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Chapter 1
THE ROLE OF
ACCOUNTING
IN DECISION
MAKING
Slide 1
Transaction analysis
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Accounting for business transactions
Let us solve now the
Transaction 1: Starting the business Classroom Activity
question 1
Transaction 2: Purchase of land
Transaction 3: Purchase of office supplies
Transaction 4: Earning of service revenue
Transaction 5: Earning of service revenue on credit
Transaction 6: Payment of expenses
Transaction 7: Payment of account
Transaction 8: Collection on account
Transaction 9: Sale of land
Transaction 10: Withdrawal of cash
Transaction 11: Personal transaction
Slide 3
Accounting for business transactions
Example for analysis of transaction (refer page 12)
Transaction Details of transactions
Starting the business 1 Sheena Bright invested $30,000 cash in the business
Purchase of land 2 Paid$20,000 cash for land
Purchase of office supplies 3 Bought $500 of office supplies on credit
Earning of service revenue 4 Received $5,500 cash from clients for service revenue earned
Earning of service revenue 5 Performed training service for clients on credit, $3,000
on credit
Payment of expenses 6 Paid cash expenses: computer lease, $600: office rent $1,100; employee
salary $1,200; electricity and gas $400
Payment of account 7 Paid $300 on the account payable created in transaction 3
Collection on account 8 Collected $1,000 on the account receivable created in transaction 5
Sale of land 9 Sold land for cash at its cost of $9,000
Withdrawal of cash 10 Withdrew $2,000 cash for personal expenses
Personal transaction 11 Remodelled Sheena Bright's personal residence. This is not a transaction of
the business
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Transaction Details of transactions
Starting the business 1 Sheena Bright invested $30,000 cash in the business
Purchase of land 2 Paid$20,000 cash for land
Purchase of office supplies 3 Bought $500 of office supplies on credit
Earning of service revenue 4 Received $5,500 cash from clients for service revenue earned
Earning of service revenue on credit 5 Performed training service for clients on credit, $3,000
Payment of expenses 6 Paid cash expenses: computer lease, $600: office rent $1,100; employee salary $1,200; electricity and gas $400
Payment of account 7 Paid $300 on the account payable created in transaction 3
Collection on account 8 Collected $1,000 on the account receivable created in transaction 5
Sale of land 9 Sold land for cash at its cost of $9,000
Withdrawal of cash 10 Withdrew $2,000 cash for personal expenses
Personal transaction 11 Remodelled Sheena Bright's personal residence. This is not a transaction of the business
Assets Owners´
Liabilities equity
Cash Land Office Accounts Accounts Sheena
supplies receivable payable Bright,
capital
(1) +30 000 (1) +30 000
Transaction Details of transactions
Starting the business 1 Sheena Bright invested $30,000 cash in the business
Purchase of land 2 Paid$20,000 cash for land
Purchase of office supplies 3 Bought $500 of office supplies on credit
Earning of service revenue 4 Received $5,500 cash from clients for service revenue earned
Earning of service revenue on credit 5 Performed training service for clients on credit, $3,000
Payment of expenses 6 Paid cash expenses: computer lease, $600: office rent $1,100; employee salary $1,200; electricity and gas $400
Payment of account 7 Paid $300 on the account payable created in transaction 3
Collection on account 8 Collected $1,000 on the account receivable created in transaction 5
Sale of land 9 Sold land for cash at its cost of $9,000
Withdrawal of cash 10 Withdrew $2,000 cash for personal expenses
Personal transaction 11 Remodelled Sheena Bright's personal residence. This is not a transaction of the business
Assets Owners´
Liabilities equity
Cash Land Office Accounts Accounts Sheena
supplies receivable payable Bright,
capital
(1) +30 000 (1) +30 000
(2) –20 000 (2) +20 000
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Transaction Details of transactions
Starting the business 1 Sheena Bright invested $30,000 cash in the business
Purchase of land 2 Paid$20,000 cash for land
Purchase of office supplies 3 Bought $500 of office supplies on credit
Earning of service revenue 4 Received $5,500 cash from clients for service revenue earned
Earning of service revenue on credit 5 Performed training service for clients on credit, $3,000
Payment of expenses 6 Paid cash expenses: computer lease, $600: office rent $1,100; employee salary $1,200; electricity and gas $400
Payment of account 7 Paid $300 on the account payable created in transaction 3
Collection on account 8 Collected $1,000 on the account receivable created in transaction 5
Sale of land 9 Sold land for cash at its cost of $9,000
Withdrawal of cash 10 Withdrew $2,000 cash for personal expenses
Personal transaction 11 Remodelled Sheena Bright's personal residence. This is not a transaction of the business
Assets Owners´
Liabilities equity
Cash Land Office Accounts Accounts Sheena
supplies receivable payable Bright,
capital
(1) +30 000 (1) +30 000
(2) –20 000 (2) +20 000
(3) +500 (3) +500
Transaction Details of transactions
Starting the business 1 Sheena Bright invested $30,000 cash in the business
Purchase of land 2 Paid$20,000 cash for land
Purchase of office supplies 3 Bought $500 of office supplies on credit
Earning of service revenue 4 Received $5,500 cash from clients for service revenue earned
Earning of service revenue on credit 5 Performed training service for clients on credit, $3,000
Payment of expenses 6 Paid cash expenses: computer lease, $600: office rent $1,100; employee salary $1,200; electricity and gas $400
Payment of account 7 Paid $300 on the account payable created in transaction 3
Collection on account 8 Collected $1,000 on the account receivable created in transaction 5
Sale of land 9 Sold land for cash at its cost of $9,000
Withdrawal of cash 10 Withdrew $2,000 cash for personal expenses
Personal transaction 11 Remodelled Sheena Bright's personal residence. This is not a transaction of the business
Assets Owners´
Liabilities equity
Cash Land Office Accounts Accounts Sheena
supplies receivable payable Bright,
capital
(1) +30 000 (1) +30 000
(2) –20 000 (2) +20 000
(3) +500 (3) +500
(4) +5 500 (4)+5 500
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Assets Owners´
Liabilities equity
Cash Land Office Accounts Accounts Sheena
supplies receivable payable Bright,
capital
(1) +30 000 (1) +30 000
(2) –20 000 (2) +20 000
(3) +500 (3) +500
(4) +5 500 (4)+5 500
(5) +3 000 (5) +3 000
Transaction Details of transactions
Starting the business 1 Sheena Bright invested $30,000 cash in the business
Purchase of land 2 Paid$20,000 cash for land
Purchase of office supplies 3 Bought $500 of office supplies on credit
Earning of service revenue 4 Received $5,500 cash from clients for service revenue earned
Earning of service revenue on credit 5 Performed training service for clients on credit, $3,000
Payment of expenses 6 Paid cash expenses: computer lease, $600: office rent $1,100; employee salary $1,200; electricity and gas $400
Payment of account 7 Paid $300 on the account payable created in transaction 3
Collection on account 8 Collected $1,000 on the account receivable created in transaction 5
Sale of land 9 Sold land for cash at its cost of $9,000
Withdrawal of cash 10 Withdrew $2,000 cash for personal expenses
Personal transaction 11 Remodelled Sheena Bright's personal residence. This is not a transaction of the business
Assets Owners´
Liabilities equity
Cash Land Office Accounts Accounts Sheena
supplies receivable payable Bright,
capital
(1) +30 000 (1) +30 000
(2) –20 000 (2) +20 000
(3) +500 (3) +500
(4) +5 500 (4)+5 500
(5) +3 000 (5) +3 000
(6) –3 300 (6) –3 300 *
* Various expenses – rent, salaries, lease, electricity and gas
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Transaction Details of transactions
Payment of expenses 6 Paid cash expenses: computer lease, $600: office rent $1,100;
employee salary $1,200; electricity and gas $400
Payment of account 7 Paid $300 on the account payable created in transaction 3
Collection on account 8 Collected $1,000 on the account receivable created in transaction 5
Sale of land 9 Sold land for cash at its cost of $9,000
Withdrawal of cash 10 Withdrew $2,000 cash for personal expenses
