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CHAPTER TWO. ANALYZING TRANSACTIONS: The Accounting Equation. BUSINESS ENTITY. An individual, association, or organization That engages in economic activities And controls specific economic resources Business entity’s finances kept separate from those of owner (Business Entity Concept).

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chapter two

CHAPTER TWO

ANALYZING TRANSACTIONS: The Accounting Equation

business entity
BUSINESS ENTITY
  • An individual, association, or organization
  • That engages in economic activities
  • And controls specific economic resources
  • Business entity’s finances kept separate from those of owner (Business Entity Concept)
assets

ASSETS

MUST BE “OWNED”

NOT RENTED

ITEMS OWNED BY A BUSINESS THAT WILL PROVIDE FUTURE BENEFITS

assets1

ASSETS

BUT DOESN’T HAVE

TO BE PAID OFF,

COULD STILL BE MAKING

PAYMENTS ON IT

ITEMS OWNED BY A BUSINESS THAT WILL PROVIDE FUTURE BENEFITS

assets2

ASSETS

  • CASH
  • MERCHANDISE
  • FURNITURE
  • FIXTURES
  • MACHINERY
  • BUILDINGS
  • LAND

EXAMPLES:

  • ACCOUNTS RECEIVABLE
accounts receivable
ACCOUNTS RECEIVABLE
  • The amount of money owed to the business
  • By its customers
  • As a result of making sales “on account” or “on credit”
  • Simply, customers who have promised to pay sometime in the future
liabilities

LIABILITIES

IN OTHER WORDS,

DEBTS OR OBLIGATIONS OF THE

BUSINESS THAT CAN BE PAID WITH

CASH, GOODS , OR SERVICES

PROBABLE FUTURE OUTFLOW OF ASSETS AS A RESULT OF A PAST TRANSACTION OR EVENT

liabilities1

LIABILITIES

  • ACCOUNTS PAYABLE
  • NOTES PAYABLE

EXAMPLES:

accounts payable
ACCOUNTS PAYABLE
  • Unwritten promise to pay a supplier for assets purchased or services rendered
  • Referred to as making a purchase “on account” or “on credit”

Be careful!! Don’t confuse Accounts

Receivable and Accounts Payable.

Ask yourself, are we waiting to receive? Or

waiting to pay?

notes payable
NOTES PAYABLE
  • Formal written promises to pay suppliers or lenders
  • Specific sums of money at definite future times
owner s equity

OWNER’S EQUITY

ALSO CALLED:

AMOUNT BY WHICH THE BUSINESS ASSETS EXCEED THE BUSINESS LIABILITIES

CAPITAL

NET

WORTH

OR

example
EXAMPLE:

If a business has total Assets of $100,000 and total Liabilities of $60,000, what is the Owner’s Equity?

Once the debts are paid,

the remaining assets belong

to the owner (Owner’s Equity).

example1
EXAMPLE:

If a business has total Assets of $100,000 and total Liabilities of $60,000, what is the Owner’s Equity?

FORMULA:

=

ASSETS

LIABILITIES

OWNER’S EQUITY

$40,000

=

$100,000

$60,000

Can also be expressed as:

Assets = Liabilities + Owner’s Equity

business entity concept
BUSINESS ENTITY CONCEPT
  • Owner may have business assets and liabilities and nonbusiness assets and liabilities
  • Nonbusiness assets and liabilities are not included in the entity’s accounting records
  • If owner invests money or other assets in the business, the item is now a business asset
accounting equation
ACCOUNTING EQUATION

Assets

=

Liabilities

Owner’s Equity

+

Left side:

Assets

accounting equation1
ACCOUNTING EQUATION

+

Assets

=

Liabilities

Owner’s Equity

Right side shows where

the money came from to

buy the assets

business transaction
BUSINESS TRANSACTION
  • An economic event that has a direct impact on the business
  • Usually requires an exchange with an outside entity
  • Must be able to measure this exchange in dollars
  • All transactions affect the accounting equation through specific accounts
account
ACCOUNT

A separate record used to summarize changes in each asset, liability, and owner’s equity of a business

question 1
QUESTION #1

WHAT HAPPENED?

Make certain you understand the event that has taken place.

question 2
QUESTION #2

WHICH ACCOUNTS ARE AFFECTED?

  • Identify the accounts that are affected.
  • Classify these accounts as assets, liabilities, or owner’s equity.
question 3
QUESTION #3

HOW IS THE ACCOUNTING EQUATION AFFECTED?

