Engineering Student in Need of Transaction Analysis/Journal Entry Help!

[bbbmmm]

Hello,

I am engineering student and have to take one accounting subject as part of my course, so up until now I have very little experience. Please excuse my ignorance.

I have to analyse certain events' impact on the accounting equation, identifying the accounts which are affected. On the assets side I have - cash, accounts receivable, inventory and vehicles. Liabilities - accounts payable, notes payable. Equity - common stock, retained earnings.

-Cost of goods sold. An earlier transaction involved purchasing inventory on credit - so my inventory asset and accounts payable both went up. I imagine the inventory asset decreases by the COGS amount, but what happens of the liabilities+equity side? Is it treated as an expense and hence the retained earnings decreases? If this is the case, when the accounts payable is eventually payed, won't we have effectively paid for the inventory twice. Alternatively, if the accounts payable decreases, I don't see how this affects the income as the retained earnings is untouched (the COGS is subtracted from sales in the income statement to find the net profit, which is used to find the retained earnings). I feel as if both the retained earnings and accounts payable need to decrease.

-Depreciation. The deprecation for the year on the company vehicles is $20,000. This amount is subtracted from the assets side under "vehicle". How is the liability/equity affected? Right now I am thinking "common stock" decreases.

-"New shares issued". My guess is common stock goes up, as does cash?

-Tax due next month - My guess is accounts payable up and retained earnings down?

Sorry about the long post. Any help at all would be great.

Thanks!

 

[kirby]

Hello,

I am engineering student and have to take one accounting subject as part of my course, so up until now I have very little experience. Please excuse my ignorance.

How come they don't teach engineering to acctg students??

I have to analyse certain events' impact on the accounting equation, identifying the accounts which are affected. On the assets side I have - cash, accounts receivable, inventory and vehicles. Liabilities - accounts payable, notes payable. Equity - common stock, retained earnings.

-Cost of goods sold. An earlier transaction involved purchasing inventory on credit - so my inventory asset and accounts payable both went up. I imagine the inventory asset decreases by the COGS amount, but what happens of the liabilities+equity side? Is it treated as an expense and hence the retained earnings decreases?

You are right! you are one for one.

If this is the case, when the accounts payable is eventually payed, won't we have effectively paid for the inventory twice.

No. When you recorded the accts payable you did not issue a check. You just recorded a debt that you will pay. So - when you do pay it Accts Payable goes down and cash goes down.

Alternatively, if the accounts payable decreases, I don't see how this affects the income as the retained earnings is untouched (the COGS is subtracted from sales in the income statement to find the net profit, which is used to find the retained earnings). I feel as if both the retained earnings and accounts payable need to decrease.

See above. Accts payable went down and cash went down

-Depreciation. The deprecation for the year on the company vehicles is $20,000. This amount is subtracted from the assets side under "vehicle". How is the liability/equity affected? Right now I am thinking "common stock" decreases.

Don't change common stock unless you issue more stock or retire it. For depreciation you are correct - Vehicle goes down. And it is equity that also goes down


-"New shares issued". My guess is common stock goes up, as does cash?

Yes.

-Tax due next month - My guess is accounts payable up and retained earnings down?

Yes!

Sorry about the long post. Any help at all would be great.

Thanks!

You are on your way to being a great engineer who knows how to handle the financial side of the business!

 

[bbbmmm]

You are on your way to being a great engineer who knows how to handle the financial side of the business!

Thanks for your very helpful reply! Much appreciated.