Accounting Equation
What is the accounting equation?
Assets - Liabilities = Owner's Equity
Assets = Liabilities + Owner's Equity
What is an Asset?
Something of value that is owned by the business.
What is a Liability?
Something the business owes; a debt.
What is Owner's Equity?
What the business owes the owner or The owner’s investment in the business or What the busines is worth.
A Balance Sheet has three main sections. What are they?
Assets, Liabilities, and Owner’s Equity
Assets are $25,000 and Liabilities are $10,000. What is Owner’s Equity?
$15,000
Which account records money customers owe you?
Accounts Receivable
Give one example of a Liability.
Accounts payable, bank loan, mortgage
What happens to Owner's Equity when the owner invests $2,000 cash?
Owner's Equity increases by $2,000
The title of the Balance Sheet must include what?
Business name; Balance Sheet AS AT; date
You sell a business desk for $500 cash. Which TWO items under "Assets" change, and by how much?
Cash in bank increases by $500. Furniture decreases by $500.
Buying equipment with cash does what to your Assets?
It increases and decreases - and overall there is no change to the total value of Assets, because you're using cash to buy something that has cash value.
Borrowing $5,000 from the bank affects which liability?
Give an example of something that would DECREASE Owner’s Equity.
Owner withdraws cash from the business (or pays a personal expense from the business bank account) or Business expenses.
Which statement shows a business's planned profit or loss?
Budget
Paying $500 off a bank loan affects which two parts of the equation?
Assets (Cash in bank) and Liabilites (Bank loan).
Which asset decreases when you pay a bill?
Cash in Bank.
Paying $400 off an Account Payable does what to Assets and Liabilities?
Decreases both - Cash in bank decreases (since it has been PAID) and Accounts Payable decreases (since it has been partly paid off)
If Assets are $40,000 and Liabilities are $15,000, what is Owner's Equity?
$25,000
What is written in the two right-most columns of a Balance Sheet?
Sub-totals and totals
If Assets increase by $7,000 and Owner's Equity increases by $2,000, what must Liabilities do?
Increase by $5,000
Name 3 ASSET accounts you would see on a Balance Sheet.
Cash, Accounts Receivable, Supplies, Equipment, Furniture, Building
Which Liability rises when you buy supplies (eg items used to make your product) on credit?
Accounts Payable
Sales increases which part of the accounting equation for a business?
Owner's Equity
Why must the Balance Sheet always balance?
Because every transaction affects both sides of the accounting equation.