Accounting Chapter 1 Key Concepts

CHAPTER 1
Accounting in Action
ANSWERS TO QUESTIONS
1.
Yes, this is correct. Virtually every organization and person in our society uses accounting information. Businesses, investors, creditors, government agencies, and not-for-profit organizations must
use accounting information to operate effectively.
2.
Accounting is the process of identifying, recording, and communicating the economic events of an
organization to interested users of the information. The first step of the accounting process is
therefore to identify events that are: (a) considered evidence of economic activity and (b) relevant
to a particular business enterprise. Once identified and measured, the events are recorded to provide
a permanent history of the financial activities of the organization. Recording consists of keeping
a chronological diary of these measured events in an orderly and systematic manner. The information is communicated through the preparation and distribution of accounting reports, the most
common of which are called financial statements. A vital element in the communication process is
the accountants ability and responsibility to analyze and interpret the reported information.
3.
(a)
(b)
Internal users are those who manage the business and therefore are officers and other decision makers.
To assist management, accounting provides internal reports. Examples include financial comparisons of operating alternatives, projections of income from new sales campaigns, and forecasts of cash needs for the next year.
4.
(a)
(b)
Investors (owners) use accounting information to make decisions to buy, hold, or sell stock.
Creditors use accounting information to evaluate the risks of granting credit or lending money.
5.
Bookkeeping usually involves only the recording of economic events and therefore is just one part
of the entire accounting process. Accounting, on the other hand, involves the entire accounting process, including identification, measurement, recording, and communication.
6.
John Alcorn Travel Agency should report the land at $85,000 on its December 31, 2002 balance
sheet. An important concept that accountants follow is the cost principle. The cost principle states
that assets should be recorded at their cost. Cost has an important advantage over other valuations: it is reliable. Cost can be objectively measured and can be verified.
7.
The monetary unit assumption requires that only transaction data capable of being expressed in
terms of money be included in the accounting records of the economic entity. An important part of
the monetary unit assumption is the added assumption that the unit of measure remains sufficiently
constant over time. The assumption of a stable monetary unit has been seriously challenged because
of the significant decline in the purchasing power of the dollar. The profession has recognized this
problem and encourages companies to disclose the effects of purchasing power changes.
8.
The economic entity assumption requires that the activities of the entity be kept separate and distinct from: (1) the activities of its owners and (2) all other economic entities.
9.
The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and (3)
corporation.
10.
One of the advantages Kathy Mendoza would enjoy is that ownership of a corporation is represented by transferable shares of stock. This would allow Kathy to raise money easily by selling a
part of her ownership in the company. Another advantage is that because holders of the shares
(stockholders) enjoy limited liability, they are not personally liable for the debts of the corporate
entity. Also, because ownership can be transferred without dissolving the corporation, the corporation enjoys an unlimited life.
11.
The basic accounting equation is Assets = Liabilities + Owners Equity.
12.
(a)
(b)
Assets are resources owned by a business. Liabilities are claims against assets. Put more simply, liabilities are existing debts and obligations. Owners equity is the ownership claim on total
assets.
Owners equity is affected by owners investments, drawings, revenues, and expenses.
13.
The liabilities are: (b) Accounts payable and (g) Salaries payable.
14.
Yes, a business can enter into a transaction in which only the left side of the accounting equation
is affected. An example would be a transaction where an increase in one asset is offset by a decrease in another asset. An increase in the equipment account which is offset by a decrease in the
cash account is a specific example.
15.
Business transactions are the economic events of the enterprise recorded by accountants because
they affect the basic equation.
(a) The death of the owner of the company is not a business transaction as it does not affect the
basic equation.
(b) Supplies purchased on account is a business transaction as it affects the basic equation.
(c) An employee being fired is not a business transaction as it does not affect the basic equation.
(d) A withdrawal of cash from the business is a business transaction as it affects the basic equation.
16.
(a)
(b)
(c)
(d)
Decrease assets and decrease owners equity.

