accounting equation basic examples

ACCOUNTING EQUATION EXAMPLES

DRAKE STARTED BUSINESS & LODGED $5,000 INTO HIS BUSINESS BANK ACCOUNT THAT HE JUST OPENED

ØASSETS = OWNER’S EQUITY + LIABILITIESØ$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

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 $3,000BANK $2,000TOTAL 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

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 $3,000BANK $2,000STOCK $500TOTAL 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)

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 $3,000STOCK($500-$100) $400DEBTORS $100BANK $2,000TOTAL 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)

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 $3,000STOCK($400-$50) $350DEBTORS $100BANK (+$50) $2,050TOTAL 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)

IF DRAKE PAID $200 TO HIS SUPPLIER BY CHEQUE

• ASSETS = OWNER’S EQUITY + LIABILITIES• $5,300 = $5,000 + $300

ASSETS

COMPUTER $3,000STOCK $350DEBTORS $100BANK (-$200) $1,850TOTAL 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)

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