Transaction (1). Investment By Owner.

Ray Neal decides to open a computer programming service which

he names Softbyte. On September 1, 2010, he invests $15,00" cash in the business. This transaction
results in an equal increase in assets and owner's equity. The asset Cash increases $15,000, as does the
owner's equity, identified as R. Beal, Capital. The effet of this transaction on the basic equation is:

Assets = Liabilities + Owner's Equity

Cash = R. Neal, Capital

$15,000 = +$15,000

Transaction (2). Purchase of Equipment for Cash. Softbyte purchase computer equipment for $7,000
cash. This transaction results in an equal increase and decrease in total assets, though the composition
assets changers: Cash decreases $7,000, and the asset Equipment increases $7,000. The specific effect of
this transaction and the cumulative effect of the first two transactions are:

Transaction (3). Purchase of Supplies on Credit. Softbyte purchases for $1,600 from Acme Supply
Company computer paper and other supplies expected to last several months. Acme agreed to allow
Softbyte to pay this bill in October. This transaction is a purchase on account (a credit purchase). Assets
increase because of the expected future benefits of using the paper and supplies, and liabilities increase
by the amount due Acme Company. The asset Supplies increase $1,600, and the liability Accounts
Payable increases by the same amount. The effect on the equation is:

Transaction (4). Services Provided for Cash. Softbyte receives $1,200 cash from customers for
programming services it has provided. This transaction represents Softbyte's principal revenue-
producing acrivity. Recall that revenue increases owner's equity. In this transaction, Cash increases
$1,200, and revenues (specifically, Service Revenue) increase $1,200. The new balances in the equation
are:

Transaction (5). Purchase of Advertising on Credit. Softbyte receives a bill for $250 from the Daily News
for advertising but postpones payment until a later date. This transaction results in an increase in
liabilities and a decrease in owner's equity. The specific categories involved are Accounts Payable and
expenses (specifically, Advertising Expense). The efft on the equation is;

Transaction (6). Services Provided for cash and Credits. Softbyte provides $3,500 of programming
services for costumer. The company recieves cash of $1,500 from costumers, and it bills the balance of
$2,000 on account. The transaction result in an equal increase in assets and owner's equity. Three
specific items are affected: Cash increase $1,500; Account Recievable increases $2,00; and Service
Revenue increase $3,500. The new bances are as follows.

Softbyte earns revenues when it provides the services, and therefore it recognizes $3,500 in revenue. In
exchange for this services, it recieved $1,500 in Cash and Account Recievable of $2,000. The Acciunt
Recievable represents customer's promise to pay $2,000 to Softbyte in the future. When it later recieves
collections on accounts, Softbyte will increase Cash and will decrease account Recievable [see
Transaction (9)].
Transaction 7. Payment of Expenses. Softbyte pays the following Expenses in cash for September: store
rent $600, salaries of employees $900, utilities $200. These payments result in an equal decrease in
asstes and expense. Cash decreases $1,700, and the specific expenses categories (Rent Expense, Salaries
Expense, and Utility Expense) decrease owner's equity by the same amount. The effect od these
payments on the equation is;

Two sides of the equation now balance at $19,600. Three lines in the analysis incmeicate the different
typw of expenses that have been incurred

Transaction 8. Payment of Account Payable. Softbyte pays its $250 Daily New bill in each. The company
previously [in Transaction (5)] recorded the bill as an increase in Accounts Payable and a decrease in
owsner's equity. This paymeny 'on account" decrease the asset Cash by $250 and decrease the liability
Accounts Payable $250. The effectbof this on the equation is:

Observe that the payment of a liability related to an expense the has proviously been recorded does not
owner's equity. The comapy recoredthis expense in Transactionn (5) and should not record it again.

Transaction 9. Reciept of Cash on Account. Soft byte recieves $600 in cash frok customers who had been
billed fpr services [in Ttansaction (6)] . This does ot change total assets, but it change the
compositionofnthose assetes. Cash increase $600 and Accounts Recievable decrease $600. The new
balance are:

Note that the collection of an account recievable for services previously billed and recorded does not
affect owner's equity. Soft byte already recprded this revenue in Transaction (6) and should not record
again.

Transaction 10. Withdrawal of Cash by Owner. Ray Neal withdraw $1,300 in cash from the business for
his personal use. This transaction results in an equal decrease in assets and owner's equity. Both Cash
and R.Neal. Capitak decrease $1,300, as shown below.