Name: ________________________________________________________ Due Date: ________________ Period: ________

Accounting Equation – Ch. 3 ___________ / 100

Work Packet Each answer is worth .531 pts.

Problem 1: Balancing the Basic Accounting Equation

Instructions: Determine the missing dollar amount in the empty box for each equation.

ASSETS = LIABILITIES + OWNER’S EQUITY

1. $ 17,000 $ 7,000
2. $ 6,000 $ 20,000
3. $ 10,000 $ 7,000
4. $ 9,000 $ 17,000
5. $ 8,000 $ 2,000
6. $ 20,000 $ 7,000
7. $ 12,000 $ 4,000
8. $ 30,000 $ 22,000
9. $ 22,000 $ 1,000
10
$ 25,000 $ 5,000
.
11
$ 10,000 $ 25,000
.
12
$ 7,500 $ 3,000
.

Problem 2: Determining the Effects of Transactions on the Basic Accounting Equation

Instructions: Use the following accounts to analyze and record the business transactions of the business WordService.
Transactions:
1. Jan Swift, owner, deposited $30,000 in the business checking account.
2. The owner invested a desk and chair valued at $700.
3. WordService issued a check for $4,000 for the purchase of a computer.
4. The business bought office furniture on account for $5,000 from Eastern Furniture.
5. The desk and chair previously given to the business by the owner were sold on account for $700.
6. WordService wrote a check for $2,000 in partial payment of the amount owed to Eastern Furniture Company.

Owner’s
Assets = Liabilities +
Equity
Transaction
Accounts Computer Office Accounts Jan Swift,
Cash +
Receivable
+
Equipment
+
Furniture
= Payable
+
Capital
1.
2.
3.
4.
5.
6.
 Balance
Problem 3: Classifying Accounts
Instructions: All accounts belong in one of the following classifications: Asset, Liability, or Owner’s Equity.
Indicate the classification for each of the following accounts.

Account Classification Account Classification

1. John Jones, Capital 1. 6. Delivery Equipment 6.
2. Cash 2. 7. Camping Equipment 7.
3. Accounts Receivable 3. 8. Building 8.
4. Accounts Payable 4. 9. Land 9.
5. Office Equipment 5. 10. Computer Equipment 10.

Problem 4: Determining the Effects of Transactions on the Basic Accounting Equation

Instructions: Juanita Ortega is the owner of a professional guide service called Outback Guide Service.
Complete these steps for each of the following transactions:

1. Identify the accounts affected.

2. Write the amount of the increase (+) or decrease (-) in the space provided.
3. Determine the new balance for each account.

Transactions:
1. Ms. Ortega, the owner, opened a checking account for the business by depositing $ 60,000 of her
personal funds.

2. Paid by check the monthly rent of $ 3,000.

3. Bought hiking equipment for the business by writing a check for $ 3,000.
4. Purchased $ 24,000 of rafting equipment by writing a check.
5. Purchased office equipment on account for $ 4,000.
6. Received payment for guide services, $ 2,500.
7. Ms. Ortega invested a desk valued at $ 450 to the business.
8. Ms. Ortega withdrew $ 3,000 cash from the business for personal use.
9. Wrote a check to a creditor as partial payment on account, $ 1,500.
10. Took a group on a tour and agreed to accept payment later, $ 1,200.
 Owner’s
Assets = Liabilities + + Revenue - Expenses
Equity
Juanita
Accounts Hiking Rafting Office Accounts Guide
Cash
Receivable Equipment Equipment Equipment = Payable
+ Ortega, +
Services
- Expenses
Capital
1

Bal =
2

Bal =
3

Bal =
4

Bal =
5

Bal =
6

Bal =
7

Bal =
8

Bal =
9

Bal =
10

Bal = + -

ASSETS = LIABILITIES + OWNER’S EQUITY

$ $ $
Chapter 1 Vocabulary Review
Using terms from the following list, complete the sentences below. Write the letter of the term you have
chosen in the space provided.
A. accountant D. for-profit businesses
B. accounting clerk E. not-for-profit organizations
C. certified public accountant F. public accounting