Increase assets and decrease assets.
Increase assets and increase owners equity.
Decrease assets and decrease liabilities.
17.
(a)
(b)
(c)
Income statement.
Balance sheet.
Income statement.
18.
No, this treatment is not proper. While the transaction does involve a receipt of cash, it does not
represent revenues. Revenues are the gross increase in owners equity resulting from business
activities entered into for the purpose of earning income. This transaction is simply an additional
investment made by the owner in the business.
(d)
(e)
(f)
Balance sheet.
Balance sheet and owners equity statement.
Balance sheet.
19.
Yes. Net income does appear on the income statementit is the result of subtracting expenses
from revenues. In addition, net income appears in the statement of owners equityit is shown as
an addition to the beginning-of-period capital. Indirectly, the net income of a company is also included in the balance sheet. It is included in the capital account which appears in the owners
equity section of the balance sheet.
20.
(a)
Ending capital balance .....................................................................................

Beginning capital balance ................................................................................
Net income.......................................................................................................
$198,000
168,000
$ 30,000
(b)
Ending capital balance .....................................................................................

Beginning capital balance ................................................................................
Deduct: Investment .........................................................................................
Net income.......................................................................................................
$198,000
168,000
30,000
13,000
$ 17,000
(a)
Total revenues ($35,000 + $70,000) ................................................................
$105,000
(b)
Total expenses ($26,000 + $40,000)................................................................
$66,000
(c)
Total revenues .................................................................................................

Total expenses.................................................................................................
Net income.......................................................................................................
$105,000
66,000
$ 39,000
21.
SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 1-1
(a) $80,000 $50,000 = $30,000 (Owners Equity).
(b) $45,000 + $70,000 = $115,000 (Assets).
(c) $94,000 $62,000 = $32,000 (Liabilities).
BRIEF EXERCISE 1-2

(a) $100,000 + $252,000 = $352,000 (Total assets).
(b) $170,000 $80,000 = $90,000 (Total liabilities).
(c) $600,000 0.5($600,000) = $300,000 (Owners equity).
BRIEF EXERCISE 1-3

(a) ($820,000 + $150,000) ($500,000 $80,000) = $550,000
(Owners equity).
(b) ($500,000 + $100,000) + ($820,000 $500,000 $70,000) = $850,000
(Assets).
(c) ($820,000 $90,000) ($820,000 $500,000 + $120,000) = $290,000
(Liabilities).
BRIEF EXERCISE 1-4
(a)
(b)
(c)
Assets
Liabilities
Owners Equity
+
+
+
NE
NE
NE
+
Liabilities
Owners Equity
BRIEF EXERCISE 1-5

Assets
(a)
(b)
(c)
NE
NE
NE
NE
NE
BRIEF EXERCISE 1-6

E
R
E
E
(a)
(b)
(c)
(d)
Advertising expense
Commission revenue
Insurance expense
Salaries expense
D
R
E
(e) Farve, Drawing

(f) Rent revenue
(g) Utilities expense
BRIEF EXERCISE 1-7

R
NOE
E
(a) Received cash for services performed

(b) Paid cash to purchase equipment
(c) Paid employee salaries
BRIEF EXERCISE 1-8

CHENG COMPANY
Balance Sheet
December 31, 2002
Assets
Cash ..................................................................................................
Accounts receivable........................................................................
Total assets ..............................................................................
$ 39,000
72,500
$111,500
Liabilities and Owners Equity

Liabilities
Accounts payable ....................................................................
Owners equity
Kim Cheng, Capital ..................................................................
Total liabilities and owners equity ................................
$ 80,000
31,500
$111,500
BRIEF EXERCISE 1-9

A
L
A
(a) Accounts receivable

(b) Salaries payable
(c) Equipment
A
OE
L
(d) Office supplies

(e) Owners investment
(f) Notes payable
BRIEF EXERCISE 1-10

BS
IS
OE, BS
BS
IS
(a)
(b)
(c)
(d)
(e)
Notes payable
Advertising expense
H. Bruns, Capital
Cash
Service revenue
SOLUTIONS TO EXERCISES
EXERCISE 1-1
Asset
Liability
Cash
Cleaning equipment
Cleaning supplies
Accounts receivable
Accounts payable
Notes payable
Salaries payable
Owners Equity
J. Robbins, Capital
EXERCISE 1-2
1.
2.
3.
4.
5.
6.
7.
8.
9.
Increase in assets and increase in owners equity.

