Accounting Business Reporting for Decision Making

CHAPTER 4 Business transactions 129

ILLUSTRATIVE EXAMPLE 4.3

Analysis of business transactions (income earned)

ATC sends an invoice to Tennis Queensland for providing tennis coaching services totalling $3000.

Tennis Queensland will have 30 days’ credit. Tennis Queensland will be recorded as an accounts receiv-

able and the services rendered will be shown as income:

Assets (A) = Liabilities (L) + Equity (E) + Income (I) – Expenses (E)

Accounts receivable Coaching fees

$3000 $3000

Note that the $3000 of income recorded increases profit, thereby increasing equity. Hence, the

accounting equation remains in balance.

VALUE TO BUSINESS

•   A business transaction is recognised when there has been an exchange of resources between one

entity and another person or entity, which must be at arm’s length distance.

•   Business transactions that involve the exchange of cash for goods or services are known as cash

transactions; those where an amount will be paid or received at a later date are classified as credit

transactions.

•   The concept of duality means that every transaction will affect the accounting equation such that

the equation remains in balance. The accounting equation expresses the relationship between the

assets controlled and owned by the entity and the claims against those assets.

The services provided by a tennis coaching entity will be recorded as income in the business’s books.