As of Dec.

31, Charles Company had $12,000 in cash, held $95,000 of inventory, and owned other items t
It had also borrowed $40,000 from First City Bank. Categorize the above into assets and liabilities of the c
How much is the owners’ equity?

Charles Company
Balance Sheet as at December 31, _________

Assets Liabilities and Owners equity'

Cash $12,000
Supplies Inventory 95,000 Borrowed 40,000
Other assets 13,000 Owners' equity 80,000 <=== Balancing figure

$120,000 $120,000
y, and owned other items that originally cost $13,000.
ssets and liabilities of the company.

alancing figure
Selected balance sheet items are shown for the Microtech Company. Compute the missing amounts for each of the four y
What basic accounting equation did you apply in making your calculations?

Year 1 Year 2 Year 3 Year 4

Current assets $1,13,624 ? $85,124 ?
Non-current assets ? $1,98,014 $1,62,011 $1,51,021
Total assets $5,24,600 ? ? $2,20,111
Current liabilities $56,142 $40,220 ? ?
Non-current liabilities ? ? $60,100 $30,222
Paid-in capital $2,14,155 $1,73,295 $1,70,000 $1,70,000
Retained earnings $13,785 ($3,644) $1,452 $2,350
Total sources of funds $5,24,600 $2,88,456 ? $2,20,111

Using basic accounting equation

Year 1 Year 2 Year 3 Year 4

Current assets $113,624 $90,442 $85,124 $69,090
NonCurrent assets $410,976 $198,014 $162,011 $151,021
Total assets $524,600 $288,456 $247,135 $220,111

Current liabilities $56,142 $40,220 $15,583 $17,539

NonCurrent liabilities $240,518 $78,585 $60,100 $30,222
Paid-in capital $214,155 $173,295 $170,000 $170,000
Retained earnings $13,785 ($3,644) $1,452 $2,350
Total sources of funds $524,600 $288,456 $247,135 $220,111
g amounts for each of the four years.
Selected income statement items are shown for Astrotech Company. Compute the missing amounts for each of the four y
What basic accounting equation did you apply in making your calculations?
(Hint: To estimate the Year 4 missing numbers compute the typical percentage each expense item is of sales for Years 1

Year 1 Year 2 Year 3 Year 4

Sales $12,011 ? $11,545 $10,000
Less: Cost of goods sold 3,011 2,992 ? ?
Gross margin ? 8,976 8,659 ?
Less: other expenses 6,201 6,429 ? ?
Profit before taxes 2,799 ? 2,363 ?
Taxes expense ? 1,019 945 ?
Net Income (Profit after taxes) $1,679 $1,528 $1,418 ?

Using basic accounting equation

Year 1 Year 2 Year 3 Year 4

Sales $12,011 11,968 $11,545 $10,000
Less: Cost of goods sold 3,011 2,992 2,886 2,500
Gross margin 9,000 8,976 8,659 7,500
Less: other expenses 6,201 6,429 6,296 5,330
Profit before taxes 2,799 2,547 2,363 2,170
Taxes expense 1,120 1,019 945 870
Net Income (Profit after taxes) $1,679 $1,528 $1,418 $1,300
ng amounts for each of the four years.

ense item is of sales for Years 1 to 3 and apply the percentage figure for each expense item to Year 4’s sales.)

Percentage of sales approach

Year 1 Year 2 Year 3 Year 4

100% 100% 100%
25.07% 25.00% 25.00% 25.00%
74.93% 75.00% 75.00%
51.63% 53.72% 54.53% 53.30%
23.30% 21.28% 20.47%
9.32% 8.51% 8.19% 8.70%
13.98% 12.77% 12.28% 13.00%
 AHM Problem1-4 pg-20
An analysis of the transactions made by Acme Consulting for the month of July is shown below:

