I find it essential to include a few definitions that will help us have a better understanding of the elements we are going to discuss health & medical Statistics.
Transactions refer to an economic activity which will results in changes when referring to the values of liabilities, assets or stockholder’s equity of a company.
Common stock is a type of security which has the role of representing ownership in a corporation. people who hold this element have the capability to exercise control by selecting the board of directors of the company or vote for different policies.
Rent expenses influence the company’s profit as it refers to the cost that the business has to pay in order to use the property.
Service revenue refers to the income a business gets by providing their services.
Accounts receivable represents a current asset. It represents the payment that is offered to the company from the customers who have purchased the services.
Dividends refer the profit of the company after the taxes which is distributed to the shareholders.
Advertising expenses are a synonym for advertising costs and it represents the investment for promoting the company
Equipment usually has a lifetime and after being used several times it will depreciate.
Accounts payable represents the money that the business owns to the credits.
Assets are the elements which are controlled in order to generate profit (such as supplies or machinery)
Liability represents the companies obligations or debts which arise during the operations.
Revenue represents the total income that a company gets by selling their products or services
Expenses represent the cost the company has to pay in order to produce those goods or services.
Equation for assets
Assets = Liabilities + Stockholder’s Equity
Ok, let go further.
- Issued common stock to investors in exchange for cash received from investors.
Increase in Assets and Increase in Equity
This will increase both the assets and the stockholder’s equity. This can be explained by the fact that when common stock is issued the investors will offer cash in exchange. Since cash is considered an asset ( such as supplies, prepaid expenses etc) it will increase. This is also a form of transaction which will influence the common stock account and the cash account. The common stock is also a shareholder’s equity so it will be increased too during the process. Shareholders’ equity is the net value of the company. It is actually the amount that would be offered back to the shareholders if all the business’es asset were liquidated. It is defined as being the sum of total assets minus the total liabilities or the share capital plus the retained earnings minus the treasury shares. Liabilities suffer no influences in this case as only the assets and stockholder’s equity is in correlation with the common stock.
- Paid monthly rent.
The decrease in Asset and Decrease in Equity
Paying the monthly rate influences the following two factors: assets and stockholders equity ( such as in the case of the previous event). The liability will suffer no modifications. In this situation, the company has to pay a monthly rate which is a type of transaction that will greatly influence the rent expenses account ( the money paid for using the space) and the cash account. Because of that, we will see that the rent expenses are increased as more money are required for being able to continue their activity on that parcel while the cash account is decreased. As also stated before, the cash account is considered an asset. Based on the formula assets = liabilities + stockholders equity we will be able to conclude that the last element which is a common stock will decrease as rent expenses influence the stockholder’s equity. More exactly both the assets and the stockholder’s equity are decreased.
- Received cash from customers when service was performed.
Increase in Assets and Increase in Equity
In this situation again the two elements which are going to be modified are the asset and the stockholders’ equity. The situation can be translated as the company getting paid by receiving cash which is an asset for the services performed or the products sold. As a result of this, the cash account and also the service revenue account will be affected. The service revenue account which also influences the shareholders’ equity will be increased and so will the cash account. The service revenue is considered an operating revenue account which includes all the performances without taking into consideration if they were already billed or not. As a result of this, the shareholders’ equity will be increased too. We need to take into consideration that providing services or products doesn’t produce any type of outflow which the cash which will be received will be added to the equity. We can conclude this event by stating that receiving cash from customers will result in an increased in assets and shareholders’ equity.
- Billed customers for services performed.
