TUTORIAL 2: ACCOUNTING EQUATIONS

1. The basic accounting equation is Assets = Liabilities + Owner’s Equity.

For each of the following transactions, indicate the two (or more) effects on the accounting equation

of the business or company.

2. The owner invests personal cash in the business.

Assets Increase Decrease No Effect

Liabilities Increase Decrease No Effect

Owner’s Equity Increase Decrease No Effect

3. The owner withdraws cash from the business for personal use.

Assets Increase Decrease No Effect

Liabilities Increase Decrease No Effect

Owner’s Equity Increase Decrease No Effect

4. The company receives cash from a bank loan.

Assets Increase Decrease No Effect

Liabilities Increase Decrease No Effect

Owner’s Equity Increase Decrease No Effect

5. The company repays the bank that had lent money to the company.

Assets Increase Decrease No Effect

Liabilities Increase Decrease No Effect

Owner’s Equity Increase Decrease No Effect

6. The company purchases equipment with its cash.

Assets Increase Decrease No Effect

Liabilities Increase Decrease No Effect

Owner’s Equity Increase Decrease No Effect

7. The owner contributes his/her personal truck to the business.

Assets Increase Decrease No Effect

Liabilities Increase Decrease No Effect

Owner’s Equity Increase Decrease No Effect

8. The company purchases goods on credit.

Assets Increase Decrease No Effect

Liabilities Increase Decrease No Effect

Owner’s Equity Increase Decrease No Effect

9. The company purchases land by paying half in cash and signing a note payable for

the other half.

Assets Increase Decrease No Effect

Liabilities Increase Decrease No Effect

Owner’s Equity Increase Decrease No Effect

10. Which of the following will cause owner’s equity to increase?

Expenses Drawings Revenue

11. Which of the following will cause owner’s equity to decrease?

Net Profit Net Loss Revenue

12. Complete the columns to show the effects of the following transactions.

Example Effect upon

Assets Expenses Liabilities Owner’s Equity Revenue
Started a +Cash +Capital
business RM10,000 RM10,000
with cash
RM10,000
a) Bought a van on +Van +Account
credit RM8,700 RM8,700 Payable
RM8,700
b) Repaid by cash -Cash -Loan
a loan owed to F RM10,000 RM10,000
Duff RM10,000
c) Bought goods +Inventory
for RM1,400 RM1,400
paying by cheque -Bank
RM1,400
d) The owner puts +Cash +Capital
a further RM4,000 RM4,000 RM4,000
cash into the
business
e) Bought goods +Inventory +Account
on credit RM760 RM760 Payable
RM760
f) The owner takes -Cash -Capital
out RM200 cash RM200 RM200
for his personal
use
g) We pay account -Bank -Account
payable, RM1,150 RM1,150 Payable
by cheque. RM1,150
h) Paid electricity -Cash +Utilities
bill with cash RM250 RM250
RM250