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Financial Accounting3-20

The accounting equation is always in balance. Debits must equal credits.

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mouhammad mouhammad
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118 views

Financial Accounting3-20

The accounting equation is always in balance. Debits must equal credits.

Uploaded by

mouhammad mouhammad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPSX, PDF, TXT or read online on Scribd
You are on page 1/ 12

Principles of Accounting

1
Johnson Company had assets of $140,000 and
liabilities of $60,000 at the beginning of the
year, and assets of $200,000 and liabilities of
$70,000 at the end of the year. During the
year,$20,000 was invested in the business, and
withdrawals of $24,000 were made.

What amount of net income did the company


earn during the year?
Assets - Liabilities = Owner’s Equity
Beginning of the year
140,000$ - 60,000$ = 80,000$
End of year
200,000$ - 70,000$ = 130,000$

Owner’s Equity(B) 80,000$


+ Investment +20,000$
- Withdrawals - 24,000$ Net income=54,000$
+Net income ?
Owner’s Equity(E) 130,000$
A company reported total equity of $145,000 on its
December 31, 2016 balance sheet.
The following information is available for the year
ended December 31, 2017:

2017 Revenues $210,000


2017 Expenses 165,000
Total assets, at December 31, 2017 282,000.

What are the Liabilities of the company at


December 31, 2017?
• Assets = Liabilities + Owner’s Equity
• Liabilities = Assets - Owner’s Equity
• L =282,000 - (145,000 +210,000 -165,000)
• L = 92,000
(A) To establish Pizza Aroma, a new gourmet pizza
restaurant, the business receive $30,000 cash as an
initial investment from owner-manager Mauricio Rosa.
Identify:

Received: Cash (A+) Given: Recognition of owner’s investment


(OE+)

Is the accounting equation in balance?

Assets = Liabilities + Owner’s Equity


Cash Mr. Rosa, Capital
+ 30,000 +30,000
(B) Mauricio negotiates with a local bank and signs a
three year $20,000 note in Pizza Aroma’s name ( the
loan is a liability of the business)
1. Identify:
Received: Cash 20,000 (A+) Given: written promise by
the business to pay the bank
Notes
2. Is the accounting equation Payable 20,000 (L+)
in balance:
Assets = Liabilities + Owner’s Equity
Cash Notes Payable M. Rosa, Capital
+ 30,000 +30,000
+ 20,000 +20,000
(C) Pizza Aroma Pays $4,800 in advance to the building
owner to cover rent for the store from May through
October (Six Months)
1. Identify:
Received: Prepaid Given: Cash 4,800
Rent 4,800 (A+) (A-)
2. Is the accounting equation in balance?
Assets = Liabilities + Owner’s
Equity
Cash Prepaid rent Notes Payable Mr. Rosa,
Capital
+ 30,000 +4,800 + 20,000 + 30,000
+ 20,000
-4,800
(D) A construction company installs equipment at a cost of
$36,000; Pizza Aroma pays $33,000 in cash and promises
to pay the balance next month.
Identify:
Received: Given: Cash 33,000
Equipment 36,000 (A-)
(A+) Accounts Payable
3,000 (L+)
Is accounting equation in balance?

A L OE
Cash Prepaid Equipme AP Notes P Mr. Rosa, Capital
Rent nt
+ +30,000
30,000
+ +20,000
20,000
- 4,800 +4,800
- 33,000 +36,000 +3,000
(E) Pizza Aroma orders and receives $2,000 in supplies on
account from local fresh food suppliers.
Identify:

Received: Supplies (+A) Given: A promise to pay, Accounts


$ Is
 2,000 Payable
the accounting equation in (+L) $ 2,000
balance?
Is the accounting equation in balance?
A L OE
Cash Supplies Prepaid Equipme A/P Notes/ M.Rosa,
Rent nt P Capital
+30,000 +30,000
+20,000 +20,00
0
-4,800 +4,800
-33,000 +36,000 +3,000
+2,000 +2,000
(F) Pizza Aroma pays $1,000 cash on account to a
supplier.
Identify:
Received: A reduction in the amount owed to Given: Cash (-
the Supplier, A/P (-L) $1,000 A)$ 1,000

A L
Is accounting equation in balance? OE
Cash Supplies Pre. Rent Equipmen A/P Notes/P M.Rosa,
t Cap
30,000 30,000
20,000 20,000
-4,800 +4,800
-33,000 +36,000 +3,000
2,000 2,000
-1,000 -1,000
(G) Pizza Aroma puts $6,000 cash in a saving account
at a bank
Identify:
Received: Investments (+A) $6,000 Given: Cash (-A) $6,000
Is accounting equation in balance?
A L OE
Cash Investmen Supplie Pre. Rent Equipme A/P Notes/P M.Rosa, Cap
ts s nt
+30,000 +30,000
+20,000 +20,000
-4,800 +4,800
-33,000 +36,000 +3,000
+2,000 +2,000
-1,000 -1,000
-6,000 +6,000
5,200 6,000 2,000 4,800 36,000 4,000 20,000 30,000
$ 54,000 $ 54,000

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