Bookkeeping 05

Question 1

1. In the BALANCE SHEET, how are Assets and Liabilities listed?

Answer 1

ASSETS are listed by categories ON THE LEFT SIDE.

EQUITIES (Liabilities + Capital) on THE RIGHT SIDE.

Question 2

2. In the ASSETS of a business, the initial capital or other assets provided by the owner to start the business (such as a truck) become part of the:

Answer 2

NET WORTH, or CAPITAL, or OWNER’S EQUITY.

Question 3

3. How is the INITIAL CAPITAL transaction handled?

Answer 3

Suppose you put up 20K in cash to start the business, then A=L+C, or 20K=0 + 20K

Question 4

4. Then you buy 5K worth of toys for resale. How is this recorded?

Answer 4

20K=0K+20K
20K-5K(cash spent)+5K(toys for resale)=
20K-5K+5K=0K+20K
20K=0K+20K

Question 5

5. p. 17

Why did the last transaction balance out?

Answer 5

The purchase reduced CASH ON HAND (Asset) by 5K, but increased INVENTORY (also an asset) by 5K, so both sides of the equation still balance.

Question 6

6. Then you buy a truck to deliver toys. Cost = 15K, and you pay 3K cash and sign a 12K note. How is this accounted for?

Answer 6

20K + 15K truck - 3K cash payment=+12K liability (truck note) + 20K capital

Question 7

7. Then you sell 1K of the toys for 1300. How is this transaction handled?

Answer 7

1. Inventory (asset) is reduced by 1K.
2. CASH ON HAND (also an asset) is increased by 1,300
3. CAPITAL is increased by 300.

ASSETS = LIABILITIES + CAPITAL
32,330 = 12K + 20,300.

Question 8

8. Then you sell $500 worth of toys “ON ACCOUNT”:

Answer 8

Inventory = -500
Accounts Receivable (asset) = +500

Question 9

9. What are REVENUES?

Answer 9

Earnings of the business,from the sale of products (SALES REVENUE) or services (SERVICE REVENUE).

Question 10

10. What are EXPENSES?

Answer 10

The COST OF DOING BUSINESS, an outflow of assets. EXPENSES may flow out in the form of Cash or by incurring Accounts Payable.