As you have learned in this week’s readings the Accounting Equation is Assets = Liabilities + Owners’ Equity. Is the accounting equation true in all instances? Provide sample transactions from your own experiences to demonstrate the validity of the Accounting Equation.
What does the term account mean? What are the different classifications of accounts? How do the rules for debits and credits impact accounts? Please provide an example of how debits and credits impact accounts.
[Company Name] Balance Sheet
Date:
Assets 2012 2011
Current Assets
Cash 12,500
Accounts receivable
Inventory
Prepaid expenses
Short-term investments
Total current assets 12,500 –
Fixed (Long-Term) Assets
Long-term investments 14,000
Property, plant, and equipment 25,000
(Less accumulated depreciation) (4,500)
Intangible assets
Total fixed assets 34,500 –
Other Assets
Deferred income tax
Other
Total Other Assets – –
Total Assets 47,000 –
Liabilities and Owner’s Equity
Current Liabilities
Accounts payable 17,000
Short-term loans 4,000
Income taxes payable 6,000
Accrued salaries and wages 2,500
Unearned revenue 5,000
Current portion of long-term debt 1,000
Total current liabilities 35,500 –
Long-Term Liabilities
Long-term debt 6,000
Deferred income tax 1,000
Other
Total long-term liabilities 7,000 –
Owner’s Equity
Owner’s investment 1,000
Retained earnings 3,500
Other
Total owner’s equity 4,500 –
Total Liabilities and Owner’s Equity 47,000 –
{42}
Accounting Equation
Accounting Equation is Assets = Liabilities + Owner’s Equity
Assets Liabilities Owner’s Equity
Assets Current + Long-Term Liabilities Owner’s Equity
47,000 42,500 4,500
47,000 47,000