Effects of transaction, Accounting Basics

Assignment Help:

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.


Related Discussions:- Effects of transaction

Solved questoin of account, want a question of general jouranal , t account...

want a question of general jouranal , t account ,traial balance , income statement and balance sheet

A simple discount note for $6, a simple discount note for $6,600 at a ordin...

a simple discount note for $6,600 at a ordinary bank discount rate of 8.61% for 60 days. What is the effective interest rate? Round to the nearest tenth of a percent

Accounting theory, explain the proceedure followed in government system of ...

explain the proceedure followed in government system of accounting in india

State about the posting closing entries, Posting closing entries When c...

Posting closing entries When closing entries are entered in the General Journal, they must appear on the next line after Adjusting Entries. The words "Closing Entries" must be

Explain is curve and ad curve graph, Taxes are affected by the level of eco...

Taxes are affected by the level of economic activity: When output increases, tax revenues typically increase, when output falls, tax revenues fall. Suppose a balanced- budget amend

Define an accounting system, Q. Define an accounting system? Effects fr...

Q. Define an accounting system? Effects from a recent survey of 1400 chief financial officers (CFOs) indicate that tomorrow's accounting professionals will be called upon to br

Concepts of accounting, implication of applying aacounting concept wronly

implication of applying aacounting concept wronly

Find out debt to equity ratio, Current Assets are $70,000, non-current asse...

Current Assets are $70,000, non-current assets are $150,000, current liabilities are $40,000 and long term liabilties are $30,000. What is the debt to equity ratio? 0.47 Stock h

Accounting policies, How the use of different accounting policies affect th...

How the use of different accounting policies affect the financial performance of different entities operating within the same industry

Define the term - liabilities, Define the term - LIABILITIES Liabilitie...

Define the term - LIABILITIES Liabilities are debts owed by business. Paying cash is generally not possible or convenient, so businesses purchase services and goods on credit.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd