When preparing financial statements it is important to know how each number is derived and what it will be used for. Using the information below I will show how each monetary unit affects the accounting equation. I will also provide one piece of information for each transaction that will help track its use and provide information for other purposes. The last thing I will show is the four basic financial statements for the month of March for this company.
1. D.C Dawg contributes $6,000 to start a business (Asset)
2. Borrows $2,000 on March 1st. 1 yr note. 12%interest, to be repaid on Feb. 28 of following year. (asset) repay amount $2,240 monthly at 186.66, 20 of which is interest
3. $900 earned revenue (asset)
4. $650 expenses (liabilities)
5. Distributions to owners $25 (liability)
Accounting equation is assets = liabilities + owner equity
1. Assets = Liabilities + Owner's equity
Cash 6000 Owners equity 6000
2. Assets = Liabilities + Owners' Equity
Cash 6000 Owners' Equity 6000
Loan 2000 Note Payable 2000
8000 8000
3. Assets = Liabilities + Owners' Equity
Cash 8000 Owners equity 6000
Sales 900 Note Payable 2000
8900 Sales 900
8900
4. Assets = Liabilities + Owners' Equity
Cash 8000 Owners' equity 6000
Sales 900 Note Payable 2000
Expenses (650) ...