Concept #1: Fundamental Accounting Equation

Example #1: Fundamental Accounting Equation

Practice: A company has assets totaling $50,000 and equity of $20,000. What are their liabilities?

Practice: A company has liabilities of $25,000 and assets of $35,000. What is the company’s equity?

Practice: If a company has liabilities of $65,000 and equity of $25,000, what are the company’s assets worth?

Additional Problems
During 2002, the assets of XYZ Company increased by $70,000 and the liabilities decreased by $42,000. XYZ Company's total equity at the end of 2002 was equal to $191,000. Calculate XYZ Company's total equity at the beginning of 2002.
Inventory accounts should be classified in which section of a balance sheet? a. Current assets b. Investments c. Property, plant, and equipment d. Intangible assets
If Assets, Liabilities, and Retained Earnings equal $87,000, $53,000, and $14,000, respectively, then how much is in Contributed Capital?
Which of the following relationships CANNOT be derived from the accounting equation? a. Assets - Liabilities = Owners' Equity. b. Owners' Equity + Liabilities = Assets. c. Assets - Owners' Equity = Liabilities. d. Liabilities + Assets = Owners' Equity.
H Company reported the following information for the year. During the year, an additional $25,000 of capital stock was issued and no dividends were paid.                                             Total Assets                               Total Liabilities Beginning of the year         $500,000                                   $200,000 End of the year                   $625,000                                   $250,000 Required: Determine the net income (or net loss) for the year.
"Retained Earnings" represents: a. Cash available for dividends. b. The amount initially invested in the business by stockholders. c. Cash available for expansion and growth. d. Income which has been reinvested in the business rather than distributed as dividends to stockholders.
If an individual asset is purchased and paid for, then a. there must be an equal decrease in a specific liability. b. there must be an equal decrease in owner's equity. c. there must be an equal decrease in another asset. d. none of these is possible.
If supplies that have been purchased are used in the course of business, then a. a liability will increase. b. an asset will increase. c. owner's equity will decrease. d. owner's equity will increase.
Briggs Automotive, Inc. has Cash of $20,000, Accounts Receivables of $30,000, Supplies of $10,000, Inventory of $50,000, Accounts Payable of $15,000, and Common Stock of $40,000. Assuming these are all of the accounts in the business, what is the value of its Retained Earnings? a. $55,000 b. $85,000 c. $95,000 d. $165,000
The nature of an asset is  best described as: a. something with physical form which is shown at cost in the accounting records b. something owned by a business that has a ready market value c. an economic resource representing cash or the right to receive cash in the near future d. something owned by a business that will be used in operations for many years e. an economic resource owned by a business and expected to benefit future operations
If total assets are $350,000 and owners' equity is $250,000, then total liabilities must be: a. $100,000 b. $250,000 c. $350,000 d. $600,000
If owner's equity is $150,000 and total liabilities are $90,000, then total assets would be: a. $60,000 b. $240,000 c. $225,000 d. $135,000
If total liabilities are $200,000 and total assets are $325,000, owner's equity would be: a. $200,000 b. $525,000 c. $125,000 d. impossible to determine from the given data
1/1/12 – Total assets = $150,000. 12/31/12 – Total assets = $200,000; 1/1/12 – Total Stockholders’ Equity = $100,000. 12/31/12 – Total Stockholders’ Equity = $125,000. Amount of change and direction for liabilities at 12/31/12? a. Decrease of $30,000 b. Decrease of 15,000 c. Increase of $25,000 d. Increase of $15,000
An alternative form of the accounting equation is: a. Net Income = Revenues - Expenses. b. Stockholders' Equity = Assets + Liabilities. c. Assets = Liabilities - Stockholders' Equity. d. Assets - Liabilities = Stockholders' Equity.
J Company had assets of $100,000 and liabilities of $75,000 at the end of the fiscal year, December 31. Required: a. Determine the owners’ equity at December 31. b. Assets increased by $25,000 and liabilities increased by $15,000 during the next year. Determine owners’ equity at the end of the next year. c. What is the increase or (decrease) in owner's equity for the year?
1/1/12 – Total assets = $150,000. 12/31/12 – Total assets = $200,000; 1/1/12 – Total Stockholders’ Equity = $100,000. 12/31/12 – Total Stockholders’ Equity = $125,000. Amount of change and direction for liabilities at 12/31/12? a. Decrease of $30,000 b. Decrease of 15,000 c. Increase of $25,000 d. Increase of $15,000
What items on the balance sheet are considered to be sources for financing economic resources (assets)? a. liabilities and contributed capital, only b. liabilities only c. contributed capital and retained earnings, only d. liabilities and stockholders' equity