CHAPTER 4 Business transactions 131Date Transaction Effect on accounting equation2016September 14 The business paid $450 for electricity. Decrease cash by $450 and decrease profit or loss
by $450 to record the electricity expense.15 The business invoiced TJB $3800 for
coaching services.Increase accounts receivable by $3800 and
increase profit or loss by $3800 to record the
income for coaching fees. The invoice is evidence
of a credit transaction, so no cash has exchanged
hands.16 The business paid mobile phone charges
of $280.Decrease cash by $280 and decrease profit or loss
by $280 to record the phone expense.17 The business paid $2000 to Russell
Solutions for website development.Decrease cash by $2000 and decrease profit or
loss by $2000. The website development is a
business expense and could be categorised as a
marketing expense.19 Nicholas purchased a digital camera for
home use for $300 from Dr Cameras
using his personal credit card.This event is a personal transaction, not a business
transaction. According to the entity concept, only
business transactions should be recorded in the
books of the business.20 The business bought an office desk on
credit from Office R Us for $1400.Increase office furniture by $1400 and increase
accounts payable by $1400.21 The business banked $500 for coaching
services provided to Ironside Primary
School.Increase cash by $500 and increase profit or loss
by $500 to record coaching income.25 The business bought a new computer
server for $6000 from JB Technologies
for cash.Increase office equipment by $6000 and decrease
cash by $6000.28 Business took out a bank loan to
purchase equipment with Welcome Bank
for $50 000, to be repaid in five years.Increase cash by $50 000 and increase loan
account by $50 000.Once we understand the effect of each transaction on the accounting equation, we can enter the
transactions into the accounting worksheet. Illustrative example 4.4 contains a worksheet with all the
transactions of ATC for September 2016. It is designed around the columns that represent the type
of accounts affected by each transaction. Typical columns included in a worksheet are cash, accounts
receivable, equipment, motor vehicle, accounts payable, loan and capital. The column headings will
change, depending on the nature of the business entity. Two worksheet accounts will be affected for each
transaction. Consider the transaction on 1 September 2016 as an example; the two accounts affected are
the business cash account and the capital account. The $20 000 is recorded in the cash column, with
a corresponding entry of $20 000 in the capital column. Both these amounts are recorded as positives
because they increase the accounts. When the business makes a payment out of the cash account, as
done in the transaction on 14 September, the balances of both the cash account and the profit or loss
account will be decreased. After each transaction, the worksheet should remain balanced.
These two examples affect both sides of the accounting equation. However, certain transactions will
result in entries to only one side of the equation. Consider the transaction on 3 September, when the busi-
ness purchases an iPad for cash. This transaction results in changes to two asset accounts, with the cash
account decreasing and the office equipment account increasing. There is no overall change to the asset
side of the worksheet resulting from this transaction, and no entries are made on the liability and equity side.