Accounting Fundamentals for Beginners Part 2 | CFI Course

Recording Company Transactions Using Double Entry Accounting

Initial Transactions and Funding

• The company raises $100,000 by issuing shares and takes a 4-year loan of $50,000 to finance operations.

• Cash balance increases from $0 to $100,000 upon issuing shares; this is recorded as a current asset on the balance sheet.

• A corresponding entry of $100,000 is made under Common Shares in Equity to maintain balance in the accounting equation.

Loan Transaction

• When taking out a bank loan for $50,000, cash increases by this amount (debit cash).

• A liability is created with a credit to Loan Payable for the same amount, ensuring total debits equal total credits.

Asset Purchases

• The company purchases equipment for $80,000 using cash; this transaction swaps one asset (cash) for another (equipment).

• Inventory worth $6,000 is purchased next; again an asset swap occurs with cash being credited.

Revenue Generation

• The company sells all inventory for $10,000; cash increases (debit), while revenue also increases equity (credit).

• Inventory sold results in a decrease of inventory assets (credit), and cost of goods sold is recorded as an expense (debit).

Operating Expenses

• Salaries paid amounting to $1,000 are recorded; cash decreases (credit), while salary expense increases equity (debit).

• Interest payment of $500 on the bank loan leads to decreased cash (credit), while interest expense increases equity (debit).

This structured summary captures key transactions and their implications within double-entry accounting principles. Each bullet point links directly back to its relevant timestamp for easy reference.