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Assets

Liabilities &

Equity

Accounting Equation

Liabilities

Liabilities Equity

EquityAssets

Assets = +

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Land

Equipment

Buildings

Cash

Vehicles

Store

Supplies

Notes

Receivable

Accounts

Receivable

Resourcesowned or

controlled by

a company

AssetsA1

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Taxes

Payable

Wages

Payable

Notes

Payable

Accounts

Payable

Creditors

claims on

assets

LiabilitiesA1

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Owners

claim on

assets

Dividends

Contributed

Capital

Retained

Earnings

EquityA1

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Liabilities EquityAssets = +

Expanded Accounting Equation

Revenues ExpensesCommon

StockDividends

__++

__

Retained Earnings

Liabilities

Liabilities Equity

EquityAssets

Assets = +

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Transaction Analysis Equation

The accounting equation MUST remain in

balance after each transaction.

Liabilities

Liabilities Equity

EquityAssets

Assets = +

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Transaction Analysis

The accounts involved are:

(1) Cash (asset)

(2) Common Stock (equity)

J. Scott invests $20,000 cash to start

the business in exchange for stock.

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Transaction Analysis

Assets = Liabilities + Equity

Cash Supplies EquipmentAccountsPayable

NotesPayable

CommonStock

(1) 20,000$ 20,000$

20,000$ -$ -$ -$ -$ 20,000$

20,000$ = 20,000$

J. Scott invests $20,000 cash to start the

business in return for stock.

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The accounts involved are:

(1) Cash (asset)

(2) Supplies (asset)

Transaction Analysis

Purchased supplies paying $1,000 cash.

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Transaction Analysis

Purchased supplies paying $1,000 cash.

A t i iliti ity

li i m tA t

y lt

y lmmt

( ) , ,

( ) ( , ) ,

9, , - - - ,

, ,

A2

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The accounts involved are:

(1) Cash (asset)

(2) Equipment (asset)

Transaction Analysis

Purchased equipment for $15,000 cash.

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Transaction Analysis

Assets = Liabilities + Equity

Cash Supplies EquipmentAccountsPayable

NotesPayable

CommonStock

(1) 20,000$ 20,000$

(2) (1,000) 1,000$

(3) (15,000) 15,000$

4,000$ 1,000$ 15,000$ -$ -$ 20,000$

20,000$ = 20,000$

Purchased equipment for $15,000 cash.

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The accounts involved are:

(1) Supplies (asset)

(2) Equipment (asset)(3) Accounts Payable (liability)

Transaction Analysis

Purchased Supplies of $200 and Equipment

of $1,000 on account.

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Transaction Analysis

Assets = Liabilities + Equity

Cash Supplies EquipmentAccountsPayable

NotesPayable

CommonStock

(1) 20,000$ 20,000$

(2) (1,000) 1,000$

(3) (15,000) 15,000$

(4) 200 1,000 1,200$

4,000$ 1,200$ 16,000$ 1,200$ -$ 20,000$

21,200$ = 21,200$

Purchased Supplies of $200 and Equipment

of $1,000 on account.

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Transaction Analysis

Assets = Liabilities + Equity

Cash Supplies EquipmentAccountsPayable

NotesPayable

CommonStock

(1) 20,000$ 20,000$

(2) (1,000) 1,000$

(3) (15,000) 15,000$

(4) 200 1,000 1,200$(5) 4,000 4,000$

8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$

25,200$ = 25,200$

Borrowed $4,000 from 1st American Bank.

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Assets = Liabilities + Equity

Cash Supplies Equipment AccountsPayable NotesPayable CommonStock

Bal. 8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$

8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$

25,200$ = 25,200$

Transaction Analysis

The balances so far appear below. Note that the Balance

Sheet Equation is still in balance.

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Transaction Analysis

Now, lets look at transactions involving

revenue, expenses and dividends.

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The accounts involved are:

(1) Cash (asset)

(2) Revenues (equity)

Transaction Analysis

Provided consulting services receiving $3,000

cash.

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Assets = Liabilities +

Cash Supplies Equipment

Accounts

Payable

Notes

Payable

Common

Stock Revenue

Bal. 8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$

(6) 3,000 3,000$

11,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$ 3,000$

28,200$ = 28,200$

Equity

Transaction Analysis

Provided consulting services receiving $3,000

cash.

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The accounts involved are:

(1) Cash (asset)

(2) Salaries expense (equity)

Transaction Analysis

Paid salaries of $800 to employees.

Remember that the balance in the salaries expenseaccount actually increases.

But, equity decreases because expenses reduce

equity.

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Transaction Analysis

Assets = Liabilities +

Cash Supplies EquipmentAccountsPayable

NotesPayable

CommonStock Revenue Expenses

Bal. 8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$

(6) 3,000 3,000$

(7) (800) (800)$

10,200$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$ 3,000$ (800)$

27,400$ = 27,400$

Equity

Remember that expenses decrease equity.

Paid salaries of $800 to employees.

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The accounts involved are:

(1) Cash (asset)

(2) Dividends (equity)

Transaction Analysis

Dividends of $500 are paid to shareholders.

Remember that the Dividend account actuallyincreases.

But, equity decreases because dividends reduce

equity.

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Transaction Analysis

Assets = Liabilities +

Cash Supplies Equipment

Accounts

Payable

Notes

Payable

Common

Stock Dividends Revenue Expenses

Bal. 8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$

(6) 3,000 3,000$

(7) (800) (800)$

(8) (500) (500)$

9,700$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$ (500)$ 3,000$ (800)$

26,900$ = 26,900$

Equity

Remember that dividends decrease equity.

Dividends of $500 are paid to shareholders.

A2