Accounting Equation – Financial Accounting Fundamentals

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Accounting Equation, Assets, Liabilities, Equity, Financial Statements Week 1 – Practice

The key terms included in this Accounting course include Accounting Equation, Assets, Liabilities, Equity, Financial Statements, Income and Equity Accounts, Principles, Assumptions and Constraints, Journal Entries, T-Accounts, Transactions.


Applying the accounting equation

a. Total assets of Charter Company equal $790,000 and its equity is $465,000. What is the amount of its liabilities?

b. Total assets of Martin Marine equal $590,000 and its liabilities and equity amounts are equal to each other. What is the amount of its liabilities? What is the amount of its equity?

 Assets=Liabilities+Equity
a790,000=325,000+465,000
b590,000=295,000+295,000

Identifying items with financial statements

Indicate in which financial statement(s) each item would most likely appear, by selecting income statement (I), balance sheet (B), statement of retained earnings (E), or cash from operating activities (CF) from the drop down provided.

a.Haircutting revenueI
b.Commission revenueI
c.Cash from operating activitiesCF
d.Rental revenueI
e.TrucksB
f.Rent expenseI
g.BuildingsB
h.Net decrease (or increase) in cashCF
i.FactoryB

Identifying income and equity accounts

Identify each of the following items as revenues, expenses, or dividends from the drop down provided.

1.Sales revenueRevenue
2.ConveyaneExpenses
3.Fees earnedRevenues
4.PostageExpenses
5.AdvertisementExpenses
6.SalariesExpenses
7.Interest paidExpenses
8.Owner withdrawalDividends

Identifying assets, liabilities, and equity

Identify each of the following items as assets, liabilities, or equity from the drop down provided.

1.Accounts ReceivableAssets
2.Wages payableLiabilities
3.SuppliesAssetss
4.EquipmentAssets
5.Note payableLiabilities
6.FurnitureAssets

Identifying principles, assumptions and constraints

Identify the following terms/phrases as either an accounting: (a) principle, (b) assumption, or (c) constraint.

1.Expense recognitionprinciple
2.Full disclosureprinciple
3.Business entityassumptions
4.Benefit exceeds costconstraint

Accounting Equation – Financial Accounting Fundamentals


Identifying financial statement accounts

Classify each of the following accounts as an asset (A), liability (L), or equity (EQ) account.

a.Office EquipmentA
b.DividendsEQ
c.Common StockEQ
d.Prepaid InsuranceA
e.Office SuppliesA
f.Prepaid RentA
g.CashA
h.Unearned RentL
i.Accounts PayableL

Reading a chart of accounts

A chart of accounts is a list of all ledger accounts and an identification number for each. Identify the following accounts as either an asset (A), liability (L), equity (EQ), revenue (R), or expense (E) account.

a.Notes PayableL
b.Interest EarnedR
c.Common StockE
d.Accounts PayableL
e.Rent RevenueR
f.Supplies ExpenseE
g.Postage ExpenseE
h.PatentsA
i.Rent ReceivableA

Identifying normal balance

Identify the normal balance (debit or credit) for each of the following accounts.

Normal Ending Balance
a.DividendsDebit
b.Unearned RevenueCredit
c.Common StockCredit
d.Accounts ReceivableDebit
e.Janitorial ExpenseDebit
f.EquipmentDebit
g.Office SuppliesDebit
h.Unearned Ticket RevenueCredit
i.Office EquipmentDebit

Linking debit or credit with normal balance

Indicate whether a debit or credit decreases the normal balance of each of the following accounts.

