Essay About Connie Rocha And Accounting Equation

Riordan Manufacturing Wan Security
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Fundamentals of Financial Statements
The accounting equation:
The accounting equation defines the relationship between the five account types. The
basic equation is assets equal liabilities plus equity. This is the format seen on a balance
sheet. The profit and loss accounts–revenues and expenses–also affects equity. Revenues
from the sale of goods and services increase equity, while expenses incurred in the course of
business decrease equity. Therefore, the accounting equation can be expanded to assets equal
liabilities plus equity plus revenues minus expenses. Small Business Accounting will record
the appropriate debits and credits, and track the changes to assets, liabilities, equity, revenue,
and expense accounts. Connie Rocha started a small new business Aunt Connies Cookies,
and she would take care of the marketing activities. She wants to extend her business, and
Connies only concern was that she needed some one to maintain the accounts in her new
firm. Here I am analyzing the transactions using Horizontal model. The model arranges the
balance sheet, income statement and statement of cash flows horizontally across a single line
of text as shown below.
Assets = Liabilities + Owners Equity == Net Income = Revenue – Expenses
Balance Sheet Income Statement
Assets, Liabilities, Equity, Revenue and Expenses:
These are all the different types of accounting transactions the Aunt Connies
accounting system utilizes. Assets are accounts that add value to Connies individual or
business worth. Liabilities are accounts that remove value from Connies individual or
business worth. Equity is used to identify the individual contribution of money, or other
financial equivalent, invested in individual or business worth. The revenue account is simply
the account that tracks all income generated. Expense accounts are the individual accounts
setup to record the financial transactions that occur, as expenditure, in generating that
income.
Even after the information has been recorded, further steps must be taken in order to
complete the accounting cycle. These include the adjusted the income statement, the
statement of changes in owners equity, and the balance sheet (all of which are explained in
the Financial Statements section). Probably the best way to illustrate the idea of recording
transactions and preparing financial statements is to work through Aunt Connies accounting
system. example. The transactions are actually places within accounting systems in which
changes in assets, liabilities, owners equity, revenues, and expenses are recorded. The
changes reflect increases or decreases in these accounts over a given time period.
Accounting for the Connies business cycle:
The business cycle is nothing more than the flow of transactions needed in business to
complete a sale and collect the proceeds. Its important to setting up the accounting system.
We want to know what types of transactions are involved and the accounting entries to make
along the way. Most companies business cycles progress something like this:
Briefly, here is the way your accounting system interacts at each stage of the business cycle.
Connie invested $ 80,000 in the new checking account in the name of Aunt Connie
cookies.
Purchase Raw Materials
When you buy the raw materials used to create your companys product, you receive the
goods and you either pay cash for the goods or obligate the company for future payment.
Both transactions require these accounting entries:
Increase raw materials inventory
Decrease cash (if you paid on the spot)
Increase accounts payable (if you didnt)
At this point in Aunt Connies company, purchased new equipment for 20,000, which
translates to an increase in property and decrease the cash by the same amount. Connie
purchased office equipment worth $15,000 and increased Accounts payable by $15,000.
Begin the Manufacturing Process
When we use raw materials to make our product, the accounting system transfers the