© 2000 South-Western Educational Publishing THE ACCOUNTING EQUATION Lesson 1-1, page 7

© 2000 South-Western© 2000 South-WesternEducational PublishingEducational Publishing

THE ACCOUNTING EQUATIONTHE ACCOUNTING EQUATION

Lesson 1-1, page 7Lesson 1-1, page 7


TTERMS REVIEWERMS REVIEWaccounting

accounting system

accounting records

service business

proprietorship


asset

equities

liability

owner’s equity

accounting equation


RECEIVING CASHRECEIVING CASH


Transaction 1 August 1. Received cash from owner an an investment, $10,000.00.


PAYING CASHPAYING CASH


Transaction 2 August 3. Paid cash for supplies, $1,577.00.

Transaction 3 August 4. Paid cash for insurance, $1,200.00.


TRANSACTIONS ON ACCOUNTTRANSACTIONS ON ACCOUNT


Transaction 4 August 7. Bought supplies on account from Ling Music Supplies, $2,720.00.

Transaction 5 August 11. Paid cash on account to Ling Music Supplies, $1,360.00.


TTERMS REVIEWERMS REVIEWtransaction

account

account title

account balance

capital



RECEIVED CASH FROM SALESRECEIVED CASH FROM SALES


August 12. Received cash from sales, $325.00.

1

3

4

22

3

4

1

1. Cash and Sales are affected.

4. Cash is debited. Sales is credited.

3. Assets are increased. Owner’s equity is increased.

2. Cash is an asset. Sales is a revenue account that affects owner’s equity.


SOLD SERVICES ON ACCOUNTSOLD SERVICES ON ACCOUNT


August 12. Sold services on account to Kids Time, $200.00.

1

3

4

22

3

4

1

1. Accounts Receivable—Kids Time and Sales are affected.

4. Accounts Receivable—Kids Time is debited. Sales is credited.

3. Assets are increased. Owner’s equity is increased.

2. Accounts Receivable—Kids Time is an asset. Sales is a revenue account that affects owner’s equity.


2. Cash is an asset. Rent Expense is an expense account that affects owner’s equity.

3. Assets are decreased. Owner’s equity is decreased; expenses are increased.

PAID CASH FOR AN EXPENSEPAID CASH FOR AN EXPENSE


August 12. Paid cash for rent, $250.00.

1

3

4

2

3

4

1

1. Rent Expense and Cash are affected.

4. Rent Expense is debited. Cash is credited.

2

3


1. Cash and Accounts Receivable—Kids Time are affected.

4. Cash is debited. Accounts Receivable—Kids Time is credited.

3. Assets (Cash) are increased. Assets (Accounts Receivable—Kids Time) is decreased.

2. Cash and Accounts Receivable—Kids Time are assets.

RECEIVED CASH ON ACCOUNTRECEIVED CASH ON ACCOUNT


August 12. Received cash on account from Kids Time, $100.00.

1

3

4

2

4

1

3


5. Add amounts and compare the totals.

PREPARING A BALANCE SHEETPREPARING A BALANCE SHEET


5

1

3

4

2

76

1. Write the heading.

2. Prepare the assets section.

3. Prepare the liabilities section.

4. Prepare the owner’s equity section.

6. Rule single lines.

7. Write the totals.

8. Rule double lines.

8


TTERMS REVIEWERMS REVIEWbalance sheet



REVENUE TRANSACTIONSREVENUE TRANSACTIONS


Transaction 6 August 12. Received cash from sales, $325.00.

Transaction 7 August 12. Sold services on account to Kids Time, $200.00.


PAID CASH FOR EXPENSESPAID CASH FOR EXPENSES

Transaction 8 August 12. Paid cash for rent, $250.00.

Transaction 9 August 12. Paid cash for telephone bill, $45.00.


–45 (expense)


OTHER TRANSACTIONSOTHER TRANSACTIONS


Transaction 10 August 12. Received cash on account from Kids Time, $100.00.

Transaction 11 August 12. Paid cash to owner for personal use, $100.00.

