1. The Accounting Equation

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

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

4. 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 claims the owner will have claims
against the economic against the economic resources. resources.
Assets (own)
Owner’s Equity
(Owner’s Investment)
Liabilities (Borrow)

5. + = Owner’s Equity Assets Liabilities 5. The accounting equation is a:
____________ ______________ ______________________
$100, $70,000 $30,000
5. The accounting equation is a:
- Fundamental concept and basis for all accounting today
Assets =
Liabilities +
Owner’s Equity

6. - Question: + = Assets Owner’s Equity Liabilities
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 $2 400.
Determine the Owner’s Equity and construct an accounting equation that itemizes the three elements, A, L, & OE.
Assets +
Owner’s Equity =
Liabilities
Cash $800
Office Equipment $2,200
Law Books $2,400
Accounts Payable $200
Bank Loan $1200 -
= $5,400
= $1,400
= $4,000

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