The Accounting Equation Is Assets - Essay Example

Part One

A)

The accounting equation is Assets = Liabilities + Owner’s Equity

• The D.C. Dawg started a business, Cats and Dogs Company, by contributing $6,000

Cash                                       6000

            Capital                                    6000

Hence both sides of the equation would increase by 6000 but there would be no net effect

• The Cats and Dogs Company borrowed $2,000 from the bank on March 1. The note is a 1-year, 12% note, with both principal and interest to be repaid on February 28 of next year

                        Cash                                       2000

Notes Payable                                    2000

Interest Expense                    20

            Interest Payable                      20

The first entry would increase both sides by 2000 but would cause no net effect. The second entry would increase the liabilities by 20

• The company earned $900 in revenue

Cash                                       9000

            Services Rendered                 9000

This would increase the Assets by 9000

• Expenses amounted to $650

Expenses                                650

            Cash                                       650

This would have no effect at all on the accounting equation

• Distributions to owners amounted to $25

Drawings/Dividends              25

            Cash                                       25

This would decrease both sides by 25 but would have no net effect

B) The other piece of information required can be the storage of dates on the entries so that they come in handy for the proper management of records and so that the company can reflect back and learn from the decisions taken in the past C)Cats and Dogs CompanyTrading and Profit and Loss Account Extract for the month of March SalesLess: ExpensesInterestExpensesProfit$20650$900(675)225 Cats and Dogs CompanyRetained Earning Statement Extract for the month of MarchRetained Earning BeginningNet ProfitLess DividendsRetained Earnings At End$xxx225(25)$200Cats and Dogs CompanyBalance Sheet Extract for the month of MarchAssetsCashShort Term LiabilitiesInterest PayableLong Term LiabilityNotes Payable Owner's EquityCapitalRetained Earnings $$20006000200$153252062008220Cats and Dogs CompanyCash Flow Statement Extract for the month of MarchCash from Operating ActivitiesServicesExpensesCash from Investing ActivitiesCapitalCash flows from Financing ActivitiesNotesDrawings/DividendsNet Increase in Cash$$9000(650)2000(25)$83506000197516325 Part TwoA)a.

The equipment (purchased on January 1, 2003) has a useful life of 12 years with no salvage value (The straight-line method is used). Depreciation 70000Accumulated Depreciation 70000The cost of the asset decreases by 70000b. Interest accrued on the bonds payable is $20,000 as of December 31, 2003. Interest Expense 20000 Interest Payable 20000The liabilities increase by 20000c. Unexpired insurance on December 31, 2003, is $7,000. This would increase the assets by 7000d. The rent payment of $140,000 covered the four months from December 1, 2003, through March 31, 2004.

Interest Prepaid 105000 Cash 105000This would have no effect as one asset increases while the other asset decreases. Salaries and wages of $28,000 were earned but unpaid on December 31, 2003. Salaries Expense 28000 Salaries Accrued 28000The liabilities would increase by 28000B)1) Trading and profit and loss account2) Balance sheet-current assets3) Balance sheet-current liabilities4) Balance sheet-current assets5) Balance sheet-current assets6) Balance sheet-Property plant and equipment 7) Balance sheet-current assets8) Balance sheet-current assets9) Balance sheet-current assets10) Balance sheet-stock holder's equity11) Trading and profit and loss account12) Trading and profit and loss account