ACC101 – PRINCIPLES OF ACCOUNTING

Exercise 1-1:

Classify each of the following items as Asset (A), Liability (L), or Equity (E)

a. Company truck
b. Account Receivable
c. Owner Capital
d. Land
e. Account Payable
f. Supplies
g. Machine
h. Building
i. Owner Withdrawal

Exercise 1-2:

[Matching] Identify accounting principles and assumptions for each description below:

A. General accounting principle

B. Specific accounting principle

C. Cost principle

D. Matching (expense recognition) principle

E. Business entity assumption

F. Going-concern assumption

G. Revenue recognition principle

H. Full disclosure principle

1. A company reports details behind financial statements that would impact users’
decisions.

2. Financial statements reflect the assumption that the business continues operating.

3. A company records the expenses incurred to generate the revenues reported.

4. Derived from long-used and generally accepted accounting practices.

5. Every business is accounted for separately from its owner or owners.

6. Revenue is recorded only when the earnings process is complete.

7. Usually created by a pronouncement from an authoritative body.

8. Information is based on actual costs incurred in transactions.

Exercise 1-3:

After a year of planning, Justin started Law Firm, a new business called Justin
Lawyers, and completed the following transactions during its first year of operations.

a. Justin invests $70,000 cash and office equipment valued at $10,000 in the company.

b. The firm purchased a $150,000 building to use as an office. Justin Lawyers paid
$20,000 in cash and signed a note payable promising to pay the $130,000 balance over
the next 10 years.

c. The firm purchased office equipment for $15,000 cash.

d. The firm purchased $1,200 of office supplies and $1,700 of office equipment on
credit.

e. The firm paid a local newspaper $500 cash for printing an announcement of the
office’s opening.

f. The firm completed a financial plan for a client and billed that client $2,800 for the
service.

g. The firm designed a financial plan for another client and immediately collected a
$4,000 cash fee.

h. Justin withdrew $3,275 cash from the company for personal use.

i. The firm received $1,800 cash as partial payment from the client described in
transaction f.

j. The firm made a partial payment of $700 cash on the equipment purchased in
transaction d.

k. The firm paid $1,800 cash for the office secretary’s wages for this period.

Required: Analyze the effect of each transaction on individual items of the accounting
equation.