The Accounting equation

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Presentation transcript:

The Accounting equation Chapter 2

The three basic accounting elements Assets Liabilities Owner’s Equity

Accounting equation A = L + OE Money and things of value = where the money came from to buy them OR Money and stuff that can be turned into money = who has claims against that money

Exercises – page 42 (#1, 2)

(a) Investment by owner

(b) Purchase of an asset for cash

(c) Purchase of an asset on account

(d) Payment on a loan

Exercises – page 42 (#3)

Revenues, expenses, and withdrawals

(E) Delivery revenues earned in cash

(F) Paid rent for month

(g) Paid phone bill

(h) Delivery revenues earned on account

(i) Purchase of supplies for cash

(j) Payment of insurance premium

(k) Cash receipts from prior sale on account

(l) Purchase of an asset on account making a partial payment

(m) Payment of wages

(n) Deliveries made for cash and on account

(o) Withdrawal of cash from business

Exercises – page 43 (#4)

Financial statements Format:

Guidelines for financial statements

Income statement

Statement of owner’s equity

Balance sheet

Exercises – page 43 (#5)