ch01p1The business pays $2,000 in cash to the landlord for office space rent.

Use the the following amounts to compute this company's expenses: Assets $11,000; Liabilities $2,000; Common Stock $10,000; Dividends $3,000; and Revenues $9,000.

$7,000 First, determine equity using the accounting equation. Assets = Liabilities + Equity Assets of $11,000 = Liabilities of $2,000 + Equity (an unknown) Subtract liabilities from both sides of the accounting equation. Assets of $11,000 - Liabilities of $2,000 = Equity of $9,000 Then, use part of the expanded version of the accounting equation to determine the amount of expenses. Equity = Common Stock + Revenues - Dividends - Expenses $9,000 = Common Stock of $10,000 + Revenues of $9,000 - Dividends of $3,000 - Expenses (the unknown) $9,000 = Common Stock of $10,000 + Revenues of $9,000 - Dividends of $3,000 - Expenses (the unknown) Expenses = $7,000

On January 31, Jean Consulting Company receives a bill for that month's utilities in the amount of $500. Jean sets it aside because she does not plan to pay the bill until its due date of February 15. What effect, if any, does this event have on the company's accounting equation as of January 31?

The business must record this event, which would increase liabilities and decrease equity on January 31. Even though the bill will not be paid until February 15, this event is an external transaction that needs to be recorded on January 31. This transaction would increase liabilities (an addition would be shown under the accounts payable column because the business owes a creditor) and decrease equity (a subtraction would be shown under the expenses column because the business used the utilities during the current month).

The business pays $2,000 in cash to the landlord for office space rent.

equity reduces by 2,000$