  • Determine which accounts have increased or decreased.
  • Make certain that the accounting equation remains in balance after the transaction has been entered.
example2
EXAMPLE:

MARY ADAMS, THE OWNER, INVESTED $25,000 IN THE BUSINESS

question 11
QUESTION #1

What happened?

Mary took $25,000 from her

personal bank account and deposited it

in a new account in the business’ name

question 2a
QUESTION #2a

Identify accounts that are affected

CASH

M. A. CAPITAL

question 2b
QUESTION #2b

Classify these accounts

M. A. CAPITAL

CASH

OWNER’S EQUITY

ASSET

question 3a
QUESTION #3a

Determine whether the accounts have increased or decreased

M. A. CAPITAL

CASH

INCREASED

INCREASED

question 3b
QUESTION #3b

Does accounting equation balance?

+

ASSETS

=

LIABILITIES

OWNER’S EQUITY

CASH

=

M. A.,CAPITAL

+$25,000

+$25,000

=

It Balances!

Assets of $25,000 = Liab. of $0

plus Owner’s Equity of $25,000

example3
EXAMPLE:

PURCHASED OFFICE SUPPLIES FOR $800 CASH

questions 1 2
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

OFFICE SUPPLIES

CASH

ASSET

ASSET

question 3a1
QUESTION #3a

Increase or Decrease?

CASH

OFFICE SUPPLIES

ASSET

ASSET

INCREASED

DECREASED

question 3b1
QUESTION #3b

Let’s look at the accounting equation

+

ASSETS

=

LIAB.

O. E.

+

OFF. SUPPLIES

CASH

=

+$800

+

-$800

=

Right hand side

of equation is

not affected

question 3b2
QUESTION #3b

Does transaction balance?

+

ASSETS

=

LIAB.

O. E.

+

OFF. SUPPLIES

CASH

=

+$800

+

-$800

=

Yes!

Total Assets stayed the same.

One Asset increased, the other

decreased. No change in

Liabilities or Owner’s Equity

proving accounting equation balances
PROVING ACCOUNTING EQUATION BALANCES:

ASSETS:

CASH

OFFICE SUPPLIES

$25,000

- $800

$800

$24,200

$800

BALANCE

LEFT SIDE OF EQUATION:

CASH

$24,200

SUPPLIES

$ 800

TOTAL ASSETS

$25,000

proving accounting equation balances1
PROVING ACCOUNTING EQUATION BALANCES:

LIABILITIES

OWNER’S EQUITY

$ 0

$25,000

BALANCE

$ 0

$25,000

BALANCE

RIGHT SIDE OF EQUATION:

$ 0

LIABILITIES

$25,000

OWNER’S EQUITY

$25,000

TOTAL LIAB. & O.E.

example4
EXAMPLE

PURCHASED EQUIPMENT ON ACCOUNT FOR $3,000

questions 1 21
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

Mary is buying this copy machine

“on account.” She will be making

payments on it over the next few

years.

NO CASH WAS EXCHANGED TODAY

questions 1 22
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

EQUIP.

ACCOUNTS PAYABLE

LIABILITY

ASSET

question 3a2
QUESTION #3a

Increase or Decrease?

ACCOUNTS PAYABLE

EQUIP.

ASSET

LIABILITY

INCREASED

INCREASED

question 3b3
QUESTION #3b

Let’s look at the accounting equation:

+

ASSETS

=

LIABILITIES

OWNER’S EQUITY

ACCOUNTS PAYABLE

EQUIP.

=

This transaction had

no effect on

Owner’s Equity

+ $3,000

+ $3,000

=

question 3b4
QUESTION #3b

Does transaction balance?

+

ASSETS

=

LIABILITIES

OWNER’S EQUITY

ACCOUNTS PAYABLE

EQUIP.

=

+ $3,000

+ $3,000

=

It Balances!

Assets increased by $3,000 =

Liab. Increased by $3,000

proving accounting equation balances2
PROVING ACCOUNTING EQUATION BALANCES:

ASSETS:

+

+

EQUIPMENT

CASH

SUPPLIES

$25,000

- $800

$800

$24,200

$800

BAL.

+$3,000

BAL.

$24,200

$800

$3,000

SUPPLIES

$ 800

$24,200+$800+$3,000=

$28,000 TOTAL ASSETS

$25,000

proving accounting equation balances3
PROVING ACCOUNTING EQUATION BALANCES:

LIABILITIES

OWNER’S EQUITY

M. A., CAPITAL

ACCTS. PAY.

