BUS 251 Chapter 2: Chapter 2.docx
12 Dec 2014
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Analyzing transactions and their effects on financial statements. The sample corporation is called demo company limited. Throughout the month of january, the corporation incurs a number of transactions. ,500 of cash is invested by the owners of demo company limited. In return, the owners receive shares of the corporation. Equipment is purchased for ,500 of cash. Even though the corporation uses cash to purchase equipment, the cost of the equipment is not considered as an expense at the time of the purchase. The expense will only be recognize when the equipment is being used to generate revenue. Based on the assumption of accrual-basis of accounting o o. Transaction 2 would involve an expense if the cash-basis of accounting were used. Recognize revenue and expense when they are earned or incurred, not when cash is received or spent. In transaction 2, expense is incurred when the equipment is being used (depreciation expense)
