Review Activities Chapter 3

• Economie

Chapter 3, Review activities

Pages 53-77

Objectives

• Complete the accounting equation.
• Classifying the accounts within the accounting Equation
• Evaluate the effect of transactions on the accounting equation.

Find which among these is the correct formula of accounting equation.

1. Assets+Liabilities= Owner's Equity
2. Asset-Owner's Equity
3. Assets=Liabilities-Owner's Equity
4. Asset=Liability+ Owner's equity

A business owned and operated by Mike Murray uses these accounts.

INSTRUCTIONS Look at the following list of accounts, and determine the
missing amount for each of the question marks.

Assets =                          Liabilities +                          Owner’s Equity

Cash in Bank $4,500         Accounts Payable           Mike Murray,

Accounts Receivable 1,350          ?                                  Capital $9,250

Office Equipment 5,000

Assets=?                         Liabilities=?                Total Owner's Equity=?

Answers

Total Assets $10,850

Liabilities (Accounts Payable) $1,600

Predict what would happen to owner’s equity if this business paid all of its bills today.

Answer

Owner’s equity would not change.

The decrease in Cash in Bank (an asset) would equal the decrease in Accounts Payable (a liability).

Classifying Accounts Within the Accounting Equation

Listed here are the account names and balances for Wilderness Rentals.

Accounts Payable $ 7,000 Cash in Bank $ 5,000

Accounts Receivable 2,000 Office Equipment 3,000

Camping Equipment 12,000 Ronald Hicks, Capital 15,000

INSTRUCTIONS Using these account names and balances:

1. List and total the assets of the business.

2. Determine the amount owed by the business.

3. Give the amount of the owner’s equity in the business

Answer the above question here.

Answers

Total Assets: $22,000 (Cash in Bank, Accounts Receivable, Camping Equipment, Office Equipment)

Liabilities: $7,000

Owner’s Equity: $15,000

After graduating from college, Abe Shultz decided to start a pet grooming service called Kits & Pups Grooming.

INSTRUCTIONS Use a form similar to the one that follows. For each of the
following transactions: 

1. Identify the accounts affected, using the account names on the form.

2. Determine the amount of the increase or decrease for each account.

3. Write the amount of the increase (+) or decrease (_) in the space under

each account affected.

4. On the following line, write the new balance for each account.

5. Transaction 1 is completed as an example.

Date              Transactions

Jan. 2            1. Abe Shultz began the business by depositing                                    $10,000 in
a checking account at the Shoreline National Bank in the  name of the business, Kits & Pups Grooming. 

2. Bought grooming equipment for cash, $1,000.

3. Issued a check for $900 for the monthly rent.

4. Bought $6,000 worth of new office equipment on account

for use in the business.

Answer the above question.

Answers

1.Cash in Bank + $10,000          Capital Account-Abe Shultz  +                                                                                                                    $10,000

2.Grooming Equip+$1,000         Cash in Bank -$1,000

3.Cash in Bank  -$900                  Capital Account -Abe Shultz                                                                                                                 -$900

4.Office Equipment+$6000                Account Payable + $6000

Give your answers here for the above question.

What are the important points of the lesson?