Professional Documents
Culture Documents
A liability - present obligation of an enterprise. The obligation should originate in a past transaction or
event and entail the expectation of an outflow of economic benefits.
Equity - is the owners residual claim to the assets or the residual interest in the assets of an enterprise
after deducting all its liabilities. Equity is sometimes called net assets.
Revenue - Income arising from the ordinary activities of a company
Assume the following transactions took place during January, 200X, for Mr. Ady, a dentist. The effect of
these transactions on the accounting equation can be analyzed as follows:
Assets =
Liabilities
Cash
Owners Equity
Mr. A, Capital
+ 30 000
Total Assets: $30 000 = Total Liabilities + Owners Equity: $30 000
Assets
Cash
+ Office
Equip.
Liabilities
Accounts
Owners Equity
Mr. A, Capital
Payable
+2 500
+2 500
= $2 500
$30 000
Effect on Accounting Equation. An increase in one asset offset by a decrease in another asset.
Analysis. This transaction caused a $350 decrease in the asset Cash. The asset Office Supplies
increased by $350.
Assets
Cash
Liabilities
Equip
Owners Equity
Mr. A, Capital
Payable
$2 500
+
$350
$2 500
=
$2 500
$30 000
+
$30 000
Total Assets :$32 500 = Total Liabilities + Owners Equity: $32 500
Analysis. This payment caused both the asset Cash and the liability Accounts Payable to
decrease by $500. The effect in the equation is as follows:
Assets
Cash
= Liabilities
+ Office + Office
Supp.
$350
= Accounts
Equip
$2 500
-500
Owners Equity
Mr. A, Capital
Payable
$2 500
-500
= $2 000
$30 000
+
$30 000
Total Assets :$32 000 = Total Liabilities + Owners Equity: $32 000
Assets
Liabilities
taxes payable
unearned revenues
bonds
gage
Asset accounts
Liability accounts
Expense accounts
ecorded in the debit side of an account