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 |
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Liabilities |
+ |
Equity |
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Cash |
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Consulting Revenue |
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Debit |
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Credit |
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 |
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| 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 |
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Claims |
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Cash |
+ |
Notes Receivable |
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Credit |
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Debit |
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This is an asset exchange transaction:
Illustration 21: Effect of cash investment in the horizontal model
| Assets |
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| Cash |
+ |
Notes |
= |
Claims |
Rev. |
- |
Exp. |
= |
Net Inc. |
Cash |
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| (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 |
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Claims |
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Cash |
+ |
Office Equipment |
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Credit |
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Debit |
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This is an asset exchange transaction:
Illustration 23: Effect of furniture purchase in the horizontal model
| Assets |
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| Cash |
+ |
Office |
= |
Claims |
Rev. |
- |
Exp. |
= |
Net Inc. |
Cash |
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| (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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