Running Head: BASIC ACCOUNTING 1

Basic Accounting Equations

Rachel Landrum
ACC205: Principles of Accounting I (BAG1417B)
Instructor: Carolyn Woods
April 27, 2014











BASIC ACCOUNTING 2
Week One Exercise Assignment
Basic Accounting Equations



1. Recognition of normal balances
The following items appeared in the accounting records of Triguero's, a retail music store that also
sponsors concerts. Classify each of the items as an asset, liability; revenue; or expense from the
company's viewpoint. Also indicate the normal account balance of each item.

a. Amounts paid to a mall for rent. (Expense, normal debit balance)
b. Amounts to be paid in 10 days to suppliers. (Liability, normal credit balance)
c. A new fax machine purchased for office use. (Asset, normal debit balance)
d. Land held as an investment. (Asset, normal debit balance)
e. Amounts due from customers. (Asset, normal debit balance)
f. Daily sales of merchandise sold. (Revenue, normal credit balance)
g. Promotional costs to publicize a concert. (Expense, normal debit balance)
h. A long-term loan owed to Citizens Bank. (Liability, normal credit balance)
i. The albums, tapes, and CDs held for sale to customers. (Asset, normal debit balance)

2. Basic journal entries
The following transactions pertain to the Jennifer Royall Company:

May 1 Jennifer Royall invested cash of $25,000 and land valued at
$15,000 into the business.
Cash $25,000 (debit)
Land $15,000 (debit)
Owners equity $40,000 (credit)
5 Provided $1,000 of services to Jason Ratchford, a client, on
account.
Accounts receivable $1,000 (debit)
Revenue $1,000 (credit)
(Services on Account)
9 Paid $1,250 of salaries to an employee.
BASIC ACCOUNTING 3
Cash $1,250 (credit)
Wage expense $1,250 (debit)
(paid wages to employee 5/9)
14 Acquired a new computer for $4,200, on account.
Computer equipment $4,200 (debit)
Accounts payable $4,200 (credit)
(purchased new computer on account)
20 Collected $800 from Jason Ratchford for services provided on
May 5.
Cash $800 (debit)
Accounts receivable $800 (credit)
(collected money on account for services on May 5 from Jason
Ratchford)
24 Borrowed $2,500 from BestBanc by securing a six-month loan.
Cash $2,500 (debit)
Accounts payable $2,500 (credit)
(Secured a six month loan for $2,500 at BestBanc)
Prepare journal entries (and explanations) to record the preceding transactions and events.
3. Balance sheet preparation. The following data relate to Preston Company as of December 31, 20XX:

Building $40,000 Accounts receivable $24,000
Cash 21,000 Loan payable 30,000
J. Preston, Capital 65,000 Land 21,000
Accounts payable ? (11,000)

Prepare a balance sheet as of December 31, 20XX. (See Exhibit 1.1 and 1.4)



Practice 3 Balance Sheet





Current assets: 2007 2008

Cash

21,000.00

-

Investments

-

-

Inventories
BASIC ACCOUNTING 4
- -

Accounts receivable

24,000.00

-

Pre-paid expenses

-

-

Other

-

-

Total current assets

45,000.00

-


Fixed assets: 2007 2008

Building

40,000.00

-

Land

21,000.00

-

Equity and other investments

-

-

Less accumulated depreciation

-

-

Total fixed assets

61,000.00

-


Other assets: 2007 2008

Goodwill

-

Total other assets

-

-


Total assets 106,000.00 -



Liabilities and owner's equity



Current liabilities: 2007 2008

Accounts payable

11,000.00

-

Accrued wages

-

-

Accrued compensation

-

-

Income taxes payable

-

-



-

-

Other

-

-

Total current liabilities

11,000.00

-


Long-term liabilities: 2007 2008

Loan payable
BASIC ACCOUNTING 5
30,000.00 -

Total long-term liabilities

30,000.00

-


Owner's equity: 2007 2008

J. Preston, Capital

65,000.00

-

Accumulated retained earnings

-

-

Total owner's equity

65,000.00

-


Total liabilities and owner's equity 106,000.00 -




4. Basic transaction processing. On November 1 of the current year, Richard Simmons established a
sole proprietorship. The following transactions occurred during the month:

1: Simmons invested $32,000 into the business for $32,000 in common stock.
2: Paid $5,000 to acquire a used minivan.
3: Purchased $1,800 of office furniture on account.
4: Performed $2,100 of consulting services on account.
5: Paid $300 of repair expenses.
6: Received $800 from clients who were previously billed in item 4.
7: Paid $500 on account to the supplier of office furniture in item 3.
8: Received a $150 electric bill, to be paid next month.
9: Simmons withdrew $800 from the business.
10: Received $250 in cash from clients for consulting services rendered.

