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# Accounting Equation Basic Examples

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Here are some basic examples that will help you to understand the accounting equation that forms the basis of financial accounting.

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### Accounting Equation Basic Examples

1. 1. ACCOUNTING EQUATION EXAMPLES
2. 2. DRAKE STARTED BUSINESS & LODGED \$5,000 INTO HIS BUSINESS BANK ACCOUNT THAT HE JUST OPENED ØASSETS = OWNER’S EQUITY + LIABILITIES Ø\$5,000 = \$5,000 + \$0 ASSETS CASH AT BANK \$5,000 OWNER’S EQUITY \$5,000 (ALSO REFERRED TO AS CAPITAL – OWNER’S CLAIMS ON THE ASSETS) LIABILITIES \$0
3. 3. IF DRAKE THEN PURCHASED A COMPUTER FOR HIS BUSINESS FOR \$3,000 AND PAYS FOR IT BY CHEQUE • ASSETS = OWNER’S EQUITY + LIABILITIES • \$5,000 = \$5,000 + \$0 ASSETS COMPUTER \$3,000 BANK \$2,000 TOTAL ASSETS \$5,000 (BANK BALANCE OF \$5,000 IS REDUCED BY \$3,000 CHEQUE) OWNER’S EQUITY \$5,000 (ALSO REFERRED TO AS CAPITAL – OWNER’S CLAIMS ON THE ASSETS) LIABILITIES \$0
4. 4. IF DRAKE THEN BUYS SOME STOCK FOR \$500 ON CREDIT FROM A SUPPLIER • ASSETS = OWNER’S EQUITY + LIABILITIES • \$5,500 = \$5,000 + \$500 ASSETS COMPUTER \$3,000 BANK \$2,000 STOCK \$500 TOTAL ASSETS \$5,500 OWNER’S EQUITY \$5,000 (ALSO REFERRED TO AS CAPITAL – OWNER’S CLAIMS ON THE ASSETS) LIABILITIES TRADE PAYABLES \$500 (AMOUNTS OWING TO SUPPLIER)
5. 5. IF DRAKE SOLD GOODS WHICH HAD COST HIM \$100, TO A CUSTOMER ON CREDIT FOR \$100 • ASSETS = OWNER’S EQUITY + LIABILITIES • \$5,500 = \$5,000 + \$500 ASSETS COMPUTER \$3,000 STOCK(\$500-\$100) \$400 DEBTORS \$100 BANK \$2,000 TOTAL ASSETS \$5,500 (DEBTORS ALSO REFERRED TO AS ACCOUNTS RECEIVABLES) OWNER’S EQUITY \$5,000 (ALSO REFERRED TO AS CAPITAL – OWNER’S CLAIMS ON THE ASSETS) LIABILITIES TRADE PAYABLES \$500 (AMOUNTS OWING TO SUPPLIER)
6. 6. IF DRAKE SOLD GOODS WHICH HAD COST \$50 TO A CUSTOMER FOR \$50 AND THAT CUSTOMER PAYS IMMEDIATELY • ASSETS = OWNER’S EQUITY + LIABILITIES • \$5,500 = \$5,000 + \$500 ASSETS COMPUTER \$3,000 STOCK(\$400-\$50) \$350 DEBTORS \$100 BANK (+\$50) \$2,050 TOTAL ASSETS \$5,500 (DEBTORS ALSO REFERRED TO AS ACCOUNTS RECEIVABLES) OWNER’S EQUITY \$5,000 (ALSO REFERRED TO AS CAPITAL – OWNER’S CLAIMS ON THE ASSETS) LIABILITIES TRADE PAYABLES \$500 (AMOUNTS OWING TO SUPPLIER)
7. 7. IF DRAKE PAID \$200 TO HIS SUPPLIER BY CHEQUE • ASSETS = OWNER’S EQUITY + LIABILITIES • \$5,300 = \$5,000 + \$300 ASSETS COMPUTER \$3,000 STOCK \$350 DEBTORS \$100 BANK (-\$200) \$1,850 TOTAL ASSETS \$5,300 (BANK – BANK BALANCE OF \$2,050 LESS \$200 PAID TO SUPPLIER) OWNER’S EQUITY \$5,000 (ALSO REFERRED TO AS CAPITAL – OWNER’S CLAIMS ON THE ASSETS) LIABILITIES TRADE PAYABLES \$300 (AMOUNTS OWING TO SUPPLIER HAVE BEEN REDUCED BY THE \$200 PAID BY DRAKE) (\$500 LESS \$200 = \$300)