Increase in assets and increase in equity
In this situation the business bills customers for the services offered. This event will also influence only the asset and stockholder’s equity and the liability will suffer no modifications. What is happening is the Thyme Advertising Company has now billed the customers for the services performed or products to offer and can account for the amount that has to be collected and which will ultimately increase the assets. The transaction will firstly affect the receivable account and also the service revenue account. Both elements will be increased. Because the account receivable is considered an asset, the asset will be increased. The service revenue which represents the income of the business for the provided products or services. It will influence positively the stockholder’s equity. We can conclude this event by staying that both asset and stockholder’s equity will be increased. This is the case when a business bills a customer for $x but the payment will be received only after a few months. As a result of this, the billing will result in accounts receivable being increasing and the service performed will increase the equity.
- Paid dividend to stockholders.
Asset and decrease in equity
Dividends are seen as being the profit of the business after the taxes and which will be correctly distributed to the shareholders. In this situation, again, the two elements which will be influenced are the asset and the stockholders’ equity. The first move will be for the company to declare a cash dividend on the stock. Following this step, the retained earnings will be decreased and the dividends payable will be increased. The dividends payable account will be decreased once these cash dividends are paid and this will modify negatively the business cash account. Once these cash dividends are paid, if we check the balance sheet of the company we will have that there will be no more accounts associated with these elements, but the size of the balance sheet will be reduced. As a conclusion, the asset and the equity will be reduced in this case too.
- Incurred advertising expense on the account.
Decrease in equity and increase in liability
The situation refers to the company incurring advertising expenses on the account. In accounting, advertising is listed as being expenses when the service is provided ( if we take the case of an ad, paying before the ad runs are considered an asset).The two elements which will be modified are the stockholder’s equity and the liabilities.This can be translated as the advertising expenses are considered to be on credit and it means that there is no cash payment. Because of that, these expenses eventually lead to a decrease in the equity of the business which results in the stockholder’s equity being decreased. The account payable of the company will also be increased by the transaction which will bring additions to the liabilities. More exactly the stockholder’s equity will be decreased while the liabilities will be increased by the same amount. If we check the asset formula we will see that there are no modifications to that element.
- Received cash from customers billed in (4).
The asset will be increased through cash but decreased through accounts receivable.
When referring to this transaction, it means that the company has received the cash for the serviced they offered or for their products on the account and had billed for it. This amount billed has been added to the accounts receivable. The receipt of cash from the billed services will influence the cash which will be increased and which will also increase both the current and total assets of the business. But we need to see another side of the story too. The transaction also influenced the accounts receivable which were decreased. This can be translated as total and current assets being decreased too. Since one of the sides increases the assets and the other one decreases them we can conclude that there is no modification. Cash increases the assets while accounts receivable decreases them. If we take an example of a company who gets $x cash for their products, this will increase the cash with the same amount but with all decrease the accounts receivable with the same amount.
- Purchased additional equipment for cash.
The PPM will increase the asset and the cash will decrease it
For the transaction presented above, the company has purchased additional equipment for cash. The only accounts which will be modified because of this transactions are the cash one and the asset. The new purchase will bring additions of equipment which means that the assets and equipment of the company will be increased. Since it was bough for cash purpose, we will be able to see a cash outflow. As a result of this, the asset will be increased but the cash (which is also an asset ) will be decreased. As in the previous modification, there will be no final modification. We can see as an example the case when a company boys an equipment for a $x amount of cash. Because they have to pay it, this will result in cash equivalents being decreased. But after buying it, they own the new equipment which will increase the asset.
- Purchased equipment on account.
Increase in assets and increase in liabilities
When comparing this event with the previous one, we will be able to see that this time the equipment was purchased on account rather than in cash.This means that now outflow of cash from the company will exist ( this is because it was bought on account). But the accounts payable will be increased which means that the current liability will also be increased. Same as in the previous case the entire transaction will result in the company owning a new equipment which means that the assets will be increased. We take as an example the case of a company who buys a new equipment but instead of using cash, they decided to get it on credits terms of x months. The new equipment will immediately add to the PPM of the company which will increase the total assets but on the other hand the accounts payable will be increased so the total and current liabilities will also be increased. We can sum this up by stating that both the assets and the liabilities will be increased.