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

On june 1st, On June 1st, Green Pea, Inc. purchased $1,200 worth of supplie...

On June 1st, Green Pea, Inc. purchased $1,200 worth of supplies on account. How does this transaction affect Green Pea's accounts? a. Increase supplies and accounts payable by $

Methods be treated on the financial statements, Honesty AL, CPA, is compil...

Honesty AL, CPA, is compiling financial statement of significant accounting policies, Honesty AL discovers that the method used to value inventory in the past was stated as "invent

Accounting, Accounting Accounting has evolved and emerged within respo...

Accounting Accounting has evolved and emerged within response to the social & economic requirement of the society. The accounting procedure has its own syntax. The primary sys

Bank for international settlements (bis), Bank for International Settlement...

Bank for International Settlements (BIS) A consortium bank recognized to coordinate the collection and rescheduling of German reparations after World War I, the BIS has surviv

Nance''s restaurant, Nance's Restaurant, a local independent restaurant, is...

Nance's Restaurant, a local independent restaurant, is evaluating new point-of-sale (POS) systems and must determine if a new installation is feasible. A new POS installation wou

What do you mean by contingent liabilities, Q. What do you mean by Continge...

Q. What do you mean by Contingent liabilities? Contingent liabilities -- liabilities which are not recorded on a company's financial reports though whichmight become due. If a

Journal.., i want to clear concepts of journal

i want to clear concepts of journal

After the closing entries are posted to the ledger, After the closing entri...

After the closing entries are posted to the ledger, each revenue account will have a zero balance: a. a zero balance, b. a debit balance, c. a credit balance, or d. e

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