accounting for a service business unit 1.3 transactions

Accounting for a Service Business

Unit 1.3

Transactions

What is a Transaction?

An event that occurs during the operation of a business and results in a financial change

A business transaction always includes an exchange of value

Something of value is given

Something of value is received

Transaction

Transaction Analysis

Using the totals from a Balance Sheet, transactions can be examined and their effects will be immediately reflected on the net worth of a business

Transactions usually take place between accounting periods The period of time covered by an accounting

statement

Questions to ask regarding a transaction…

Which items change in value as a result of the transaction? At least two accounts must be affected in order

for a transaction to be validHow much do these items change?Do the items increase or decrease in

value?After the change is recorded, does the

balance sheet equation still balance?

Transaction Analysis Template

Found on the Share DrivePrint out a copy to fill in the numbers

manually or input the numbers directly on the computer

Use the latest Balance Sheet to create the Opening Balance

Goldman Gym – Transaction Analysis

Transaction 1 Purchased new training equipment for $500

cash Training Equipment will increase by $500 Cash will decrease by $500

Cash now has a balance of $4,500 Equipment now has a balance of $95,000

Assets still equal Liabilities plus Equity

Goldman Gym – Transaction Analysis

Transaction 2 Purchased office supplies for $55, on credit,

from Central Supply Co. Office Supplies increase by $55 Money owed (Accounts Payable) increases by $55

Office Supplies now has a balance of $555 Accounts Payable now has a balance of $4,055

Assets still equal Liabilities plus Equity

Goldman Gym – Transaction Analysis

Transaction 3 Received $3,000 from customers who owed

money to the business Cash balance increases by $3,000 Accounts Receivable (money owed from customers)

decreases by $3,000

New Cash balance is $7,500 New Accounts Receivable balance is $3,000

Assets still equal Liabilities plus Equity

Goldman Gym – Transaction Analysis

Complete the remaining transactions (page 18) yourself

As a hint…Total Assets = $242,480 at the end of the exercise

Preparing a New Balance Sheet

Transfer the new balances from the transaction analysis sheet to a new balance sheet

Make sure the date reflects the changes in the account balances