Decrease in assets and decrease in owners equity.
Increase in assets and increase in liabilities.
Decrease in assets and decrease in owners equity.
Increase in assets and decrease in assets.
Increase in liabilities and decrease in owners equity.
Increase in assets and decrease in assets.
EXERCISE 1-3
1.
2.
3.
4.
(c)
(d)
(a)
(b)
5.
6.
7.
8.
(d)
(b)
(e)
(f)
EXERCISE 1-4
(a) 1.
2.
3.
Owner invested $12,000 cash in the business.

Purchased office equipment for $5,000, paying $2,000 in cash and
the balance of $3,000 on account.
Paid $750 cash for supplies.
4.
5.
Earned $6,300 in revenue, receiving $2,600 cash and $3,700 on

account.
Paid $1,500 cash on accounts payable.
EXERCISE 1-4 (Continued)

6.
7.
8.
9.
10.
Owner withdrew $2,000 cash for personal use.

Paid $650 cash for rent.
Collected $450 cash from customers on account.
Paid salaries of $2,900.
Incurred $500 of utilities expense on account.
(b) Investment .................................................................................

Service revenue ........................................................................
Drawings ....................................................................................
Rent expense.............................................................................
Salaries expense.......................................................................
Utilities expense........................................................................
Increase in capital.....................................................................
$12,000
6,300
(2,000)
(650)
(2,900)
(500)
$12,250
(c) Service revenue ........................................................................

Rent expense.............................................................................
Salaries expense.......................................................................
Utilities expense........................................................................
Net income.................................................................................
$6,300
(650)
(2,900)
(500)
$2,250
EXERCISE 1-5
ROBERTA MENDEZ & CO.
Income Statement
For the Month Ended August 31, 2002
Revenues
Service revenue ..........................................................
Expenses
Salaries expense.........................................................
Rent expense...............................................................
Utilities expense..........................................................
Total expenses ....................................................
Net income...........................................................................
$6,300
$2,900
650
500
4,050
$2,250

Owners Equity Statement
R. Mendez, Capital, August 1 ........................................
Add: Investments .........................................................
Net income ...........................................................
$
$12,000
2,250
Less: Drawings ..............................................................

R. Mendez, Capital, August 31 ......................................
14,250
14,250
2,000
$12,250

Balance Sheet
August 31, 2002
Assets
Cash ..................................................................................................
Supplies ............................................................................................
Office equipment .............................................................................
Total assets ..............................................................................
$ 5,250
3,250
750
5,000
$14,250

Liabilities
Owners equity
R. Mendez, Capital ...................................................................
$ 2,000
12,250
$14,250
EXERCISE 1-6
(a) Owners equity12/31/02 ($400,000 $250,000) .................
Owners equity1/1/02 ...........................................................
Increase in owners equity......................................................
Add: Drawings........................................................................
Net income for 2002.................................................................
$150,000
100,000
50,000
15,000
$ 65,000

(b) Owners equity12/31/03 ($460,000 $305,000) ...............
Owners equity1/1/03see (a) ..........................................
Increase in owners equity....................................................
Less: Additional investment................................................
Net loss for 2003 ....................................................................
$155,000
150,000
5,000
50,000
$ 45,000
(c) Owners equity12/31/04 ($590,000 $400,000) ...............

Owners equity1/1/04see (b) ..........................................
Less: Additional investment................................................
$190,000
155,000
35,000
15,000
20,000
20,000
$ 40,000
Add: Drawings .....................................................................

Net income for 2004...............................................................
EXERCISE 1-7
(a) Total assets (beginning of year) ..........................................
Total liabilities (beginning of year) ......................................
Total owners equity (beginning of year) ............................
$97,000
80,000
$17,000
(b) Total owners equity (end of year) .......................................

$40,000
17,000
$23,000
Total revenues........................................................................
Total expenses .......................................................................
Net income..............................................................................
$215,000
175,000
$ 40,000
Increase in owners equity..............................

