1. Analyzing Changes in Financial Position
Equation Analysis Sheet

2. Equation Analysis
As business transactions occur, there are changes in the values of assets, liabilities, and capital.
Although the Balance Sheet shows the values of these assets, liabilities, and capital on a particular date, it is not adequate to reflect changes created by individual transactions.

3. Example – Opening Balance Sheet
Equation Analysis Sheet
Example – Opening Balance Sheet

4. Equation Analysis Sheet
1. Set up sheet with Beginning Balances as per B/S
Set up column
Headings …
One per
account name
Set up
“beginning balances”
Accounting Equation $53, = $20, $33,180

5. Equation Analysis Sheet
1. Set up sheet with Beginning Balances as per B/S
Accounting Equation $53, = $20, $33,180
A = L + OE

6. Equation Analysis Sheet
2. Metropolitan Movers pays $1,200 cash to Mercury Finance.

7. Equation Analysis Sheet
2. Metropolitan Movers pays $1,200 cash to Mercury Finance.
Accounting Equation $52, = $18, $33,180

8. Equation Analysis Sheet
3. K. Lincoln, who owes Metropolitan Movers $2,500, pays $1,100 in partial payment of debt.

9. Equation Analysis Sheet
3. K. Lincoln, who owes Metropolitan Movers $2,500, pays $1,100 in partial payment of debt.
Accounting Equation $52, = $18, $33,180

10. Equation Analysis Sheet
4. Equipment costing $1,950 is purchased for cash.

11. Equation Analysis Sheet
4. Equipment costing $1,950 is purchased for cash.
Accounting Equation $52, = $18, $33,180

12. Equation Analysis Sheet
5. A new pick-up truck is purchased at a cost of $18,000. Pay $10,000 cash and borrow the balance from Mercury Finance.

13. Equation Analysis Sheet
5. A new pick-up truck is purchased at a cost of $18,000. Pay $10,000 cash and borrow the balance from Mercury Finance.
Accounting Equation $60, = $26, $33,180

14. Equation Analysis Sheet
6. Metro Movers complete a storage service for B. Cava at a price of $1,500. A bill is sent to B. Cava.

15. Equation Analysis Sheet
6. Metro Movers complete a storage service for B. Cava at a price of $1,500. A bill is sent to B. Cava.
Accounting Equation $61, = $26, $34,680

16. Equation Analysis Sheet
7. J. Hofner, the owner, withdraws $500 for personal use.

17. Equation Analysis Sheet
7. J. Hofner, the owner, withdraws $500 for personal use.
Accounting Equation $61, = $26, $34,180

18. Equation Analysis Sheet
8. One of the trucks requires engine work costing $75. The repair is paid in cash when the truck is picked up.

19. Equation Analysis Sheet
8. One of the trucks requires engine work costing $75. The repair is paid in cash when the truck is picked up.
Accounting Equation $61, = $26, $34,105

20. Equation Analysis Sheet
Update the Balance Sheet based on the balances at the end of the Equation Analysis Sheet

21. Summary of Steps in Analyzing a Transaction
Identify all items (assets and liabilities) that must be changed and make all necessary changes.
Carefully analyze the information given for each transaction.
Classify each item affected as an asset or liability.
Decide whether each item affected is to be increased or decreased.

22. Summary of Steps in Analyzing a Transaction
See if the owner’s equity has changed.
Remember the accounting equation.
If assets decrease and liabilities are unchanged, the equation must be balanced by a decrease in owner’s equity.
Make certain that at least two of the individual items / accounts have changed.
It is possible for several items to change, but there can never be only one change.

23. Summary of Steps in Analyzing a Transaction
Make sure that the equation is still in balance.
The fundamental accounting equation (Assets = Liabilities + Owner’s Equity) must always be in balance.

24. Exercise #1
Using a spreadsheet program, set up a Equation Analysis Sheet (as per below) and record the following transactions. Calculate the new totals after each entry to make sure the equation balances.
Stationary and supplies are purchased from Ace Supply on credit for $75. They will be paid for within 30 days.
A new desk for the office is purchased for $450 cash.
D. Murray, a debtor, pays her debt in full.
A $100 service is performed for a customer who pays in cash.
A used truck costing $6,500 is purchased from Pine Motors. A down payment of $500 is made. It is agreed the balance will be paid within three months.
Ace Supply, a creditor, is paid $75.
The owner, Sheila Kostiuk, withdraws $100 from the business for her own use.

25. Exercise #2
The balance sheet of Triangle Real Estate of Tweed, Ontario, at the close of business on September 30, 2007, is as follows:

26. Exercise #2 (continued)
Prepare an equation analysis sheet, using a spreadsheet program, and record the figures from the balance sheet provided
Analyze the transactions of October 1, listed below, and record the necessary changes on the equation analysis sheet. After each transaction, ensure that the equation is still in balance.
After completing transaction 5, prepare a new balance sheet.
October 1st Transactions:
Triangle Real Estate receives $100 cash from N. Swartz in partial payment of the amount owed by him.
Acme Supply is paid $200 cash in partial payment of the debt owed to them.
Supplies costing $95 are purchased for cash from the Standish Company.
Triangle Real Estate sells a home for A.J. Buhler. For this service, Triangle Real Estate receives a commission of $4,700 cash.
A new desk (Office Furniture) is purchased from Ideal Furniture for $950 cash.

27. Exercise #3
Alliance Appliance Service in Renforth, Ontario, owned by Wayne Dalli, has the following assets and liabilities at the close of business on October 20, 2007.
Assets
Cash $ 1,395
A/R – N. Chang
A/R – P. O’Neil
Equipment ,316
Delivery Truck 19,750
Land ,000
Building ,000
Liabilities
Bank Loan $ 1,395
Mortgage Payable 52,700

28. Exercise #3 (continued)
Prepare an equation analysis sheet, using a spreadsheet program, and record the above items. Do not forget to calculate and include the capital figure.
Analyze the transactions of October 21, listed below, and record the necessary changes on the equation analysis sheet. After each transaction, ensure that the equation is still in balance.
After completing transaction 5, prepare a balance sheet.
October 21st Transactions:
The owner, in need of money for his personal use, draws $500 cash out of the business.
P. O’Neil pays her debt of $527.
A repair service is performed for a customer. The customer pays the full amount of the bill, $90, in cash.
A new electrical tester is purchased for $410 and paid for in cash.
The regular monthly mortgage payment of $900 in cash is made.

29. Homework Class Work Assignment Review Exercises Exercise 1 (pg. 70)
Challenge Exercise
Exercise 7 (pg. 72)
Assignment