Decrease Normal Balance
a.CashCredit
b.Accounts ReceivableCredit
c.Note ReceivableCredit
d.Prepaid InsuranceCredit
e.Prepaid RentCredit
f.Service Fees EarnedDebit
g.Prepaid ParkingCredit
h.SuppliesCredit
i.Interest RevenueDebit
j.Store EquipmentCredit
k.Office SuppliesCredit
l.Salaries PayableDebit

Analyzing transactions and preparing journal entries

For each transaction, (1) analyze the transaction using the accounting equation, (2) record the transaction in journal entry form, and (3) post the entry using T-accounts to represent ledger accounts. Use the following (partial) chart of accounts—account numbers in parentheses: Cash (101); Accounts Receivable (106); Office Supplies (124); Trucks (153); Equipment (167); Accounts Payable (201); Unearned Landscaping Revenue (236); Common Stock (307); Dividends (319); Landscaping Revenue (403); Wages Expense (601), and Landscaping Expense (696).

  1. On May 15, DeShawn Tyler opens a landscaping company called Elegant Lawns by investing $88,000 in cash along with equipment having a $48,000 value in exchange for common stock.
  2. On May 21, Elegant Lawns purchases office supplies on credit for $640.
  3. a. On May 25, Elegant Lawns receives $9,600 cash for performing landscaping services.
  4. On May 30, Elegant Lawns receives $2,800 cash in advance of providing landscaping services to a customer.

Complete this question by entering your answers in the tabs below.

For each of the above transaction, analyze the transaction using the accounting equation. (Enter total amounts only.)

Assets=Liabilities+Equity
a.$136,000=$0+$136,000
b.$640=$640+$0
c.$9,600=$0+$9,600
d.$2,800=$2,800+$0

For each of the above transaction, record the transaction in journal entry form. Use the following (partial) chart of accounts—account numbers in parentheses: Cash (101); Accounts Receivable (106); Office Supplies (124); Trucks (153); Equipment (167); Accounts Payable (201); Unearned Landscaping Revenue (236); Common Stock (307); Dividends (319); Landscaping Revenue (403); Wages Expense (601), and Landscaping Expense (696).

NoDateGeneral JournalDebitCredit
1May 15Cash88,000
Equipment48,000
Common Stock136,000
2May 21Office supplies640
Accounts payable640
3May 25Cash9,600
Landscaping revenue9,600
4May 30Cash2,800
Unearned landscaping revenue2,800

Post the entry using T-accounts to represent ledger accounts. (TIP: For right side T-account entries you must use a right side date selection.  For left side T-account entries you must use a left side date selection.)

Cash 101 Office Supplies 124
Date              Amount Date           Amount Date         Amount Date           Amount
May 15 88,000 May 21 640
May 25 9,600
May 30 2,800
End. bal. 100,400 End. bal 640.

Equipment 167 Accounts Payable 201

Date            Amount Date  Amount Date             Amount Date           Amount
May 15 48,000May 21 640
End. bal. 48,000 End. bal. 640

Unearned Landscaping Revenue 236

Common Stock 307
Date            Amount Date AmountDate            Amount Date Amount
May 30 2,800 May 15 136,000
End. bal. 2,800 End. bal 136,000

Landscaping Revenue 403
Date            Amount Date Amount
May 25 9,600
End. bal. 9,600

 

 Analyze

Analyzing debit or credit by account

Identify whether a debit or credit results in the indicated change for each of the following accounts.

a.To increase FurnitureDebit
b.To decrease EquipmentCredit
c.To increase Supplies ExpenseDebit
d.To increase Haircutting RevenueCredit
e.To decrease Taxes PayableDebit
f.To decrease Office EquipmentCredit
g.To increase Interest PayableCredit
h.To decrease Store EquipmentCredit
i.To increase Common StockCredit
j.To increase TrucksDebit


 

Determine the ending balance of each of the following T-accounts.

CashAccounts Payable
Beg.Bal.270220Beg.Bal.3,70013,100
4702305,900
190
End.Bal.4800End.Bal.03500
SuppliesAccounts Receivable
Beg.Bal.11,7005,500Beg.Bal.1,450320
2,800320
320
270
End.Bal.90000End.Bal.2200
Wages PayableCash
Beg.Bal.870Beg.Bal.16,1006,200
8709707,700
2703,000
End.Bal.00End.Bal.4400

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