Objectives of this Lesson

1. Objectives of this Lesson • Review terms (Assets, Liabilities Owner’s Equity) • Learn the Accounting Equation • Analyze transactions using the accounting equation Developed by Mary Ann Korson

2. 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) Developed by Mary Ann Korson

3. 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

4. Refresher Course - Equity It’s the good stuff left over for the owner after all the liabilities (amounts owed) have been paid. Now for the last review question, do you remember what equity is? Developed by Mary Ann Korson

5. 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

6. Accounting Equation The formal equation is … Assets = Liabilities + Equity (net worth) Assets Liabilities + Owner’s Equity = Developed by Mary Ann Korson

7. Double Entry Accounting Recall working with transactions... • Every transaction needs to be recorded in at least 2 places It’s all about Balance! Developed by Mary Ann Korson

8. 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. Developed by Mary Ann Korson

9. Transactions - Assets Change Assets = Liabilities + Owner’s Equity Supplies Cash The water level stays the same because one asset increased & one decreased Bought $20 of supplies and paid $20 cash. Everything is still in balance! Developed by Mary Ann Korson

10. Transactions - Assets Increase & liabilities increase Assets = Liabilities + Owner’s Equity Acct Pay Supplies The water level stays the same because both sides of the door were increased at the same level. Bought $20 of supplies and you will pay $20 later(ON ACCOUNT). Everything is still in balance! Developed by Mary Ann Korson

11. Transactions - Assets Increase & Owner’s Equity Increases Assets = Liabilities + Owner’s Equity Equity cash The water level stays the same because both sides of the door were increased at the same level. Received $100 cash for lawn mowing services performed$100. Everything is still in balance! Developed by Mary Ann Korson

12. 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

13. 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

14. 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

15. Transaction – Paid cash for rent expense = Assets Liabilities + Owner’s Equity cash Equity We paid cash, so our asset account decreased. Owner’s Equity decreased because we incurred a “cost/expense” of the business. Paid $500 cash for rent expense $500. Everything is still in balance! Developed by Mary Ann Korson

16. Transaction – Paid cash On Account = Assets Liabilities + Owner’s Equity Acct Pay cash We paid cash, so our asset account decreased. Our liability decreased because we paid off our bill &the amount we owe went down. Paid $500 cash to Bay Office Supply on account. Everything is still in balance! Developed by Mary Ann Korson

17. Transaction – Paid cash to owner for personal use = Assets Liabilities + Owner’s Equity Equity Cash We paid cash, so our asset account decreased. Our equity in the business decreased because we have less money available for business use. Paid $125 cash to the owner for personal use (withdrew $125) Everything is still in balance! Developed by Mary Ann Korson

18. Check & Review Purchase Supplies for Cash If your purchased supplies for cash, how would your accounts be affected? • Supplies increased & Cash increased • Supplies increased & equity decreased • Supplies increased & cash decreased • Supplies decreased & cash increased Developed by Mary Ann Korson

19. Great job!!! 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

20. 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

21. Check & Review Paid cash on account If your paid cash to ABC Corp. for your account balance, how would your accounts be affected? • Cash increased & accounts payable increased • Cash decreased & accounts payable decreased • Cash decreased & accounts payable increased Developed by Mary Ann Korson

22. 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

23. Great job!!! 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

24. Terms Review Exercise • Amounts you owe • Assets = Liab + Owner Equity • The good stuff!@ • Amount left over after you pay off your bills • Assets • Liabilities • Owner’s Equity • Accounting Equation Developed by Mary Ann Korson

25. Terms Review Exercise • Amounts you owe • Assets = Liab + Owner Equity • The good stuff!@ • Amount left over after you pay off your bills • Assets • Liabilities • Owner’s Equity • Accounting Equation Developed by Mary Ann Korson

26. Terms Review Exercise • Amounts you owe • Assets = Liab + Owner Equity • The good stuff!@ • Amount left over after you pay off your bills • Assets • Liabilities • Owner’s Equity • Accounting Equation Developed by Mary Ann Korson

27. Terms Review Exercise • Amounts you owe • Assets = Liab + Owner Equity • The good stuff!@ • Amount left over after you pay off your bills • Assets • Liabilities • Owner’s Equity • Accounting Equation Developed by Mary Ann Korson

28. Terms Review • Amounts you owe • Assets = Liab + Owner Equity • The good stuff!@ • Amount left over after you pay off your bills • Assets • Liabilities • Owner’s Equity • Accounting Equation Developed by Mary Ann Korson

29. 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 balanced. Developed by Mary Ann Korson

30. 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