1. Introduction to Accounting Preparing for a User’s Perspective
Identify the impact of common transactions on a new company’s financial statements
By Kevin C. Kimball, CPA
Debits and Credits Trainer
with support from
Free Jan. 2014
Available on the Google Play Store

2. Idea (USHC), Management Skill
Idea (USHC), Management Skill? (just a beginner), Resources (where to get them?)

3. Assets Piggybank But where can he get the $ he needs to get started?
Dad
(as lender or investor)

4. Assets How did he finance the assets? What does the company have?
Liabilities (i.e. borrowings)
Assets
Equity (i.e. owner’s claims)
How did he finance the assets?
What does the company have?
Who has claims on the assets?

5. = + Assets Liabilities Equity $51 $0 $51
#1 – Original owner invests On 1/1/X6 Spencer invested $51 of his own (piggybank) money into Utah Straw Hat Co (USHC) thereby obtaining 100% ownership. = +
Assets
Liabilities
Equity
$51 $0
$51

6. = + Assets Liabilities Equity $51 $0 $51 _____ $49 _____ _____ $49
#2 – Partner invests 1/2/X6 Dad becomes a partner and invests $49 thus receiving 49% ownership. (Spencer’s ownership now only claims 51% of USHC’s assets). = +
Assets
Liabilities
Equity
$51 $0
$51
_____
$49
_____
_____
$49
$100 $0
$100

7. = + Assets Liabilities Equity $100 $ 0 $100 $200 _____ _____ $200
# 3 – Bank loans 1/3/X6 USHC borrows $200 from St. George Intl. Bank (SGIB) for one year at 12% simple interest to be paid annually. = +
Assets
Liabilities
Equity
$100
$ 0
$100
$200
_____
_____
$200
_____
$300
$200
$100

8. !!No Current Impact on Financials!!
# 4 – Co. orders inventory 1/4/X6 USHC creates and sends a purchase order to China Hat Company (CHC), its vendor, to purchase 100 hats at $.50 per hat. = +
Assets
Liabilities
Equity
$300
$200
$100
!!No Current Impact on Financials!!
BUT it will be recorded in his accounting system (such as Quickbooks) 1) to remember it, 2) to document its authorization, 3) to receive the goods.

9. = + Assets Liabilities Equity $300 $200 $100 $ 60 _____ _____ $ 60
# 5 – Co. receives inventory 1/5/X6 CHC delivers 100 hats (Invoice #452). Total invoice amount is $60 as follows $50 hats, $7 shipping, $3 sales tax. = +
Assets
Liabilities
Equity
$300
$200
$100
$ 60
_____
_____
$ 60
_____
$360
$260
$100

10. + = Assets Liabilities Equity $360 $260 $100 $ 21 $ 1 $ 20 $ (6) $ (6)
# 6 – Co. sells inventory 1/6/X6 USHC sells 10 hats, on account, to Ali’i Turf Co. for $21 ($20 sales price plus $1 sales tax). The 10 hats cost $6 (i.e. ($60/100)*10) +
Assets =
Liabilities
Equity
$360
$260
$100
$ 21
$ 1
$ 20
$ (6)
$ (6)
_____
_____
_____
$375
$261
$114

11. = + Assets Liabilities Equity $375 $261 $114 $ (60) $ (60) _____ _____
# 7 – Co. pays for inventory 1/7/X6 USHC writes check number 1 to pay off the $60 invoice from CHC. = +
Assets
Liabilities
Equity
$375
$261
$114
$ (60)
$ (60)
_____
_____
_____
$315
$201
$114

12. = + Assets Liabilities Equity $201 $315 $114 $ 21 $ (21) _____ _____
# 8 – Co. receives customer payment 1/8/X6 USHC received payment for sale to Ali’i Turf in the amount of $21.
Assets
Liabilities
Equity =
$201 +
$315
$114
$ 21
$ (21)
_____
_____
_____
$315
$201
$114

13. Co. prepares draft of unadjusted financial statements
Additional information:
Interest expenses have not been recorded yet. They will be recorded at the end of the month when the “adjusted” financial statements are prepared.

18. Introduction to Accounting Preparing for a User’s Perspective
Identify the impact of common transactions on a new company’s financial statements
By Kevin C. Kimball, CPA
Debits and Credits Trainer
with support from
Free Jan. 2014
Available on the Google Play Store