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CHAPTER 1

CHAPTER 1. ACCOUNTING IN ACTION. Accounting Principles, Eighth Edition. Owners’ Equity. Illustration 1-6. Revenues result from business activities entered into for the purpose of earning income.

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CHAPTER 1

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  1. CHAPTER 1 ACCOUNTING IN ACTION Accounting Principles, Eighth Edition

  2. Owners’ Equity Illustration 1-6 Revenuesresult from business activities entered into for the purpose of earning income. Common sources of revenue are: sales, fees, services, commissions, interest, dividends, and rent. LO 6 State the accounting equation, and define assets, liabilities, and owner’s equity.

  3. Owners’ Equity Illustration 1-6 Expenses are the cost of assets consumed or services used in the process of earning revenue. Common expenses are: salaries expense, rent expense, utilities expense, tax expense, etc. See page 14

  4. Using The Basic Accounting Equation • Transactionsare a business’s economic events recorded by accountants. • May be external or internal. • Not all activities represent transactions. • Each transaction has a double effect on the accounting equation. LO 7 Analyze the effects of business transactions on the accounting equation.

  5. Transactions (Question?) Q1-15:Are the following events recorded in the accounting records? Owner withdraws cash for personal use. Supplies are purchased on account. An employee is hired. Event Is the financial position (assets, liabilities, or owner’s equity) of the company changed? Criterion Record/ Don’t Record LO 7 Analyze the effects of business transactions on the accounting equation.

  6. Transactions (Problem) P1-1A:Barone’s Repair Shop was started on May 1 by Nancy. Prepare An analysis of the following transactions for the month of May. 1. Invested $10,000 cash to start the repair shop. Liabilities Equity Assets Accounts Receivable Accounts Payable Barone, Capital + + = + Cash Equipment Investment 1. +10,000 +10,000 LO 7 Analyze the effects of business transactions on the accounting equation.

  7. Transactions (Problem) 2. Purchased equipment for $5,000 cash. Liabilities Equity Assets Accounts Receivable Accounts Payable Barone, Capital + + = + Cash Equipment 1. +10,000 +10,000 Investment 2. -5,000 +5,000 LO 7 Analyze the effects of business transactions on the accounting equation.

  8. Transactions (Problem) 3. Paid $400 cash for May office rent. Liabilities Equity Assets Accounts Receivable Accounts Payable Barone, Capital + + = + Cash Equipment 1. +10,000 +10,000 Investment 2. -5,000 +5,000 3. -400 -400 Expense LO 7 Analyze the effects of business transactions on the accounting equation.

  9. Transactions (Problem) 4. Received $5,100 cash from customers for repair service. Liabilities Equity Assets Accounts Receivable Accounts Payable Barone, Capital + + = + Cash Equipment 1. +10,000 +10,000 Investment 2. -5,000 +5,000 3. -400 -400 Expense 4. +5,100 +5,100 Revenue LO 7 Analyze the effects of business transactions on the accounting equation.

  10. Transactions (Problem) 5. Withdrew $1,000 cash for personal use. Liabilities Equity Assets Accounts Receivable Accounts Payable Barone, Capital + + = + Cash Equipment 1. +10,000 +10,000 Investment 2. -5,000 +5,000 3. -400 -400 Expense 4. +5,100 +5,100 Revenue 5. -1,000 -1,000 Drawings LO 7 Analyze the effects of business transactions on the accounting equation.

  11. Transactions (Problem) 6. Paid part-time employee salaries of $2,000 cash. Liabilities Equity Assets Accounts Receivable Accounts Payable Barone, Capital + + = + Cash Equipment 1. +10,000 +10,000 Investment 2. -5,000 +5,000 3. -400 -400 Expense 4. +5,100 +5,100 Revenue 5. -1,000 -1,000 Drawings 6. -2,000 -2,000 Expense LO 7 Analyze the effects of business transactions on the accounting equation.

  12. Transactions (Problem) 7. Incurred $250 of advertising costs, on account. Liabilities Equity Assets Accounts Receivable Accounts Payable Barone, Capital + + = + Cash Equipment 1. +10,000 +10,000 Investment 2. -5,000 +5,000 3. -400 -400 Expense 4. +5,100 +5,100 Revenue 5. -1,000 -1,000 Drawings 6. -2,000 -2,000 Expense 7. +250 -250 Expense LO 7 Analyze the effects of business transactions on the accounting equation.

  13. Transactions (Problem) 8. Provided $750 of repair services on account. Liabilities Equity Assets Accounts Receivable Accounts Payable Barone, Capital + + = + Cash Equipment 1. +10,000 +10,000 Investment 2. -5,000 +5,000 3. -400 -400 Expense 4. +5,100 +5,100 Revenue 5. -1,000 -1,000 Drawings 6. -2,000 -2,000 Expense 7. +250 -250 Expense 8. +750 +750 Revenue LO 7 Analyze the effects of business transactions on the accounting equation.

  14. Transactions (Problem) 9. Collected $120 cash for services previously billed. Liabilities Equity Assets Accounts Receivable Accounts Payable Barone, Capital + + = + Cash Equipment 1. +10,000 +10,000 Investment 2. -5,000 +5,000 3. -400 -400 Expense 4. +5,100 +5,100 Revenue 5. -1,000 -1,000 Drawings 6. -2,000 -2,000 Expense 7. +250 -250 Expense 8. +750 +750 Revenue 9. +120 -120 6,820 +630 + 5,000 = 250 + 12,200 LO 7 Analyze the effects of business transactions on the accounting equation.

  15. Another Transactions (Problem) Look page:15 19 LO 7 Analyze the effects of business transactions on the accounting equation.

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