1. Analyzing Changes in Financial Position

2. Bad news guys… Balance sheets…

3. Business Transactions Anything that causes the financial position of the business to change is called a business transaction. When Stephen goes to buy a bottle of coke and a bag of chips from the gas station, what happens?

4. Business Transactions If a company buys a car worth $25,000, what happens? If we owe $8000 to the city for taxes, and we pay $1000 off tomorrow, what happens? If we bring in a company to inspect the building and they recommend replacing the windows, changing the light bulbs, and getting new doors, is this a transaction?

5. Source Documents ANY time an asset, a liability, or equity item is recorded for accounting purposes, we need some sort of proof/evidence that we did not just make up the number. This is called a source document. This is an original record of the transaction, and it gives the information needed for the accounting clerk to process properly. Cell phone bills, internet bills, electricity bills, copies of cheques, store receipts, credit card slips, cash register summaries. These all have to be filed. They may need to be looked at later by owners, managers, or auditors.

6. Source Documents What you need to know for now is the following: 1. Accounting entries are made from business papers known as source documents. 2. Source documents are kept on file for reference purposes and are proof of transactions.

7. Ready for another Accounting Standard? The Objectivity principle. Basically, accounting needs to be recorded using clear, verifiable evidence. If 15 different people look at the same evidence…they should all arrive at the same piece of evidence. Transactions should be recorded on fact, not opinion.

8. Objectivity Principle Receipts from the source are the absolute best source of information. There is no room for false interpretation.

9. Let’s go over some things. 1. What is a business transaction? 2. What are some examples of transactions? 3. Give an example of an event in a business that is not a transaction? 4. What is a source document? 5. What happens to source documents after the accounting entries have been completed? 6. What is the objectivity principle?

10. Equation Analysis Sheets So…how do transactions impact balance sheets? Let’s look at one from September 29 th.

11. Equation Analysis Sheets We need a new way of recording changes to the balance sheet. We will be using Equation Analysis Sheets.

12. Equation Analysis Sheets

13. What if Metropolitan Movers makes a payment on its loan?

14. Equation Analysis Sheets What if one of the Accounts Receivable pays some of their debts to Metropolitan Movers?

15. Equation Analysis Sheets What if Metropolitan Movers purchases $1950 worth of equipment?

16. Equation Analysis Sheets Metro Movers buys a truck for $18,000. They pay $10,000 of it in cash, and get an $8000 loan for the rest.

17. Equation Analysis Sheets Metro Movers performs a service for B. Cava worth $1500. They send a bill to him saying he owes that much.

18. Equation Analysis Sheets Two ways to look at the increase in capital. 1. Metro Movers is a service business. When they do the move for B. Cava, he legally owes $1500. This is a gain for Metro Movers. Therefore, the Owner’s Equity (capital) is increased (J. Hofner). 2. The owner gets to claim whatever is left after liabilities are paid. Assets went up, liabilities did not, so the Owner’s capital goes up.

19. Homework: