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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)
  8. 8. WWW.ACADOCEO.COM

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