University of 6th of October, Egypt Prepared by Dr.Hassan Sweillam University of 6th of October, Egypt

2 Accounting in Action Learning Objectives After studying this chapter, you should be able to: [1] State the accounting equation, and define its components. [2] Analyze the effects of business transactions on the accounting equation.

The Basic Accounting Equation Exercise 1 : If total liabilities increased by $30,000 and owner’s equity increased by $20,000 during a period of time, then total assets must change by what amount and direction during that same period? a. $50,000 decrease b. $10,000 decrease c. $10,000 increase $50,000 increase Solution: Total Assets = Total Liabilities + Owner’s equity --------------- = $ 30,000 + $20,000 $ 50,000

The Basic Accounting Equation Exercise 2 : If total liabilities decreased by $30,000 and owner’s equity increased by $20,000 during a period of time, then total assets must change by what amount and direction during that same period? a. $50,000 decrease b. $10,000 decrease c. $10,000 increase $50,000 increase Solution: Total Assets = Total Liabilities + Owner’s equity --------------- = $ 30,000 + $20,000 $ 10,000

The Basic Accounting Equation Exercise 3 : Accounting equation for Quatro Enterprises is as follows: Assets Liabilities Owner’s Equity $120,000 = $60,000 + $60,000 If Quattro purchases office equipment on account for $25,000, the accounting equation will change to Assets Liabilities Owner’s Equity a. $120,000 = $60,000 + $60,000 b. $145,000 = $60,000 + $85,000 c. $145,000 = $72,500 + $72,500 $145,000 = $85,000 + $60,000 Solution : Assets $120,000 + Equib. $25,000 = T.A. $145,000; Liab. $60,000 + A/P $25,000  T.L. $85,000 So Assets $145,000 = $85,000 + $60,000

The Owner’s Equity Accounting Equation Exercise 4 : Black Keys Company began the year with owner’s equity of $280,000. During the year, the company recorded revenues of $375,000, expenses of $285,000, and had owner drawings of $30,000. What was Black Keys’ owner’s equity at the end of the year? a. $280,000. b. $340,000. c. $370,000. d. $400,000. Solution : Owner’s capital (-) owner drawings (+) revenues (-) expenses $280,000 (-) $30,000 (+) $375,000 (-) $285,000 Black Keys’ owner’s equity at the end of the year = $340,000 Owner’s Equity

The Owner’s Equity Accounting Equation Exercise 5 : Centro-matic Company began the year with owner’s equity of $30,000. During the year, Centro-matic received additional owner investments of $42,000, recorded expenses of $120,000, and had owner drawings of $8,000. If Centro-matic’s ending owner’s equity was $112,000, what was the company’s revenue for the year? a. $160,000. b. $168,000. c. $202,000. $210,000. Solution : Centro Owner’s Capital balance at the end of the year = Owner’s equity $30,000 + $42,000 (-) Withdrew $8,000 (+) Revenue $ ----- (-) Expenses $ 120,000 O.Equity $ 112,000 = $ 30,000 + $42,000 (-) $8,000 + X (-) $ 120,000 $ 112,000 = $ 64,000 + X (-) $ 120,000 X = $ 112,000 (–) $ 64,000 + 120000 X= 48000 + 120000 Owner’s Equity = $ 112,000

The Expanded Accounting Equation Exercise 6 : Mofro’s Computer Repair Shop started the year with total assets of $300,000 and total liabilities of $200,000. During the year, the business recorded $500,000 in computer repair revenues, $300,000 in expenses, and Mofro withdrew $50,000. Mofro's Owner’s Capital balance at the end of the year was a. $200,000. b. $100,000. c. $250,000. d. $300,000. Solution : Basic Equation Assets = Liabilities + Owner’s Equity Expanded Basic Equation

The Expanded Accounting Equation ,cont. Solution , cont. : T.A $300,000 = T.L $ 200,000 + Owner’s equity ------ So Owner’s Equity = $300,000 - $ 200,000 = $ 100,000 Mofro's Owner’s Capital balance at the end of the year = Owner’s equity $ 100,000 (-) Withdrew $ 50,000 (+) Revenue $ 500,000 (-) Expenses $ 300,000 ------------- Owner’s Capital balance $ 250,000 Basic Equation Expanded Basic Equation Owner’s Equity Expanded Basic Equation

The Accounting information Exercise 7 : Misra Company compiled the following financial information as of December 31, 2016: Revenues $340,000 Owner’s Capital (1/1/16) 140,000 Equipment 80,000 Expenses 250,000 Cash 90,000 Owner’s Drawings 20,000 Supplies 10,000 Accounts payable 40,000 Accounts receivable 70,000 Misra’s assets on December 31, 2016 are : a. $180,000. b. $250,000. c. $360,000. d $490,000. Solution : Equipment + Cash + Supplies + Accounts receivable $80,000 + $90,000 + $10,000 + $70,000  $250,000

The Accounting information Exercise 8 : Misra Company compiled the following financial information as of December 31, 2016: Revenues $340,000 Owner’s Capital (1/1/16) 140,000 Equipment 80,000 Expenses 250,000 Cash 90,000 Owner’s Drawings 20,000 Supplies 10,000 Accounts payable 40,000 Accounts receivable 70,000 Misra’s owner’s equity on December 31, 2016 is a. $90,000. b. $140,000. c. $210,000. d. $250,000. Solution : Owner’s Capital (1/1/16)+Revenues(-)Expenses(-)Owner’s Drawings 140,000 + $340,000 (-) $ 250,000 (-) $20,000  $210,000