Less: Net income ............................................
Add: Drawings ...............................................
Additional investment .....................................
$23,000
$(40,000)
(24,000)
(c) Total assets (beginning of year) ..........................................

Total liabilities (beginning of year) ......................................
(16,000)
$ 7,000
$129,000
95,000
$ 34,000

(d) Total owners equity (end of year) .......................................
$130,000
95,000
$ 35,000
Total revenues........................................................................
Total expenses .......................................................................
Net income..............................................................................
$100,000
85,000
$ 15,000
Increase in owners equity..............................

Less: Net income ............................................
Additional investment..........................
Drawings ...........................................................
$35,000
$(15,000)
(25,000)
(40,000)
$ 5,000
EXERCISE 1-8
STANLEY TUCCI CO.
Income Statement
For the Year Ended December 31, 2002
Revenues
Service revenue ......................................................
Expenses
Salaries expense.....................................................
Rent expense...........................................................
Utilities expense......................................................
Advertising expense...............................................
Total expenses ................................................
Net income.......................................................................
$57,500
$28,000
10,400
3,100
1,800
43,300
$14,200
STANLEY TUCCI CO.

Stanley Tucci, Capital, January 1 ....................................................
Add: Net income ..............................................................................
Less: Drawings .................................................................................
$48,000
14,200
62,200
5,000
Stanley Tucci, Capital, December 31...............................................
$57,200
EXERCISE 1-9
AMARO COMPANY
Balance Sheet
December 31, 2002
Assets
Cash ..................................................................................................
Supplies ............................................................................................
Equipment ........................................................................................
Total assets ..............................................................................
$20,500
8,500
8,000
46,000
$83,000

Liabilities
Owners equity
Amaro, Capital ($67,500 $4,500)..........................................
$20,000
63,000
$83,000
EXERCISE 1-10
(a) Camping fee revenue ..............................................................
General store revenue.............................................................
Total revenue....................................................................
Expenses ..................................................................................
Net income................................................................................
(b)
$160,000
47,000
207,000
150,000
$ 57,000
BEAR PARK
Balance Sheet
December 31, 2002
Assets
Cash ..........................................................................................
Supplies ....................................................................................
Equipment.................................................................................
Total assets ......................................................................
$ 20,000
2,500
115,500
$138,000

BEAR PARK
Balance Sheet (Continued)
December 31, 2002
Liabilities
Notes payable...................................................................
Accounts payable ............................................................
Total liabilities ..........................................................
Owners equity
Kap Shin, Capital ($138,000 $71,000)..........................
Total liabilities and owners equity ........................
$ 60,000
11,000
71,000
67,000
$138,000
EXERCISE 1-11
HOCKENBERRY CRUISE COMPANY
Income Statement
Revenues
Ticket revenue....................................................
Expenses
Salaries expense................................................
Maintenance expense........................................
Property tax expense ........................................
Advertising expense..........................................
Total expenses ...........................................
Net income..................................................................
$325,000
$142,000
77,000
10,000
3,500
232,500
$ 92,500
EXERCISE 1-12
MARK GARLAND, ATTORNEY
Mark Garland, Capital, January 1............................................
Add: Net income .....................................................................
Less: Drawings ........................................................................
$ 23,000 (a)
149,000 (b)
172,000
74,000
Mark Garland, Capital, December 31 ......................................
$ 98,000 (c)

Supporting Computations
(a) Assets, January 1, 2002 ..........................................................
Liabilities, January 1, 2002 .....................................................
Capital, January 1, 2002 ..........................................................
$85,000
62,000
$23,000
(b) Legal fees earned.....................................................................

Total expenses .........................................................................
Net income................................................................................
$360,000
211,000
$149,000
(c) Assets, December 31, 2002.....................................................