_____ 1. A(n) _______ handles a broad range of responsibilities, including making business decisions, and
preparing and interpreting financial reports.
_____ 2. ________ operate to earn money for their owners.
_____ 3. ________ operate for reasons other than money, like protecting and preserving the environment.
_____ 4. A(n) _______ usually performs one or two accounting tasks.
_____ 5. A(n) _______ firm provides accounting services to clients on a fee basis.
_____ 6. To become a(n) __________, you must pass a national test and meet specific experience and
education standards.
Chapter 2 Vocabulary Review
Using terms from the following lists, complete the sentences below. Write the letter of the term you have chosen in
the space provided.
A. accounting system F. financial accounting K. managerial accounting N. partnership
B. business entity G. accounting period L. manufacturing O. profit
C. capital H. GAAP business P. service business
D. corporation I. going concern M. merchandising Q. sole proprietorship
E. entrepreneur J. loss business

_____ 1. A(n) _____ has one owner.

_____ 2. The time period covered by an accounting report is called _____.
_____ 3. A(n) _____ has at least two owners.
_____ 4. Money invested in a business by an owner is called _____.
_____ 5. The amount of money earned over and above the amount spent to keep a business operating is called _____.
_____ 6. Businesses that spend more than they receive operate at a _____.
_____ 7. A(n) _____ is concerned with the process of recording and reporting financial information.
_____ 8. A(n) _____ is willing to take the risks of running a business.
_____ 9. Accounting for external users of accounting information is called _____.
_____10. Generally Accepted Accounting Principles refers to _____.
_____11. Accounting for internal users of accounting information is called _____.
_____12. A(n) _____ exists independently of its owner’s personal holdings.
_____13. A business expected to operate in the future is called a(n) _____.
_____14. A business that buys finished products and then sells them is called a(n) _____.
_____15. A business that transforms raw material into products is called a(n) _____.
_____16. A business organization that is recognized by law to have a life of its own is called a(n) _____.
_____17. A business organized to operate by providing professional services for a fee is called a(n) _____.
Chapter 3 Review
Part 1 – Vocabulary Review
Using terms from the following lists, complete the sentences below. Write the letter of the term you have chosen in
the space provided.
A. account E. asset I. equity M. owner’s equity
B. accounting equation F. business transaction J. expenses N. property
C. accounts payable G. capital K. liabilities O. revenue
D. accounts receivable H. creditor L. on account P. withdrawal

_____ 1. The _____ is Assets = Liabilities + Owner’s Equity

_____ 2. A(n) _____ is an economic event that causes a change in assets, liabilities, or owner’s equity.
_____ 3. The owner’s claims to the total assets of the business are called _____.
_____ 4. A(n) _____ is any property or item of value owned by a business.
_____ 5. _____ are the creditor’s claims to the assets of the business.
_____ 6. _____ is anything of value that is owned or controlled.
_____ 7. The increases or decreases in a specific item caused by business transactions are recorded in a(n) _____.
_____ 8. Buying _____ is the same as buying on credit.
_____ 9. _____ is income earned from the sale of goods and services.
_____10. The costs of goods and services used to operate a business are _____.
_____11. _____ is the total amount of money to be received in the future for goods and services sold on credit.
_____12. A person or business that sells property on credit, or any person or business to which money is owed, is called
a(n) _____.
_____13. The total financial claims to the assets of a business are known as _____.
_____14. The amount of money owed to the creditors of a business is _____.
_____15. _____ refers to the dollar amount of the owner’s equity in the business.
_____16. When the owner takes cash or other assets from the business for personal use, a _____ occurs.

Part 2 – Property and Financial Claims

Read each of the following statements to determine whether the statement it true or false. Write your answer in the
space provided.

_____ 1. When you buy property on account, you acquire all of its property rights.
_____ 2. One of the purpose of accounting is to provide financial information about property and the rights of a
business to that property.
_____ 3. A person who has control over but does not own an item of property has a legal right to that item.
_____ 4. Both businesses and individuals may own and control property.
_____ 5. The creditor’s financial claim minus the owner’s financial claim to an item of property always equals the total
cost of the property.
Part 3 – Analyzing Business Transactions
Listed below are the account names that are used by In-a Minute Messenger Service for recording and reporting the
financial information from business transactions. Analyze each of the following transactions to determine the accounts
affected. Then enter the numbers of the accounts affected by each transaction in the space at the left. Remember that
at least two accounts will be affected by each transaction.

1. Cash in Bank 4. Delivery Equipment 7. B. McCann, Capital 10. Expenses

2. Accounts Receivable 5. Office Equipment 8. B. McCann, Withdrawals
3. Office Supplies 6. Accounts Payable 9. Revenue

Accounts Affected
_______________ 1. The owner invested cash in the business.
_______________ 2. Paid for the monthly rent by check.
_______________ 3. The owner transferred a new bicycle to the business for deliveries.
_______________ 4. Received cash for delivering messages.
_______________ 5. Purchased office equipment on account.
_______________ 6. Delivered messages for a client on account.
_______________ 7. Sold a friend a bicycle helmet owned by the business on account.
_______________ 8. Issued a check to a creditor in partial payment of amount owed.
_______________ 9. Purchased office supplies on account.
_______________ 10. Withdrew cash for personal use.
_______________ 11. Wrote a check for the monthly telephone bill.

Part 4 – True or False

Circle the letter T in the Answer column if the statement is true; circle the letter F if the statement is false.

Answer
T F 1. The accounting equation should remain in balance after each transaction.
T F 2. A business transaction affects at least two accounts.
T F 3. “Assets + Liabilities = Owner’s Equity” is another way to express the accounting equation.
T F 4. The increases and decreases caused by business transactions are recorded in specific accounts.
T F 5. The private enterprise system is based on the right to own property.
T F 6. The owner’s personal financial transactions are part of the business’s record.
T F 7. The total financial claims to the assets of a business are referred to as equity.
T F 8. The owner’s claims to the assets of a business are liabilities.
T F 9. When a business transaction occurs, the financial position of the business changes.
T F 10. A creditor has a financial claim to the assets of the business.
T F 11. An account is a record of only the increases in the balance of a specific item such as cash or equipment.
T F 12. The total financial claims do not have to equal the total cost of the property.
Part 5 – Multiple Choice
Write the letter of the correct answer in the Answer column.
______ 1. In the creditor’s financial claim to property totals $1,000 and the owner’s financial claim to property totals
$11,000, the property is:
(A) $10,000 (C) $12,000
(B) $11,000 (D) $1,000
______ 2. The account Accounts Receivable is an example of a(n):
(A) asset. (C) owner’s equity.
(B) liability. (D) none of the above.
______ 3. All of the following account names are asset names, except:
(A) Office Furniture (C) Cash in Bank
(B) Accounts Payable (D) Equipment
______ 4. If a business has assets of $5,600 and liabilities of $900, the owner’s equity is:
(A) $6,500 (C) $4,700
(B) $900 (D) $5,600
______ 5. A business transaction that involves a purchase on account is considered to be a(n):
(A) cash transaction (C) investment by the owner
(B) credit transaction (D) expense transaction
______ 6. If a business purchases a calculator on account, the accounts affected by this transaction are:
(A) Cash in Bank and Accounts Payable (C) Office Equipment and Cash in Bank
(B) Office Equipment and Accounts Receivable (D) Office Equipment and Accounts Payable

______ 7. Each of the following is a business expense, except payment for:

(A) advertising (C) utility bills
(B) monthly rent (D) equipment
______ 8. The purchase of a desk on account will increase Office Furniture and will also increase:
(A) Cash in Bank (C) Accounts Receivable
(B) Accounts Payable (D) Jon McIvey, Capital

Part 6 – Effects of Business Transactions on the Accounting Equation

Each business transaction causes an increase (+), decrease (-), or no change (0) in the classification of accounts in the
accounting equation. Analyze each transaction to determine how it affects the accounting equation. In the space use +,
-, or 0 to indicate the effect of each transaction on each part of the accounting equation.

Assets = Liabilities + Owner’s Equity

__+__________0______________+_______ 0. The owner transferred a typewriter to the business.
_______=____________________________ 1. Bought office furniture on account.
_______=____________________________ 2. The owner invested cash in the business.
_______=____________________________ 3. Paid the monthly utility bill by check.
_______=____________________________ 4. Purchased office supplies for cash.
_______=____________________________ 5. Prepared a lease for a client on account.
_______=____________________________ 6. Withdrew cash from the business for personal use.
_______=____________________________ 7. Bought a computer for cash.
_______=____________________________ 8. Received cash from a creditor for an amount owned on account.
_______=____________________________ 9. Wrote a check to a creditor for an amount owed on account.
_______=____________________________ 10. Wrote a check for the monthly rent.