Accounting 101

ACC201 Chapter 1

In-class exercises

For this exercise, I’m going to walk you through a set transactions and show how each

effects the accounting equation. The first example below the simple version of the

accounting equation, showing only the three basic elements. The next version shows

the two sub-elements of Stockholders’ equity. Lastly, is the fully expanded version of

the accounting equation, showing the expanded sub-elements of Retained earnings. At

the bottom of the page is a flow chart (if you are a visual learner).

The simple accounting equation looks like this, with the three basic elements.

Expanding the accounting equation, shows that Stockholders’ equity is comprised of two sub-elements: 1) Common stock, and 2) Retained earnings.

The fully expanded accounting equation shows further expansion of the Retained earnings element of Stockholders’ equity. Note that Retained earnings is comprised of three components: 1) Revenues, 2) Expenses, and 3) Dividends.

Assets = Liabilities + Stockholders' Equity

Assets = Liabilities + Common Stock + Retained Earnings

Assets = Liabilities + Common Stock + Revenues - Expenses - Dividends

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ACC201 Chapter 1

In-class exercises

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Below are a month's worth of transactions for a company. Using the expanded

accounting equation table, show the effects of these transactions.

June  1

Stockholders invested $10,000 cash in the business in exchange for common stock.

2 Purchased a used van for deliveries for $14,000. Nancy paid $2,000 cash and signed a note payable for the remaining balance.

3 Paid $500 for office rent for the month.

5 Performed $4,800 of services on account.

9 Declared and paid $300 in cash dividends.

12 Purchased supplies for $150 on account.

15 Received a cash payment of $1,250 for services performed on June 5.

17 Purchased gasoline for $100 on account.

20 Received a cash payment of $1,500 for services performed.

23 Made a cash payment of $500 on the note payable.

26 Paid $250 for utilities.

29 Paid for the gasoline purchased on account on June 17.

30 Paid $1,000 for employee salaries.

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ACC201 Chapter 1

In-class exercises

Assets = Liabilities + Common Stock + Revenues - Expenses - Dividends

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