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Chapter 3 The Basic Accounting Cycle Accounting 1

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  • 1. Chapter 3

2. 3. Compare and contrast the accounting equation with 85% accuracy by: a. Balancing the accounting equation b. Listing & defining its parts c. Recording increase and decrease sides of eachpart d. Identifying the effect of various businesstransactions on each part e. Defining accounting terms in chapter 3. a. Listing & defining its parts Assets =Liabilities Owners Equity 4. a. Balance the accounting equation.Assets $12,000 =Liabilities $4,000 + OE $8,000 Assets$22,000 = Liabilities 12,000 + OE $10,000Assets $40,000 = Liabilities $10,000 + OE 30,000 Go to page 28 in workbook & page 49 in book. 5. b. Listing & defining the accounting equations parts. Event that causes change in accountequation: assets, liabilities or ownersequity 6. Anything ofvalue that is owned by the business 7. Cash in Bank Accounts Receivable Computer Equipment Office Equipment Office Supplies Prepaid Insurance 8. An amount owedby a business toanother business or person 9. Accounts Payable Federal EmployeesIncome tax Payable Social Security TaxPayable Medicare Tax Payable Union Dues Payable U.S. Savings Bond Payable 10. Amount remaining after liabilities are subtracted fromvalue of all assets 11. Mary Smith, Capital Mary Smith, Withdrawal Revenue (money earned) Expenses (money paid out) 12. Every business has accounts Accounts show balance orhow much money is in eachaccount 13. Every transaction must have at leasttwo accounts that are affected; Names of accounts set up underspecific categories in accountingequation 14. Sept 3 Wrote a check for $36,000 for purchase of equipment. Bought Equipment, so asset account Equipment by $36,000. Writing check affects Cash in Bankaccount, Cash in Bank accountby 36,000. 15. Sept. 5 Bought a chair with cashfor $250.Office Equipment is asset purchase of chairaccount by $250.Business paid cash, Cash in the Bankaccountby $250. 16. Since desk is sold, Office Equipmentassets by $500.Client purchases desk on account andstill owes money, Accounts Receivable by $500. 17. Aug 13 Business issues a $3,000 check to purchase a computer.Computer is asset to business, so OfficeEquipment by $3,000.Wrote check so assets Cash in Bank is by $3,000. 18. Revenue: money received from sale of services either for cash or on account Services or Fees: another name forrevenue in a service business 19. Sept 9 Sold services (fees) for $1000 on account for preparing reports for a client.Since customer charged services, account used is Accounts Receivable. A/Rby $1,000.$1,000 fee is income for business, so capitalaccount by $1,000. 20. Expense: price paid for services used tooperate the business---rent, salaries, telephone, water, etc..Expenses decrease owners equity. 21. Sept 15 Business writes a check for $750 to payfor rent for month.Cash in Bank is by $750.Rent is expense to business, soOwners Equity isby $750. 22. Sept 20 Business writes a check for $1,200to pay for heat & electricity(utilities).Cash in Bank is by $1200.Utilities is expense to business, soOwners Equity isby $1200. 23. Investments: used whenever owner ofbusiness gives or donates assets (eithermoney or objects) to business. 24. Sept. 12 Owner invests $500 in business. Since the owner gives money to business, Cash in Bank account by $500. Since owner has more money added to worth of business, capital account/owners equityby $500 25. Sept. 12 Owner invests $1,500 worth of equipment into business.Since the owner gives equipment tobusiness, Equipment accountby $1,500.Since owner has more worth added tobusiness, capital account/owners equityby $1,500. 26. Withdrawal: used whenever owner removes money or assets from business forpersonal use. 27. Sept. 12 Owner withdraws $900 cash frombusiness for personal use.Since owner takes money out of business forpersonal use, Cash in Bank account by$900.Because of this withdrawal of money, value ofbusiness (OE)by $900. 28. Sept. 12 Owner withdraws $100 worth ofsupplies from business for personaluse. Since owner took supplies for personal use, Office Supplies account by $100. Because of withdrawal of supplies, worth of business isby $100.Go to page 60 in book & page 29 in workbook. 29. On to your Working Papers