+$25,000

$25,000

BAL.

+$3,000

$3,000

$25,000

BAL.

$3,000 + $25,000 =$28,000

TOTAL LIAB. & O. E.

example5
EXAMPLE

MADE $400 PAYMENT ON EQUIPMENT

questions 1 23
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

CASH

ACCOUNTS PAYABLE

LIABILITY

ASSET

question 3a3
QUESTION #3a

Increase or Decrease?

ACCOUNTS PAYABLE

CASH

ASSET

LIABILITY

DECREASED

DECREASED

question 3b5
QUESTION #3b

Let’s look at the accounting equation:

+

ASSETS

=

LIABILITIES

OWNER’S EQUITY

ACCOUNTS PAYABLE

CASH

=

This transaction had

no effect on

Owner’s Equity

- $400

- $400

=

question 3b6
QUESTION #3b

Does transaction balance?

+

ASSETS

=

LIABILITIES

OWNER’S EQUITY

ACCOUNTS PAYABLE

CASH

=

- $400

- $400

=

It Balances!

Assets decreased by $400 =

Liab. decreased by $400

proving accounting equation balances4
PROVING ACCOUNTING EQUATION BALANCES:

ASSETS:

EQUIPMENT

CASH

SUPPLIES

$25,000

- $800

$800

$24,200

$800

BAL.

+$3,000

BAL.

$800

$24,200

$3,000

-$400

SUPPLIES

$23,800

$3,000

$800

BAL.

$27,600

proving accounting equation balances5
PROVING ACCOUNTING EQUATION BALANCES:

LIABILITIES

OWNER’S EQUITY

M. A., CAPITAL

ACCTS. PAY.

+$25,000

$25,000

BAL.

+$3,000

$3,000

$25,000

BAL.

-$400

$2,600

$25,000

BAL.

$27,600

owner s equity transactions
OWNER’S EQUITY TRANSACTIONS

FOUR TYPES:

DECREASE:

INCREASE:

EXPENSES

REVENUES

DRAWING

INVESTMENTS

revenue
REVENUE
  • Amount a business charges customers for products sold or services performed
  • Recognized when earned (even if cash has not yet been received)
  • Increases both Assets (Cash or Accounts Receivable) and Owner’s Equity
revenue1
REVENUE

EXAMPLES:

  • Delivery Fees
  • Consulting Fees
  • Rent Revenue (if business rents space to others)
  • Interest Revenue (for interest earned on bank deposits)
  • Sales (for sales of merchandise)
expenses
EXPENSES
  • Represent the decrease in assets as a result of efforts made to produce revenues
  • Separate accounts are maintained for each type of expense
  • Either decrease assets or increase liabilities, but ALWAYS decrease Owner’s Equity
expenses1
EXPENSES

EXAMPLES:

  • Rent
  • Salaries
  • Supplies Consumed
  • Taxes
net income
NET INCOME

REVENUE Greater than EXPENSES = NET INCOME

EXAMPLE: Luke Perkins performed $6,000 of Tax services (Revenue) this year and incurred expenses of $1,500 for Rent, $500 for Supplies, and $3,000 in Salaries.

=

REVENUE

EXPENSES

NET INCOME

$1,000

=

$6,000

$5,000

$1,500 + $500 + $3,000

net loss
NET LOSS

EXPENSES Greater than REVENUE = NET LOSS

EXAMPLE: John Atwood performed $8,000 of Delivery services (Revenue) this year and incurred Expenses of $3,500 for Rent, $500 for Supplies, $3,000 in Salaries and $2,500 for Gasoline.

=

REVENUE

EXPENSES

NET LOSS

($1,500)

=

$8,000

$9,500

$3,500 + $500 + $3,000 + $2,500

accounting period concept
ACCOUNTING PERIOD CONCEPT
  • Say that income can be determined for any period of time (month, quarter, year, etc.)
  • Any accounting period of twelve months is called a FISCAL YEAR
withdrawals
WITHDRAWALS
  • The owner taking (withdrawing) cash or other assets from the business for personal use
  • Reduces Owner’s Equity and Assets
  • Also referred to as Drawing
revenue example
REVENUE EXAMPLE:

MARY PERFORMED SERVICES AND RECEIVED $4,500 IN CASH

questions 1 24
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

CONSULT. FEES

CASH

ASSET

O.E. REVENUE

question 3a4
QUESTION #3a

Increase or Decrease?

CONSULT. FEES

CASH

INCREASE

INCREASE

question 3b7
QUESTION #3b

Does transaction balance?

