2. Accounting Equation

8/4/2019 2. Accounting Equation

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Resources

The Accounting Equation

What are an organizations resources called?


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Assets

Resources = Sources


What are the

sources of theassets?

Cost of

resources usedin the business


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Assets

Liabilities

Owners Equity

Resources = Sources

Cost of

resources usedin the business

Resources

supplied bycreditors andowners



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a. Chris Clark deposits $25,000 in a bank accountfor NetSolutions.

ASSETS

=

Business Transactions

OWNERS EQUITY

LIABILITIES


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ASSETS

=


OWNERS EQUITY Cash

25,000

LIABILITIES


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ASSETS

=


OWNERS EQUITY Cash

25,000

LIABILITIES

Chris Clark,Capital25,000


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b. NetSolutions buys land for $20,000.

ASSETS

=

OWNERS EQUITY

LIABILITIES


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ASSETS

=

OWNERS EQUITY

LIABILITIES

Cash(20,000)


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ASSETS

=

OWNERS EQUITY

LIABILITIES

Cash(20,000)

Land20,000


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ASSETS

=

OWNERS EQUITY

LIABILITIES

c. NetSolutions buys supplies for $1,350, agreeing topay the supplier in the near future.


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ASSETS

=

OWNERS EQUITY

LIABILITIES

Supplies1,350



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ASSETS

=

OWNERS EQUITY

LIABILITIES


Accounts Payable1,350Supplies

1,350


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ASSETS

=

OWNERS EQUITY

LIABILITIES

d. NetSolutions earns fees of $7,500, receiving cash.


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ASSETS

=

OWNERS EQUITY

LIABILITIES

Cash7,500



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ASSETS

=

OWNERS EQUITY

LIABILITIES

Cash7,500

Fees Earned7,500



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ASSETS

=

OWNERS EQUITY

LIABILITIES

e. NetSolutions paid: wages, $2,125; rent, $800;utilities, $450; and miscellaneous, $275.


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ASSETS

=

OWNERS EQUITY

LIABILITIES

Cash(3,650)



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ASSETS

=

OWNERS EQUITY

LIABILITIES

Cash(3,650)

Expenses(3,650)



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ASSETS

=

OWNERS EQUITY

LIABILITIES

f. NetSolutions pays $950 to creditors on account.


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ASSETS

=

OWNERS EQUITY

LIABILITIES

Cash(950)



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ASSETS

=

OWNERS EQUITY

LIABILITIES

Cash(950)

Accounts Payable(950)



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ASSETS

=

OWNERS EQUITY

LIABILITIES

g. At the end of the month, the cost of supplies onhand is $550.


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ASSETS

=

OWNERS EQUITY

LIABILITIES

Supplies(800)



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ASSETS

=

OWNERS EQUITY

LIABILITIES

Supplies(800)

Supplies Expense

(800)



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ASSETS

=

OWNERS EQUITY

LIABILITIES

h. Chris Clark withdraws $2,000 in cash.


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ASSETS

=

OWNERS EQUITY

LIABILITIES

Cash(2,000)



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ASSETS

=

OWNERS EQUITY

LIABILITIES

Cash(2,000)

Chris Clark,

Drawing(2,000)



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Transaction Summary

ASSETS

=OWNERS EQUITY

LIABILITIES

Cash 5,900Supplies 550Land 20,000


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Transaction Summary

ASSETS

=OWNERS EQUITY

LIABILITIES


Accts. Payable 400


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Transaction Summary

ASSETS

=OWNERS EQUITY

LIABILITIES


Accts. Payable 400

C. Clark, Capital 25,000

C. Clark, Drawing (2,000)Fees Earned 7,500Wages Expense (2,125)Rent Expense (800)Supplies Expense (800)Utilities Expense (450)Misc. Expense (275)


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OWNERS EQUITY

Effects of Transactions on Owners Equity


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OWNERS EQUITY


decreased by


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OWNERS EQUITY


Owners withdrawals

Expenses

decreased by


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OWNERS EQUITY


increased by


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OWNERS EQUITY


Owners investments

Revenues

increased by


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OWNERS EQUITY


Owners withdrawals

Expenses

Owners investments

Revenues

decreased by increased by


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OWNERS EQUITY


Owners withdrawals

Expenses

Owners investments

Revenues

decreased by increased by

NET INCOME


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Financial Statements

NetSolutions

Income StatementFor the Month Ended November 30, 2002

Fees earned $7,500Operating expenses:

Wages expense $2,125

Rent expense 800Supplies expense 800Utilities expense 450Miscellaneous expense 275

Total operating expenses 4,450Net income $3,050


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NetSolutions







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NetSolutions







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NetSolutions







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NetSolutionsStatement of Owners Equity

For the Month Ended November 30, 2002


Chris Clark, capital, November 1, 2002 $ 0Investment on November 1, 2002 $25,000Net income for November 3,050

$28,050Less withdrawals 2,000Increase in owners equity 26,050Chris Clark, capital, November 30, 2002 $26,050


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NetSolutions

Balance SheetNovember 30, 2002

AssetsCash $5,900Supplies 550

Land 20,000Total assets $26,450Liabilities

Accounts payable $ 400Owners Equity

Chris Clark, capital 26,050

Total liabilities andowners equity $26,450



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NetSolutions









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NetSolutions









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NetSolutions









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NetSolutionsStatement of Cash Flows


Cash flows from operating activities:Cash received from customers $ 7,500Deduct cash payments for expenses

and payments to creditors 4,600Net cash flow from operating activities $ 2,900

Cash flows from investing activities:Cash payments for acquisition of land (20,000)

Cash flows from financing activities:

Cash received as owners investment $25,000Deduct cash withdrawal by owner 2,000Net cash flow from financing activities 23,000

Net cash flow and Nov. 30, 2002 cash balance $5,900



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)




Cash flows from investing activities:Cash payments for acquisition of land (20,000





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)




Cash flows from investing activities:Cash payments for acquisition of land (20,000)





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Cash flows from investing activities:Cash payments for acquisition of land (20,000




)


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2. Accounting Equation

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