Acme Consulting Limited

Analysis of the transactions made in July __________.
a)
Cash Accounts Supplies Equipment Accounts Owners'
Description Receivable Inventory = payable equity
1. Investment in business 20,000 20,000
2. Bought equipment, borrowed -5,000 7,000 2,000
3. Bought supplies -1,000 1,000
4. Paid salaries in cash -4,500
5. Sales (on cash and on credit) 5,000 5,000
6. Payment to vendors -1,500 -1,500
7. Collected dues from customers 1,000 -1,000
8. Paid rent to landlord -750
9. Paid utilities bill -500
10. Travelling on credit card payment 200
11. Supplies consumed in the month -200
$12,750 $4,000 $800 $7,000 = $700 $20,000

c) Acme Consulting Limited Acme Consulting Limited

Income statement for July 01 - 31, ______ Balance Sheet as at Jul. 31, ___

Revenue 10,000 Cash

Expenses: Accounts Receivable
Supplies expense 200 Supplies Inventory
Salaries expense 4,500 Equipment
Rent expense 750
Utilities expense 500
Travelling expense 200 Accounts payable
6,150 Owners' equity
Operating profit (EBITDA) 3,850 Retained earnings
Less: Depreciation
Interest expenses
Corporate tax expense
Net profit 3,850

This problem illustrates several important points that managers should understand. These are:
a.       Every transaction involves at least two accounts.
b.       Net income is not equivalent to the net change in the cash account during an accounting period.
c.       Cash is influenced by both balance sheet and income statement events.
d.       The basic accounting equation (Assets = Liabilities + Owners’ equity) can be used to capture, illustrate, and explain t
consequences of many (but not all) transactions and events that involve a company.
shown below:
After smokey valley and its sequel is covered,
work out problem 1-4 and 2-5 in the class
Take-home assignment on problems 1-4, 1-5 and case 1-1

b) Balances at the end of each transaction

Retained Cash Accounts Supplies Equipment Accounts Owners' Retained
earnings Receivabl Inventory = payable equity earnings
20,000 0 0 0 0 20,000 0 0
15,000 0 0 7,000 2,000 20,000 0 0
14,000 0 1,000 7,000 2,000 20,000 0 0
-4,500 9,500 0 1,000 7,000 2,000 20,000 -4,500 0
10,000 14,500 5,000 1,000 7,000 2,000 20,000 5,500 0
13,000 5,000 1,000 7,000 500 20,000 5,500 0
14,000 4,000 1,000 7,000 500 20,000 5,500 0
-750 13,250 4,000 1,000 7,000 500 20,000 4,750 0
-500 12,750 4,000 1,000 7,000 500 20,000 4,250 0
-200 12,750 4,000 1,000 7,000 700 20,000 4,050 0
-200 12,750 4,000 800 7,000 700 20,000 3,850 0
$3,850
d) Explain the changes in cash account
e) Explain why the changes in cash account and the months' income are not the same.
me Consulting Limited Acme Consulting Limited
Sheet as at Jul. 31, ___ CASH RECEIPTS AND DISBURSEMENTS, JULY 1 - 31, ----.

$12,750 Receipts
4,000 Owners’ investment $20,000
800 Cash sales 5,000
7,000 Collection of accounts receivable 1,000
$24,550 Total receipts $26,000
Disbursements
$700 Equipment purchase $5,000
20,000 Supplies purchase 1,000
3,850 Salaries paid 4,500
$24,550 Payments to vendors 1,500
Rent paid 750
Utilities paid 500
Total disbursements $13,250
Increase in cash $12,750

period.
ture, illustrate, and explain the accounting
ome are not the same.
 AHM Chapter 1 Problem 5 Effects of Transactions on Accounting Equation
During the month of June, Bon Voyage Travel recorded the following transactions:
Explain how the transactions during the month changed the basic accounting equation (Assets = Liabilities + Owners’ eq
Bon Voyage Travel
Transaction Analysis
( To analyze the effect of accounting transactions on Accounting
Assets =
Accounts
Description of the transaction Cash Receivable
0 Balance on Jun. 01, 20xx 0 0
(a) Owners invested $25,000 in cash to start the business. They re 25,000
0 Balance 25,000 0
(b) The month’s rent of $500 was prepaid in cash. (500)
0 Balance 24,500 0
(c) Equipment costing $8,000 was bought on credit.
0 Balance 24,500 0
(d) $500 was paid for office supplies. (500)
0 Balance 24,000 0
(e) Advertising costing $750 was paid for with cash. (750)
0 Balance 23,250 0
(f) Paid $3,000 employee salaries in cash. (3,000)
0 Balance 20,250 0
(g) Earned travel commissions of $10,000 of which $2,000 was rece 2,000 8,000
0 Balance 22,250 8,000
(h) Paid $5,000 of the $8,000 owed to the equipment supplier. (5,000)
0 Balance 17,250 8,000
(i) Used $100 of the office supplies.
0 Balance 17,250 8,000
(j) Charged $1,000 of miscellaneous expenses on the corporate credit card.
0 Balance 17,250 8,000
(k) Rent expense for the month
0 Balance 17,250 8,000
(Assets = Liabilities + Owners’ equity) for the company.
yage Travel
tion Analysis
g transactions on Accounting Equation )
Assets = Liabilities + Shareholders'
Prepaid Creditor Bank Share Retained
Supplies rent Equipment s loan capital earnings
0 0 0 0 0 0 Bon Voyage
25,000 Balance Sheet as at
0 0 0 0 0 25,000 0
500 Liabilities and Owner's Equity
0 500 0 0 0 25,000 0 Liabilities
8,000 8,000 Creditors
0 500 8,000 8,000 0 25,000 0 Bank loan
500 Owner's Equity
500 500 8,000 8,000 0 25,000 0 Share Capital
(750) Retained Profit
500 500 8,000 8,000 0 25,000 (750)
(3,000)
500 500 8,000 8,000 0 25,000 (3,750)
10,000
500 500 8,000 8,000 0 25,000 6,250
(5,000)
500 500 8,000 3,000 0 25,000 6,250
(100) (100)
400 500 8,000 3,000 0 25,000 6,150
1,000 (1,000)
400 500 8,000 4,000 0 25,000 5,150
(500) (500)
400 0 8,000 4,000 0 25,000 4,650
 Bon Voyage Travel Bon Voyage Travel
Balance Sheet as at Jun. 31, 20xx Income Statement for Jun. 20xx

