asset, liability, owner’s equity, revenue, and expense accounts

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ASSET, LIABILITY, OWNER’S EQUITY, REVENUE, AND EXPENSE ACCOUNTS

Chapter 1


Learning Objective


Assets are ________ and other things of value owned and controlled by an ______________ or ______________ .

• ____________• ____________• ____________• ____________• ____________

Assets


• The owner’s right, claim, or financial interest is expressed by the word ___________ in the business.

• Another term that could be used is ___________

Owner’s Equity


Suppose the total value of the assets is $80,000 and the business entity does not owe any amount against the assets.

Owner’s Equity

What is the owner’s equity?


An entity’s assets consist of a truck that costs $35,000. The owner has invested $12,000, and the business entity has borrowed the remainder from the bank, which is a ________.

Creditor


We have now introduced a new classification, ___________, which represents debt. The creditors’ claims to the assets have priority over the claims of the owners.

Liabilities


An equation expressing the relationship of assets, liabilities, and owner’s equity is called the _________________ ____________ __________________.

Fundamental Accounting Equation

= +


Millie Adair has $17,000 invested in her travel agency, and the agency owes creditors $5,000; that is, the agency has liabilities of $5,000.

Determine Assets

What is the amount of assets?


Larry Roland owns a car repair shop. His business has assets of $40,000, and it owes creditors $16,000.

Determine Owner’s Equity

What is the amount of owner’s equity?


Theo Viero’s insurance agency has assets of $86,000; his investment (his equity) amounts to $46,000.

Determine Liabilities

What is the amount of the agency’s liabilities?


Practice Exercise 1


Learning Objective


The ________________ of the fundamental accounting equation _________ always equal the _______________________.

Recording Business Transactions


J. Conner establishes her own business and calls it Conner’s Whitewater Adventure. Conner’s Whitewater Adventure is a sole proprietorship, a one-owner business.

Recording Business Transactions


Transaction (a) - Conner deposited $90,000 in a bank account in the name of the business.

Treating the business as independent from its

owners, creditors, and customers is called the _________________

concept.

Conner deposits $90,000 cash in a separate bank account in the name of Conner’s Whitewater

Adventures.


3. Are the accounts increased or decreased?

4. Yes

Four Steps Used to Analyze Transactions

1. What accounts are involved?2. What are the classification of the

accounts involved?

4. Is the equation in balance after the transactions have been recorded?

1. _______ and J. Conner, ________ 2. _______ is an _______ and J.

Conner, _______ is an _______ _________ account

3. Cash is _______ because Conner’s Whitewater Adventures has _______ cash now than it had beforeJ. Conner, Capital is _______ because Conner has a _______ investment now than she had before.


Transaction (a) - Conner deposited $90,000 in a bank account in the name of the business.

The account denoted by the owner’s name followed by the word ____________ records the amount of the owner’s investment (or ________) in the business.


Transaction (b) - Conner bought equipment, paying cash, $38,000.

It is important to note at this point that Conner does not invest any new money. She

simply exchanges part of the business’s cash for

equipment.


Transaction (c) - Company bought equipment on account from Signal Products, $4,320.

• The ________________ account shows an increase because the business owns $4,320 more in equipment.

• The liability account ________________ is used for short-term liability or charge accounts.

• The company to which money is owed, Signal’s Products, is called a ________________ .


Transaction (c) - Company bought equipment on account from Signal Products, $4,320.


Transaction (d) - Company paid Signal Products, a creditor, $2,000 on account.

The amount paid will be applied against the firm’s liability of $42,320.The asset _________ and the liability _________

are both _________ by $2,000


Transaction (e) - Owner invested equipment with a fair market value of $5,200 in the business.

Conner invested her own computer equipment in the company. It has a ________________ of $5,200. The _________________ is the present worth of an asset.


Summary of Transactions


The following observations apply to all types of business transactions:• _______ transaction is recorded as an _________

and/or _________ in _________ accounts• _______ side of the equation is _________ to the

_______ side of the equation

Note:


Practice Exercise 2


Practice Exercise 2 – Complete the form


Learning Objective


___________ are the amounts ____________ by a business.

• _________ earned for performing services• _________ from selling merchandise• _________ income for the use of property• _________ income for lending money

Revenue and Expense Accounts

Revenues may be in the form of _____________ or _________________________ .


