Research About Financial Transactions And Their Impact (Essay Sample)

Effect of Different Transactions
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Introduction
This paper outlines the impacts different financial transactions on Thyme Advertising Company Inc. These impacts are as a result of double entry concept of accounting where one entry must be accompanied by a corresponding entry. However, their impact is described based on their effect on assets, liability of the company and the company’s stakeholder equity.
Issuing common stock to investors for cash
When Thyme Advertising Company issue stock on cash the impact will be reflected on the statement of cash flow and on the balance sheet statement. The recording for the transaction will be debiting cash account and crediting the common stock account. Issuing common stock on cash increases the assets of the firm. This is because, cash is a current asset for the firm. This increase in cash from the sale of common stock is reflected on the cash flow statement where its impact is increased cash flow from this activity. Where common stock is sold on cash there is no effect on the liability of the company. However, selling stock on cash impacts on the shareholders’ equity. Cash received from this sale increases shareholder equity (Doupnik & Perera, 2011). The stock sold is recorded as additional capital paid by shareholder. Also, this increase in shareholders’ equity increases the assets of the company as indicated by the accounting equation.
Paid monthly rent
Monthly rent is an expense for Thyme Advertising Company. On paying rent in cash, the assets of the company decrease. This is shown by the double entry concept where a decrease in asset is credited and an increase is debited. Payment of the monthly salary has no impact on the liability on the company since rent is paid on monthly basis and therefore the company will be owing the landlord every month. However, paying monthly rent decrease the shareholders’ equity since this expense is deducted from the total shareholders’ equity when paid. The reason behind this impact is that when monthly rent is paid, cash account is credited while rent expense account is debited. This crediting of cash account cause reduction in company’s assets. In addition, a decrease in shareholders’ equity results from debiting the rent expense account which is a temporary account that is closed to the shareholders’ equity account during closing of the accounts.
Received cash from customers when service was performed
When the company offer services, and receive cash, there will be an increase in the account receivable. This increases the assets of the company. The entry for this transaction is debiting cash account and crediting sales account (Doupnik & Perera, 2011). Cash received impacts can be realized on the balance sheet statement and on the statement of the cashflow for the company. Cash received can be viewed as increase in current asset for the firm and on the cashflow it increases the amount of cash earned by the firm. Furthermore, when the company receives cash from the services rendered, the liability of the company is not affected and therefore there is no change on the financial obligation of the firm. On the other hand, cash received from the services rendered increases owners’ equity. This because cash received is recorded on shareholders’ capital account when closing the financial accounts.
Billed customers for services performed
Customers are debtors to the company. When they make payment to the company and settle the debt, there will be an increase in the account receivable which is an asset for the company and the credit sales account will be credited. Thus, on payment of the debt the assets of the company increase. In addition, debtors are current assets of a company. Since payment of the services performed adds to the assets of the firm, the shareholders’ equity increases. This because shareholders’ equity is the amount we get after subtracting the amount of assets from the liabilities of the company. Therefore, an increase in assets of the company increases the shareholder equity and a decrease in assets decreases the owners’ equity (Harrison, Horngren & Thomas, 2017). Lastly, the amount received from sale of services has no impact on the liabilities of the firm. To conclude, these impacts originate as accountants debits the accounts receivable and credits the credit sales account. If the debtors fail to pay and the debt is written off, there is decrease in company’s equity.
Paid dividends to stock holders
When the company pays dividends to the stockholders,’ assets of the company decreases. This is because divided are obtained from the assets of the company. Mostly the cash assets of the company. This is done in accordance to the double entry concept where the stockholders account is debited while the credit account is credited. On paying dividends to the stockholders, the stakeholders equity decreases. This is because the owners’ equity is part of the company’s assets and dividends are obtained from the assets hence decreasing the assets of the company. Since owners’ equity is obtained by subtracting the liability from the assets, a decrease in the assets reduces the owners’ equity (Harrison, Horngren & Thomas, 2017). Stakeholders equity is a positive figure obtained. On the other hand, payment of dividends to the stakeholder does not affect the liability of the firm. This is because there is no loan is undertaken to pay dividends since its obtained from cash assets.
Incurred advertising expense on account
This means that there was loan obtained to facilitate advertising of the company’s product or services or did not pay the advertising company. Therefore, the liability of the company increased. This result when the dual concept of accounting is followed and the advertising expense account is debited while the account payable account is credited. Since the liability of the company increases, the owners’ equity decreases. This is because owners’ equity results from assets less liability and the advertising cost must be deducted from the total company’s equity. When the liability increases and there is no change in the assets, the owners’ equity decreases. However, when this company incurs advertising expense on account, the assets of the company will not be affected. This is because, this transaction does not impact directly on the changes of the assets of the company. Therefore, the assets remain unaffected by this expense.
Receive cash from customers billed on (4)
When the company receives cash from the customers (debtors) the accountants will debit the cash account and credit the account receivable. The account receivable increases and this means that there is decrease in assets. In addition, when the cash account is cre...