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Apply Transaction Analysis Duality of effects means every transaction has at least two effects on the basic accounting equation. A = L + SE must hold true.

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Presentation on theme: "Apply Transaction Analysis Duality of effects means every transaction has at least two effects on the basic accounting equation. A = L + SE must hold true."— Presentation transcript:

1 Apply Transaction Analysis Duality of effects means every transaction has at least two effects on the basic accounting equation. A = L + SE must hold true for every transaction. A Chart of Accounts is a summary of all account names (and corresponding account numbers) used to record financial results in the accounting system. 1 1 Analyze 2 Record 3 Summarize LO2 © 2012McGraw-Hill Ryerson. All rights reserved.

2 Step 1: Analyze Transactions 2 (a) Issue Shares to Owners Pizza Palace receives $50,000 cash Pizza Palace gives $50,000 stock (contributed capital) LO2 © 2012McGraw-Hill Ryerson. All rights reserved.

3 3 (b) Invest in Equipment Pizza Palace receives $42,000 equipment Pizza Palace gives $42,000 cash LO2 © 2012McGraw-Hill Ryerson. All rights reserved.

4 4 (c) Obtain Loan from Bank Pizza Palace receives $20,000 cash Pizza Palace gives $20,000 note payable to the bank LO2 © 2012McGraw-Hill Ryerson. All rights reserved.

5 5 (d) Invest in Equipment Pizza Palace receives $18,000 equipment Pizza Palace gives $16,000 cash and a promise to pay $2,000 on account LO2 © 2012McGraw-Hill Ryerson. All rights reserved.

6 6 (e) Order Cookware Pizza Palace receives promise of future delivery Pizza Palace gives promise to pay for purchase An exchange of only promises is not a transaction. This does not affect the accounting equation. LO2 © 2012McGraw-Hill Ryerson. All rights reserved.

7 7 (f) Pay Supplier Pizza Palace receives a release from its promise to pay $2,000 on account Pizza Palace gives $2,000 cash LO2 © 2012McGraw-Hill Ryerson. All rights reserved.

8 8 (g) Receive Cookware Pizza Palace receives cookware costing $630 Pizza Palace gives a promise to pay $630 on account LO2 © 2012McGraw-Hill Ryerson. All rights reserved.

9 Elements of the Accounting Process 9 LO2 The three step process of Analyze, Record and Summarize is repeated many times in the Accounting Cycle Daily transactions occur during the accounting period Adjustments and closing transactions occur at the end of the period © 2012McGraw-Hill Ryerson. All rights reserved.

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