Personal transaction 11 Remodelled Sheena Bright's personal residence. This is not a transaction
of the business
Assets Owners´
Liabilities equity
Cash Land Office Accounts Accounts Sheena
supplies receivable payable Bright,
capital
(1) +30 000 (1) +30 000
(2) –20 000 (2) +20 000
(3) +500 (3) +500
(4) +5 500 (4)+5 500
(5) +3 000 (5) +3 000
(6) –3 300 (6) –3 300 *
(7) –300 (7) –300
Transaction Details of transactions
Payment of expenses 6 Paid cash expenses: computer lease, $600: office rent $1,100;
employee salary $1,200; electricity and gas $400
Payment of account 7 Paid $300 on the account payable created in transaction 3
Collection on account 8 Collected $1,000 on the account receivable created in transaction 5
Sale of land 9 Sold land for cash at its cost of $9,000
Withdrawal of cash 10 Withdrew $2,000 cash for personal expenses
Personal transaction 11 Remodelled Sheena Bright's personal residence. This is not a transaction
of the business
Assets Owners´
Liabilities equity
Cash Land Office Accounts Accounts Sheena
supplies receivable payable Bright,
capital
(1) +30 000 (1) +30 000
(2) –20 000 (2) +20 000
(3) +500 (3) +500
(4) +5 500 (4)+5 500
(5) +3 000 (5) +3 000
(6) –3 300 (6) –3 300 *
(7) –300 (7) –300
(8) +1 000 (8) –1 000
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Transaction Details of transactions
Payment of expenses 6 Paid cash expenses: computer lease, $600: office rent $1,100;
employee salary $1,200; electricity and gas $400
Payment of account 7 Paid $300 on the account payable created in transaction 3
Collection on account 8 Collected $1,000 on the account receivable created in transaction 5
Sale of land 9 Sold land for cash at its cost of $9,000
Withdrawal of cash 10 Withdrew $2,000 cash for personal expenses
Personal transaction 11 Remodelled Sheena Bright's personal residence. This is not a transaction
of the business
Assets Owners´
Liabilities equity
Cash Land Office Accounts Accounts Sheena
supplies receivable payable Bright,
capital
(1) +30 000 (1) +30 000
(2) –20 000 (2) +20 000
(3) +500 (3) +500
(4) +5 500 (4)+5 500
(5) +3 000 (5) +3 000
(6) –3 300 (6) –3 300 *
(7) –300 (7) –300
(8) +1 000 (8) –1 000
(9) +9 000 (9) –9 000
Transaction Details of transactions
Payment of expenses 6 Paid cash expenses: computer lease, $600: office rent $1,100;
employee salary $1,200; electricity and gas $400
Payment of account 7 Paid $300 on the account payable created in transaction 3
Collection on account 8 Collected $1,000 on the account receivable created in transaction 5
Sale of land 9 Sold land for cash at its cost of $9,000
Withdrawal of cash 10 Withdrew $2,000 cash for personal expenses
Personal transaction 11 Remodelled Sheena Bright's personal residence. This is not a transaction
of the business
Assets Owners´
Liabilities equity
Cash Land Office Accounts Accounts Sheena
supplies receivable payable Bright,
capital
(1) +30 000 (1) +30 000
(2) –20 000 (2) +20 000
(3) +500 (3) +500
(4) +5 500 (4)+5 500
(5) +3 000 (5) +3 000
(6) –3 300 (6) –3 300 *
(7) –300 (7) –300
(8) +1 000 (8) –1 000
(9) +9 000 (9) –9 000
(10) –2 000 (10) –2 000
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Transaction Details of transactions
Payment of expenses 6 Paid cash expenses: computer lease, $600: office rent $1,100;
employee salary $1,200; electricity and gas $400
Payment of account 7 Paid $300 on the account payable created in transaction 3
Collection on account 8 Collected $1,000 on the account receivable created in transaction 5
Sale of land 9 Sold land for cash at its cost of $9,000
Withdrawal of cash 10 Withdrew $2,000 cash for personal expenses
Personal transaction 11 Remodelled Sheena Bright's personal residence. This is not a transaction
of the business
Assets Owners´
Liabilities equity
Cash Land Office Accounts Accounts Sheena
supplies receivable payable Bright,
capital
(1) +30 000 (1) +30 000
(2) –20 000 (2) +20 000
(3) +500 (3) +500
(4) +5 500 (4)+5 500
(5) +3 000 (5) +3 000
(6) –3 300 (6) –3 300 *
(7) –300 (7) –300
(8) +1 000 (8) –1 000
(9) +9 000 (9) –9 000
(10) –2 000 (10) –2 000
Let us solve now the
Classroom Activity
question 2
Preparing financial statements
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