Chapter 3 the Balance Sheet and the Accounting Equation

8/14/2019 Chapter 3 the Balance Sheet and the Accounting Equation

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3 - 1ood/Robinson: Book-keeping and Accounts, 7th , T. Sijtsma 2009

The balance sheet and theThe balance sheet and the

accounting equationaccounting equation

Chapter 3Chapter 3


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3 - 2od/Robinson: Book-keeping and Accounts, 7th , T. Sijtsma 2009

Learning Objective 1Learning Objective 1

UnderstandUnderstandthe accounting equation.the accounting equation.


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LearningLearning

(The Accounting Equation)(The Accounting Equation)

Assets are theAssets are theitems owned byitems owned by

the business.the business.

Assets are theAssets are the

items owned byitems owned by

the business.the business.

Equities areEquities are

the claimsthe claims

against theagainst theassets.assets.

Equities areEquities arethe claimsthe claims

against theagainst theassets.assets.


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LearningLearning


Liabilities areLiabilities arethe creditorsthe creditors

equity.equity.

Liabilities areLiabilities are

the creditorsthe creditors

equity.equity.

Owners equityOwners equityis the rightsis the rights

of ownership.of ownership.

Owners equityOwners equity

is the rightsis the rights

of ownership.of ownership.


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LearningLearning


AssetsAssets

LiabilitiesLiabilities

=OwnersOwnersEquityEquity


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Learning Objective 2 & 4Learning Objective 2 & 4

What is meant by assets,What is meant by assets,liabilities and capital?liabilities and capital?

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7/153 - 7od/Robinson: Book-keeping and Accounts, 7th , T. Sijtsma 2009

LearningLearning

(assets, liabilities &(assets, liabilities &

capital)capital)

Assets consist of property of all kindAssets consist of property of all kindAssets consist of property of all kindAssets consist of property of all kind

Capital is often called the owners equity or net worthCapital is often called the owners equity or net worthCapital is often called the owners equity or net worthCapital is often called the owners equity or net worth

Liabilities is money owed for assetsLiabilities is money owed for assets

supplied to the businesssupplied to the business

Liabilities is money owed for assetsLiabilities is money owed for assets

supplied to the businesssupplied to the business


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Learning Objective 3Learning Objective 3

Draw up balance sheets afterDraw up balance sheets after

different transactionsdifferent transactions

have occurredhave occurred


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Learning (draw up balanceLearning (draw up balance

sheet: a worked example)sheet: a worked example)

A. August 28:A. August 28:

Cathy Hall invested $7,000 in cash and $800 ofCathy Hall invested $7,000 in cash and $800 ofoffice equipment into the business.office equipment into the business.

A. August 28:A. August 28:

Cathy Hall invested $7,000 in cash and $800 ofCathy Hall invested $7,000 in cash and $800 ofoffice equipment into the business.office equipment into the business.

B. August 29:B. August 29:

Law practice buys office equipment for cash $900.Law practice buys office equipment for cash $900.

B. August 29:B. August 29:

Law practice buys office equipment for cash $900.Law practice buys office equipment for cash $900.

C. August 30:C. August 30:

Buys additional office equipment on account $400.Buys additional office equipment on account $400.

C. August 30:C. August 30:Buys additional office equipment on account $400.Buys additional office equipment on account $400.


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$8,200 = $8,200$8,200 = $8,200

a)a) CashCash ++ $7,000$7,000 ++ $7,800$7,800EquipmentEquipment ++ 800800b)b) CashCash 900900

EquipmentEquipment ++ 900900

c)c) EquipmentEquipment ++ 400400 ++ 400400

a)a) CashCash ++ $7,000$7,000 ++ $7,800$7,800EquipmentEquipment ++ 800800

b)b) CashCash 900900EquipmentEquipment ++ 900900

c)c) EquipmentEquipment ++ 400400 ++ 400400

AssetsAssets == LiabilitiesLiabilities ++OwnersOwners

EquityEquity

LearningLearning

(Draw up balance sheet)(Draw up balance sheet)


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LearningLearning

(Draw up balance sheet)(Draw up balance sheet)

The makeup of the assets hasThe makeup of the assets haschanged, but the total of thechanged, but the total of the

assets remains the same.assets remains the same.

The makeup of the assets hasThe makeup of the assets haschanged, but the total of thechanged, but the total of theassets remains the same.assets remains the same.


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Learning (introducing 6 rulesLearning (introducing 6 rules

for double entry)for double entry)

Acco


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LearningLearning

(The Balance Sheet)(The Balance Sheet)

The balance sheet shows the companysThe balance sheet shows the companysfinancial position as of a particular date.financial position as of a particular date.

The balance sheet shows the companysThe balance sheet shows the companys

financial position as of a particular date.financial position as of a particular date.

Company nameCompany nameCompany nameCompany name

Name of the statementName of the statementName of the statementName of the statement

DateDateDateDate


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Learning (The Balance Sheet:Learning (The Balance Sheet:

horizontal format)horizontal format)

Cathy Hall, Attorney-at-LawCathy Hall, Attorney-at-Law

Balance SheetBalance SheetAugust 31, 200xAugust 31, 200x

AssetsAssets

CashCash $6,100$6,100

EquipmentEquipment 2,1002,100

TotalTotal $8,200$8,200

AssetsAssets

CashCash $6,100$6,100

EquipmentEquipment

2,1002,100


Liabilities and Owners EquityLiabilities and Owners Equity

Accounts PayableAccounts Payable $ 400$ 400

Owners EquityOwners EquityCathy Hall, CapitalCathy Hall, Capital 7,8007,800


Liabilities and Owners EquityLiabilities and Owners Equity

Accounts PayableAccounts Payable $ 400$ 400

Owners EquityOwners Equity

Cathy Hall, CapitalCathy Hall, Capital 7,8007,800TotalTotal $8,200$8,200


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3 - 15ood/Robinson: Book-keeping and Accounts, 7th , T. Sijtsma 2009

End of Chapter 3End of Chapter 3

Chapter 3 the Balance Sheet and the Accounting Equation

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