Principles of Accounting

1
Johnson Company had assets of $140,000 and
liabilities of $60,000 at the beginning of the
year, and assets of $200,000 and liabilities of
$70,000 at the end of the year. During the
year,$20,000 was invested in the business, and
withdrawals of $24,000 were made.

What amount of net income did the company

earn during the year?
Assets - Liabilities = Owner’s Equity
Beginning of the year
140,000$ - 60,000$ = 80,000$
End of year
200,000$ - 70,000$ = 130,000$

Owner’s Equity(B) 80,000$

+ Investment +20,000$
- Withdrawals - 24,000$ Net income=54,000$
+Net income ?
Owner’s Equity(E) 130,000$
A company reported total equity of $145,000 on its
December 31, 2016 balance sheet.
The following information is available for the year
ended December 31, 2017:

2017 Revenues $210,000

2017 Expenses 165,000
Total assets, at December 31, 2017 282,000.

What are the Liabilities of the company at

December 31, 2017?
• Assets = Liabilities + Owner’s Equity
• Liabilities = Assets - Owner’s Equity
• L =282,000 - (145,000 +210,000 -165,000)
• L = 92,000
 (A) To establish Pizza Aroma, a new gourmet pizza
restaurant, the business receive $30,000 cash as an
initial investment from owner-manager Mauricio Rosa.
Identify:

Received: Cash (A+) Given: Recognition of owner’s investment

(OE+)

Is the accounting equation in balance?

Assets = Liabilities + Owner’s Equity

Cash Mr. Rosa, Capital
+ 30,000 +30,000
 (B) Mauricio negotiates with a local bank and signs a
three year $20,000 note in Pizza Aroma’s name ( the
loan is a liability of the business)
1. Identify:
Received: Cash 20,000 (A+) Given: written promise by
the business to pay the bank
Notes
2. Is the accounting equation Payable 20,000 (L+)
in balance:
Assets = Liabilities + Owner’s Equity
Cash Notes Payable M. Rosa, Capital
+ 30,000 +30,000
+ 20,000 +20,000
(C) Pizza Aroma Pays $4,800 in advance to the building
owner to cover rent for the store from May through
October (Six Months)
1. Identify:
Received: Prepaid Given: Cash 4,800
Rent 4,800 (A+) (A-)
2. Is the accounting equation in balance?
Assets = Liabilities + Owner’s
Equity
Cash Prepaid rent Notes Payable Mr. Rosa,
Capital
+ 30,000 +4,800 + 20,000 + 30,000
+ 20,000
-4,800
(D) A construction company installs equipment at a cost of
$36,000; Pizza Aroma pays $33,000 in cash and promises
to pay the balance next month.
Identify:
Received: Given: Cash 33,000
Equipment 36,000 (A-)
(A+) Accounts Payable
3,000 (L+)
Is accounting equation in balance?

A L OE
Cash Prepaid Equipme AP Notes P Mr. Rosa, Capital
Rent nt
+ +30,000
30,000
+ +20,000
20,000
- 4,800 +4,800
- 33,000 +36,000 +3,000
(E) Pizza Aroma orders and receives $2,000 in supplies on
account from local fresh food suppliers.
Identify:

Received: Supplies (+A) Given: A promise to pay, Accounts

$ Is
 2,000 Payable
the accounting equation in (+L) $ 2,000
balance?
Is the accounting equation in balance?
A L OE
Cash Supplies Prepaid Equipme A/P Notes/ M.Rosa,
Rent nt P Capital
+30,000 +30,000
+20,000 +20,00
0
-4,800 +4,800
-33,000 +36,000 +3,000
+2,000 +2,000
 (F) Pizza Aroma pays $1,000 cash on account to a
supplier.
Identify:
Received: A reduction in the amount owed to Given: Cash (-
the Supplier, A/P (-L) $1,000 A)$ 1,000

A L
Is accounting equation in balance? OE
Cash Supplies Pre. Rent Equipmen A/P Notes/P M.Rosa,
t Cap
30,000 30,000
20,000 20,000
-4,800 +4,800
-33,000 +36,000 +3,000
2,000 2,000
-1,000 -1,000
 (G) Pizza Aroma puts $6,000 cash in a saving account
at a bank
Identify:
Received: Investments (+A) $6,000 Given: Cash (-A) $6,000
Is accounting equation in balance?
A L OE
Cash Investmen Supplie Pre. Rent Equipme A/P Notes/P M.Rosa, Cap
ts s nt
+30,000 +30,000
+20,000 +20,000
-4,800 +4,800
-33,000 +36,000 +3,000
+2,000 +2,000
-1,000 -1,000
-6,000 +6,000
5,200 6,000 2,000 4,800 36,000 4,000 20,000 30,000
$ 54,000 $ 54,000