accounting equation is an equation that includes the Assets‚ Liabilities‚ and Stock of a company. These three attributes determine the value of a company. This value is used to file the company’s taxes. When the value is figured by the accounting equation‚ investors can determine a possible return on their investments. Assets are resources owned by a business. Liabilities are the debts and obligations of the business. Liabilities represent claims of creditors on the assets of the business
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(a) The liabilities of Cummings Company are $90‚000 and the stockholders’ equity is $230‚000. What is the amount of Cummings Company’s total assets? (b) The total assets of Haldeman Company are $170‚000 and its stockholders’ equity is $90‚000. What is the amount of its total liabilities? (c) The total assets of Dain Co. are $800‚000 and its liabilities are equal to one-fourth of its total assets. What is the amount of Dain Co.’s stockholders’ equity? Assets = Liabilities + Stockholders’
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Exercise 2.1 Assets‚ liabilities and owner’s equity Item | Classification | a Stock of supplies | | b Mortgage | | c Cash at bank | | d Debtors Control | | e Loan | | f Creditors Control | | g Equipment | | h Bank (overdraft) | | i Vehicle | | j Capital | | Exercise 2.2 Accounting equation a Calculation | | Owner’s Equity | $ | b Calculation | | Owner’s Equity | $ | c Calculation |
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Chapter 1 Accounting and the Business Environment Short Exercises (5 min.) S 1-1 Revenues increase owner’s equity by delivering goods or services to customers. Expenses decrease owner’s equity by using up assets or increasing liabilities in order to deliver goods or services to customers. (5 min.) S 1-2 1. The banker is an external user of financial information. 2. The financial statement that would provide the best information to answer the banker’s questions is the
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CHAPTER 1 COVERAGE OF LEARNING OBJECTIVES LEARNING OBJECTIVES QUESTIONS EXERCISES PROBLEMS OTHER LO1: Explain how accounting information assists in making decisions. 1‚2‚3‚4‚5‚23 49‚51 LO2: Describe the components of the balance sheet. 6‚7‚22 26 49‚50‚51 LO3: Analyze business transactions and relate them to changes in the balance sheet. 8‚9 27‚28 32‚33‚34‚35‚ 36‚37 48‚51 LO4: Prepare a balance sheet from transactions data. 29‚30‚31 38‚39‚40‚ 41‚42 LO5: Compare
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financially sound by a comparison of the amount of finance raised by debt with the amount raised from owners. The higher the proportion raised by the debt‚ the higher the risk to the creditors. The working capital‚ i.e. current assets less current liabilities indicates a company’s ability to pay its bills on time. This assumes that the current assets can be readily turned into cash. To declare a dividend a company must have adequate cash (or overdraft facilities) and adequate retained profits. The decision
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Profit and loss accounts‚ balance sheets Profit and loss accounts‚ balance sheets Two of the most important financial statements for a business are the Profit and Loss Account‚ and the Balance Sheet. The Profit and Loss Account shows the profit or loss of a business over a given period of time e.g. 3 months‚ 1 year‚ etc. In contrast‚ the Balance Sheet is like a photograph taken at an instant in time giving a picture of what the business owns and what the business owes at that moment in time
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Calculations- Liabilities and Assets for PepsiCo Inc. based on their consolidated Balance Sheet Current Ratio= 10‚454 (Current Assets) | = 1.11% | 9‚406 (Current Liabilities) | | 2005 2004 Current Ratio= 8‚639 (Current Assets) | = 1.28% | 6‚752 (Current Liabilities) | |
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Solution – Chapter 10 E 10-9 Assets = Liabilities + Equity Date Cash Bond Payable Interest Payable Interest Expense +300‚000 +300‚000 (a) Jan 1 -12‚000 -12‚000* (b) July 1 +12‚000 -12‚000 (C) Dec 31 *(R$300‚000 X 8% X 1/2) = 12‚000 E 10-10 (a) 1. Assets = Liabilities + Equity Date Cash Bond Payable Discount on B/P +485‚000 +500‚000 -15‚000 2. Semiannual interest payments ($20‚000* X 10) $200‚000 Plus: bond
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means “Flow of Funds”. There are two concepts of working capital – gross concept and net concept. • Gross working capital refers to the firm’s investment in current assets • Net working capital means excess of current assets over current liabilities. In business several transactions take place. Some of these transactions increase the funds while others decrease the funds. Some may not make any change in the funds position. In case a transaction results in increase in funds‚ it will be termed
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