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

Cost accounting, The industrial revolution in England presented a challenge...

The industrial revolution in England presented a challenge to the development of accounting like a tool of industrial management. Costing techniques were urbanized as guides to man

Planning and budgeting, Consider the following 2008 data for Newark General...

Consider the following 2008 data for Newark General Hospitals (in millions of dollars Simple Budget_______Flexible Budget_ Actual Budget__ Revenue______$4.7$____4.8_____$4.5____.

Show the chart of accounts, Q. Show the Chart of accounts? Chart of acc...

Q. Show the Chart of accounts? Chart of accounts -- a listing of all accounts or categories into that businesstransactions would be classified and recorded. Every account gener

Adjusted trial balance, on 10/15 the academy agreed to teach a four month c...

on 10/15 the academy agreed to teach a four month class (beginning immediately) to an individual for $2,200 tuition per month payable at the end of the class. the class started on

Final accounts, stpes to be taken prepaing for final accounts

stpes to be taken prepaing for final accounts

Ledger, ledger is said to be the principal book entry and the transactions ...

ledger is said to be the principal book entry and the transactions can even be directly entered into the ledger account. elaborate on the statement and explain why journal is neces

Journal.., i want to clear concepts of journal

i want to clear concepts of journal

Accounting, briefly explain the accounting concepts which guide the account...

briefly explain the accounting concepts which guide the accountant at the recording stage

Days of supply calculation , Using the data from the Dell Computer annual r...

Using the data from the Dell Computer annual report  determine  how  Dell  calculated  the  four  days'  supply  of  raw  materials.  Do   you think four days'supply is a valid

Depreciation, Depreciation on an Motor Vehicle of 5,000,000

Depreciation on an Motor Vehicle of 5,000,000

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