Financial Accounting: An Integrated Statements Approach, 2nd Edition

Transaction d. Dr. Landry invested an additional $5,000 in the business in exchange for

capital stock.This transaction is similar to the one in which Dr. Landry initially estab-

lished Family Health Care. It is recorded as shown below.

102 Chapter 3 Accrual Accounting Concepts

Balance Sheet

Assets  Liabilities Stockholders’ Equity

Prepaid Notes Unearned Capital Retained

Cash Insurance Land Payable Revenue  Stock Earnings

720 8 ,400 12,000 10,000 1, 800 6,000 3,320

5,000 5,000

5,720 8 ,400 12,000 10,000 1, 800 11,000 3,320

Statement of Cash Flows

d. Financing 5,000

Statement of

Cash Flows

Income

Statement

Income Statement

Balances

d. Issued capital stock

Balances

Transaction e. Purchased supplies for $240 on account.This transaction is similar to

transactions (b) and (c), in that purchased supplies are assets until they are used up in

generating revenue. Family Health Care has purchased and received the supplies, with

a promise to pay in the near future. Such liabilities that are incurred in the normal

operations of the business are called accounts payable. The transaction is recorded by in-

creasing the asset supplies and increasing the liability accounts payable, as shown below.

Balance Sheet

Assets  Liabilities Stockholders’ Equity

Prepaid Notes Accounts Unearned Capital Retained

Cash InsuranceSuppliesLandPayablePayableRevenueStockEarnings

5,720 8 ,400 12,000 10,000 1, 800 11,000 3,320

240 240

5,720 8 ,400 240 12,000 10,000 240 1, 800 11,000 3,320

Statement of Cash Flows

Statement of

Cash Flows

Income

Statement

Income Statement

Balances

e. Purchased supplies

Balances

Transaction f. Purchased $8,500 of office equipment. Paid $1,700 cash as a down payment,

with the remaining $6,800 (8,500$1,700) due in five monthly installments of $1,360 ($6,800/5)

beginning January 1.In this transaction, the asset office equipment is increased by $8,500,

cash is decreased by $1,700, notes payable is increased by $6,800, and cash flows from

investing activities is decreased by $1,700. The transaction is recorded as follows:

Balance Sheet

Assets  Liabilities Stockholders’ Equity

Prepaid Office Notes Accts. Unearned Capital Retained

Cash Insur.Supp.Equip.LandPay.Pay.RevenueStockEarnings

5,720 8 ,400 240 12,000 10,000 240 1, 800 11,000 3,320

1,700 8 ,500 6, 800

4,020 8 ,400 240 8 ,500 12,000 16, 800 240 1, 800 11,000 3,320

Statement of Cash Flows

f. Investing 1,700

Statement of

Cash Flows

Income

Statement

Income Statement

Balances

f. Purchased office equip.

Balances