+

ASSETS

=

OWNER’S EQUITY

LIAB.

CONSULT. FEES

CASH

=

+$4,500

+$4,500

=

It Balances!

Assets increased by $4,500 =

Owner’s Equity increased by $4,500

proving accounting equation balances6
PROVING ACCOUNTING EQUATION BALANCES:

ASSETS:

EQUIPMENT

CASH

SUPPLIES

$23,800

$3,000

$800

BAL.

+ $4,500

$28,300

$3,000

$800

BAL.

$32,100

proving accounting equation balances7
PROVING ACCOUNTING EQUATION BALANCES:

LIAB.

OWNER’S EQUITY

M. A., CAPITAL

CONSULT. FEES

ACCTS. PAY.

$25,000

$2,600

BAL.

+ $4,500

$25,000

$4,500

$2,600

BAL.

$32,100

expense example
EXPENSE EXAMPLE

MARY ADAMS PAID HER ASSISTANT $750 IN WAGES

questions 1 25
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

WAGES EXPENSE

CASH

ASSET

O.E. EXPENSE

question 31
QUESTION #3

Increase or Decrease?

WAGES EXPENSE

CASH

DECREASE

INCREASE

question 32
QUESTION #3

Increase or Decrease?

WAGES EXPENSE

CASH

BE CAREFUL! While incurring an

expense will increase the Expense account,

it will cause an overall

DECREASE IN OWNER’S EQUITY

question 3b8
QUESTION #3b

Does transaction balance?

+

ASSETS

=

OWNER’S EQUITY

LIAB.

WAGES EXPENSE

CASH

=

+$750

- $750

=

It Balances!

Assets decreased by $750 =

Owner’s Equity decreased by $750

proving accounting equation balances8
PROVING ACCOUNTING EQUATION BALANCES:

ASSETS:

EQUIPMENT

CASH

SUPPLIES

$3,000

$800

$28,300

BAL.

- $750

$800

$27,550

BAL.

$3,000

$31,350

proving accounting equation balances9
PROVING ACCOUNTING EQUATION BALANCES:

LIAB.

OWNER’S EQUITY

EXPENSES

M. A., CAPITAL

REV.

ACCTS. PAY.

$4,500

$25,000

$2,600

BAL.

+ $750

$25,000

$4,500

$2,600

$750

BAL.

$2,600 + $25,000 + $4,500 $750 = $31,350

revenue on account example
REVENUE ON ACCOUNT EXAMPLE:

MARY PERFORMED $6,000 OF SERVICES ON ACCOUNT

questions 1 26
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

Mary has performed services for this

client. Client will be paying Mary

at a later date.

IT IS REVENUE EVEN THOUGH NO

CASH CHANGED HANDS TODAY!

questions 1 27
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

ACCOUNTS RECEIVABLE

CONSULT. FEES

O.E. REVENUE

ASSET

question 3a5
QUESTION #3a

Increase or Decrease?

CONSULT. FEES

ACCOUNTS RECEIVABLE

INCREASE

INCREASE

question 3b9
QUESTION #3b

Does transaction balance?

+

ASSETS

=

OWNER’S EQUITY

LIAB.

CONSULT. FEES

ACCTS. RECEIVABLE

=

+$6,000

+$6,000

=

It Balances!

Assets increased by $6,000 =

Owner’s Equity increased by $6,000

proving accounting equation balances10
PROVING ACCOUNTING EQUATION BALANCES:

ASSETS:

ACCTS. REC.

EQUIP.

CASH

SUPPLIES

$27,550

$800

$3,000

BAL.

+ $6,000

$27,550

$3,000

$6,000

$800

BAL.

$37,350

proving accounting equation balances11
PROVING ACCOUNTING EQUATION BALANCES:

LIAB.

OWNER’S EQUITY

EXPENSES

M. A., CAPITAL

REV.

ACCTS. PAY.

$4,500

$750

$25,000

$2,600

BAL.

+ $6,000

BAL.

$25,000

$10,500

$750

$2,600

$2,600 + $25,000 + $10,500 $750 = $37,350

customer payment example
CUSTOMER PAYMENT EXAMPLE

RECEIVED $2,500 IN CASH FOR SERVICES PERFORMED IN PREVIOUS TRANSACTION

questions 1 28
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

When Mary provided the consulting

services, this client agreed to pay

at a later date.

