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Accounting Principles and Equation Analysis

The document outlines key accounting assumptions and principles illustrated through Barry's café operations, including the Business Entity Assumption and Going Concern Assumption. It also demonstrates the application of the accounting equation through various transactions for Elaine’s Inflatables, detailing changes in assets, liabilities, and equity. Final balances confirm that total assets equal the sum of liabilities and equity.

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makhmudovkhasan9
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8 views2 pages

Accounting Principles and Equation Analysis

The document outlines key accounting assumptions and principles illustrated through Barry's café operations, including the Business Entity Assumption and Going Concern Assumption. It also demonstrates the application of the accounting equation through various transactions for Elaine’s Inflatables, detailing changes in assets, liabilities, and equity. Final balances confirm that total assets equal the sum of liabilities and equity.

Uploaded by

makhmudovkhasan9
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Homework – Chapter 1

S-F 1-5 – Applying Accounting Assumptions and Principles


a) Barry separated his personal assets from the café’s assets.
This shows the Business Entity Assumption. The café is treated as a separate unit from
Barry’s personal life.

b) Barry expects his café will continue operating in the future.


This shows the Going Concern Assumption. The business is assumed to keep running, not to
close soon.

c) Barry’s Café reports all transactions in Singapore dollars.


This shows the Monetary Unit Assumption. All activities are measured in the same currency.

d) The furniture and coffee roaster are recorded at their purchase price.
This shows the Historical Cost Principle. Assets are recorded at the amount paid when they
were bought.

S-F 1-6 – Using the Accounting Equation


1. Assets = $18,400, Liabilities = $9,050.
Equation: Assets = Liabilities + Equity.
So, Equity = 18,400 − 9,050 = $9,350.

2. Next year:
- Assets increase by 4,300 → new Assets = 22,700.
- Equity decreases by 3,850 → new Equity = 5,500.
Liabilities = Assets − Equity = 22,700 − 5,500 = $17,200.

S-F 1-10 – Using the Accounting Equation to Analyze Transactions


Transactions for Elaine’s Inflatables:

a) Received $10,000 cash for common stock.


- Cash ↑10,000; Common Stock ↑10,000.

b) Bought equipment for $5,000 on account.


- Equipment ↑5,000; Accounts Payable ↑5,000.

c) Paid $400 cash for supplies.


- Cash ↓400; Supplies ↑400.

d) Earned and received $2,500 cash for services.


- Cash ↑2,500; Service Revenue ↑2,500.
e) Paid $400 wages.
- Cash ↓400; Wages Expense ↑400.

f) Paid dividends of $1,000.


- Cash ↓1,000; Dividends ↑1,000.

g) Earned $1,000 for services on account.


- Accounts Receivable ↑1,000; Service Revenue ↑1,000.

h) Paid $1,000 rent.


- Cash ↓1,000; Rent Expense ↑1,000.

i) Received utility bill $250, not paid yet.


- Accounts Payable ↑250; Utilities Expense ↑250.

Final Balances:
Assets:
- Cash = 9,700
- Accounts Receivable = 1,000
- Supplies = 400
- Equipment = 5,000
Total Assets = 16,100

Liabilities:
- Accounts Payable = 5,250

Equity:
- Common Stock = 10,000
- Net Income = (Revenue 3,500 − Expenses 1,650) = 1,850
- Minus Dividends 1,000 → Retained Earnings = 850
Total Equity = 10,850

Check: Liabilities (5,250) + Equity (10,850) = 16,100 = Assets ✓

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