Download Interactive review - St. Mary`s School

Objectives of this Lesson
1.
2.
3.
Review terms (Assets, Liabilities
Owner’s Equity)
Learn the Accounting Equation
Analyze transactions using the
accounting equation
Developed by Mary Ann Korson
Refresher Course - Asset
Do you remember what an asset is?
It’s all the “good stuff” a
business owns (cash, accounts
receivable, supplies, car,
building & equipment)
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Refresher Course - Liability
You’re doing great! Now, do you
remember what a liability is?
Other people’s claims to the
business’s stuff. It’s amounts
that the business owes others. –
It’s similar to buying a TV and
paying for it with a credit card.
Developed by Mary Ann Korson
Refresher Course - Equity
Now for the last review question, do
you remember what equity is?
It’s the good stuff left over
for the owner after all the
liabilities (amounts owed) have
been paid.
Developed by Mary Ann Korson
Accounting Equation Analogy
In the accounting world everything is
about “balance”
Think of a the Soo
Locks, no boats can
go through until the
water level is the
same on both sides.
www.boldts.net/ Sault2.shtml
Developed by Mary Ann Korson
Accounting Equation
The formal equation is …
Assets = Liabilities + Equity (net
worth)
Assets
Liabilities + Owner’s
=
Equity
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Double Entry Accounting
Recall working with transactions...
Every transaction needs to be
recorded in at least
It’s all about
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Transaction Analysis
Assets
=
Liabilities + Owner’s Equity
Water level
Gate
We will be using the same Soo
Lock analysis as we go through
the lesson.
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Transactions - Assets Change
Assets
S
u
p
p
l
i
e
s
=
Liabilities + Owner’s Equity
C
a
s
h
Bought $20 of
supplies and paid $20
cash. Everything is
still in balance!
The water level stays the
same because one asset
increased & one decreased
Developed by Mary Ann Korson
Transactions - Assets Increase
& liabilities increase
Assets
S
u
p
p
l
i
e
s
Bought $20 of
supplies and you will
pay $20 later (ON
ACCOUNT).
Everything is still in
balance!
=
Liabilities + Owner’s Equity
A
c
c
t
P
a
y
The water level stays the same because
both sides of the door were increased
at the same level.
Developed by Mary Ann Korson
Transactions - Assets Increase
& Owner’s Equity Increases
Assets
=
Liabilities + Owner’s Equity
E
q
u
i
t
y
c
a
s
h
Received $100 cash
for lawn mowing
services performed
$100. Everything is
still in balance!
The water level stays the same because
both sides of the door were increased
at the same level.
Developed by Mary Ann Korson
Transactions - Assets
Decrease & Equity ?
Assets
=
Liabilities + Owner’s Equity
Make a prediction, if assets decreased,
what do you think would happen to
equity on the right side of the gate?
Click the arrows below.
Developed by Mary Ann Korson
Transactions - Assets Decrease &
Equity does NOT Increase
Assets
=
Liabilities + Owner’s Equity
Oops! If assets decrease and they’re
on the left side of the gate, we still
need to keep our water level in balance.
Try
Again
Developed by Mary Ann Korson
Transactions - Assets Decrease &
Equity Decreases
Assets
=
Liabilities + Owner’s Equity
Excellent, since the left side
decreased, the right side of the
gate also decreases & the water
level stays balanced.
Developed by Mary Ann Korson
Transaction – Paid cash for
rent expense
Assets
=
Liabilities + Owner’s Equity
c
a
s
h
Paid $500 cash
for rent expense
$500. Everything
is still in balance!
E
q
u
i
t
y
We paid cash, so our asset account
decreased. Owner’s Equity decreased
because we incurred a “cost/expense”
of the business.
Developed by Mary Ann Korson
Transaction – Paid cash
On Account
Assets
=
Liabilities + Owner’s Equity
A
c
c
t
P
a
y
c
a
s
h
Paid $500 cash to
Bay Office Supply
on account.
Everything is still
in balance!
We paid cash, so our asset account
decreased. Our liability decreased
because we paid off our bill & the
amount we owe went down.
Developed by Mary Ann Korson
Transaction – Paid cash
to owner for personal use
Assets
=
Liabilities + Owner’s Equity
E
q
u
i
t
y
C
a
s
h
Paid $125 cash to
the owner for
personal use
(withdrew $125)
Everything is still
in balance!
We paid cash, so our asset account
decreased. Our equity in the business
decreased because we have less money
available for business use.
Developed by Mary Ann Korson
Check & Review
Purchase Supplies for Cash
If your purchased supplies for cash, how
would your accounts be affected?
1. Supplies increased & Cash increased
2. Supplies increased & equity
decreased
3. Supplies increased & cash decreased
4. Supplies decreased & cash increased
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You purchased supplies, so supplies
increased. Also, you paid for the supplies
with cash. Since you paid cash, cash
decreased.
Developed by Mary Ann Korson
Check & Review
Purchase Supplies for Cash
Oops, Let’s
think…
•You did purchase supplies, so ask
yourself, “Did the amount of
supplies I own go up or down?
•Also, think about how you paid
for the supplies & re-try.
Developed by Mary Ann Korson
Check & Review
Paid cash on account
If your paid cash to ABC Corp. for your
account balance, how would your
accounts be affected?
1. Cash increased & accounts payable
increased
2. Cash decreased & accounts payable
decreased
3. Cash decreased & accounts payable
increased
Developed by Mary Ann Korson
Check & Review
Paid Cash on Account #1
Oops, Let’s
think…
•Since you paid cash, ask yourself
how was cash affected.
•2nd ask yourself did the amount
you owe ABC go up or down after
you paid them.
Developed by Mary Ann Korson
You paid cash, so cash decreased. Also,
your liability decreased because you paid
off your bill. Now you owe less money to
ABC Corp.
Developed by Mary Ann Korson
Terms Review Exercise

Assets
oAmounts you owe

Liabilities
o Assets =
Liab + Owner Equity

Owner’s Equity

Accounting
Equation
o The good stuff!@
o
Amount left over
after you pay off
your bills
Developed by Mary Ann Korson
Terms Review Exercise

Assets
o Amounts you owe

Liabilities
o Assets =
Liab + Owner Equity

Owner’s Equity

Accounting
Equation
o The good stuff!@
o Amount left over
after you pay off
your bills
Developed by Mary Ann Korson
Terms Review Exercise

Assets
oAmounts you owe

Liabilities
o Assets =
Liab + Owner Equity

Owner’s Equity

Accounting
Equation
o The good stuff!@
o
Amount left over
after you pay off
your bills
Developed by Mary Ann Korson
Terms Review Exercise

Assets
oAmounts you owe

Liabilities
o Assets =
Liab + Owner Equity

Owner’s Equity

Accounting
Equation
o The good stuff!@
o
Amount left over
after you pay off
your bills
Developed by Mary Ann Korson
Terms Review

Assets
o Amounts you owe

Liabilities
o Assets =
Liab + Owner Equity

Owner’s Equity

Accounting
Equation
o The good stuff!@
o Amount left over
after you pay off
your bills
Developed by Mary Ann Korson
Concept Review
Assets
=
Liabilities + Owner’s Equity
Water level
Gate
Just remember our analogy –
For the gate to work, you always
need to include 2 parts for every
transaction to stay
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balanced.
Where we are headed…
Next time we’ll expand by
learning about Debits &
Credits. Keep up the great work
& remember – our concepts will
keep building upon each other!
Developed by Mary Ann Korson