Accounting Coach: Accounting Equation

After the year ends, transferred from temporary account (income statement) to permanent account (balance sheet)

Although revenues cause owner's equity to increase, the revenue transaction is not recorded in Owner's Equity until ______________.

Accounting Equation

Assets = Liabilities + Owner's Equity. For a corporation the equation is Assets = Liabilities + Stockholders' Equity. For a nonprofit organization the accounting equation is Assets = Liabilities + Net Assets. Because of double-entry accounting this equation should be in balance at all times. The accounting equation is expressed in the financial statement known as the balance sheet.

Debit: Cash $10,000 Credit: Owners Equity $10,000 Increase to assets and owner's equity

J. Ott invests personal funds of $10,000 to start ASC. What is the journal entry and effect on the ACCOUNTING EQUATION

Credit: Cash $5,000 Debit: Equipment $5,000 Decrease to Assets, Increase to Assets (by same amount) No effect on Liabilities or Owner's Equity

On December 3, 2013 Accounting Software Co. spends $5,000 of cash to purchase computer equipment for use in the business: What is the journal entry and effect on the ACCOUNTING EQUATION:

Debit: Drawing $100 Credit: Credit $100 Decrease to owner's equity, Decrease to assets

Ott withdraws $100 of cash from the business for his personal use. What is the journal entry and effect on the ACCOUNTING EQUATION:

general ledger

That part of the accounting system which contains the balance sheet and income statement accounts used for recording transactions

balance sheets, results of operations

The income statement (which reports the company's revenues, expenses, gains, and losses during a specified time interval) is a link between _____________. It provides the _____________ —an important part of the change in owner's equity.

Debit: Cash $7,000 Credit: Liabilities $7,000 Increase to Assets, Increase to Liabilities, No effect on Owner's Equity

On December 4, 2013 ASC obtains $7,000 by borrowing money from its bank. What is the journal entry and effect on the ACCOUNTING EQUATION:

Debit: Advertising Expense $600 Credit: Cash $600 Decrease to Assets, Decrease to Owner's Equity

On December 5, 2013 Accounting Software Co. pays $600 for ads that were run in recent days. What is the journal entry and effect on the ACCOUNTING EQUATION:

Debit: Accounts Receivable $900 Credit: Service Revenues $900 Increase to Assets, Increase to Owner's Equity

On December 6, 2013 ASC performs consulting services for its clients. The clients are billed for the agreed upon amount of $900. The amounts are due in 30 days. What is the journal entry and effect on the ACCOUNTING EQUATION: