Business Forms and the Accounting Equation A business is an organization in which basic resources (inputs),...

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Business Forms and the Accounting Equation A business is an organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers. A business entity may take the form of a sole proprietorship, partnership, or corporation. Regardless of the business form, the accounting equation shows the relationship among the entity's assets, liabilities, and equity. The Accounting Equation The details of the activities of a company, or transactions, are recorded in a company's accounting system. These transactions are summarized in a set of reports known as the financial statements. The foundation for the accounting system and the financial statements is the accounting equation. Assets - Liabilities + Equity The left side of the accounting equation shows the economic resources of the company - The right side of the accounting equation summarizes who provided those assets: (what the company has). Creditors or the owners. When a business is first formed, both sides of the equation are equal to zero. As transactions occur, they affect the accounting equation, but the accounting equation must always stay in balance. A transaction can increase both sides or decrease both sides. A transaction could also affect only one side by increasing and decreasing one side at the same time. APPLYING THE CONCEPTS: Analyzing Changes to Assets, Liabilities and Equity Assets, Liabilities and Equity Thomas Company: The table below demonstrates the effect of the first three transactions for Thomas Company. Review the details of each transaction and determine the effect on the accounting equation. Then, enter the updated amounts for the assets, liabilities, and equity accounts (do not record the the transaction). Enter all amounts as positive numbers. If an updated balance is zero, enter "0". Transaction Assets = Liabilities + Equity Beginning $0 - $0 + $0 Investment in the Business The owner of the company has invested $24,000 cash into the business. This 24.000 increases the assets of the business from its zero balance. The owner has a claim on the assets, so equity also increases from its zero balance. Make sure the equation stays in balance. Borrow Cash The company borrows $12,000 cash from the local bank. This increases the assets from its balance 36,000 12.000 24,000 after the first transaction. The company now owes the bank; therefore, the bank also has a claim on the assets. Thus, liabilities increase from their zero balance. Notice this transaction did not affect equity. The equation still needs to balance. Purchase equipment The company pays cash for a piece of equipment costing $9,000. Make sure that the equation stays in balance. Remember, the left side of the equation summarizes the total assets. The company has merely 12.000 exchanged one asset (cash) for another asset (equipment); the value of each asset is the same. Jones Company: Analyze the accounting equation for another business, Jones Company. Assume that the assets are $66,000 and the liabilities are $26,400. By rearranging the accounting equation, you determine that equity is $ During the year, the owner invested an additional TL wwau v r u w y has invested $24,000 cash into the business. This 24,000 increases the assets of the business from its zero balance. The owner has a claim on the assets, so equity also increases from its zero balance. Make sure the equation stays in balance. Borrow Cash The company borrows $12,000 cash from the local bank. This increases the assets from its balance 36,000 12,000 24.000 after the first transaction. The company now owes the bank; therefore, the bank also has a claim on the assets. Thus, liabilities increase from their zero balance. Notice this transaction did not affect equity. The equation still needs to balance. Purchase equipment The company pays cash for a piece of equipment costing $9,000. Make sure that the equation stays in balance. Remember, the left side of the equation 12.000 summarizes the total assets. The company has merely exchanged one asset (cash) for another asset (equipment); the value of each asset is the same. Jones Company: Analyze the accounting equation for another business, Jones Company. Assume that the assets are $66,000 and the liabilities are $26,400. By rearranging the accounting equation, you determine that equity is $ During the year, the owner invested an additional $4,000 in the business. The company also paid off $2,500 of its debt. What would the accounting equation look like at the end of the year for Jones Company? Enter the updated amounts for Jones' accounting equation below. = Liabilities + Equity Assets 43,600 Business Forms and the Accounting Equation A business is an organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers. A business entity may take the form of a sole proprietorship, partnership, or corporation. Regardless of the business form, the accounting equation shows the relationship among the entity's assets, liabilities, and equity. The Accounting Equation The details of the activities of a company, or transactions, are recorded in a company's accounting system. These transactions are summarized in a set of reports known as the financial statements. The foundation for the accounting system and the financial statements is the accounting equation. Assets - Liabilities + Equity The left side of the accounting equation shows the economic resources of the company - The right side of the accounting equation summarizes who provided those assets: (what the company has). Creditors or the owners. When a business is first formed, both sides of the equation are equal to zero. As transactions occur, they affect the accounting equation, but the accounting equation must always stay in balance. A transaction can increase both sides or decrease both sides. A transaction could also affect only one side by increasing and decreasing one side at the same time. APPLYING THE CONCEPTS: Analyzing Changes to Assets, Liabilities and Equity Assets, Liabilities and Equity Thomas Company: The table below demonstrates the effect of the first three transactions for Thomas Company. Review the details of each transaction and determine the effect on the accounting equation. Then, enter the updated amounts for the assets, liabilities, and equity accounts (do not record the the transaction). Enter all amounts as positive numbers. If an updated balance is zero, enter "0". Transaction Assets = Liabilities + Equity Beginning $0 - $0 + $0 Investment in the Business The owner of the company has invested $24,000 cash into the business. This 24.000 increases the assets of the business from its zero balance. The owner has a claim on the assets, so equity also increases from its zero balance. Make sure the equation stays in balance. Borrow Cash The company borrows $12,000 cash from the local bank. This increases the assets from its balance 36,000 12.000 24,000 after the first transaction. The company now owes the bank; therefore, the bank also has a claim on the assets. Thus, liabilities increase from their zero balance. Notice this transaction did not affect equity. The equation still needs to balance. Purchase equipment The company pays cash for a piece of equipment costing $9,000. Make sure that the equation stays in balance. Remember, the left side of the equation summarizes the total assets. The company has merely 12.000 exchanged one asset (cash) for another asset (equipment); the value of each asset is the same. Jones Company: Analyze the accounting equation for another business, Jones Company. Assume that the assets are $66,000 and the liabilities are $26,400. By rearranging the accounting equation, you determine that equity is $ During the year, the owner invested an additional TL wwau v r u w y has invested $24,000 cash into the business. This 24,000 increases the assets of the business from its zero balance. The owner has a claim on the assets, so equity also increases from its zero balance. Make sure the equation stays in balance. Borrow Cash The company borrows $12,000 cash from the local bank. This increases the assets from its balance 36,000 12,000 24.000 after the first transaction. The company now owes the bank; therefore, the bank also has a claim on the assets. Thus, liabilities increase from their zero balance. Notice this transaction did not affect equity. The equation still needs to balance. Purchase equipment The company pays cash for a piece of equipment costing $9,000. Make sure that the equation stays in balance. Remember, the left side of the equation 12.000 summarizes the total assets. The company has merely exchanged one asset (cash) for another asset (equipment); the value of each asset is the same. Jones Company: Analyze the accounting equation for another business, Jones Company. Assume that the assets are $66,000 and the liabilities are $26,400. By rearranging the accounting equation, you determine that equity is $ During the year, the owner invested an additional $4,000 in the business. The company also paid off $2,500 of its debt. What would the accounting equation look like at the end of the year for Jones Company? Enter the updated amounts for Jones' accounting equation below. = Liabilities + Equity Assets 43,600

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