3. Compare and contrast the accounting equation with 85% accuracy by: a. Balancing the accounting equation b. Listing & defining its parts c. Recording increase and decrease sides of each part d. Identifying the effect of various business transactions on each part e. Defining accounting terms in chapter
a. Listing & defining its parts Assets = Liabilities ┼Owner’s Equity
a. Balance the accounting equation.Assets $12,000 =Liabilities $4,000 + OE $8,000 Assets $22,000 = Liabilities 12,000 + OE $10,000Assets $40,000 = Liabilities $10,000 + OE 30,000 Go to page 28 in workbook & page 49 in book.
b. Listing & defining the accounting equation’s parts. Event that causes change in account equation: assets, liabilities or owner’s equity
Anything ofvalue that is owned by the business
An amount owedby a business toanother business or person
Accounts Payable Federal Employees Income tax Payable Social Security Tax Payable Medicare Tax Payable Union Dues Payable U.S. Savings Bond Payable
Amount remaining after liabilities are subtracted fromvalue of all assets
Mary Smith, Capital Mary Smith, Withdrawal Revenue (money earned) Expenses (money paid out)
Every business has accounts Accounts show balance or how much money is in each account
Every transaction must have at least two accounts that are affected; Names of accounts set up under specific categories in accounting equation
Sept 3 Wrote a check for $36,000 for purchase of equipment. Bought Equipment, so asset account “Equipment” by $36,000. Writing check affects Cash in Bank account, Cash in Bank account by 36,000.
Sept. 5 Bought a chair with cash for $250.Office Equipment is asset – purchase of chair account by $250.Business paid cash, Cash in the Bank account by $250.
Since desk is sold, Office Equipment assets by $500.Client purchases desk on account and still owes money, Accounts Receivable by $500.
Aug 13 Business issues a $3,000 check to purchase a computer. Computer is asset to business, so Office Equipment by $3,000. Wrote check so assets Cash in Bank is by $3,000.
Revenue: money received from sale of services either for cash or on account Services or Fees: another name for revenue in a service business
Sept 9 Sold services (fees) for $1000 on account for preparing reports for a client. Since customer “charged” services, account used is Accounts Receivable. A/R by $1,000. $1,000 fee is income for business, so capital account by $1,000.
Expense: price paid for services used tooperate the business---rent, salaries, telephone, water, etc..Expenses decrease owner’s equity.
Sept 15 Business writes a check for $750 to pay for rent for month. Cash in Bank is by $750. Rent is expense to business, so Owner’s Equity is by $750.
Sept 20 Business writes a check for $1,200 to pay for heat & electricity (utilities). Cash in Bank is by $1200. Utilities is expense to business, so Owner’s Equity is by $1200.
Investments: used whenever owner ofbusiness gives or donates assets (either money or objects) to business.
Sept. 12 Owner invests $500 in business. Since the owner gives money to business, Cash in Bank account by $500. Since owner has more money added to worth of business, capital account/owner’s equity by $500
Sept. 12 Owner invests $1,500 worth of equipment into business.Since the owner gives equipment tobusiness, Equipment account by $1,500.Since owner has more worth added tobusiness, capital account/owner’s equityby $1,500.
Withdrawal: used whenever owner removes money or assets from business for personal use.
Sept. 12 Owner withdraws $900 cash from business for personal use.Since owner takes money out of business forpersonal use, Cash in Bank account by$900.Because of this withdrawal of money, value ofbusiness (OE) by $900.
Sept. 12 Owner withdraws $100 worth of supplies from business for personal use. Since owner took supplies for personal use, Office Supplies account by $100. Because of withdrawal of supplies, worth of business is by $100.Go to page 60 in book & page 29 in workbook.