Double-entry Accounting System

4.9. Analysis of cash revenue transaction

Event No. 9: On June 30, 20X6 Huske's Consultants represented Mr. Debret (a client) in a court hearing, for what the company received $700 cash. The increase in assets (Cash) is recorded as a debit. The increase in equity (by increasing Consulting Services) is recorded as a credit:

Illustration 18: Effect of cash revenue in T accounts

Assets

=

Liabilities

+

 Equity

Cash

 

 

 

Consulting Revenue

Debit
(9) + 700

           

 

 

 

 

                

Credit
(9) + 700

This is an asset source transaction:

Illustration 19: Effect of cash revenue in the horizontal model

Assets

=

Liabilities

+

Equity

Rev.

-

Exp.

=

Net Inc.

Cash Flow

700

=

n/a

+

700

700

-

n/a

=

700

700

OA

The $700 cash received is shown as a cash inflow from operating activities.

4.10. Analysis of cash investment transaction

Event No. 10: On August 1, 20X6, Huske's Consultants provided a loan to Jak Building Company in amount of $3,000. Jak Building Company issued a 1-year, 8% note. The transaction acts to increase one asset (Notes Receivable) and decrease another asset (Cash). An increase in the Notes Receivable account is recorded as a debit, and a decrease in the Cash account is recorded as a credit:

Illustration 20: Effect of cash investment in T accounts

Assets

=

Claims

Cash

+

Notes Receivable

 

 

 

Credit
(10) - 3,000

 

Debit
(10) + 3,000

 

 

 

 

This is an asset exchange transaction:

Illustration 21: Effect of cash investment in the horizontal model

Assets

 

 

 

 

 

 

 

 

Cash

+

Notes
Receivable

=

Claims

Rev.

-

Exp.

=

Net Inc.

Cash
Flow

(3,000)

+

3,000

=

n/a

n/a

-

n/a

=

n/a

(3,000)

IA

Note the decrease in cash from this transaction. This cash outflow represents an investing activity.

4.11. Analysis of furniture purchase transaction

Event No. 11: New furniture was required for the recently rented office (Event No. 6). On August 1, 20X6 Mrs. Huske paid $2,000 cash to purchase a new office table and chairs. The office equipment is expected to have a useful life of 2 years and a salvage value of $400. The purchase acts to increase one asset account (Office Equipment) and to decrease another (Cash). The Office Equipment account is debited and the Cash account is credited:

Illustration 22: Effect of furniture purchase in T accounts

Assets

=

Claims

Cash

+

Office Equipment

 

 

 

Credit
(11) - 2,000

 

Debit
(11) + 2,000

 

 

 

 

This is an asset exchange transaction:

Illustration 23: Effect of furniture purchase in the horizontal model

Assets

 

 

 

 

 

 

 

 

Cash

+

Office
Equipment

=

Claims

Rev.

-

Exp.

=

Net Inc.

Cash
Flow

(2,000)

+

2,000

=

n/a

n/a

-

n/a

=

n/a

(2,000)

IA

The transaction results in a $2,000 cash outflow from investing activities.

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