The Accounting Equation

The Accounting Equation

During 2007, Total Liabilities for XYZ Inc. increased $60,000 and Total Assets increased by $50,000.

What changes must have occurred in Total Equity?


Owners Equity must have decreased by $10,000


At 12/31/07, XYZ has Total Assets of $463,000, Total Liabilities of $285,000, and Total Retained Earnings of $103,000.

What must be the Balance of Contributed Capital at 12/31/07?


Contributed Capital must have a balance of $75,000


XYZ Co. had Total Assets of 600,000 at the Beginning of the Year. Net Loss for the year was $15,000. They paid a $75,000 dividend, borrowed $50,000, and received $80,000 additional capital from owners.

What will be Total Assets at the End of the Year?


Total Assets at the end of the year would be $640,000


XYZ Co. had Total Assets at the end of the period of $124,600; Total Liabilities at the end of the period of $58,500; and Contributed Capital at the end of the period of $22,000.

Retained Earnings had a beginning of the period balance of $29,300. Dividends of $6,000 were paid during the period.

What must have been Net Income or Net Loss for the period given this information?


XYZ would have had Net Income of $20,800 for the period


Examples to work through in your book:

Ex 1-4, 1-5, 1-7

Statement of Retained Earnings

XYZ started the year with Beginning Balances for Total Assets of $295,000, and Total Liabilities of $172,000.

During the year, Total Revenues were $136,000; Total Expenses were $105,000; Total dividends were $60,000.

Assume no additional Contributed Capital was received in the year, what would be the Ending Balance of Owners’ Equity?


The ending balance of Retained Earnings would be $94,000.


Examples to work through in your book:

Ex 1-6, 1-10, 1-11

Analysis of an Asset Account

On January 1, 2007, XYZ showed a balance of Supplies of $18,000. During the month, XYZ Co. paid $7,500 cash for supplies. At January 31, 2007, an on-site count of Supplies shows $12,000 remaining.

What should be the amount of Supplies Expense on the Income Statement for the month of January?


Supplies Expense on the Income Statement for the period should be $13,500 – the

amount used up for the period.


On March 1, 2007, XYZ has a balance in the Supplies account of $22,400. An on-site count shows $11,900 of Supplies left in the store room. An Income Statement for the month of March shows that $17,000 of Supplies were used up (expensed) this period.

How much of Supplies must have been purchased for the month?


XYZ must have purchased $6,500 in supplies for the month of March.


All Sales for XYZ are on account (recorded through Accounts Receivable).

Accounts Receivable had a beginning balance for the period of $50,000. Sales for the Year were $162,000, and the Accounts Receivable ending balance was $63,000.

How much was collected in Cash from Customers this year for credit sales?


XYZ must have collected $149,000 in cash from credit sales for the period.

XYZ Inc. had these account balances at December 31st

Accounts Payable 26,700Accounts Receivable 34,100Accumulated Depreciation - Equipment 36,000Bonds Payable 100,000Cash 15,800Common Stock [Capital Stock] 48,400Cost of Goods Sold 87,200Dividends 10,000Equipment 134,000Income Tax Expense 9,775Interest Expense 26,700Interest Revenue 33,760Inventory 41,025Land 60,000Net Sales 216,500Notes Payable [due in 2 years] 50,000Notes Payable [due in 6 months] 10,000Office Supplies 15,300Operating Expenses (Rent, Depreciation, Utilities, etc.) 97,260Patent 80,000Prepaid Rent 1,200Retained Earnings - Beginning Balance 73,000Unearned Revenue 18,000

What is Gross ProfitWhat is Income From Operations?What is Income Before Taxes?What is Net Income?What are Current Assets?What are Non-Current Assets?What are Current Liabilities?What is the Ending Balance in Retained Earnings?What is Total Stockholders’ Equity?What is Working Capital?What is the Current Ratio?What is the Profit Margin %?

XYZ Inc. had these account balances at December 31st

Net Sales 216,500Cost of Goods Sold (87,200)Gross Profit 129,300 Operating Expenses: Also called General & Administrative Expenses (Includes Depreciation, Rent, Utilities, (97,260) Supplies, Wages)Income From Operations 32,040 Other Revenues/Expenses: Interest Revenue 33,760 Interest Expense (26,700)Income Before Taxes 39,100 Income Tax Expense (9,775)Net Income 29,325

Beginning Balance of Retained Earnings 73,000Net Income 29,325Dividends (10,000)Ending Balance of Retained Earnings 92,325


Income Statement

Current Assets: Cash 15,800 Accounts Receivable 34,100 Inventory 41,025 Office Supplies 15,300 Prepaid Rent 1,200Total Current Assets: 107,425NonCurrent Assets: Equipment 134,000 Accumulated Depreciation (36,000) Land 60,000 Patent 80,000Total NonCurrent Assets: 238,000

Total Assets 345,425

Current Liabilities: Accounts Payable 26,700 Notes Payable [due in 6 months] 10,000 Unearned Revenue 18,000Total Current Liabilities 54,700NonCurrent Liabilities: Notes Payable [due in 2 years] 50,000 Bonds Payable 100,000TotalNonCurrent Liabilities: 150,000Total Liabilities 204,700Equity: Common Stock [Capital Stock] 48,400 Retained Earnings 92,325Total Equity 140,725

Total Liabilities and Owners' Equity 345,425

Balance Sheet

What is Gross Profit $129,300What is Income From Operations? 32,040What is Income Before Taxes? 39,100What is Net Income? 29,325What are Current Assets? 107,425What are Non-Current Assets? 238,000What are Current Liabilities? 54,700What is the Ending Balance of RE? 92,325What is Total Stockholders’ Equity? 140,725 What is Working Capital? 52,725What is the Current Ratio? 1.96What is the Profit Margin %? .14

The Accounting Equation

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