Components Of The ing Equation 3e1k3s

COMPONENTS OF THE ING EQUATION ing Element   

Assets Liabilities Proprietorship

Effect Increase or decrease

ASSETS  Are all things of value that are owned by the business. The most commonly encountered asset s are presented as follows. Title  Cash

Descriptions Coins, bills, and near cash items either in the possession of the business or entrusted to the banks. Cash increases with receipts of cash and decreases with payments. Collectible from customers/clients due to merchandise and/or  Notes services sold/rendered but not yet paid in cash. This collectible is Receivable ed by a written promise or note to pay the value received at a ( ed by later date. It is issued in favor of the seller. promissory notes) Collectible from customers/clients due to merchandise and/or  services sold/rendered but not yet paid for in cash. This is different Receivable ( not ed by from notes receivable in that an receivable is not ed by a written promise or note. This is also referred to as “ open promissory notes) .” Both and notes receivable increase when services and rendered sold and decrease when the collection is received.  Office Supplies Coupon bond, carbon paper, ledgers. Worksheets, ballpens, erasers, envelopes, journals, and many others used in the office. on Hand Rent payment for the use of office made in advance covering a  Prepaid Rent specified period of time.  Furniture and Cost o office chairs, tables, shelves, cabinets and etc. Fixture Cost of computers, calculators, typewriters and etc. use in the office.  Office Equipment Other Assets  Land  Building  Store Equipment



Delivery Truck

LIABILITIES  are debts or obligations of the business to other individuals or organizations due to varied reasons such as acquisition of goods or services. The most commonly encountere liability s follow: Title  s Payable



Notes Payable

Descriptions Obligations or debts owed by the business to other parties for services or goods acquired on and are not ed by promissory notes. On the means “on credit” this increases as purchases on are made and decreases as payments to creditors are made. Obligations or debts owed by the business to other parties for services or goods acquired on and are ed by promissory notes issued in favor of the creditor/seller. This increases as promissory notes are issued to creditors and decreases as payments to creitors are made

PROPRIETORSHIP    



It is the components of capital, withdrawal, income and expenses. Capital increases with the original or additional investment made by the owners Withdrawals of assets whether cash or not decreases capital. Revenues when earned, increase owners equity ( proprietorship) Service Income Commission Income Rent Income Interest Income Expenses when incurred decrease owner’s equity (proprietorship) Salaries and Wages Expenses Office Supplies Expense Advertising Expense Rent Expense Transportation Expense Utilities Expense ( Electric, water and telephone bill) Taxes and Licenses Expense Miscellaneous Expenses

ing Equation Assets= Liabilities+ Proprietorship or Asset – Liabilities= Proprietorship To get the total proprietorship adds the capital and income then minus to drawing and expenses. Business Transactions and their effects on the fundamental ing equation The following are the business transactions of San Jose Surveying Services for the month of August 2011. 1. Engr. San Jose invested 100,000 cash into the business. 2. Bought and equipment for 35,000 on from Engineering Work Inc. 3. Received cash amounting to 80,000 as fees from services rendered. 4. Paid 3,000 to Meralco for electricity consumption. 5. Bought furniture and fixtures for 10,000 on cash basis. 6. Paid 24,500 of the with engineering Work Inc. 7. Engr. San Jose withdrew 1,5000 cash for personal use. 8. Bought equipment by issuing a 30-day, 5 % note, 20,000. 9. Engr. San Jose made an additional investment of 25,000. 10. Received a bill of 600 from PLDT. 11. Billed a client for surveying services rendered, 10,000. 12. Paid the month’s rent, 4,500. The analysis of the business transactions may also take the tabular format shown. Transaction Number 1 2 3 4 5

6

ing Element

Effect

Title

Asset Proprietorship Asset Liabilities Asset Proprietorship Asset Proprietorship Asset Asset

Increase Increase Increase Increase Increase Increase Decrease Decrease Decrease Increase

Asset Liabilities

Decrease Decrease

Cash San Jose, Capital Equipment s Payable Cash Service Income Cash Rent Expense Cash Furniture and Fixture Cash s Payable

7

Asset Proprietorship Asset Liabilities Asset Proprietorship Liabilities Proprietorship Asset Proprietorship Cash Proprietorship

8 9 10 11 12

Decrease Decrease Increase Increase Increase Increase Increase Decrease Increase Increase Decrease Decrease

Cash San Jose Drawing Equipment Notes Payable Cash San Jose, Capital Payable Utility Expense Receivable Service Income Cash Rent Expense

Balance Sheet Input Assets Tran s. No. 1

Cash 100,0 00

Acc. Rec.

2 3 4 5 6 7

Note s. Pay.

San. Jose Capit al 100,0 00

San. Jose, Drawi ng

80,00 0

Servi ce Inco me

(3,00 0) (10,0 00) (24,5 00) (1,50 0)

(3,000 )

Utility Expen se

(600)

Utility Expen se

(4,500 )

Rent Expen

10,000 (24,5 00) (1,500 ) 20,00 0

20,000 25,00 0

25,00 0 600 10,00 0

(4,50 0)

Expen ses

Expe nse Acco unt Title

80.00 0

10 11 12

Acc. Pay

Proprietorship

35,00 0

35,000

8 9

Equipm ent

Liabilities Furnit ure And Fixtur es

10,00 0

se 161,5 00

Total

10,00 0

55,000

10,00 0

236,500

Assets = 236,500

11,10 0

20,00 0

31,100

Liabilities= 31,100

Asset = Liabilities + Proprietorship 236,500 = 31,100 + 205,400

125,0 00

(1,50 0)

90,00 0 205,4 00

Proprietorship= 205,400

8,100