Instructions
a. Arrange the following asset, liability, and owners equity elements of the accounting equation: Cash,
Accounts Receivable, Office Furniture, Van, Accounts Payable, Common Stock/Dividends, and
Revenues/Expenses. (See Exhibit 1.5)
b. Record each transaction on a separate line. After all transactions have been recorded, compute the
balance in each of the preceding items.
c. Answer the following questions for Simmons.
BASIC ACCOUNTING 6
(1) How much does the company owe to its creditors at month-end? On which financial statement(s)
would this information be found?
(2) Did the company have a good month from an accounting viewpoint? Briefly explain.

Assets = Liabilities + Owners Equity
Cash Acct. Rec Office Fur. Van Acct Pay Common/Div Revenue/Exp
32000 32000
-5000 5000
1800 1800
2100 2100
-300 -300
800 -800
-500 -500
150 -150
-600 -600
250 250
26650 1300 1800 5000 1450 31400 1900

(Assets) 34750=1450 (Liabilities)+33300(Owners Equity)

C) 1. Current liabilities equal $1,450 and would appear on the balance sheet.
2. Since revenue-expenses= net profit and since revenue is more than expenses by $450 and cash is
positive this would qualify as a good month because the business made money.


5. Transaction analysis and statement preparation. The transactions that follow
relate to Burton Enterprises for March 20X1, the companys first month of activity.

3/1 Joanne Burton, the owner, invested $20,000 cash into the business.
3/4 Performed $2,400 of services on account.
BASIC ACCOUNTING 7
3/7 Acquired a small parcel of land by paying $6,000 cash
3/12 Received $500 from a client who was billed previously on March 4.
3/15 Paid $200 to the Journal Herald for advertising expense.
3/18 Acquired 9,000 of equipment from Park Central Outfitters by Paying

$7,000 down and agreeing to remit the balance owed within two weeks (A/P).
3/22 Received $300 cash from clients for services.
3/24 Paid $1,500 on account to Park Central Outfitters in partial settlement of

the balance due from the transaction on March 18.
3/28 Rented a car from United Car Rental for use on March 28. Total charges

amounted to $125, with United billing Burton for the amount due.
3/31 Paid $600 for March wages
3/31

Processed a $600 cash withdrawal (dividend) from the business for Joanne
Burton


Instructions
a. Determine the impact of each of the preceding transactions on Burtons assets,
liabilities, and owners equity. See exhibit 1.5. Use the following format:

Assets = Liabilities + Owners Equity
Cash, Accounts Receivable, Land, Equipment Accounts Payable (+)Common Stock (+) Revenues
(-) Dividends (-) Expenses

a. Record each transaction on a separate line. Calculate balances only after the last transaction
has been recorded.
b. Prepare an income statement, a statement of retained earnings, and a balance sheet, (See
Exhibit 1.2, 1.3 and 1.4)
Assets =Liabilities + Owners Equity
Cash Acct.
Rec.
Land Equipment Acct.
Payable
Common
Stock
Dividends Revenue Exp.
3/1 20,000 20,000
3/4 2400 2400
3/7 -6,000 6,000
3/12 500 -500
3/15 -200 -200
3/18 -7,000 9,000 2,000
BASIC ACCOUNTING 8
3/22 300 300
3/24 -1,500 -1,500
3/28 125 -125
3/31 -600 -600
3/31 -600 -600
Total 4,900 1,900 6,000 9,000 625 19,400 1,775

Burton Enterprises
Income Statement
For the Period Ending March 20X1
Revenue 2700
Expense
Advertising
expense
200
Auto expense 125
Wage Expense 600
Total Expense 925
Total Net
Income
1775

