accounting equation -2
TRANSCRIPT
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8/8/2019 Accounting Equation -2
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Assets
Liabilities &
Equity
Accounting Equation
Liabilities
Liabilities Equity
EquityAssets
Assets = +
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Land
Equipment
Buildings
Cash
Vehicles
Store
Supplies
Notes
Receivable
Accounts
Receivable
Resourcesowned or
controlled by
a company
AssetsA1
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Taxes
Payable
Wages
Payable
Notes
Payable
Accounts
Payable
Creditors
claims on
assets
LiabilitiesA1
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Owners
claim on
assets
Dividends
Contributed
Capital
Retained
Earnings
EquityA1
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Liabilities EquityAssets = +
Expanded Accounting Equation
Revenues ExpensesCommon
StockDividends
__++
__
Retained Earnings
Liabilities
Liabilities Equity
EquityAssets
Assets = +
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Transaction Analysis Equation
The accounting equation MUST remain in
balance after each transaction.
Liabilities
Liabilities Equity
EquityAssets
Assets = +
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Transaction Analysis
The accounts involved are:
(1) Cash (asset)
(2) Common Stock (equity)
J. Scott invests $20,000 cash to start
the business in exchange for stock.
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Transaction Analysis
Assets = Liabilities + Equity
Cash Supplies EquipmentAccountsPayable
NotesPayable
CommonStock
(1) 20,000$ 20,000$
20,000$ -$ -$ -$ -$ 20,000$
20,000$ = 20,000$
J. Scott invests $20,000 cash to start the
business in return for stock.
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8/8/2019 Accounting Equation -2
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The accounts involved are:
(1) Cash (asset)
(2) Supplies (asset)
Transaction Analysis
Purchased supplies paying $1,000 cash.
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8/8/2019 Accounting Equation -2
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Transaction Analysis
Purchased supplies paying $1,000 cash.
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8/8/2019 Accounting Equation -2
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The accounts involved are:
(1) Cash (asset)
(2) Equipment (asset)
Transaction Analysis
Purchased equipment for $15,000 cash.
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Transaction Analysis
Assets = Liabilities + Equity
Cash Supplies EquipmentAccountsPayable
NotesPayable
CommonStock
(1) 20,000$ 20,000$
(2) (1,000) 1,000$
(3) (15,000) 15,000$
4,000$ 1,000$ 15,000$ -$ -$ 20,000$
20,000$ = 20,000$
Purchased equipment for $15,000 cash.
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The accounts involved are:
(1) Supplies (asset)
(2) Equipment (asset)(3) Accounts Payable (liability)
Transaction Analysis
Purchased Supplies of $200 and Equipment
of $1,000 on account.
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Transaction Analysis
Assets = Liabilities + Equity
Cash Supplies EquipmentAccountsPayable
NotesPayable
CommonStock
(1) 20,000$ 20,000$
(2) (1,000) 1,000$
(3) (15,000) 15,000$
(4) 200 1,000 1,200$
4,000$ 1,200$ 16,000$ 1,200$ -$ 20,000$
21,200$ = 21,200$
Purchased Supplies of $200 and Equipment
of $1,000 on account.
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Transaction Analysis
Assets = Liabilities + Equity
Cash Supplies EquipmentAccountsPayable
NotesPayable
CommonStock
(1) 20,000$ 20,000$
(2) (1,000) 1,000$
(3) (15,000) 15,000$
(4) 200 1,000 1,200$(5) 4,000 4,000$
8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$
25,200$ = 25,200$
Borrowed $4,000 from 1st American Bank.
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Assets = Liabilities + Equity
Cash Supplies Equipment AccountsPayable NotesPayable CommonStock
Bal. 8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$
8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$
25,200$ = 25,200$
Transaction Analysis
The balances so far appear below. Note that the Balance
Sheet Equation is still in balance.
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Transaction Analysis
Now, lets look at transactions involving
revenue, expenses and dividends.
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The accounts involved are:
(1) Cash (asset)
(2) Revenues (equity)
Transaction Analysis
Provided consulting services receiving $3,000
cash.
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Assets = Liabilities +
Cash Supplies Equipment
Accounts
Payable
Notes
Payable
Common
Stock Revenue
Bal. 8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$
(6) 3,000 3,000$
11,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$ 3,000$
28,200$ = 28,200$
Equity
Transaction Analysis
Provided consulting services receiving $3,000
cash.
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8/8/2019 Accounting Equation -2
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The accounts involved are:
(1) Cash (asset)
(2) Salaries expense (equity)
Transaction Analysis
Paid salaries of $800 to employees.
Remember that the balance in the salaries expenseaccount actually increases.
But, equity decreases because expenses reduce
equity.
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Transaction Analysis
Assets = Liabilities +
Cash Supplies EquipmentAccountsPayable
NotesPayable
CommonStock Revenue Expenses
Bal. 8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$
(6) 3,000 3,000$
(7) (800) (800)$
10,200$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$ 3,000$ (800)$
27,400$ = 27,400$
Equity
Remember that expenses decrease equity.
Paid salaries of $800 to employees.
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The accounts involved are:
(1) Cash (asset)
(2) Dividends (equity)
Transaction Analysis
Dividends of $500 are paid to shareholders.
Remember that the Dividend account actuallyincreases.
But, equity decreases because dividends reduce
equity.
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Transaction Analysis
Assets = Liabilities +
Cash Supplies Equipment
Accounts
Payable
Notes
Payable
Common
Stock Dividends Revenue Expenses
Bal. 8,000$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$
(6) 3,000 3,000$
(7) (800) (800)$
(8) (500) (500)$
9,700$ 1,200$ 16,000$ 1,200$ 4,000$ 20,000$ (500)$ 3,000$ (800)$
26,900$ = 26,900$
Equity
Remember that dividends decrease equity.
Dividends of $500 are paid to shareholders.
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