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accounting equation
Chapter 3
Understand
the accounting equation.
Equities
Equities are
are
Assets
Assets are
are the
the the
the claims
claims
items
items owned
owned by by against
against the
the
the
the business.
business. assets.
assets.
Liabilities
Liabilities are
are Owner’s
Owner’s equity
equity
the
the creditor’s
creditor’s is
is the
the rights
rights
equity.
equity. of
of ownership.
ownership.
Assets
– Liabilities
Owner’s
= Equity
Capital
Capital is
is often
often called
called the
the owner’s
owner’s equity
equity or
or net
net worth
worth
Liabilities
Liabilities is
is money
money owed
owed for
for assets
assets
supplied
supplied to
to the
the business
business
ood/Robinson: Book-keeping and Accounts, 7th , © T. Sijtsma 2009 3-7
Learning Objective 3
A.
A. August
August 28:
28:
Cathy
Cathy Hall
Hall invested
invested $7,000
$7,000 inin cash
cash and
and $800
$800 of
of
office
office equipment
equipment into
into the
the business.
business.
B.
B. August
August 29:
29:
Law
Law practice
practice buys
buys office
office equipment
equipment for
for cash
cash $900.
$900.
C.
C. August
August 30:
30:
Buys
Buys additional
additional office
office equipment
equipment on
on account
account $400.
$400.
ood/Robinson: Book-keeping and Accounts, 7th , © T. Sijtsma 2009 3-9
Learning
(Draw up balance sheet)
Owner’s
Assets = Liabilities + Equity
a)
a) Cash
Cash ++ $7,000
$7,000 ++ $7,800
$7,800
Equipment
Equipment ++ 800
800
b)
b) Cash
Cash –– 900
900
Equipment
Equipment ++ 900
900
c)
c) Equipment
Equipment ++ 400
400 ++ 400
400
$8,200 = $8,200
The
The makeup
makeup of of the
the assets
assets hashas
changed,
changed, but
but the
the total
total of
of the
the
assets
assets remains
remains thethe same.
same.
Accou
ood/Robinson: Book-keeping and Accounts, 7th , © T. Sijtsma 2009 3 - 12
Learning
(The Balance Sheet)
The
The balance
balance sheet
sheet shows
shows thethe company’s
company’s
financial
financial position
position as
as of
of aa particular
particular date.
date.
Company
Company name
name
Name
Name of
of the
the statement
statement
Date
Date
Assets
Assets Liabilities
Liabilities and
and Owner’s
Owner’s Equity
Equity
Cash
Cash $6,100
$6,100 Accounts
Accounts Payable
Payable $$ 400
400
Equipment
Equipment 2,100
2,100 Owner’s
Owner’s Equity
Equity
Cathy
Cathy Hall,
Hall, Capital
Capital 7,800
7,800
Total
Total $8,200
$8,200 Total
Total $8,200
$8,200