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The balance sheet and theThe balance sheet and the
accounting equationaccounting equation
Chapter 3Chapter 3
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Learning Objective 1Learning Objective 1
UnderstandUnderstandthe accounting equation.the accounting equation.
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LearningLearning
(The Accounting Equation)(The Accounting Equation)
Assets are theAssets are theitems owned byitems owned by
the business.the business.
Assets are theAssets are the
items owned byitems owned by
the business.the business.
Equities areEquities are
the claimsthe claims
against theagainst theassets.assets.
Equities areEquities arethe claimsthe claims
against theagainst theassets.assets.
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LearningLearning
(The Accounting Equation)(The Accounting Equation)
Liabilities areLiabilities arethe creditorsthe creditors
equity.equity.
Liabilities areLiabilities are
the creditorsthe creditors
equity.equity.
Owners equityOwners equityis the rightsis the rights
of ownership.of ownership.
Owners equityOwners equity
is the rightsis the rights
of ownership.of ownership.
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LearningLearning
(The Accounting Equation)(The Accounting Equation)
AssetsAssets
LiabilitiesLiabilities
=OwnersOwnersEquityEquity
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Learning Objective 2 & 4Learning Objective 2 & 4
What is meant by assets,What is meant by assets,liabilities and capital?liabilities and capital?
iL i
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LearningLearning
(assets, liabilities &(assets, liabilities &
capital)capital)
Assets consist of property of all kindAssets consist of property of all kindAssets consist of property of all kindAssets consist of property of all kind
Capital is often called the owners equity or net worthCapital is often called the owners equity or net worthCapital is often called the owners equity or net worthCapital is often called the owners equity or net worth
Liabilities is money owed for assetsLiabilities is money owed for assets
supplied to the businesssupplied to the business
Liabilities is money owed for assetsLiabilities is money owed for assets
supplied to the businesssupplied to the business
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Learning Objective 3Learning Objective 3
Draw up balance sheets afterDraw up balance sheets after
different transactionsdifferent transactions
have occurredhave occurred
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Learning (draw up balanceLearning (draw up balance
sheet: a worked example)sheet: a worked example)
A. August 28:A. August 28:
Cathy Hall invested $7,000 in cash and $800 ofCathy Hall invested $7,000 in cash and $800 ofoffice equipment into the business.office equipment into the business.
A. August 28:A. August 28:
Cathy Hall invested $7,000 in cash and $800 ofCathy Hall invested $7,000 in cash and $800 ofoffice equipment into the business.office equipment into the business.
B. August 29:B. August 29:
Law practice buys office equipment for cash $900.Law practice buys office equipment for cash $900.
B. August 29:B. August 29:
Law practice buys office equipment for cash $900.Law practice buys office equipment for cash $900.
C. August 30:C. August 30:
Buys additional office equipment on account $400.Buys additional office equipment on account $400.
C. August 30:C. August 30:Buys additional office equipment on account $400.Buys additional office equipment on account $400.
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$8,200 = $8,200$8,200 = $8,200
a)a) CashCash ++ $7,000$7,000 ++ $7,800$7,800EquipmentEquipment ++ 800800b)b) CashCash 900900
EquipmentEquipment ++ 900900
c)c) EquipmentEquipment ++ 400400 ++ 400400
a)a) CashCash ++ $7,000$7,000 ++ $7,800$7,800EquipmentEquipment ++ 800800
b)b) CashCash 900900EquipmentEquipment ++ 900900
c)c) EquipmentEquipment ++ 400400 ++ 400400
AssetsAssets == LiabilitiesLiabilities ++OwnersOwners
EquityEquity
LearningLearning
(Draw up balance sheet)(Draw up balance sheet)
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LearningLearning
(Draw up balance sheet)(Draw up balance sheet)
The makeup of the assets hasThe makeup of the assets haschanged, but the total of thechanged, but the total of the
assets remains the same.assets remains the same.
The makeup of the assets hasThe makeup of the assets haschanged, but the total of thechanged, but the total of theassets remains the same.assets remains the same.
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Learning (introducing 6 rulesLearning (introducing 6 rules
for double entry)for double entry)
Acco
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LearningLearning
(The Balance Sheet)(The Balance Sheet)
The balance sheet shows the companysThe balance sheet shows the companysfinancial position as of a particular date.financial position as of a particular date.
The balance sheet shows the companysThe balance sheet shows the companys
financial position as of a particular date.financial position as of a particular date.
Company nameCompany nameCompany nameCompany name
Name of the statementName of the statementName of the statementName of the statement
DateDateDateDate
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Learning (The Balance Sheet:Learning (The Balance Sheet:
horizontal format)horizontal format)
Cathy Hall, Attorney-at-LawCathy Hall, Attorney-at-Law
Balance SheetBalance SheetAugust 31, 200xAugust 31, 200x
AssetsAssets
CashCash $6,100$6,100
EquipmentEquipment 2,1002,100
TotalTotal $8,200$8,200
AssetsAssets
CashCash $6,100$6,100
EquipmentEquipment
2,1002,100
TotalTotal $8,200$8,200
Liabilities and Owners EquityLiabilities and Owners Equity
Accounts PayableAccounts Payable $ 400$ 400
Owners EquityOwners EquityCathy Hall, CapitalCathy Hall, Capital 7,8007,800
TotalTotal $8,200$8,200
Liabilities and Owners EquityLiabilities and Owners Equity
Accounts PayableAccounts Payable $ 400$ 400
Owners EquityOwners Equity
Cathy Hall, CapitalCathy Hall, Capital 7,8007,800TotalTotal $8,200$8,200
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End of Chapter 3End of Chapter 3