Double-entry Accounting System
4.3.6 Analysis of rent prepayment transaction
Event No. 6. On June 1, 20X6 Mrs. Huske realized that the business was growing and in this connection rented a larger office. $2,400 cash was paid in advance for a 1-year rent of the new lease. The transaction decreases one asset account (Cash) and increases another (Prepaid Rent). To increase the Prepaid Rent account it is debited and to decrease the Cash account it is credited:
Illustration 4-12: Effect of rent payment in T accounts
Assets |
= |
Claims |
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Prepaid Rent |
+ |
Cash |
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Debit |
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Credit |
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This is an asset exchange transaction.
Illustration 4-13: Effect of rent payment in the horizontal model
| Assets |
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| Prepaid Rent |
+ |
Cash |
= |
Claims |
Rev. |
- |
Exp. |
= |
Net Inc. |
Cash Flow |
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| 2,400 |
+ |
(2,400) |
= |
n/a |
n/a |
- |
n/a |
= |
n/a |
(2,400) |
OA |
4.3.7 Analysis of cash collection transaction
Event No. 7. On June 15, 20X6 Huske's Consultants received $1,500 cash from Mandy Food Store for the provided services (see Event No. 3). Cash collection increases one asset account (Cash) and decreases the other (Accounts Receivable). Cash is debited Accounts Receivable are credited:
Illustration 4-14: Effect of cash collection in T accounts
Assets |
= |
Claims |
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Cash |
+ |
Accounts Receivable |
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Debit |
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Credit |
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This is an asset exchange transaction:
Illustration 4-15: Effect of cash collection in the horizontal model
| Assets |
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| Cash |
+ |
Accounts Receivable |
= |
Claims |
Rev. |
- |
Exp. |
= |
Net Inc. |
Cash Flow |
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| 1,500 |
+ |
(1,500) |
= |
n/a |
n/a |
- |
n/a |
= |
n/a |
1,500 |
OA |
4.3.8 Analysis of cash advance receipt transaction
Event No. 8. On June 31, 20X6 Mrs. Huske signed up a contract with Mining Company to perform consulting services. Huske's Consultants received an advance cash payment in amount of $3,600 for the one-year contract. The transaction acts to increase assets (Cash) and liabilities (Unearned Revenue). The asset is debited and the liability is credited:
Illustration 4-16: Effect of cash advance receipt in T accounts
Assets |
= |
Liabilities |
+ |
Equity |
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Cash |
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Unearned Revenue |
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Debit |
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Credit |
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This is an asset source transaction:
Illustration 4-17: Effect of cash advance receipt in the horizontal model
| Assets |
= |
Liabilities |
+ |
Equity |
Rev. |
- |
Exp. |
= |
Net Inc. |
Cash Flow |
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| 3,600 |
= |
3,600 |
+ |
n/a |
n/a |
- |
n/a |
= |
n/a |
3,600 |
OA |
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