Understanding Financial Transactions with the Balance Sheet Equation

I am Steven Carver, an Accounting Assignment Expert at accountingassignmenthelp.com. I hold a Master’s in Accounting from Leeds University and have been assisting students for 10 years. Visit our website or email [email protected]. Call [phone]for help with assignments. In our sample assignment solution, we use the Balance Sheet Equation with TIM, Inc. transactions to maintain accurate financial records and prepare financial statements.

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2. Understanding Financial Transactions with the Balance Sheet Equation Welcome to the sample assignment provided by accountingassignmenthelp.com , where we unravel the complexities of accounting through practical examples. In this sample, we explore the use of the Balance Sheet Equation to record transactions. By examining a series of transactions for TIM, Inc., you'll learn how to accurately record financial activities and prepare financial statements. This example will help you understand how to maintain a balanced and accurate financial record, ensuring a true representation of a company's financial health.

3. Use of the Balance Sheet Equation to record transactions and for the preparation of financial statements On July 1, 2000, TIM, Inc. started as a business entity. A summary of transactions through December 31, 2000 is presented below. Stockholders invested $50,000 in cash in Bank Boston in the name of the business. New computer equipment is purchased for $6,000 in cash. Equipment will be used for 3 years. Office rent for half a year is paid in advance, $8,000. Dividends of $500 paid to existing shareholders. Paid $10,000 to employees for services provided. Paid utility bills, $2000. Provided (and completed) design services on account to customers, $30,000. Collected cash of $2,000 for services billed in 7.

4. To record the transactions and prepare financial statements for TIM, Inc., we will use the balance sheet equation: Assets=Liabilities +Stockholders’ Equity Let's go through each transaction step by step and see how it impacts the balance sheet equation.

5. 1. Stockholders invested $50,000 in cash in Bank Boston in the name of the business. Stockholders invested $50,000 in cash in Bank Boston in the name of the business. Impact on Balance Sheet: Assets : Increase by $50,000 (Cash) Stockholders' Equity : Increase by $50,000 (Common Stock) Assets= Liabilities+Stockholders ’ Equity $50,000=$0+$50,000

6. 2. New computer equipment is purchased for $6,000 in cash. Equipment will be used for 3 years. Impact on Balance Sheet:

7. 3. Office rent for half a year is paid in advance, $8,000 Impact on Balance Sheet: Assets : Decrease by $8,000 (Cash) Prepaid Expenses : Increase by $8,000

8. 4. Dividends of $500 paid to existing shareholders. Impact on Balance Sheet: Assets : Decrease by $500 (Cash) Stockholders' Equity : Decrease by $500 (Retained Earnings)

9. 5. Paid $10,000 to employees for services provided. Impact on Balance Sheet: Assets : Decrease by $10,000 (Cash) Stockholders' Equity : Decrease by $10,000 (Retained Earnings)

10. 6. Paid utility bills, $2,000. Impact on Balance Sheet: Assets : Decrease by $2,000 (Cash) Stockholders' Equity : Decrease by $2,000 (Retained Earnings)

11. 7. Provided (and completed) design services on account to customers, $30,000. Impact on Balance Sheet: Assets : Increase by $30,000 (Accounts Receivable) Stockholders' Equity : Increase by $30,000 (Revenue)

12. 8. Collected cash of $2,000 for services billed in 7. Impact on Balance Sheet: Assets : Increase by $2,000 (Cash) Decrease by $2,000 (Accounts Receivable)

13. Final Balance Sheet Preparation Assets Cash: $25,500 Accounts Receivable: $28,000 Equipment: $6,000 Prepaid Expenses: $8,000 Total Assets : $67,500

14. Liabilities None Stockholders' Equity Common Stock: $50,000 Retained Earnings: $17,500 Total Stockholders' Equity : $67,500

15. C onclusion T he series of transactions for TIM, Inc. from July 1, 2000, to December 31, 2000, demonstrates the application of the balance sheet equation in recording and analyzing financial activities. These transactions include initial stockholder investment, purchase of equipment, prepayment of rent, payment of dividends, employee salaries, utility bills, service revenue on account, and cash collections. The final position, reflecting total assets of $67,500 balanced against stockholders' equity of $67,500, illustrates the accurate application of accounting principles, ensuring that the financial statements provide a true representation of the company's financial health as of December 31, 2000.