Increase Decrease 1213b
24
The Accounting Equation
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Fundamentals of Accounting
Transcript of Increase Decrease 1213b
The Accounting Equation
The Accounting EquationThe Accounting Equation
Assets = Liabilities + Owner’s Equity
The resources owned by a
business
The resources owned by a
business
The Accounting EquationThe Accounting Equation
Assets = Liabilities + Owner’s Equity
The rights of the creditors, which
represent debts of the business
The rights of the creditors, which
represent debts of the business
The Accounting EquationThe Accounting Equation
Assets = Liabilities + Owner’s Equity
The rights of the owners
The rights of the owners
What is a business transaction?
A business transaction is an economic event or condition that directly changes an entity’s financial condition or directly affects its results of operations.
On November 1, 2012, Chris
Clark begins a business that will
be known as NetSolutions.
a. Chris Clark deposits P25,000 in a bank account in the name of NetSolutions.
a. Chris Clark deposits P25,000 in a bank account in the name of NetSolutions.
Chris Clark, Capital25,000 Investment
by Chris Clark
Cash25,000 a.
Assets Owner’s Equity=
=
What document is being issued when a company receives cash?
b. NetSolutions exchanged P20,000 for land.b. NetSolutions exchanged P20,000 for land.
Chris Clark, Capital25,000
Cash + Land 25,000 Bal.
Assets Owner’s Equity=
=b. –20,000 +20,000Bal. 5,000 20,000 25,000
What document is being issued when a company purchase/acquire/pays something?
Accounts Chris Clark,Cash + Supplies + Land Payable Capital
Assets
c. During the month, NetSolutions purchased supplies for P1,350 and agreed to pay the supplier in the near future (on account).
c. During the month, NetSolutions purchased supplies for P1,350 and agreed to pay the supplier in the near future (on account).
Owner’s Liabilities + Equity=
Bal. 5,000 20,000 25,000c. + 1,350 + 1,350
Bal. 5,000 1,350 20,000 1,350 25,000
=
What document is being issued when a company purchase/acquire on account?
d. NetSolutions provided services to customers, earning fees of P7,500 and received the amount in cash.
d. NetSolutions provided services to customers, earning fees of P7,500 and received the amount in cash.
Bal. 12,500 1,350 20,000 1,350 25,000d. + 7,500
Accounts Chris Clark,Cash + Supplies + Land Payable Capital
Assets Owner’s Liabilities + Equity
Bal. 5,000 1,350 20,000 1,350 25,000
=
=
What document is being issued when a company renders service/delivers goods to their customers?
e. – 3,650
Accounts Chris Clark,Cash + Supplies + Land Payable Capital
Assets
e. NetSolutions paid the following expenses: wages, P2,125; rent, P800; utilities, P450; and miscellaneous, P275.
e. NetSolutions paid the following expenses: wages, P2,125; rent, P800; utilities, P450; and miscellaneous, P275.
Owner’s Liabilities + Equity=
Bal. 12,500 1,350 20,000 1,350 25,000
=
Bal. 8,850 1,350 20,000 1,35025,000
Accounts Chris Clark,Cash + Supplies + Land Payable Capital
Assets
f. NetSolutions paid P950 to creditors during the month.
f. NetSolutions paid P950 to creditors during the month.
Owner’s Liabilities + Equity=
Bal. 8,850 1,350 20,000 1,350 25,000f. – 950 – 950
=
Bal. 7,900 1,350 20,000 400 25,000
Accounts Chris Clark,Cash + Supplies + Land Payable Capital
Assets
g. At the end of the month, the cost of supplies on hand is P550, so P800 of supplies were used.
g. At the end of the month, the cost of supplies on hand is P550, so P800 of supplies were used.
Owner’s Liabilities + Equity=
Bal. 7,900 1,350 20,000 400 25,000g. – 800
=
Bal. 7,900 550 20,000 400 25,000
Accounts Chris Clark,Cash + Supplies + Land Payable Capital
Assets
h. At the end of the month, Chris withdrew P2,000 in cash from the business for personal use.
h. At the end of the month, Chris withdrew P2,000 in cash from the business for personal use.
Owner’s Liabilities + Equity
Bal. 7,900 550 20,000 400 25,000h. –2,000 –2,000Bal. 5,900 550 20,000 400 23,000
With-drawal
=
=
Owner’s withdrawals
Expenses
Decreased by
Owner’s Equity
Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity
Increased by
Owner’s investments
Revenues
Net income
Accounting reports, called financial statements, provide summarized
information to the owner.
Accounting reports, called financial statements, provide summarized
information to the owner.
FINANCIAL STATEMENTS
Statement of Income—A summary of the revenue and expenses for a specific period of time.
Statement of owner’s equity—A summary of the changes in the owner’s equity that have occurred during a specific period of time.
Statement of Financial Position—A list of the assets, liabilities, and owner’s equity as of a specific date.
Statement of cash flows—A summary of the cash receipts and disbursements for a specific period of time.
Notes to the Financial Statements
Fees earned P7 500 00
Operating expenses:
Rent expense
P2 125 00Wages expense
800 00
Supplies expense
450 00Utilities expense
275 00Miscellaneous expense
Total operating expenses 4 450 00
NetSolutionsStatement of Income
For the Month Ended November 30, 2012
800 00
Net Profit P3 050 00To the statement of owner’s equity
To the statement of owner’s equity
Chris Clark, capital, November 1, 2012 P 0
NetSolutionsStatement of Owner’s Equity
For the Month Ended November 30, 2012
Investment on November 1 P25 000 00Net income for November 3 050 00
P28 050 00Less withdrawals 2 000 00Increase in owner’s equity 26 050 00Chris Clark, capital, November 30, 2012 P26 050 00
From the statement of
income
From the statement of
income
To the Statement of
Financial Position
To the Statement of
Financial Position
Assets Liabilities
NetSolutionsStatement of Financial Position
November 30, 2012
Cash P 5 900 00 Accounts Payable P 400 00
Supplies 550 00 Owner’s Equity
Land 20 000 00 Chris Clark, cap. 26 050 00
Total liabilities and
Total assets P26 450 00 owner’s equity P26 450 00
From the statement of
owner’s equity
From the statement of
owner’s equity
This balance sheet presented using the account form
When the balance sheet displays the liabilities and owner’s equity
below the assets, the report form is being used.
When the balance sheet displays the liabilities and owner’s equity
below the assets, the report form is being used.
Cash flows from operating activities:Cash received from customers P 7 500 00Deduct cash payments for expenses and payments to creditors 4 600 00Net cash flow from operating activities 2 900 00
Cash flows from investing activities:Cash payment for acquisition of land (20 000 00
Cash flows from financing activities:
Cash received as owner’s investment P25 000 00
Deduct cash withdrawal by owner 2 000 00Net cash flow from financing activities 23 000 00
Net cash flow and Nov. 30, 2005 cash bal. P5 900 00
NetSolutionsStatement of Cash Flows
For the Month Ended November 30, 2012
Should match Cash on the balance sheetShould match Cash on the balance sheet
)
Statement of Cash FlowsStatement of Cash FlowsCash Flows from Operating Activities—This section reports a summary of cash receipts and cash payments from operations.
Cash Flows from Investing Activities—This section reports the cash transactions for the acquisition and sale of relatively permanent assets.
Cash Flows from Financing Activities—This section reports the cash transactions related to cash investments by the owner, borrowings, and cash withdrawals by the owner.
The End