Liabilities, December 31, 2002................................................
Capital, December 31, 2002 ....................................................
$168,000
70,000
$ 98,000
SOLUTIONS TO PROBLEMS
PROBLEM 1-1A
PROBLEM 1-1A (Continued)

(b) Ending capital ...........................................................................
Add: Drawings.........................................................................
Deduct: Investments ..............................................................
Net income.................................................................................
$12,660
500
13,160
10,000
$ 3,160
OR
Service revenue .......................................................
Expenses
Salaries..............................................................
Rent ...................................................................
Advertising .......................................................
Utilities ..............................................................
Net income ................................................
$4,950
$1,000
400
250
140
1,790
$3,160
PROBLEM 1-2A

(b)
JUDI DENCH, VETERINARIAN

Income Statement
For the Month Ended September 30, 2002
Revenues
Service revenue...................................................
Expenses
Rent expense.......................................................
Salaries expense .................................................
Utilities expense..................................................
Advertising expense ...........................................
Total expenses ............................................
Net income...................................................................
$6,300
$900
700
170
300
2,070
$4,230

For the Month Ended September 30, 2002
Judi Dench, Capital, September 1...........................................
Add: Net income .....................................................................
Less: Drawings ........................................................................
Judi Dench, Capital, September 30.........................................
$13,700
4,230
17,930
600
$17,330

Balance Sheet
September 30, 2002
Assets
Cash ...........................................................................................
Accounts receivable .................................................................
Supplies .....................................................................................
Office equipment.......................................................................
Total assets .......................................................................
$13,600
4,200
600
8,100
$26,500

September 30, 2002
Liabilities
Notes payable....................................................................
Accounts payable .............................................................
Total liabilities ...........................................................
Owners equity
Judi Dench, Capital...........................................................
Total liabilities and owners equity .........................
$ 7,000
2,170
9,170
17,330
$26,500
PROBLEM 1-3A
(a)
SKYLINE FLYING SCHOOL

Income Statement
For the Month Ended May 31, 2002
Revenues
Lesson revenue.............................................
Expenses
Fuel expense .................................................
Rent expense.................................................
Insurance expense........................................
Advertising expense .....................................
Repair expense..............................................
Total expenses ......................................
Net income.............................................................
$8,600
$2,500
1,200
400
500
400
5,000
$3,600

Dennis Chambers, Capital, May 1 .......................
Add: Investments ...............................................
Net income .................................................
$
$45,000
3,600
Less: Drawings ....................................................

Dennis Chambers, Capital, May 31 .....................
48,600
48,600
1,700
$46,900

Balance Sheet
May 31, 2002
Assets
Cash ...........................................................................................
Equipment..................................................................................
Total assets .......................................................................
$ 6,500
7,200
64,000
$77,700

May 31, 2002
Liabilities
Notes payable....................................................................
Owners equity
Dennis Chambers, Capital ...............................................
(b)
$30,000
800
30,800
46,900
$77,700

Income Statement
Revenues
Lesson revenue ($8,600 + $900) ..................
Expenses
Fuel expense ($2,500 + $3,300)....................
Rent expense.................................................
Insurance expense........................................
Repair expense..............................................
Total expenses ......................................
Net income.............................................................
$9,500
$5,800
1,200
400
500
400
8,300
$1,200

Dennis Chambers, Capital, May 1 .......................
Add: Investments ...............................................
Net income .................................................
Less: Drawings ....................................................
$
$45,000
1,200
46,200
46,200
1,700
Dennis Chambers, Capital, May 31 .....................
$44,500
PROBLEM 1-4A

(b)
SALEM DELIVERIES
Income Statement
For the Month Ended June 30, 2002
Revenues
Service revenue..................................................
Expenses
Rent expense......................................................
Salaries expense ................................................
Utilities expense.................................................
Gasoline expense...............................................
Total expenses ...........................................
Net income..................................................................
(c)
$2,900
$500
500
250
100
1,350
$1,550
SALEM DELIVERIES
Balance Sheet
June 30, 2002
Assets
Cash ...........................................................................................
Supplies .....................................................................................
Delivery van...............................................................................
Total assets .......................................................................
$ 8,200
650
150
10,000
$19,000

Liabilities
Notes payable....................................................................
Owners equity
R. Salem, Capital ...............................................................
$ 7,500
150
7,650
11,350
$19,000
PROBLEM 1-5A
(a)
Zarle
Company
(a)
$
(b) 34,000
(c)
113,00
0
19,000
(b)
Wasickso
Company
(d) $50,0
(e)
00
(f)
82,00
0
McCain
Company
(g) $125,0
(h)
00
(i)
70,000
Russe
Company
(j)
$
(k) 80,000
(l)
260,00
0
426,00
0
28,00
0
WASICKSO COMPANY
Capital, January 1 ...............................................

