The following cash transactions took place during March, the first month of business for Cats and Dogs Company.
D.C. Dawg started a business, Cats and Dogs Company, by contributing $6,000. The Cats and Dogs Company borrowed $2,000 from the bank on March 1. The note is a 1-year, 12% note, with both principal and interest to be repaid on February 28 of next year. The company earned $900 in revenue. Expenses amounted to $650. Distributions to owners amounted to $25.
You are to complete the following tasks:
1. Show how each affects the accounting equation.
2. Give one additional piece of information related to the transaction that could be recorded in an information system for a purpose other than the financial statements.
3. Prepare the four basic financial statements for the month of March.
The response addresses the queries posted in 758 words with references. Also reference the attachment file to view the calculations worked out.
//Business transactions and their effect can easily be shown through accounting equation. Accounting equation assists the companies in knowing what will be the effect of financial transactions on the different things like assets, liabilities and owners' equity. We will show the effects of transactions on the accounting equation and start the paper like this: //
An accounting equation helps the company to identify the effects of the different transactions on the assets and liabilities of the company. Any transaction affects both sides of the accounting equation. The accounting equation is written as: Assets of the company = Liabilities of the company + Owner's equity (Gilbertson & Lehman, 2008).
The transactions for Cats and Dogs Company will affect the accounting equation in a way, so that the balance of equilibrium remains the same.
Effects on accounting equation:
Assets = Liabilities + Owner's equity
Started business + $6,000 cash = + $6,000 Dawg's capital
Borrowed from the bank + $2,000 cash = + $ 2,000 notes payable
Received revenue + $900 cash = + $900 revenue earned
Expenses paid (-) $650 cash = (-) $650 expenses paid
Paid to owner (-) $25 cash = (-) 25 withdrawn
Interest payable = + $ 20 payable (-) 20 ...