4.2 Define Assets, Liabilities, Equity, Revenue, Expense

Learning Targets:

4.2 Define assets, liabilities, equity, revenue, expense

5.1 Explain the purpose of the accounting system

5.3 Describe and analyze how business transactions impact the accounting equation

Part I (LT 4.2):

Directions: Select the one term in the right column that best fits each definition in the left column.

1. The account used to summarize the owner’s equity in the business.

2. The amount remaining after the value of all liabilities is subtracted from the value of all assets.

3. Anything of value that is owned.

4. An amount owed by a business.

5. A decrease in owner’s equity resulting from the operation of a business.

6. An increase in owner’s equity resulting from the operation of a business.

7. Financial rights to the assets of a business.

A. asset

B. capital

C. equities

D. expense

E. liability

F. owner’s equity

G. revenue

8.  Is revenue an asset? Explain.

9.  What is the difference between liabilities, equity and owner’s equity?

Part II (LT 4.2):

Directions: For each of the accounts in the table below:

1.  Write the classification of the account in the Classification column (Asset, Liability, or Owner’s Equity).

2.  Place an X in the Normal Balance Debit or Credit column to show the normal balance side of the account.

3.  Place an X in the Increase Side Debit or Credit column to show the side of the account on which increases are recorded.

4.  Place an X in the Decrease Side Debit or Credit column to show the side of the account on which decreases are recorded.

Account / Classification / Normal Balance / Increase Side / Decrease Side
Debit / Credit / Debit / Credit / Debit / Credit
Sales
A/R – Lopez Sports
Prepaid Insurance
Matt Cooper, Capital
Cash
Matt Cooper, Drawing
A/P – Hunter Golf
Rent Expense

Part III (LT 5.1)

1.  What is an accounting system?

2.  Can a business be successful without an accounting system? Explain.

Part IV (LT 5.3)

1.  How does revenue affect owner’s equity? Please include an explanation.

2.  How do expenses affect owner’s equity? Please include an explanation.

3.  When the owner withdraws assets from the business, how does that affect owner’s equity? Please include an explanation.

Part V (LT 5.3)

Matt Cooper owns a business called Cooper’s Sports Outlet. Cooper’s Sports Outlet completed the following transactions.

March 1. Received cash from owner as an investment, $4,500.00.

2. Paid cash for supplies, $700.00.

3. Bought supplies on account from Hunter Golf Supplies, $185.00.

4. Received cash from sales, $900.00.

5. Paid cash on account to Hunter Golf Supplies, $75.00.

6. Paid cash to owner for personal use, $300.00.

7. Sold services on account to Lopez Sports, $150.00.

8. Paid cash for insurance, $300.00.

9. Received cash on account from Lopez Sports, $425.00.

10. Paid cash for rent, $950.00.

Directions: Analyze each transaction into its debit and credit parts. Write the debit or credit amounts in the proper T accounts to show how each transaction changes account balances. Write the date of the transaction in parentheses before each amount.

Cash / A/P – Hunter Golf Supplies
Matt Cooper, Capital
A/R – Lopez Sports
Matt Cooper, Drawing
Supplies
Sales
Prepaid Insurance
Rent Expense