Accounting Quation 3

1.
Assets (what it owns)

2. Liabilities (what it owes to others)
3. Owner’s Equity (the difference between assets and liabilities)
Assets are claimed by either creditors or owners.

Claims of creditors must be paid before ownership claims.
Economic Claims to
Resources Economic
Resources
Assets
Resources a business owns.

Provide future services or benefits.
Cash, Supplies, Equipment, etc.
Liabilities
Claims against assets (debts and obligations).

Creditors - party to whom money is owed.
Accounts payable, Notes payable, etc.
Owner’s Equity(capital)
Ownership claim on total assets.

Referred to as residual equity.
Investment by owners and revenues (+)
Drawings and expenses (-).
An owner may
assets the owner withdraw cash
puts into the for
business. personal use.
OWNER’S EQUITY OWNER’S EQUITY

INCREASES DECREASES
Owner Investments Owner Withdrawals

in the Business from the Business
Owner’s Equity
Revenues Expenses
result from
business
activities
entered cost
4 of assets
Effects of Transactions on Owner’s Equity
OWNER’S EQUITY
5
OWNER’S EQUITY
decreased by
6
OWNER’S EQUITY
decreased by
Owner’s withdrawals
Expenses
7
OWNER’S EQUITY
increased by
8
OWNER’S EQUITY
increased by
Owner’s investments
Revenues
9
OWNER’S EQUITY
decreased by increased by
Owner’s withdrawals Owner’s investments
Expenses Revenues
10
The Accounting Equation
Resources
What are an organization’s resources called?
11
Resources = Sources
Assets
What are the

Resources used sources of the
assets?
in the business
12
Resources = Sources
Liabilities
Assets
Owner’s
Equity
Resources
Resources used supplied by
in the business creditors and
owners
13
Assets = Liabilities + Owners’ Equity
 The equation must be in balance after every
recorded transaction in the system.
Prepaid Cash
Notes
Insurance
Receivable
Accounts
Prepaid
Receivable
Expenses
ASSETS
Land
Buildings
Equipment
Accounts
Notes Payable
Payable
LIABILITIES
Accrued Unearned
Liabilities Revenues
Owners’ Owners’
Capital Withdrawals
Equities
Revenues Expenses
Business Transactions
a. Sachin deposits RS 25,000 in a bank account

for ABC Ltd
ASSETS LIABILITIES
= OWNER’S EQUITY
18

for ABC Ltd.
ASSETS LIABILITIES
Cash
25,000 = OWNER’S EQUITY
19

for ABC Ltd.
ASSETS LIABILITIES
Cash
25,000 = OWNER’S EQUITY
Sachin, Capital
25,000
20
b. ABC Ltd. buys land for Rs 20,000.
ASSETS LIABILITIES
= OWNER’S EQUITY
21
b. ABC Ltd. buys land for Rs 20,000.
ASSETS LIABILITIES
Cash
(20,000)
= OWNER’S EQUITY
22
b. ABC Ltd buys land for RS 20,000.
ASSETS LIABILITIES
Cash
(20,000)
= OWNER’S EQUITY
Land
20,000
23
c. ABC Ltd buys goods for RS1,350, agreeing to

pay the supplier in the near future.
ASSETS LIABILITIES
= OWNER’S EQUITY
24
c. ABC Ltd buys goods for RS1,350, agreeing to

pay the supplier in the near future.
ASSETS LIABILITIES
Accounts Payable
1,350
=
Purchases
1,350
OWNER’S EQUITY
25
e. ABC Ltd paid: wages Rs 2,125; rent, Rs 800;

utilities, Rs 450; and miscellaneous, Rs 275.
ASSETS LIABILITIES
= OWNER’S EQUITY
26

