:: CHAPTER 1 ::

ACCOUNTING IN ACTION
--- LAMIA ALAM
TRANSACTION ANALYSIS
Softbyte, a smartphone app development company. Softbyte is the creation of Ray Neal,
an entrepreneur who wants to create focused apps that inspire and engage users of all
ages. The following business transactions occur during Softbyte’s first month of
operations.

Transaction (1).
Ray Neal starts a smartphone app development company which he
names Softbyte. On September 1, 2020, he invests $15,000 cash in the
business.

SL Asset = Liabilities + Owner’s Equity

NO.
Cash Owner’s Capital

1. + 15,000 +15,000
 Transaction (2).
Softbyte purchases computer equipment for $7,000 cash.

SL Asset = Liabilities + Owner’s Equity

NO.
Cash Equipment Owner’s Capital

1. + 15,000 +15,000
2. -7,000 +7,000
 Transaction (3).
Softbyte purchases headsets (andother computer accessories
expected to last several months) for $1,600 from Mobile Solutions.
Mobile Solutions agrees to allow Softbyte to pay this bill in October.

SL Asset = Liabilities + Owner’s Equity

NO.
Cash Equipment Supplies A/P Owner’s Capital

1. + 15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
 Transaction (4).
Softbyte receives $1,200 cash from customers for app development
services it has performed.

SL Asset = Liabilities + Owner’s Equity

NO Cash Equipment Supplies A/P + Owner’s -Owner’s + Revenues - Expenses
. Capital Drawing

1. + 15,000 +15,000

2. -7,000 +7,000

3. +1,600 +1,600

4. +1,200 +1,200
 Transaction (5).
Softbyte receives a bill for $250 from the Daily News for advertising on
its online website but postpones payment until a later date.

SL Asset = Liabilities + Owner’s Equity

NO Cash Equipment Supplies A/P + Owner’s -Owner’s + Revenues - Expenses
. Capital Drawing

1. + 15,000 +15,000

2. -7,000 +7,000

3. +1,600 +1,600

4. +1,200 +1,200

5. +250 -250
 Transaction (6).
Softbyte performs $3,500 of app development services for customers. The
company receives cash of $1,500 from customers, and it bills the balance of
$2,000 on account.
SL Asset = Liabilities + Owner’s Equity
NO + Owner’s -Owner’s + Revenues - Expenses
Cash Equipment Supplies A/R A/P
Capital Drawing

1. + 15,000 +15,000

2. -7,000 +7,000

3. +1,600 +1,600

4. +1,200 +1,200

5. +250 -250

6. +1,500 +2,000 +3,500

 Transaction (7).
Softbyte pays the following expenses in cash for September: office rent $600, salaries
and wages of employees $900, and utilities $200.
SL Asset = Liabilities + Owner’s Equity
NO Cash Equipment Supplies A/R A/P + Owner’s -Owner’s + Revenues - Expenses
Capital Drawing

1. + 15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
 Transaction (8).
Softbyte pays its $250 Daily News bill in cash.

SL Asset = Liabilities + Owner’s Equity

NO Cash Equipment Supplies A/R A/P + Owner’s -Owner’s + Revenues - Expenses
Capital Drawing

6. +1,500 +2,000 +3,500

7. -1,700 -600
-900
-200
8. - 250 - 250
 Transaction (9).
Softbyte receives $600 in cash from customers who had been billed for services [in
Transaction (6)].

SL Asset = Liabilities + Owner’s Equity

NO Cash Equipment Supplies A/R A/P + Owner’s -Owner’s + Revenues - Expenses
Capital Drawing

6. +1,500 +2,000 +3,500

7. -1,700 -600
-900
-200
8. - 250 - 250
9. + 600 - 600
 Transaction (10).
Ray Neal withdraws $1,300 in cash from the business for his personal use.
SL Asset Liabilities + Owner’s Equity
NO =
Cash Equipment Supplies A/R A/P + Owner’s -Owner’s + - Expenses
Capital Drawing Revenues

6. +1,500 +2,000 +3,500

7. -1,700 -600
-900
-200
8. - 250 - 250
9. + 600 - 600
10. - 1,300 - 1,300
$8,050 $7,000 $1,600 $1,400 = $1,600 $15,000 ($1,300) $4,700 ($1,950)

$18,050 $18,050
CALCULATION OF PROFIT/LOSS

Profit/ (Loss) = Revenues – Expenses

= 4,700 – 1950
= $2,750
 SOFTBYTE
INCOME STATEMENT
FOR THE MONTH ENDED SEPTEMBER, 2020

Details Amount Amount

Revenues 4,700
Expenses:
Advertising Expense (250)
Rent Expense (600)
Salaries & Wages Expense (900)
Utilities Expense (200) (1,950)
Net Profit $2,750
EXERCISE: E1-5
EXERCISE: E1-7
PRACTICE EXERCISE

E1-5, 7
P1- 1A, 2A, 4A
 Thank You
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