TODAY THEY GAVE MARY CASH

OF $2,500 AS A PARTIAL PAYMENT.

questions 1 29
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

CASH

ACCOUNTS RECEIVABLE

ASSET

ASSET

question 3a6
QUESTION #3a

Increase or Decrease?

CASH

ACCOUNTS RECEIVABLE

DECREASE

INCREASE

question 3b10
QUESTION #3b

Does transaction balance?

+

ASSETS

=

LIAB.

O. E.

ACCTS. REC.

CASH

=

-$2,500

+$2,500

=

Yes!

Total Assets stayed the same.

One Asset increased, the other

decreased. No change in

Liabilities or Owner’s Equity

proving accounting equation balances12
PROVING ACCOUNTING EQUATION BALANCES:

ASSETS:

ACCTS. REC.

EQUIP.

CASH

SUPPLIES

$6,000

$27,550

$800

$3,000

BAL.

+$2,500

-$2,500

$30,050

$3,000

$3,500

$800

BAL.

$37,350

proving accounting equation balances13
PROVING ACCOUNTING EQUATION BALANCES:

LIAB.

OWNER’S EQUITY

EXPENSES

M. A., CAPITAL

REV.

ACCTS. PAY.

$10,500

$750

$25,000

$2,600

BAL.

BAL.

$25,000

$10,500

$750

$2,600

No Change to Right Side of Equation. Still = $37,350

drawing example
DRAWING EXAMPLE:

MARY WITHDREW $1,500 FOR PERSONAL EXPENSES

questions 1 210
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

Mary is withdrawing some of her

equity in the business by taking home an

asset (Cash). This will reduce the Assets &

reduce her Owner’s Equity.

questions 1 211
QUESTIONS #1 & #2

Understand the transaction, Identify and Classify the affected accounts

M. A., DRAWING

CASH

ASSET

O.E. DRAWING

question 3a7
QUESTION #3a

Increase or Decrease?

M. A., DRAWING

CASH

INCREASE

DECREASE

question 3a8
QUESTION #3a

Increase or Decrease?

M. A., DRAWING

CASH

BE CAREFUL! Just like Expenses,

Drawing account will increase in this situation,

but it will cause an overall

DECREASE IN OWNER’S EQUITY.

question 3b11
QUESTION #3b

Does transaction balance?

+

ASSETS

=

OWNER’S EQUITY

LIAB.

M.A., DRAWING

CASH

=

+$1,500

-$1,500

=

It Balances!

Assets decreased by $1,500 =

Owner’s Eq. decreased by $1,500

proving accounting equation balances14
PROVING ACCOUNTING EQUATION BALANCES:

ASSETS:

ACCTS. REC.

EQUIP.

CASH

SUPPLIES

$3,500

$30,050

$800

$3,000

BAL.

-$1,500

$800

$28,550

$3,000

$3,500

BAL.

$35,850

proving accounting equation balances15
PROVING ACCOUNTING EQUATION BALANCES:

LIAB.

OWNER’S EQUITY

M. A., CAP.

M. A., DRAWING

REV.

EXP.

ACCTS. PAY.

$10,500

$750

$25,000

$2,600

BAL.

+$1,500

BAL.

$25,000

$10,500

$750

$2,600

$1,500

$2,600 + $25,000- $1,500 + $10,500-$750 = $35,850

financial statements
FINANCIAL STATEMENTS
  • THREE COMMONLY PREPARED FINANCIAL STATEMENTS:
    • INCOME STATEMENT
    • STATEMENT OF OWNER’S EQUITY
    • BALANCE SHEET
income statement
INCOME STATEMENT
  • Reports the profitability of business operations
  • For a specific period of time
  • Expenses are subtracted from Revenues to determine Net Income/Loss
  • Also called Profit and Loss Statement or Operating Statement
jessica jane s campus delivery income statement for month ended june 30 20
Jessica Jane’s Campus DeliveryIncome StatementFor Month Ended June 30, 20--

Financial Statement headings:

1st line: Name of Company

2nd line: Title of statement

3rd line: Time period

or specific date

jessica jane s campus delivery income statement for month ended june 30 201
Jessica Jane’s Campus DeliveryIncome StatementFor Month Ended June 30, 20--

This column is used

for listing items

to be totaled

jessica jane s campus delivery income statement for month ended june 30 202
Jessica Jane’s Campus DeliveryIncome StatementFor Month Ended June 30, 20--

This column is used

for Totals

jessica jane s campus delivery income statement for month ended june 30 203
Jessica Jane’s Campus DeliveryIncome StatementFor Month Ended June 30, 20--

