Textbook examples

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txtbkChapter 2 Page 64-84

Accounting Cycle – Step 1 – Record Transactions


In this section I demonstrate examples from the text in the first step of the accounting cycle

Note the effect of these transactions on the accounting equation (balance sheet), the profit and loss statement and statement of cash flow

Event 1:  Cato Consultants was started on January 1, 2013, when it acquired $5,000 cash by issuing common stock.

When cash is exchanged for common stock (equity), cash (asset) and common stock (equity) increases

Effect on accounting equation (balance sheet)
Assets Liab. Equity
Cash + Supplies = + Common Stock + Retained Earnings
5,000 + n/a = n/a + 5,000 + n/a
Effect on profit and loss statement
Revenue Expenses = Net Income
n/a n/a = n/a
Effect on cash flow statement
5000 FA There is an increase in cash from issuing common stock ( financing the business with equity)


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