Double-entry Accounting System

4.12. Analysis of cash payment on account transaction

Event No. 12: On August 14, 20X6, Huske's Consultants paid the $400 owed to the local supply company (see Event No. 2). The cash payment acts to decrease assets (Cash) and liabilities (Accounts Payable). The decrease in assets is recorded as a credit, and the decrease in liabilities is recorded as a debit:

Illustration 24: Effect of cash payment on account in T accounts

Assets

=

Liabilities

+

 Equity

Cash

 

Accounts Payable

 

 

 

Credit
(12) - 400

 

Debit
(12) - 400

 

 

 

 

This is an asset use transaction:

Illustration 25: Effect of cash payment on account in the horizontal model

Assets

=

Liabilities

+

Equity

Rev.

-

Exp.

=

Net Inc.

Cash Flow

(400)

=

(400)

+

n/a

n/a

-

n/a

=

n/a

(400)

OA

Note the cash outflow of $400 as the company paid cash in this transaction.

4.13. Analysis of cleaning services on account transaction

Event No. 13: On September 18, 20X6 Huske's Consultants received a $800 bill from SuperCleaners for cleaning the office. Mrs. Huske plans to pay the bill later. The event acts to increase liabilities and decrease equity. The increase in liabilities (Accounts Payable) is recorded as a credit, and the decrease in equity (by increasing Office Maintenance Expense) is recorded as a debit:

Illustration 26: Effect of cleaning services on account in T accounts

Assets

=

Liabilities

+

 Equity

 

 

Accounts Payable

 

Office Maintenance Expense

 

 

 

 

Credit
(13) + 800

 

Debit
+ Expense
[ - Equity]
(13) - 800

 

This is a claims exchange transaction:

Illustration 4-27: Effect of cleaning services on account in the horizontal model

Assets

=

Liabilities

+

Equity

Rev.

-

Exp.

=

Net Inc.

Cash Flow

n/a

=

800

+

(800)

n/a

-

(800)

=

(800)

n/a

 

4.14. Analysis of cash distribution transaction

Event No. 14: On November 30, 20X6 Huske's Consultants distributed $300 in cash to the owner. The distribution acts to decrease assets and equity. The decrease in assets (Cash) is recorded as a credit, and the decrease in equity (Distribution) is recorded as a debit:

Illustration 28: Effect of cash distribution in T accounts

Assets

=

Liabilities

+

 Equity

Cash

 

 

 

Distribution

 

Credit
(14) - 300

 

 

 

 

Debit
+ Dist.
[ - Equity]
(14) - 300

 

This is an asset use transaction:

Illustration 29: Effect of cash distribution in the horizontal model

Assets

=

Liabilities

+

Equity

Rev.

-

Exp.

=

Net Inc.

Cash Flow

(300)

=

n/a

+

(300)

n/a

-

n/a

=

n/a

(300)

FA

This transaction results in a cash outflow of $300 from financing activities.

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