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

2. 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.

3. 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, $20,000
$ 50,000

4. 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, $20,000
$ 10,000

5. The Basic Accounting Equation
Exercise 3 : Accounting equation for Quatro Enterprises is as follows:
Assets Liabilities Owner’s Equity
$120,000 = $60, $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, $60,000
b. $145,000 = $60, $85,000
c. $145,000 = $72, $72,500
$145,000 = $85, $60,000
Solution : Assets $120, Equib. $25,000 = T.A. $145,000;
Liab. $60, A/P $25,000  T.L. $85,000
So Assets $145,000 = $85,000 + $60,000

6. 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, (-) $30, (+) $375,000 (-) $285,000
Black Keys’ owner’s equity at the end of the year = $340,000
Owner’s Equity

7. 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, X=
Owner’s Equity = $ 112,000

8. 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

9. 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

10. The Accounting information
Exercise 7 : Misra Company compiled the following financial information as of December 31, 2016:
Revenues $340, Owner’s Capital (1/1/16) 140,000
Equipment , Expenses ,000
Cash , Owner’s Drawings ,000
Supplies , 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,  $250,000

11. The Accounting information
Exercise 8 : Misra Company compiled the following financial information as of December 31, 2016:
Revenues $340, Owner’s Capital (1/1/16) 140,000
Equipment , Expenses ,000
Cash , Owner’s Drawings ,000
Supplies , 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