D. C. Dawg Transactions

D. C. Dawg Transactions

D. C. Dawg opened its doors as a business in March. The following are a list of cash transactions that occurred during that month. Each of these transactions has an effect on the accounting equation. The accounting equation is Assets equal Liabilities plus Owner's Equity. The following is a breakdown of the effect of each transaction on the accounting transaction.

1. The owner, D. C. Dog invests $6,000 cash to start the business.

Assets = Liabilities + Owner's Equity

Cash Capital

+ $6,000 + $6,000

2. March 1, $2,000 is borrowed form the bank. It is a one year with 12% interest, the note is payable by February 28 of the following year. This repayment includes principal and interest.

Assets = Liabilities + Owner's Equity

Cash Notes Payable D. C. Dawg, Capital

+$6,000 +$6,000

+$2,000 +$2,000

$8,000 = $2,000 + $6,000

3. Revenue from sales $900

Assets = Liabilities + Owner's Equity

Cash Notes payable D. C. Dawg, Capital

+$6,000 $6,000

+$2,000 $2,000

Revenue Revenue

+$900 +$900

$8,900 = $2,000 + $6,900

4. There is $650 in expenses.

Assets = Liabilities + Owner's Equity

Cash Notes payable D. C. Dawg, Capital

+$6,000 $6,000

+$2,000 $2,000

Accounts Receivable Revenues

+$900 +$900

Expenses Expenses

($650) ($650)

$8,250 = $2,000 + $6,250

5. The owner received a distribution of $25.

Assets = Liabilities + Owner's Equity

Cash Notes payable D. C. Dawg, Capital

+$6,000 $6,000

+$2,000 $2,000

Revenues Revenues

+$900 +$900

Expenses Expenses

($650) ($650)

Distribution Distribution

($25) ($25)

$8,225 = $2,000 + $6,225

Additionally there are other components of the transactions that would benefit the accountant making the entries. In transaction one, when was the contribution made and what was it earmarked for? Were the funds to be used for supplies, equipment, or to satisfy expenses until the company made a profit? This information would assist in proper accounting procedures. Transaction two, the period of the note, which in this case was one year should be recorded. In number three, was the revenue generated from a service provided or inventory sold? Transaction number four indicates $650 in expenses. Were the expenses from sold inventory? Or were they related to running the business, such as supplies, rent, or utilities? Finally, in number five, is the distribution wages? Or is the owner being reimbursed for an out of pocket expense he incurred for the business. Answers to these questions are important to proper recording of transactions when they occur.

The Four Basic Financial Statements

Cats and Dogs Company

Balance Sheet

March 31, 20X7

Assets Liabilities and Owner's Equity

Current Assets Liabilities