Chapter 1, Problem 13E

To determine

Accounting Equation:

The accounting equation represents the asset side on the left and liabilities and equity on the right side. The basic principle is that all the assets when debited, are increased, and are decreased when credited.

For liability accounts, it is increased when credited and decreased when debited.

Equity accounts are increased by net profit earned, further capital contribution and decreased by the net loss suffered, dividend distributions and withdrawals.

To Create:

A table summarizing the transactions from a through j in accounting equation format and drawing balances for each account after every transaction occurred.

Answer to Problem 13E

After affecting all the transactions, the balances at the end of the month are as follows:

Cash: $46,000

Accounts Receivable: $3,000

Equipment: $31,000

Accounts Payable: Nil

Common Stock: $75,000

Dividends: $1,000

Revenues: $10,500

Expenses: $4,500

Explanation of Solution

	Assets					=	Liabilities					+	Equity
	Cash	+	Accounts Receivable	+	Equipment	=	Accounts Payable	+	Common Stock	-	Dividends	+	Revenues	-	Expenses
a	$60,000				$15,000				$75,000
Balance	$60,000				$15,000				$75,000
b	$(1,500)														$1,500
Balance	$58,500				$15,000				$75,000						$1,500
c					$10,000		$10,000
Balance	$58,500				$25,000		$10,000		$75,000						$1,500
d	$2,500												$2,500
Balance	$61,000				$25,000		$10,000		$75,000				$2,500		$1,500
e			$8,000										$8,000
Balance	$61,000		$8,000		$25,000		$10,000		$75,000				$10,500		$1,500
f	$(6,000)				$6,000
Balance	$55,000		$8,000		$31,000		$10,000		$75,000				$10,500		$1,500
g	$(3,000)														$3,000
Balance	$52,000		$8,000		$31,000		$10,000		$75,000				$10,500		$4,500
h	$5,000		$(5,000)
Balance	$57,000		$3,000		$31,000		$10,000		$75,000				$10,500		$4,500
i	$(10,000)						$(10,000)
Balance	$47,000		$3,000		$31,000		$0		$75,000				$10,500		$4,500
j	$(1,000)										$1,000
Balance	$46,000		$3,000		$31,000		$0		$75,000		$1,000		$10,500		$4,500

A negative figure in the cash account column represents a decrease in cash, otherwise, all figures represent positive amounts, i.e., increase in cash resources.

Accounting equation shows the total of the asset side is always equal to the total of liabilities and equity side.

At the end of the month, the left side or the asset side has a total of $80,000 (Cash: $46,000; Accounts Receivable: $3,000; Equipment: $31,000)

The total of the right side or the liabilities and equity side have a total of $80,000 (Liabilities: Nil; Equity: $75,000 - $1,000 + $10,500 - $4,500 = $80,000)