abilities and Owner's Equity Assets

Current Assets Revenues
4,000 Cash 17,250 Travel commission
0 4,000 Debtors 8,000 Expenses
Supplies 400 25,650 Rent Expense
25,000 Fixed Assets Advertising Expense
4,650 29,650 Office Equipment 8,000 Salaries Expense
Supplies Expense
33,650 33,650 Miscellaneous Expense
Total Expenses
Net Profit
Retained Profit, August 1
Available for distribution
Dividends
Retained Profit, August 31
oyage Travel Bon Voyage Travel
ement for Jun. 20xx Cash flow statement for Jun 20xx
Operating activities
Travel commission collected 2,000
Supplies bought (500)
10,000 Advertising charges (750)
Office rent (500)
500 salaries paid (3,000)
750 supplies
3,000 (2,750)
100 Investing activities
1,000 equipment bought for cash (5,000)
5,350 Financing activities
4,650 Capital introduced 25,000
0 Bank loan taken 0
4,650 dividend 25,000
0 Cash flow summary
4,650 Net cash flow 17,250
Cash on 01-Jan-20xx 0
17,250
1-1 Ribbons an' Bows

a) How would you report on the three-month operations of Ribbons an' Bows through June 30? (ignore income taxes)

Sales 7,720
cost of sales 2,100
operating expenses 3,940
operating profit 1,680
Profit before tax 1,480 ===> Yes, the firm is profitable (before deducting the salaries for the owner)

Why did its cash balance decline during the three month period?
cash was done from $4,000 to $3,390 i.e. $690 cash is used in this three-month period.
Current assets increased by 1120 (resources used in operations)
Ms. Diaz bought sewing m/c 1,800
2920 should have been the reduction in cash balanc
2230 is cash provided by operations to support the f
690 is the amount by which cash balance is fallen.

b) How would you report the financial condition of the business on June 30, 2006?

Current assets 9,280

Fixed assets (net) 3,490
Current liabilities 290
Long-term liabilities 10,000
Owners' equity 2,480

c) Do you believe that Carmen's first three months of operation could be characterized as "successful"?

Kim Fuller

Q1.

Q2. Value of assets is $277,000

Kim fuller and the three-members associates own equity capital of $165,000 (paid-in equity capital)
Bank provides a mortgage loan of $112,000.

Q3.

Baron Coburg

Q1.
Balance sheets
 IVAN Frederick
Beginning End of Beginning
of period period of period

Total assets 162 359 101

Amounts owed 0 3 0
Owners' equity 162 356 101

Q2. No definitive answer.

ough June 30? (ignore income taxes)

ucting the salaries for the owner)

s three-month period.
s used in operations)

ve been the reduction in cash balance

ovided by operations to support the funding for above.
ount by which cash balance is fallen.

erized as "successful"?

paid-in equity capital)

Frederick
End of
period Income Statement
Ivan Frederick
193 Revenue 243 138
0 Expenses 29 16
193 Net income 214 122