Barton Enterprises
Statement of Retained Earnings
For Period Ending March 20X1

Beginning Retained Earnings (3/1/20X1) $0
Add: Net Income $1775
Subtotal $1775

Subtract: Dividends $600
Ending Retained Earnings Balance (3/1/20X1) $1175

Barton Enterprises
BASIC ACCOUNTING 9
Balance Sheet
March 31, 20X1
Assets
Cash 4,900
Acct. Rec. 1,900
Land 6,000
Equipment 9,000
Total
Assets
21,800

Liabilities
Accts. Pay 625
Total
Liabilities
625

Owners Equity
Common
Stock
20,000
Retained
Earnings
1,175
Total
Owners
equity
21,175
Total
Liabilities
and
Owners
Equity
21,800



6. Entry and trial balance preparation. Lee Adkins is a portrait artist. The following schedule
represents Lees combined chart of accounts and trial balance as of May 31.

BASIC ACCOUNTING 10
Account number Account name Debit Credit
110 Cash $ 2,700
120 Accounts Receivable 12,100
130 Equipment and Supplies 2,800
140 Studio 45,000
210 Accounts Payable $2,600
310 Lee Adkins, Capital 57,400
320 Lee Adkins, Drawing 30,000
410 Professional Fee Revenue 39,000
510 Advertising Expense 2,300
520 Salaries Expense 2,100
540 Utilities Expense 2,000
$99,000 $99,000

The general ledger also revealed account no. 530, Legal and Accounting Expense. The following
transactions occurred during June:
6/2 Collected $3,000 on account from customers
6/7 Sold 25% of the equipment and supplies to a young artist for $700 cash
6/10

Received a $300 invoice from the accountant for preparing last quarter's financial
Statements.
6/15 Paid $1,900 to creditors on account.

6/27 Adkins withdrew $2,000 cash for personal use.
6/30 Billed a customer $3,000 for a portrait painted this month.

a. Record the necessary journal entries for June on page 2 of the companys general journal. (See Exhibit
2.6)
b. Open running balance ledger T accounts by entering account titles, account numbers, and May 31
balances. (See exhibit 2.3 and 2.4)
c. Post the journal entries to the T accounts.
d. Prepare a trial balance as of June 30. (See exhibit 2.9)



Adkins Studio General Journal page 2
BASIC ACCOUNTING 11
Date
20XX
Account Title and
explanation
Ref number Debit Credit
6/2




6/7




6/10




6/15


6/27




6/30



Cash
Account Rec.
Received cash on
Accounts from
customers
Cash
Equipment and
Supplies
Sold equip and
supplies
Cash
Accounts
Payable
Received
accounting services
bill
Accounts Payable
Cash
Paid creditors
Lee Adkins,
Drawing
Cash
Owner withdrew
cash
Accounts
Receivable
Professional Fee
Revenue
Billed customer for
portrait
110
120



110

130


530
210



210
110


320
110



120

410
3,000




700




300




1,900



2,000




3,000

3,000





700



300




1,900



2,000





3,000


BASIC ACCOUNTING 12

Cash Account 110
Date 20XX Exp. Ref. Debit Credit Balance
5/31 Balance 2,700
6/2 J2 3,000 5,700
6/7 J2 700 6,400
6/15 J2 1,900 4,500
6/27 J2 2,000 2,500

Accounts Receivable Account 120
Date 20XX Exp. Ref. Debit Credit Balance
5/31 Balance 12,100
6/2 J2 3,000 9,100
6/30 J2 3,000 12,100

Equipment and Supplies Account 130
Date 20XX Exp. Ref. Debit Credit Balance
5/31 Balance 2,800
6/7 J2 700 2,100

Studio Account 140
Date 20XX Exp. Ref. Debit Credit Balance
5/31 Balance 45,000

Accounts Payable Account 210
Date 20XX Exp. Ref. Debit Credit Balance
5/31 Balance 2,600
6/10 J2 300 2,900
6/15 J2 1,900 1,000

Lee Adkins, Capital Account 310
Date 20XX Exp. Ref. Debit Credit Balance
5/31 Balance 57,400
BASIC ACCOUNTING 13

Lee Adkins, Drawing Account 320
Date 20XX Exp. Ref. Debit Credit Balance
5/31 Balance 30,000
6/27 J2 2,000 32,000

Professional Fee Revenue Account 410
Date 20XX Exp. Ref. Debit Credit Balance
5/31 Balance 39,000
6/30 J2 3,000 42,000