–100 (withdrawal)


Transaction Change in Number Kind of Transaction Owner’s Equity

6 Revenue (cash) +325.007 Revenue (on account) +200.008 Expense (rent) –250.009 Expense (telephone) –45.00

11 Withdrawal –100.00

Net change in owner’s equity +130.00

SUMMARY OF CHANGES IN OWNER’S EQUITYSUMMARY OF CHANGES IN OWNER’S EQUITY



TTERMS REVIEWERMS REVIEWrevenue

sale on account

expense

withdrawals



5. Add and compare the totals.

BALANCE SHEET PREPARATIONBALANCE SHEET PREPARATION

5

1

3

4

2

76

1. Write the heading.

2. Prepare the assets section.

3. Prepare the liabilities section.

4. Prepare the owner’s equity section.

6. Rule single lines.

7. Write the totals.

8. Rule double lines.

8



ACCOUNTSACCOUNTS



ACCOUNT BALANCESACCOUNT BALANCES



INCREASES AND DECREASES IN ACCOUNTSINCREASES AND DECREASES IN ACCOUNTS



TTERMS REVIEWERMS REVIEWT account

debit

credit

normal balance



A FIVE-COLUMN JOURNALA FIVE-COLUMN JOURNAL



CHECKSCHECKS



RECEIVED CASH FROM OWNER AS AN INVESTMENTRECEIVED CASH FROM OWNER AS AN INVESTMENT


August 1. Received cash from owner an an investment, $10,000.00.

1

3

4

22

3

4

1

1. Cash and Barbara Treviño, Capital are affected.

4. Cash is debited. Barbara Treviño, Capital is credited.

3. Assets are increased. Owner’s Equity is increased.

2. Cash is an asset account. Barbara Treviño, Capital is an owner’s equity account.


3. Assets (Supplies) are increased. Assets (Cash) are decreased.

PAID CASH FOR SUPPLIESPAID CASH FOR SUPPLIES


August 3. Paid cash for supplies, $1,577.00.

1

3

4

2

3

4

1

1. Supplies and Cash are affected.

4. Supplies is debited. Cash is credited.

2. Supplies and Cash are assets.


3. Assets (Prepaid Insurance) are increased. Assets (Cash) are decreased.

PAID CASH FOR INSURANCEPAID CASH FOR INSURANCE


August 4. Paid cash for insurance, $1,200.00.

1

3

4

2

3

4

1

1. Prepaid Insurance and Cash are affected.

4. Prepaid Insurance is debited. Cash is credited.

2. Prepaid Insurance and Cash are assets.


BOUGHT SUPPLIES ON ACCOUNTBOUGHT SUPPLIES ON ACCOUNT


August 7. Bought supplies on account from Ling Music Supplies, $2,720.00.

1

3

4

22

3

4

1

1. Supplies and Accounts Payable—Ling Music Supplies are affected.

4. Supplies is debited. Accounts Payable—Ling Music Supplies is credited.

3. Assets are increased. Liabilities are increased.

2. Supplies is an asset. Accounts Payable—Ling Music Supplies is a liability.


PAID CASH ON ACCOUNTPAID CASH ON ACCOUNT


August 11. Paid cash on account to Ling Music Supplies, $1,360.00.

1

3

4

22

3

4

1

1. Accounts Payable—Ling Music Supplies and Cash are affected.

4. Accounts Payable—Ling Music Supplies is debited. Cash is credited.

3. Assets are decreased. Liabilities are decreased.

2. Cash is an asset. Accounts Payable—Ling Music Supplies is a liability.


TTERMS REVIEWERMS REVIEWchart of accounts



SALES INVOICESSALES INVOICES



OTHER SOURCE DOCUMENTSOTHER SOURCE DOCUMENTS





August 1. Received cash from owner as an investment, $10,000.00. Receipt No. 1.





1. Which accounts are affected?

Cash

Barbara Treviño, Capital

4. How is each amount entered in the accounts?

Assets increase on the debit side.

Owner’s equity accounts increase on the credit side.

3. How is each classification changed?

Assets are increased.

Owner’s equity is increased.

2. How is each account classified?

Cash is an asset account.

Barbara Treviño, Capital is an owner’s equity account.Barbara Treviño, Capital

Cash

DebitNormal Balance

CreditNormal Balance

10,000.00

10,000.00





1. Write the date.

1 24

4. Write the source document number.

2. Debit Cash.

3. Credit Barbara Treviño, Capital.

3

3


3. Credit Cash.

PAID CASH FOR SUPPLIESPAID CASH FOR SUPPLIES


1. Write the date.

4. Write the source document number.

2. Debit Supplies.

2 2 341


TTERMS REVIEWERMS REVIEWjournal

journalizing

special amount column

general amount column

entry

double-entry accounting


source document

check

invoice

sales invoice

receipt

memorandum

Documents

© 2000 South-Western Educational Publishing THE ACCOUNTING EQUATION Lesson 1-1, page 7