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Effects of transaction
An asset supplies on hand increases (debited) as well as a liability accounts payable increases (credited) by USD 1400. The debit is to Supplies on Hand relatively than Supplies Expense because the supplies are to be used over several accounting periods.
In each of the three previous entries we debited an asset rather than an expense. The cause is that the expenditure relate to (or benefits) more than just the current accounting period. At any time a company will not fully utilize up an item such as insurance, rent or supplies in the period when purchased it typically debits an asset. In fact, but sometimes the expense is initially debited in these situations.
Companies occasionally buy items that they fully use up within the current accounting period. For instance during the first part of the month a company may buy supplies that it intends to consume fully during that month. If the company completely consumes the supplies during the period of purchase the best practice is to debit Supplies Expense at the time of purchase rather than Supplies on Hand. This similar advice applies to insurance and rent. If a company buys insurance that it fully consumes during the current period the company must debit Insurance Expense at the time of purchase rather than Prepaid Insurance. As well if a company pays rent that applies only to the current period Rent Expense must be debited at the time of purchase rather than Prepaid Rent. As exemplify in section 3 following this advice simplifies the procedures at the end of the accounting period.
Determine the term - Working capital and current ratio Determining these ratios would help a business determine if will have enough capital to operate and can meet their debts.
Purpose To assess your ability to: •apply REA ontology concepts to an organization •prepare diagrams for the identification of the flow of data through an organization
BUS ADM-201 Fall 2012 EXTRA CREDIT 2 - Due in DS week of November 26 GRADING: Worth 15 points. Partially credit will only be given if you attempt all requirements a through g lis
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