ACC 201 Module 2 Transaction Analysis Assignment example

Twelve Transactions, One Equation: Transaction Analysis and First-Month Statements for a Composite Tutoring Startup

[Student Name]

Southern New Hampshire University

ACC 201: Financial Accounting

Module Two Assignment

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Twelve Transactions, One Equation: Transaction Analysis and First-Month Statements for a Composite Tutoring Startup

The Business and the Method

Summit Step Tutoring, LLC is a composite single-owner business that opened on September 1, 2025, offering reading and math tutoring for students in grades 3 through 8 from a rented storefront. It uses the accrual basis, so revenue is recorded when the service is performed and expenses when they are incurred, whether or not cash changes hands in the same month (Franklin et al., 2019). The analysis below uses the expanded accounting equation, in which owner's equity is broken into capital, revenue, expenses and drawings, so that the effect of every transaction on the owner's stake is visible. After each transaction, total assets must equal total liabilities plus owner's equity.

Transaction Analysis

Table 1 records the twelve September transactions. Increases are shown as positive numbers and decreases as negative numbers; expenses and drawings are shown as negatives because they reduce owner's equity.

Table 1

Expanded Accounting Equation Analysis, Summit Step Tutoring, September 2025

Note. Composite figures in dollars. Parentheses indicate decreases. Assets total $18,770; liabilities total $1,510; owner's equity totals $17,260; liabilities plus equity equal $18,770.

The Transactions Students Most Often Misclassify

Four transactions deserve explanation because they are the ones most often recorded incorrectly. Transaction 2 is a single purchase paid two ways: equipment rises by its full cost of 4,400 dollars even though only 2,000 dollars of cash left the business, and the remaining 2,400 dollars becomes a liability. Transaction 5 is revenue even though no cash was received; under the accrual basis, the tutoring was performed in September, so the revenue belongs to September and the district's promise to pay becomes an asset, accounts receivable. Current revenue standards express the same idea: revenue is recognized when the business satisfies its obligation by transferring the promised service to the customer (Financial Accounting Standards Board [FASB], 2014). Transaction 8 is the reverse and is not revenue at all: collecting 1,600 dollars from the district converts one asset, receivables, into another, cash, and leaves equity unchanged because the revenue was already recorded in transaction 5. Recording that collection as revenue would count the same tutoring twice.

Transaction 10, the owner's withdrawal, reduces cash and equity but is not an expense, because it is not a cost of earning revenue. Transaction 12 shows why supplies are first recorded as an asset: they have future use when purchased, and only the 380 dollars actually used during the month becomes an expense, leaving 270 dollars of supplies on hand.

What the Balancing Check Proves, and What It Does Not

Because every row in Table 1 changes the two sides of the equation by the same amount, the ending balances must satisfy assets equal liabilities plus owner's equity, and they do: 18,770 dollars on each side. That check catches a whole class of mistakes. If the 2,400 dollars owed on the equipment had been left out, assets would exceed liabilities plus equity by exactly that amount, and the imbalance would point straight to the missing entry. The same is true of any one-sided recording, such as entering the utility expense without the payable.

The check has limits, and knowing them is part of the skill. An entry recorded in the wrong account can still balance. If the 1,600 dollars collected from the district in transaction 8 had been recorded as revenue instead of as a reduction of receivables, both sides would still total the same, yet net income would be overstated by 1,600 dollars and receivables overstated by the same amount. An entry recorded at the wrong amount on both sides also balances; paying rent of 1,200 dollars but recording 2,100 dollars would reduce cash and equity equally and never show up in the check. That is why the analysis above explains each classification rather than relying on the totals alone, and why accountants reconcile cash to the bank statement and review receivables by customer. The equation proves arithmetic, not judgment.

Income Statement

For the month ended September 30, 2025, Summit Step Tutoring earned service revenue of 6,700 dollars, 3,900 dollars from individual students and 2,800 dollars from the district program. Expenses were rent of 1,200 dollars, wages of 1,750 dollars, supplies of 380 dollars and utilities of 310 dollars, a total of 3,640 dollars. Net income for September was therefore 3,060 dollars.

Statement of Owner's Equity

The owner's capital began the month at zero. The owner invested 15,000 dollars, the business earned net income of 3,060 dollars and the owner withdrew 800 dollars, so owner's capital at September 30, 2025 was 17,260 dollars.

Balance Sheet

At September 30, 2025, assets were cash of 12,900 dollars, accounts receivable of 1,200 dollars, supplies of 270 dollars and equipment of 4,400 dollars, for total assets of 18,770 dollars. Liabilities consisted of accounts payable of 1,510 dollars, and owner's capital was 17,260 dollars, so total liabilities and owner's equity were 18,770 dollars, equal to total assets. Equipment is shown at cost here; depreciation will be recorded when adjusting entries are introduced later in the course.

What the First Month Shows

The statements tell the owner three things. The business was profitable in its first month, earning 3,060 dollars on 6,700 dollars of revenue, a margin of about 46 percent before any depreciation. Cash of 12,900 dollars is well below the 15,000 dollars invested, which is normal for a startup that has bought equipment, but it means the owner should watch how quickly the district pays the remaining 1,200 dollars. Finally, 42 percent of revenue came from a single customer, the district, which is a concentration risk worth noting early. None of these observations would be visible from the bank balance alone, which is why the accrual statements matter even for a very small business (FASB, 2018).

References

Financial Accounting Standards Board. (2014). Revenue from contracts with customers (Topic 606) (Accounting Standards Update No. 2014-09). FASB.

Financial Accounting Standards Board. (2018). Conceptual framework for financial reporting: Chapter 1, the objective of general purpose financial reporting, and Chapter 3, qualitative characteristics of useful financial information (Statement of Financial Accounting Concepts No. 8). FASB.

Franklin, M., Graybeal, P., & Cooper, D. (2019). Principles of accounting, volume 1: Financial accounting. OpenStax. https://openstax.org/details/books/principles-financial-accounting