___________ are the costs that relate to earning revenue (or the ____________________________ ).

• ___________ expense for labor performed• ___________ expense for the use of property• ___________ expense for the use of money• ___________ expense for the use of various media

Revenue and Expense Accounts

When a business incurs or pays expenses, ______________

_____________.

If a business earns revenue, an ______________ in

______________ occurs.


The Umbrella of ______________


The chart of accounts is the official list of accounts tailor-made for the business.


Practice Exercise 3


Learning Objective


Transaction (f) - Company sold whitewater rafting tours for cash, $8,000.

Conner receives _____________ of $8,000 in return for whitewater rafting tours performed for customers over two weeks.


Transaction (g) - Company paid rent for the month, $1,250.

Shortly after opening the business, Conner pays the month’s rent of $1,250.


Transaction (h) - Company bought supplies on credit, $675.

Conner’s Whitewater Adventures buys office supplies costing $675 on credit from Fineman Company.


Transaction (h) - Company paid for insurance, $1,875.

The company paid for a one-year liability insurance policy. Because it is paid ____ ____________ for a period longer than one __________, it has value and is recorded as an __________ .


1. ________ the ___________ to understand what is happening and how it affects the business.

2. Decide on the ____________ of the __________ involved.

3. Decide whether the accounts are ____________ or ____________ .

4. After recording the transaction, make sure the __________ __________ is in ____________ .

Steps in Analyzing Transactions Recap


Performing Step # 4:


Transaction (i) - Company receives a bill for an expense, $620.

The company receives a bill from the Times for newspaper advertising. _______ is not used because the bill has ____ ______ paid.


Transaction (k) - Company sold services on account.• Conner’s Whitewater Adventures signs a contract with

Crystal River Lodge to provide rafting adventures for guest. Whitewater Adventures provides 27 one-day rafting tours and bills Crystal River Lodge for $6,750.

• The company uses the ____________________ account to record amounts due from charge customers. ____________________ is an _________.


Transaction (k) - Company sold services on account.


Transaction (l) - Company paid ________ on account.

Conner’s Whitewater Adventures pays $1,500 to Signal Products, its _______ as part payment on account.


Transaction (m) - Company paid an expense in cash, $225.

Conner’s Whitewater Adventures receives a bill from Solar Power, Inc. for $225. This bill has not been previously recorded.


Transaction (n) - Company paid creditor on account, $620.

Conner’s Whitewater Adventures pays $620 to the Times for advertising.

Recall that this bill had been previously recorded as a liability in transaction (j).


Transaction (o) - Company paid an expense in cash.

Conner’s Whitewater Adventures pays wages of a part-time employee, $2,360.


Transaction (p) - Company buys equipment on account for $3,780, making a cash down payment of $1,850 and charging $1,930.

• Conner’s Whitewater Adventures buys additional equipment from Signal Products for $3,780, paying $1,850 down with the remaining $1,930 on account.

• Because buying an item on account is the _________ buying on _____________, both terms are used to describe such transactions and involve __________________.


Transaction (q) - Company buys equipment on account for $3,780, making a cash down payment of $1,850 and charging $1,930.

Note that three accounts are involved in this transaction – ______________


Transaction (q) - Company receives cash on account from credit customer, $2,500.

Conner’s Whitewater Adventures receives $2,500 from Crystal River Lodge to apply against the amount billed in transaction (k).


Transaction (r) - Company sells services for cash, $8,570.

Conner’s Whitewater Adventures receives revenue from cash customers during the rest of the month, $8,570.


Transaction (s) - Owner makes a cash withdrawal, $3,500.

Conner withdraws $3,500 from the business for personal living costs.

A ________________ may be considered the _________ of an ____________ in cash by the owner.


Practice Exercise 4

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asset, liability, owner’s equity, revenue, and expense accounts

Documents

cengage learning

accessible website

owners equity

learning objective

relationship of assets

entitys assets

equity amounts

business entity