Revenues:

Consulting Fees

$2,150

First item at the top of

a column should include

“$”

jessica jane s campus delivery income statement for month ended june 30 204
Jessica Jane’s Campus DeliveryIncome StatementFor Month Ended June 30, 20--

Revenues:

Consulting Fees

$2,150

Expenses:

Wages Expense

$ 650

Rent Expense

200

Telephone Expense

50

Total Expenses

900

Underline before totaling

jessica jane s campus delivery income statement for month ended june 30 205
Jessica Jane’s Campus DeliveryIncome StatementFor Month Ended June 30, 20--

Revenues:

Consulting Fees

$2,150

Expenses:

Wages Expense

$ 650

Rent Expense

200

Telephone Expense

50

Total Expenses

900

Net Income

$1,250

Revenues are greater than Expenses,

therefore total is called NET INCOME

jessica jane s campus delivery income statement for month ended june 30 206
Jessica Jane’s Campus DeliveryIncome StatementFor Month Ended June 30, 20--

Revenues:

Consulting Fees

$2,150

Expenses:

Wages Expense

$ 650

Rent Expense

200

Telephone Expense

50

Total Expenses

900

Net Income

$1,250

Double underline

statement of owner s equity
STATEMENT OF OWNER’S EQUITY
  • Reports the activities that affected Owner’s Equity
  • For a specific period of time
  • Uses Net Income from Income Statement
jessica jane s campus delivery statement of owner s equity for month ended june 30 20
Jessica Jane’s Campus DeliveryStatement of Owner’s EquityFor Month Ended June 30, 20--

Jessica Jane, capital, June 1, 20--

$2,000

Net Income for June

$1,250

Instead of showing Revenue increasing &

Expenses decreasing the Owner’s Equity,

this statement uses the net effect

(Net Income/Loss) from the

Income Statement.

jessica jane s campus delivery statement of owner s equity for month ended june 30 201
Jessica Jane’s Campus DeliveryStatement of Owner’s EquityFor Month Ended June 30, 20--

Jessica Jane, capital, June 1, 20--

$2,000

Net Income for June

$1,250

Less withdrawal for June

150

Increase in Capital

1,100

$1,250 Net Income - $150 Withdrawal =

$1,100 increase in Capital

jessica jane s campus delivery statement of owner s equity for month ended june 30 202
Jessica Jane’s Campus DeliveryStatement of Owner’s EquityFor Month Ended June 30, 20--

Jessica Jane, capital, June 1, 20--

$2,000

Net Income for June

$1,250

Less withdrawal for June

150

Increase in Capital

1,100

Jessica Jane, capital, June 30, 20--

$3,100

$2,000 beginning O. E. + $1,100 increase =

$3,100

balance sheet
BALANCE SHEET
  • Confirms the accounting equation has remained in balance
  • Includes: Assets, Liabilities, Owner’s Equity
  • Also called Statement of Financial Position or Statement of Financial Condition
jessica jane s campus delivery balance sheet june 30 20
Jessica Jane’s Campus DeliveryBalance Sheet June 30, 20--

Balance Sheet reports Assets,

Liabilities and Owner’s Equity

on a SPECIFIC DATE,

Not a period of time

jessica jane s campus delivery balance sheet june 30 201
Jessica Jane’s Campus DeliveryBalance Sheet June 30, 20--

Liabilities

Assets

Cash

$ 370

Accounts Payable

$1,800

Accounts Receivable

650

Owner’s Equity

Supplies

80

Jessica Jane, Capital

3,100

Prepaid Insurance

200

3,600

Delivery Equipment

Total Liabilities and

Owner’s Equity

$4,900

Total Assets

$4,900

It Balances!!!

accounting process
ACCOUNTING PROCESS
  • THREE BASIC PHASES:
    • Input
    • Processing
    • Output
slide113

INPUT

Transactions provide the necessary input

slide114

PROCESSING

  • Identify accounts
  • Classify accounts
  • Increase or Decrease?
  • Enter transaction and verify balance
slide115

OUTPUT

INCOME STATEMENT

STATEMENT OF OWNER’S EQUITY

REVENUES

BEGINNING CAPITAL

plus

minus

INVESTMENTS

EXPENSES

plus

NET INCOME

equals

minus

NET INCOME

WITHDRAWALS

equals

ENDING CAPITAL

slide116

OUTPUT

BALANCE SHEET

ASSETS

equal

LIABILITES

plus

OWNER’S EQUITY (Ending Capital)