View Full Version : Expanded Accounting Equation
NayNay1
Mar 22, 2009, 05:24 PM
For the following four cases below, please advise if I have computed the missing quantity correctly within the backets to support an expanded accounting equation.
Transactions Assets Liabilities Capital stock Retained earnings
Case A $23,000.00 $11,000.00 $7,500.00 $4,500.00
Case B $17,500.00 $9,400.00 $4,500.00 $3,600.00
Case C $52,000.00 $14,000.00 $11,000.00 $27,000.00
Case D $45,000.00 $29,000.00 $18,000.00 $2,000.00
ROLCAM
Mar 22, 2009, 05:36 PM
Transactions Assets Liabilities Capital stock Retained earnings:-
FORMULA:-
A - L = CAP STOCK + RET EARNINGS.
Case A $23,000.00 $11,000.00 $7,500.00 $4,500.00
$12,000 = $12,000 YES
Case B $17,500.00 $9,400.00 $4,500.00 $3,600.00
$8,100 = $8,100 YES
Case C $52,000.00 $14,000.00 $11,000.00 $27,000.00
$38,000 = $38,000 YES
Case D $45,000.00 $29,000.00 $18,000.00 $2,000.00
$16,000 = $ 20,000 NO THIS IS INCORRECT.
To make it correct the $2,000 should be NEGATIVE not POSITIVE.
NayNay1
Apr 5, 2009, 05:13 PM
Please advise if the correct accounting classifications, debit-credits are identified properly. See my answers below:
Account Classifications and Debit-Credit Relationships
Using the format provided, for each account identify
(1) whether the account is a balance sheet (B/S) or an income statement (I/S) account;
(2) whether it is an asset (A), a liability (L), an owners’ equity (OE), a revenue (R), or an expense (E) account;
(3) whether the account is a real or a nominal account;
(4) whether the account will be “closed” or left “open” at year-end; and
(5) whether the account normally has a debit or a credit balance.
Account Title (1) (2) (3) (4) (5)
1. Accounts
Receivable B/S A Real Open Debit
Account Title (1) (2) (3) (4) (5)
2. Accounts Payable B/S L Real Open Credit
Account Title (1) (2) (3) (4) (5)
3. Prepaid Insurance B/S E Nominal Closed Credit
Account Title (1) (2) (3) (4) (5)
4. Mortgage Payable B/S L Nominal Closed Credit
Account Title (1) (2) (3) (4) (5)
5. Rent Expense I/S L Real Open Debit
Account Title (1) (2) (3) (4) (5)
6. Sales Revenue I/S L Nominal Closed Credit
Account Title (1) (2) (3) (4) (5)
7. Cost of Goods Sold
B/S A Real Open Debit
Account Title (1) (2) (3) (4) (5)
8. Dividends I/S OE Real Open Credit
Account Title (1) (2) (3) (4) (5)
9. Capital Stock I/S L, OE Real Open Credit
Account Title (1) (2) (3) (4) (5)
10. Inventory B/S A Real Open Debit
Account Title (1) (2) (3) (4) (5)
11. Retained Earnings
B/S L, OE Real Open Credit
Account Title (1) (2) (3) (4) (5)
12. Prepaid Rent B/S A Nominal Closed Credit
Account Title (1) (2) (3) (4) (5)
13. Supplies on Hand B/S A Real Open Debit
Account Title (1) (2) (3) (4) (5)
14. Utilities Expense B/S L Real Closed Credit
Account Title (1) (2) (3) (4) (5)
15. Income Taxes Payable
B/S L, OE, Real Closed Credit
Account Title (1) (2) (3) (4) (5)
16. Interest Revenue
B/S A Real Open Debit
Account Title (1) (2) (3) (4) (5)
17. Notes Payable B/S L, OE, Nominal Closed Credit
Account Title (1) (2) (3) (4) (5)
18. Income Tax Expense
I/S L Nominal Closed Credit
Account Title (1) (2) (3) (4) (5)
19. Wages Payable I/S L Real Open Credit
Account Title (1) (2) (3) (4) (5)
20. Unearned Rent Revenue
I/S L Real Open Credit
Account Title (1) (2) (3) (4) (5)
21. Land B/S A Real Open Debit
Account Title (1) (2) (3) (4) (5)
22.Unearned Consulting Fees
B/S L, OE Real Open Debit
Account Title (1) (2) (3) (4) (5)
23. Interest Receivable
B/S A Real Open Debit
Account Title (1) (2) (3) (4) (5)
24. Consulting Fees B/S L Real Closed Credit
morgaine300
Apr 8, 2009, 01:57 AM
You have to do (2) before you can know the answer to (1). Which might be part of the difficulty you're having. You cannot know which statement it goes on if you don't already know what kind of account it is. The kind of account determines the statement. Do (2) first. I'll never understand why a problem has you doing this in an order it can't be done in.
There's far too many of these incorrect to go over each individually. So let me give you some basics instead.
You have five kinds of accounts: assets, liabilities, equity, revenue and expense. Please note #'s 5 & 6 - one says revenue and one says expense, but you've called them both liabilities. They can't be both a revenue and liability, or an expense and liability, because those are different kinds of accounts.
Balance Sheet contains assets, liabilities and equity.
Income Statement contains revenues and expenses.
I'm seeing far too many where you have the statement correct and kind of account incorrect, or vice versa. If you follow the above, then you cannot have, for instance, an expense that's on the Balance Sheet. You have to know what kind of account it is before you can know what statement it goes on, following the above directions.
Furthermore, assets are debits, liabilities credits, equity credits, revenues credits, and expense debits. All accounts will follow this, except contra accounts. Contra accounts are negative accounts that subtract from (offset) some other account. I believe the only one of those you have listed is Dividends. (Equity, but is a debit account because it offsets Retained Earnings.) So except for that account, follow these rules.
This is a little long to try to correct every one. Try to go through the above rules and see if you can get some corrected. If nothing else, you need to be consistent. Like a liability can't be a B/S one place and an I/S another, or real one place and nominal the next. They should all be consistent. If you will determine the kind of account first (i.e. instruction 2), the rest should all just fall into place if you follow everything I said above.
morgaine300
Apr 8, 2009, 01:58 AM
P.S. New question should have been in a new thread.