Chapter 1, Problem 1.4AP

(a)

To determine

Transaction: It is an agreement between two or more parties for exchanging the goods or providing the services. The transactions which can be identified in terms of money are to be recorded in financial books.

Accounting Equation: It is an equation that represents the sum total of assets which is equal to the sum of liabilities and shareholder’s equity of the entity. The accounting equation is represented by the equation as shown below.

$\text{Total}\text{assets}=\text{Total}\text{liabilities}+\text{Owner's}\text{equity}$

To prepare: Tabular analysis of the transactions occurred during the month of August.

(b)

To determine

Net income: It is the income earned by the organization after deducting all expenses from revenue earned. Net income is further divided into dividends and retained earnings. A portion of net income distributed to the stockholders is the dividends and some portion of net income has been transferred to retained earnings.

To prepare: The statement of income of Company M for the month of May.

(c)

To determine

Balance Sheet: Balance Sheet is a financial position statement classified into organization’s assets, stockholder’s equity and other liabilities at a particular date. One side is organization’s assets and another side is stockholder’s equity and other liabilities. Both the sides should be balanced to each other.

To prepare: The balance sheet of Company M for the month of May.