can see,  so what you're going to do is, from the worksheet on your balance sheet, on the  left hand side, you have your assets. On the right hand side, you have your  liabilities and your owner's equity, because both sides must balance. Okay, so  your assets, you just start with whatever account you have, your cash, what was your balance? 13,500 trucks, office equipment and so on, until your total assets  total three. Excuse me, I'm sorry, $36,000 and then on the other side of the  equation, you have your liabilities, your notes payable of 6000 which is money  you owe, okay? So that your total liability of 6000 and then your initial  investment of the 30,000 into your stockholders equity. Okay, so again, $36,000  so both sides agree and are in balance.



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