|Classify business events as asset source, use, or exchange transactions.|
The transactions described above have each been classified into one of three categories: (1) asset source transactions; (2) asset exchange transactions; and (3) asset use transactions. A fourth category, claims exchange transactions, is introduced in a later chapter. In summary
- Asset source transactions increase the total amount of assets and increase the total amount of claims. In its first year of operation, RCS acquired assets from three sources: first, from owners (Event 1); next, by borrowing (Event 2); and finally, through earnings activities (Event 4).
- Asset exchange transactions decrease one asset and increase another asset. The total amount of assets is unchanged by asset exchange transactions. RCS experienced one asset exchange transaction; it used cash to purchase land (Event 3).
- Asset use transactions decrease the total amount of assets and the total amount of claims. RCS used assets to pay expenses (Event 5) and to pay dividends (Event 6).
As you proceed through this text, practice classifying transactions into one of the four categories. Businesses engage in thousands of transactions every day. It is far more effective to learn how to classify the transactions into meaningful categories than to attempt to memorize the effects of thousands of transactions.
Exercises 1-14A, 1-17A, 1-21A, 1-24A, 1-14B, 1-17B, 1-24B
Problems 1-32A, 1-32B