Accounting equations
#fra-introduction

The following illustrates how the business transactions of ABC Realty are recorded in a simplified accounting system.

1. Owners' Investments - Invested $50,000 in business in exchange for 5,000 shares of$10 par value stock.

 Assets = Liab. Owners' Equity Cash A/R Supplies Land Building A/P Common Stock Retained Earnings 1 $50,000$50,000 A = $50,000 L + OE =$50,000 Notice A = L + SE is always in balance.

2. Purchase of Assets with Cash - Purchased a lot for $10,000 and a small building on a lot for$25,000.

 Assets = Liab. Owners' Equity Cash A/R Supplies Land Building A/P Common Stock Retained Earnings 1 $50,000$50,000 2 -35,000 $10,000$25,000 $50,000 bal$15,000 $10,000$25,000 $50,000 A =$50,000 L + OE = $50,000 This transaction only affects one side of the accounting equation: assets. Whenever a transaction affects only one side of the accounting equation, both assets and liabilities and owners' equity remain unchanged. 3. Purchase of Assets by Incurring a Liability - Purchased office supplies for$500 on credit.

 Assets = Liab. Owners' Equity Cash A/R Supplies Land Building A/P Common Stock Retained Earnings 1 $50,000$50,000 2 -35,000 $10,000$25,000 $50,000 3$500 $500 bal$15,000 $500$10,000 $25,000$500 $50,000 A =$50,500 L + OE = $50,500 4. Payment of a Liability - Paid$200 of the $500 owed for supplies.  Assets = Liab. Owners' Equity Cash A/R Supplies Land Building A/P Common Stock Retained Earnings 1$50,000 $50,000 2 -35,000$10,000 $25,000$50,000 3 $500$500 4 -200 -200 bal $14,800$500 $10,000$25,000 $300$50,000 A = $50,300 L + OE =$50,300

5. Revenues - Earned and received a commission of $1,500 in cash.  Assets = Liab. Owners' Equity Cash A/R Supplies Land Building A/P Common Stock Retained Earnings 1$50,000 $50,000 2 -35,000$10,000 $25,000$50,000 3 $500$500 4 -200 -200 5 1,500 $1,500 bal$16,300 $500$10,000 $25,000$300 $50,000$1,500 A = $51,800 L + OE =$51,800

6. Earned a commission of $2,000 to be received at a later date.  Assets = Liab. Owners' Equity Cash A/R Supplies Land Building A/P Common Stock Retained Earnings 1$50,000 $50,000 2 -35,000$10,000 $25,000$50,000 3 $500$500 4 -200 -200 5 1,500 $1,500 6$2,000 2,000 bal $16,300$2,000 $500$10,000 $25,000$300 $50,000$3,500 A = $53,800 L + OE =$53,800

7. Collection of Accounts Receivable - Received $1,000 from client for commission earned earlier in the month.  Assets = Liab. Owners' Equity Cash A/R Supplies Land Building A/P Common Stock Retained Earnings 1$50,000 $50,000 2 -35,000$10,000 $25,000$50,000 3 $500$500 4 -200 -200 5 1,500 $1,500 6$2,000 2,000 7 1,000 -1,000 bal $17,300$1,000 $500$10,000 $25,000$300 $50,000$3,500 A = $53,800 L + OE =$53,800

8. Expenses - Paid $1,000 to rent equipment for office.  Assets = Liab. Owners' Equity Cash A/R Supplies Land Building A/P Common Stock Retained Earnings 1$50,000 $50,000 2 -35,000$10,000 $25,000$50,000 3 $500$500 4 -200 -200 5 1,500 $1,500 6$2,000 2,000 7 1,000 -1,000 8 -1,000 -1,000 bal $16,300$1,000 $500$10,000 $25,000$300 $50,000$2,500 A = $52,800 L + OE =$52,800

9. Expenses - Paid $400 in wages to part-time helper.  Assets = Liab. Owners' Equity Cash A/R Supplies Land Building A/P Common Stock Retained Earnings 1$50,000 $50,000 2 -35,000$10,000 $25,000$50,000 3 $500$500 4 -200 -200 5 1,500 $1,500 6$2,000 2,000 7 1,000 -1,000 8 -1,000 -1,000 9 -400 -400 bal $15,900$1,000 $500$10,000 $25,000$300 $50,000$2,100 A = $52,400 L + OE =$52,400

10. Expense - Record utilities expense of $300 incurred in December but not yet paid.  Assets = Liab. Owners' Equity Cash A/R Supplies Land Building A/P Common Stock Retained Earnings 1$50,000 $50,000 2 -35,000$10,000 $25,000$50,000 3 $500$500 4 -200 -200 5 1,500 $1,500 6$2,000 2,000 7 1,000 -1,000 8 -1,000 -1,000 9 -400 -400 10 300 -300 bal $15,900$1,000 $500$10,000 $25,000$600 $50,000$1,800 A = $52,400 L + OE =$52,400

11. Dividends - Declared and paid dividend of $600.  Assets = Liab. Owners' Equity Cash A/R Supplies Land Building A/P Common Stock Retained Earnings 1$50,000 $50,000 2 -35,000$10,000 $25,000$50,000 3 $500$500 4 -200 -200 5 1,500 $1,500 6$2,000 2,000 7 1,000 -1,000 8 -1,000 -1,000 9 -400 -400 10 300 -300 11 -600 -600 bal $15,300$1,000 $500$10,000 $25,000$600 $50,000$1,200 A = $51,800 L + OE =$51,800

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