The Accounting Equation

Learning Goal: Define assets, liabilities & equity by means of fundamental accounting equation

1. What does a person require in order to begin a business? Capital- Owner investment or outside investors Equipment, furniture, computers

2. In general, the term given to all the above items is ____________ 3. How does the business acquire the needed economic resources? a) ________________b)___________________ creditors will have claimsthe owner will have claims against the economic against the economic resources.resources. Assets (own) Liabilities (Borrow) Owner’s Equity (Owner’s Investment)

4.The ACCOUNTING EQUATION: ____________ ______________ ______________________ $100,000 $70,000$30, The accounting equation is a: - Fundamental concept and basis for all accounting today Assets Liabilities Owner’s Equity + =

Question: On Sept. 15 of the current year, Donna Lyon began the practice of law under her name. Her business’s assets and liabilities on the date are as follows: Accounts payable $200, Cash $800; Bank loan $1 200, Office Equipment $2 200; Law Books $ Determine the Owner’s Equity and construct an accounting equation that itemizes the three elements, A, L, & OE. Assets Liabilities Owner’s Equity + = Cash $800 Office Equipment $2,200 Law Books $2,400 Accounts Payable $200 Bank Loan $1200 = $5,400= $1,400= $4,000 -

Homework: Answer Exercise #1-6 p. 20 (t), p. 6-7 (w)