Accounting Equation and Financial Statements
Mr. Right owns a company that provides financial plans for different kinds of business
The following are transactions that happened in May 2018
- Apply the effect of the following transactions on the Accounting Equation
- Prepare the Financial Statements (Income Statement, Statement of Owner’s
Equity, and Balance Sheet)
1) Right invested $200,000 cash and $30,000 of office equipment to open his business
2) The company purchased supplies of $50,000 to use in the office. It paid
$20,000 in cash and the remaining amount was on credit
3) The company acquired a building for $100,000
4) The company purchased office equipment for $6,000 cash
5) The company purchased $4,000 of office supplies and $1,000
equipment on credit
6) Right made an additional investment by $20,000 cash to expand his business
7) The company paid a local newspaper $500 cash for printing an advertisement for the company’s
financial services
8) The company completed a financial plan for a client and billed that client $4,000 for the service
9) The company completed a financial plan for another client immediately
collected $8,000 cash
10) Right withdrew $1,800 cash from the company for his personal use
11) The company received $3,000 cash as partial payment from the client described
in transaction #8
12) The company paid $2,500 cash for the company’s secretary’s salary for this period
Solution:
Tr
Assets
Liabilities
Building Supplies A/R
A/P
Owner’s Equity
a
ns
.
N
o.
Cash
1
200,000
Equip.
30,000
Beg.
Additional
Capital
Investment
+Rev
(-) Exp.(-) Withd.
230,000
(200,0000
+30,000)
2
(20,000)
3
(100,000)
4
(6,000)
5
20,000
7
(500)
30,000
4,000
5,000
100,000
6,000
1,000
6
50,000
20,000
(500)
“Adv.
exp”
8
4,000
9
8,000
1
(1,800)
4,000
8,000
(1,800)
0
1
3,000
(3,000)
1
1
(2500)
(2500)
“Salaries
Exp”
2
T
100,200
37,000 100,000 54,000
1,000
35,000
230,000
ot
al
Total Assets= 292,200
Total Liabilities =35,000
20,000
12,000
(3,000)
(1,800)
Total OE= Beginning Capital + Additional Investment + Revenues –
Expenses – Withdrawals
Total OE = 230,000 +20,000 + 12,000 – 3,000 –1,800 = 257,200
Total Liabilities and OE =292200
1) Accounting Equation