Add: Investment................................................
Net income ...............................................
Less: Drawings ..................................................
Capital, December 31 .........................................
425,00
0
$ 60,000
$15,000
35,000
50,000
110,000
28,000
$ 82,000
(c) The sequence of preparing financial statements is income statement,

owners equity statement, and balance sheet. The interrelationship of
the owners equity statement to the other financial statements results
from the fact that net income from the income statement is reported in
the owners equity statement and ending capital reported in the owners
equity statement is the amount reported for owners equity on the balance sheet.
PROBLEM 1-1B
PROBLEM 1-1B (Continued)

(b) Ending capital ...........................................................................
Add: Drawings.........................................................................
Deduct: Investments ..............................................................
Net income.................................................................................
$16,400
200
16,600
10,000
$ 6,600
OR
Service revenue .......................................................
Expenses
Salaries..............................................................
Rent ...................................................................
Advertising .......................................................
Net income ................................................
$9,500
$2,200
400
300
2,900
$6,600
PROBLEM 1-2B

(b)
MICHELLE PFEIFFER, ATTORNEY AT LAW

Income Statement
Revenues
Service revenue...............................................
Expenses
Salaries expense .............................................
Rent expense...................................................
Advertising expense .......................................
Utilities expense..............................................
Total expenses ........................................
Net income...............................................................
$7,500
$2,500
900
350
250
4,000
$3,500

Michelle Pfeiffer, Capital, August 1.........................................
Add: Net income .....................................................................
Less: Drawings ........................................................................
Michelle Pfeiffer, Capital, August 31.......................................
$ 6,800
3,500
10,300
550
$ 9,750

Balance Sheet
August 31, 2002
Assets
Cash ...........................................................................................
Supplies .....................................................................................
Total assets .......................................................................
$ 3,000
4,600
500
6,000
$14,100

August 31, 2002
Liabilities
Notes payable....................................................................
Owners equity
Michelle Pfeiffer, Capital ..................................................
$ 2,000
2,350
4,350
9,750
$14,100
PROBLEM 1-3B
(a)
DIVINE COSMETICS CO.

Income Statement
Revenues
Service revenue.............................................
Expenses
Supplies expense..........................................
Gas and oil expense .....................................
Utilities expense............................................
Total expenses ......................................
Net income.............................................................
$7,500
$1,600
800
500
300
3,200
$4,300

Cindy Crawford, Capital, June 1 .........................
Add: Investments ...............................................
Net income .................................................
$
$26,200
4,300
Less: Drawings ....................................................

Cindy Crawford, Capital, June 30 .......................
30,500
30,500
1,700
$28,800

Balance Sheet
June 30, 2002
Assets
Cash ...........................................................................................
Cosmetic supplies ....................................................................
Equipment..................................................................................
Total assets .......................................................................
$12,000
4,000
2,000
25,000
$43,000

June 30, 2002
Liabilities
Notes payable....................................................................
Owners equity
Cindy Crawford, Capital ...................................................
(b)
$13,000
1,200
14,200
28,800
$43,000

Income Statement
Revenues
Service revenue ($7,500 + $800)..................
Expenses
Supplies expense..........................................
Gas and oil expense ($800 + $100) .............
Utilities expense............................................
Total expenses ......................................
Net income.............................................................
$8,300
$1,600
900
500
300
3,300
$5,000

Cindy Crawford, Capital, June 1 .........................
Add: Investments ...............................................
Net income .................................................
Less: Drawings ....................................................
Cindy Crawford, Capital, June 30 .......................
$
$26,200
5,000
31,200
31,200
1,700
$29,500
PROBLEM 1-4B