ASSETS LIABILITIES
Cash
(3,650) = OWNER’S EQUITY
27

ASSETS LIABILITIES
Cash
Expenses
(3,650)
28
f. ABC Ltd pays Rs 950 to creditors on account.
ASSETS LIABILITIES
= OWNER’S EQUITY
29
ASSETS LIABILITIES
Cash
(950) = OWNER’S EQUITY
30
ASSETS LIABILITIES
Accounts Payable
(950)
Cash
(950) = OWNER’S EQUITY
31
h. Sachin withdraws Rs 2,000 in cash.
ASSETS LIABILITIES
= OWNER’S EQUITY
32
ASSETS LIABILITIES
Cash
33
ASSETS LIABILITIES
Cash
Sachin’s, Drawing
(2,000)
34
Transaction Summary
ASSETS LIABILITIES
=
Cash 6,700 OWNER’S EQUITY
Purchases 550
Land 20,000
35
Transaction Summary
ASSETS LIABILITIES
Accts. Payable 400
=
Purchases 550
Land 20,000
36
Transaction Summary
ASSETS LIABILITIES
Accts. Payable 400
=
Purchases 550
Land 20,000 Sachin, Capital 25,000
Sachin, Drawing (2,000)
Fees Earned 7,500
Wages Expense (2,125)
Rent Expense (800)
Commission (450)
Misc. Expense (275)
37
Current assets
Long-term assets
Current liabilities
Long-term liabilities
38
XYZ Ltd.
Trial Balance
November 30, 2002
Cash 5,900
Purchases 550
Land 20,000
Accounts Payable 400
Amit, Capital 25,000
Amit, Drawing 2,000
Fees Earned 7,500
Wages Expense 2,125
Rent Expense 800
Commission 450
Supplies Expense 800
Miscellaneous Expense 275
32,900 32,900
39
XYZ Ltd.
Trial Balance
November 30, 2002
Cash 5,900
Purchases 550
Balance Land 20,000
Sheet Accounts Payable 400
Amit, Drawing 2,000
Fees Earned 7,500
Wages Expense 2,125
Rent Expense 800
Commission 450
32,900 32,900
40
XYZ Ltd.
Trial Balance
November 30, 2002
Cash 5,900
Purchases 550
Land 20,000
Accounts Payable 400
Amit, Drawing 2,000
Fees Earned 7,500
Income Wages Expense 2,125
Statement Rent Expense 800
Commission 450
32,900 32,900
41
XYZ Ltd.
Balance Sheet Income Statement

1. Assets 4. Revenue
11 Cash 41 Sales
12 Accounts Receivable 5. Expenses
14 purchases 51 Wages Expense
15 Prepaid Insurance 52 Rent Expense
17 Land 54 Commission
18 Office Equipment 55 Supplies Expense
59 Miscellaneous
2. Liabilities Expense
21 Accounts Payable
23 Unearned Rent
3. Owner’s Equity
31 Amit, Capital
32 Amit, Drawing
42
Original evidence Accounting Financial
records records Statements
Source Journals
documents
Profit and Loss
Statement
Ledger
Balance Sheet
Trial
Balance
Statement of
Closing cash flows
Entries
43

Accounting Quation 3

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Accounting Quation 3

Uploaded by

Copyright:

Available Formats

1.

Assets (what it owns)

Assets are claimed by either creditors or owners.

Resources a business owns.

Claims against assets (debts and obligations).

Ownership claim on total assets.

OWNER’S EQUITY OWNER’S EQUITY

Owner Investments Owner Withdrawals

Owner’s withdrawals Owner’s investments

What are an organization’s resources called?

What are the

a. Sachin deposits RS 25,000 in a bank account

a. Sachin deposits RS 25,000 in a bank account

a. Sachin deposits RS 25,000 in a bank account

b. ABC Ltd. buys land for Rs 20,000.

b. ABC Ltd. buys land for Rs 20,000.

b. ABC Ltd buys land for RS 20,000.

c. ABC Ltd buys goods for RS1,350, agreeing to

c. ABC Ltd buys goods for RS1,350, agreeing to

e. ABC Ltd paid: wages Rs 2,125; rent, Rs 800;

e. ABC Ltd paid: wages Rs 2,125; rent, Rs 800;

e. ABC Ltd paid: wages Rs 2,125; rent, Rs 800;

f. ABC Ltd pays Rs 950 to creditors on account.

f. ABC Ltd pays Rs 950 to creditors on account.

f. ABC Ltd pays Rs 950 to creditors on account.

h. Sachin withdraws Rs 2,000 in cash.

h. Sachin withdraws Rs 2,000 in cash.

h. Sachin withdraws Rs 2,000 in cash.

Balance Sheet Income Statement

You might also like