CHP_1 Accounting Equation Sep-1

8/2/2019 CHP_1 Accounting Equation Sep-1

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FINANCIAL STATEMENTS-

The Accounting Equation


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CHAPTER-1(A)LEARNING QBJECTIVES

LO-1 Demonstrate how certain businesstransactions affect the elements of theaccounting equation: Assets = Liabilities +Owners Equity.

LO-2 Describe how the equation serves asthe basis for elementary transaction analysis.

LO-3 Explain how the statement of financial

position, often referred to as the balancesheet, is an expansion of the basic accountingequation.


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Entity

ConceptReliability Cost

Going

Concern

Monetary

Unit

Accounting Principles

3Copyright (c) 2009 Prentice Hall.All rights reserved.


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Entity Concept

A business is separate from its owners

Reliability Accounting information is accurate and free from

bias

Cost Assets are recorded at purchase price

Accounting Principles



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Going Concern

Assumption that business will continue

indefinitely

Monetary Unit

In the U.S. amounts are recorded in dollars The dollar is considered a stable unit ofmeasure

Accounting Principles (continued)



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Resources


What are an organizations resources called?


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Assets

Resources = Sources


What are the

sources of theassets?

Cost of

resources usedin the business


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Assets

Liabilities

OwnersEquity

Resources = Sources

Cost of

resources usedin the business

Resources

supplied bycreditors andowners



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OWNERS EQUITY

Effects of Transactions on Owners Equity


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OWNERS EQUITY


decreased by


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OWNERS EQUITY


Owners withdrawals

Expenses

decreased by


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OWNERS EQUITY


increased by


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OWNERS EQUITY


Owners investments

Revenues

increased by


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OWNERS EQUITY


Owners withdrawals

Expenses

Owners investments

Revenues

decreased by increased by


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OWNERS EQUITY


Owners withdrawals

Expenses

Owners investments

Revenues

decreased by increased by

NET INCOME


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a. Chris Clark deposits $25,000 in a bank accountfor NetSolutions.

ASSETS

=

Business Transactions

OWNERS EQUITY

LIABILITIES


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ASSETS

=


OWNERS EQUITY

Cash25,000

LIABILITIES


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ASSETS

=


OWNERS EQUITY

Cash25,000

LIABILITIES

Chris Clark,

Capital25,000


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b. NetSolutions buys land for $20,000.

ASSETS

=OWNERS EQUITY

LIABILITIES


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ASSETS

=OWNERS EQUITY

LIABILITIES

Cash(20,000)


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ASSETS

=OWNERS EQUITY

LIABILITIES

Cash(20,000)

Land20,000


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ASSETS

=OWNERS EQUITY

LIABILITIES

c. NetSolutions buys supplies for $1,350, agreeing topay the supplier in the near future.


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ASSETS

=OWNERS EQUITY

LIABILITIES

Supplies1,350



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ASSETS

=OWNERS EQUITY

LIABILITIES


Accounts Payable1,350

Supplies1,350


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ASSETS

=OWNERS EQUITY

LIABILITIES

d. NetSolutions earns fees of $7,500, receiving cash.


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ASSETS

=OWNERS EQUITY

LIABILITIES

Cash7,500



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ASSETS

=OWNERS EQUITY

LIABILITIES

Cash7,500

Fees Earned

7,500



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ASSETS

=OWNERS EQUITY

LIABILITIES

e. NetSolutions paid: wages, $2,125; rent, $800;utilities, $450; and miscellaneous, $275.


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ASSETS

=OWNERS EQUITY

LIABILITIES

Cash(3,650)



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ASSETS

=OWNERS EQUITY

LIABILITIES

Cash(3,650)

Expenses

(3,650)



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ASSETS

=OWNERS EQUITY

LIABILITIES

f. NetSolutions pays $950 to creditors on account.


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ASSETS

=OWNERS EQUITY

LIABILITIES

Cash(950)



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ASSETS

=OWNERS EQUITY

LIABILITIES

Cash(950)

Accounts Payable

(950)



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ASSETS

=OWNERS EQUITY

LIABILITIES

g. At the end of the month, the cost of supplies onhand is $550.


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ASSETS

=OWNERS EQUITY

LIABILITIES

Supplies(800)



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ASSETS

=OWNERS EQUITY

LIABILITIES

Supplies(800)

Supplies Expense

(800)



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ASSETS

=OWNERS EQUITY

LIABILITIES

h. Chris Clark withdraws $2,000 in cash.


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ASSETS

=OWNERS EQUITY

LIABILITIES

Cash(2,000)



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ASSETS

=OWNERS EQUITY

LIABILITIES

Cash(2,000)

Chris Clark,

Drawing(2,000)



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Transaction Summary

ASSETS

=

OWNERS EQUITY

LIABILITIES

Cash 5,900Supplies 550Land 20,000


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Transaction Summary

ASSETS

=

OWNERS EQUITY

LIABILITIES


Accts. Payable 400


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Transaction Summary

ASSETS

=

OWNERS EQUITY

LIABILITIES


Accts. Payable 400

C. Clark, Capital 25,000

C. Clark, Drawing (2,000)Fees Earned 7,500Wages Expense (2,125)Rent Expense (800)Supplies Expense (800)Utilities Expense (450)

Misc. Expense (275)


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If assets total $300,000 and owners' equity

totals $100,000, then total liabilities must be

$200,000.A)True

B)False


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Economic resources owned by an entity are

called assets.

A)True B)False


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The accounting equationcan be expressed

as: assets equal the sum of liabilities plus

owners' equity. A)True

B)False

CHP_1 Accounting Equation Sep-1

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