Chapter 1 HW ACC1101 CH 1 Cielo Castaneda ACC 1101 Chapter 1 HW 08 30 EX 1: Types of Businesses

for which of these businesses is the accounting equation relevant

A business providing services rather than products to customers. Issues $20,000 shares of common stock for cash. Current liabilities are the current debts the business has incurred. The following T-accounts may help you to learn these ‘golden rules’ of double-entry bookkeeping.

for which of these businesses is the accounting equation relevant

Will cause a reduction in the corporation’s retained earnings, which in turn reduces the corporation’s stockholders’ equity. However, this will not reduce the corporation’s for which of these businesses is the accounting equation relevant net income. There is no effect on the total amount of assets. However, the asset Cash increased by the same amount that the asset Accounts Receivable decreased.

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This is the value of money that the business owners can get after all liabilities are paid off if the business shuts down. This may be in the form of shared capital or outstanding shares of stocks. Examples of equity are capital and retained earnings. Retained earnings are the sums of money that came from the company’s profit that was not given back to the shareholders. Prepaid expenses are amounts paid by the company to purchase items or services that represent future costs of doing business. Examples include office supplies, insurance premiums, and advance payments for rent. These assets become expenses as they expire or get used up.

  • Owner’s equity is also referred to as shareholder’s equity for a corporation.
  • And if there’s a mortgage on the building or the equipment, the notes payable is also listed as a liability.
  • Cash, Accounts Receivables, office equipment, office supplies and accumulated depreciation, all have a place on both types of companies’ chart of accounts.
  • The global adherence to the double-entry accounting system makes the account keeping and tallying processes more standardized and more fool-proof.

This can include actual cash and equivalents, such as highly liquid investment securities. The break-even point tells you how much you need to sell to cover all of your costs and generate a profit of $0. Every sale over the break-even point will generate a profit.

Financial statement

The accounting equation can therefore be re-arranged using simple algebra. Revenue is what your business earns through regular operations. Expenses are the costs to provide your products or services. Because you https://www.bookstime.com/ make purchases with debt or capital, both sides of the equation must equal. Company credit cards, rent, and taxes to be paid are all liabilities. Do not include taxes you have already paid in your liabilities.

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The business does not use all six months of the insurance at once, it uses it one month at a time. However, the business prepays for all of it up front. As each month passes, the business will adjust its records to reflect the cost of one month of insurance usage. In real life, accountants record transactions in journal entries to various accounts using a recording system that involves Debits and Credits.