Chapter 1: Student Summary Handout
1. Accounting equation: ASSETS = LIABILITIES + OWNERS’ EQUITY -- Page 36
o Exhibit 1-4 -- Page 36
o Assets are something owned that has value – Page 36
o Liabilities are something owed – Page 36
o Equity is everything owned minus everything owed, or net worth – Page 37
2. Transaction analysis using the accounting equation – Page 38
o Key: Both sides of the accounting equation must always be equal
o SAMPLE TRANSACTION ANALYSIS: Exhibit 1-6 page 44
o STARTING THE BUSINESS: Sample Transaction: Transaction 1 Page 39
o PURCHASE OF LAND: Sample Transaction: Transaction 2 Page 39
o PURCHASE OF OFFICE SUPPLIES: Sample Transaction: Transaction 3 Page 40
o EARNING OF SERVICE REVENUE: Sample Transaction: Transaction 4 Page 40
o EARNING OF SERVICE REVENUE ON ACCOUNT: Sample Transaction: Transaction 5 Page 40
o PAYMENT OF EXPENSES: Sample Transaction: Transaction 6 Page 41
o PAYMENT ON ACCOUNT: Sample Transaction: Transaction 7 Page 41
o PERSONAL TRANSACTION: Sample Transaction: Transaction 8 Page 42
o COLLECTION ON ACCOUNT: Sample Transaction: Transaction 9 Page 42
o SALE OF LAND: Sample Transaction: Transaction 10 Page 43
o OWNER DRAWING OF CASH: Sample Transaction: Transaction 1 Page 39
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3. Four financial statements – Page 43
o SAMPLE FINANCIAL STATEMENT: Exhibit 1-7 starting on page 47
o Income Statement -- Page 46
o Statement of Owner's Equity – Page 46
o Balance Sheet (uses the same accounts as the accounting equation) – Page 46
o Statement of Cash Flows – Page 46
o Headings on statements always listed as: – Page 45
▪ Name of company
▪ Name of statement
▪ Descriptive date
4. CHAPTER SUMMARY: Decision Guidelines 1-1 – Page 54