(b)
SPENGEL CONSULTING
Income Statement
Revenues
Service revenue...............................................
Expenses
Salaries expense .............................................
Rent expense...................................................
Utilities expense..............................................
Advertising expense .......................................
Total expenses ........................................
Net income...............................................................
(c)
$4,300
$2,500
800
150
50
3,500
$ 800
SPENGEL CONSULTING
Balance Sheet
May 31, 2002
Assets
Cash ...........................................................................................
Supplies .....................................................................................
Total assets .......................................................................
$11,300
1,300
500
2,400
$15,500

Liabilities
Notes payable....................................................................
Owners equity
J. Spengel, Capital ............................................................
$ 5,000
2,400
7,400
8,100
$15,500
PROBLEM 1-5B
(a)
Yanni
Company
(a)
$
(b) 25,000
(c)
100,00
0
15,000
(b)
Selara
Company
(d) $30,0
(e)
00
(f)
55,00
0
Candlebox
Company
(g) $129,0
(h)
00
(i)
70,000
Winans
Company
(j)
$
(k) 60,000
(l)
220,00
0
418,00
0
28,00
0
YANNI COMPANY
Capital, January 1 .................................................

Add: Investment..................................................
Net income .................................................
Less: Drawings ....................................................
Capital, December 31 ...........................................
455,00
0
$25,000
$15,000
15,000
30,000
55,000
10,000
$45,000
(c) The sequence of preparing financial statements is income statement,

owners equity statement, and balance sheet. The interrelationship of
the owners equity statement to the other financial statements results
from the fact that net income from the income statement is reported in
the owners equity statement and ending capital reported in the owners
equity statement is the amount reported for owners equity on the balance sheet.

Accounting Chapter 1 Key Concepts

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Accounting Chapter 1 Key Concepts

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CHAPTER 1

The basic accounting equation is Assets = Liabilities + Owners Equity.

Decrease assets and decrease owners equity.

Ending capital balance .....................................................................................

Ending capital balance .....................................................................................

Total revenues ($35,000 + $70,000) ................................................................

Total expenses ($26,000 + $40,000)................................................................

Total revenues .................................................................................................

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 1-2

BRIEF EXERCISE 1-3

BRIEF EXERCISE 1-4

BRIEF EXERCISE 1-5

BRIEF EXERCISE 1-6

(e) Farve, Drawing

BRIEF EXERCISE 1-7

(a) Received cash for services performed

BRIEF EXERCISE 1-8

Liabilities and Owners Equity

BRIEF EXERCISE 1-9

(a) Accounts receivable

(d) Office supplies

BRIEF EXERCISE 1-10

Increase in assets and increase in owners equity.

Owner invested $12,000 cash in the business.

Earned $6,300 in revenue, receiving $2,600 cash and $3,700 on

EXERCISE 1-4 (Continued)

Owner withdrew $2,000 cash for personal use.

(b) Investment .................................................................................

(c) Service revenue ........................................................................

EXERCISE 1-5 (Continued)

Less: Drawings ..............................................................

ROBERTA MENDEZ & CO.

Liabilities and Owners Equity

EXERCISE 1-6 (Continued)

(c) Owners equity12/31/04 ($590,000 $400,000) ...............

Add: Drawings .....................................................................

(b) Total owners equity (end of year) .......................................

Increase in owners equity..............................

(c) Total assets (beginning of year) ..........................................

EXERCISE 1-7 (Continued)

Increase in owners equity..............................

STANLEY TUCCI CO.

Stanley Tucci, Capital, December 31...............................................

Liabilities and Owners Equity

EXERCISE 1-10 (Continued)

Mark Garland, Capital, December 31 ......................................

EXERCISE 1-12 (Continued)

(b) Legal fees earned.....................................................................

(c) Assets, December 31, 2002.....................................................

PROBLEM 1-1A (Continued)

PROBLEM 1-2A (Continued)

JUDI DENCH, VETERINARIAN

JUDI DENCH, VETERINARIAN

JUDI DENCH, VETERINARIAN

PROBLEM 1-2A (Continued)

SKYLINE FLYING SCHOOL

SKYLINE FLYING SCHOOL

Less: Drawings ....................................................

SKYLINE FLYING SCHOOL

PROBLEM 1-3A (Continued)

SKYLINE FLYING SCHOOL