Business And The Role Of Accounting

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) Sales 900

8250 Expenses (650)

8250

5. Assets = Liabilities + Owners' Equity

Cash 8000 Owners' Equity 6000

Sales 900 Note Payable 2000

Expenses (650) Sales 900

Distributions (25) Expenses (650)

8225 Distribution (25)

8225

1. For the first transaction it would be useful to know when the contribution was made and what it would be used for.

2. Information for the second transaction may include what lending institution the loan was obtained from.

3. The third transaction might include how the revenue was earned; how many dogs and cats were groomed and what items were sold.

4. The expenses could refer to wages for employees.

5. This information might have a benefit of knowing who the money was distributed to so that there was no mistake in accounting for it.

Financial Statements for D. C. Dawg for March 2007.

Balance Sheet At March 31

Current Assets Liabilities + Owners' Equity