Advertising Expense Account 510
Date 20XX Exp. Ref. Debit Credit Balance
5/31 Balance 2,300

Salaries Expense Account 520
Date 20XX Exp. Ref. Debit Credit Balance
5/31 Balance 2,100

Legal and Accounting Expense Account 530
Date 20XX Exp. Ref. Debit Credit Balance
6/10 J2 300 300

Utilities Expense
Date 20XX Exp. Ref. Debit Credit Balance
5/31 Balance 2,000

Adkins Studio
Balance Sheet
June 30, 20XX

110 Cash $ 2,500
120 Accounts Receivable 12,100
BASIC ACCOUNTING 14
130 Equipment and Supplies 2,100
140 Studio 45,000
210 Accounts Payable $1,000
310 Lee Adkins, Capital 57,400
320 Lee Adkins, Drawing 32,000
410 Professional Fee Revenue 42,000
510 Advertising Expense 2,300
520 Salaries Expense 2,100
530 Legal and Accounting 300
540 Utilities Expense 2,000
$100,400 $100,400


7. Journal entry preparation. On January 1 of the current year, Peter Houston invested $80,000 cash
into his company MuniServ. The cash was obtained from an owner investment by Peter Houston of
$50,000 and a $30,000 bank loan. Shortly thereafter, the company acquired selected assets of a bankrupt
competitor. The acquisition included land ($10,000), a building ($40,000), and vehicles ($10,000).
MuniServ paid $45,000 at the time of the transaction and agreed to remit the remaining balance due of
$15,000 (an account payable) by February 15.

During January, the company had additional cash outlays for the following items:

Purchases of store equipment $4,600
Note payment 500
Salaries expense 2,300
Advertising expense 700

The January utility bill of $200 was received on January 31 and will be paid next month. MuniServ
rendered services to clients on account amounting to $9,400. All customers have been billed; by month
end, $3,700 had been received in settlement of account balances.



Instructions
BASIC ACCOUNTING 15
a. Present journal entries that reflect MuniServ's January transactions, including the $80,000 raised
from the owner investment and loan. (See exhibit 2.6)
MuniServ
General Journal
January 20XX
Cash
Notes Payable
Peter Huston, Capital
Invested money using capital
and loan
Land
Building
Vehicles
Acquired assets
Cash
Accounts Payable
Paid for part of acquisition got
billed for rest of payment due
2/15
Store Equipment
Cash
Purchased store equipment
Notes Payable
Cash
Paid note
Salaries Exp.
Cash
Paid Salaries
Advertising Exp.
Cash
Paid for Advertising
Utility Expense
Accounts payable
Billed for Utility
$80,000




10,000
40,000
10,000






4,600


500


2,300


700


200



30,000
50,000






45,000
15,000




4,600


500


2,300


700


200

BASIC ACCOUNTING 16
Accounts Receivable
Revenue
Rendered Services to clients on
account
Cash
Account Receivables
Received settlement on account
balances
9,400



3,700

9,400



3,700

b. Compute the total debits, total credits, and ending balance that would be found in the company's
Cash account. (Post to T Accounts, see exhibit 2.3 and 2.4)

MuniServ General Ledger Cash Account
Date Description Debit Credit Balance
1/1/20XX Investment $80,000 $80,000
1/X/20XX Purchase Assets 45,000 35,000
1/X/20XX Purchased Store
equipment
4,600 30,400
1/X/20XX Paid note 500 29,900
1/X/20XX Paid salaries 2,300 27,600
1/X/20XX Paid for
advertising
700 26,900
1/X/20XX Received money
on accounts
3,700 30,600
Total 83,700 53,100

c. Determine the amount that would be shown on the January 31 trial balance for Accounts
Payable. Is the balance a debit or a credit?

MuniServ
Trial Balance
January 31, 20XX

Account Name Debit Credit
Cash $30,600
BASIC ACCOUNTING 17
Accounts Receivable 5,700
Land 10,000
Building 40,000
Vehicle 10,000
Equipment 4,600
Accounts Payable 15,200
Note Payable 29,500
Peter Houston, Capital 50,000
Service Revenue 9,400
Salaries Expense 2,300
Advertising Expense 700
Utilities Expense 200
Total 104,100 104,100