MODULE 3

Expanded Accounting Equation and Transaction Analysis

THE LEDGER AND THE CHART OF ACCOUNTS

▪ As previously discussed, accounts are symbols of company's assets, liabilities, equity, income and expenses. These are also special records, called as ledger, used to store
information about the effects of business transactions in accounting elements.
▪ The number of accounts differs in every business entity depending in its size, nature of operations, and the design of its accounting system.
▪ To organize this numerous accounts, a list of account is used by the entity called Chart of Accounts.
- This makes accounting systematic by having identification number assigned to each account.
- The identification of number for each account is systematic to help bookkeepers and accountants use the system efficiently.
- Simple numbering system is as follows:

101 to 199 Asset accounts

200 to 299 Liability accounts
300 to 399 Owner's equity accounts
400 to 499 Income accounts
500 to 599 Expense accounts

- Sample Chart of Accounts for Your Home NetSolutions, a service business, is as follows:

Act. No. Account Names Act. No. Account Names

101 Cash 401 Fees Earned
105 Accounts Receivable 430 Interest Income
110 Notes Receivable
115 Interest Receivable 501 Salaries Expense
140 Supplies 510 Rent Expense
170 Prepaid Rent 515 Supplies Expense
520 Utilities Expense
201 Accounts Payable 525 Depreciation Expense
205 Notes Payable 530 Doubtful Accounts Expense
210 Interest Payable 599 Miscellaneous Expense
220 Salaries Payable
230 Rent Payable
250 Unearned Service Income

301 Harry Jasper, Capital

350 Harry Jasper, Drawing
BUSINESS TRANSACTION ANALYSIS
▪ As discussed, business transactions are economic events that affect the financial position (e.g. assets, liabilities, and equity) of a business entity.
▪ Therefore, if business transactions will affect assets, liabilities and equity, such transaction must be recognized in accounting books.
- The equity account is affected if the transaction is related to (a) owner's investment, (b) owner's drawing, (c) income, or (d) expenses.
- Take note that owner's equity will increase if there is an increase in owner's investment and income. On the other hand, it will decrease if there is an increase in
owner's drawing and expenses.

▪ Steps in analyzing business transactions:

1. Identify what accounts are affected.
2. Identify what accounting element in the accounting equation is affected.
3. Determine the effect if increase, decrease, or no effect.
Notes:
There are four steps in analyzing business transaction. The fourth one will be discussed in succeeding lesson.

BUSINESS TRANSACTION ANALYSIS AND THE ACCOUNTING EQUATION

▪ For illustration purposes, let use the following business transactions of Your Home NetSolutions for the month of July, 2022.
1. Harry Jasper, the business owner, deposits P 2,000,000 cash in a bank account in the name of Your Home Net Solution.
2. Paid P 1,500,000 in exchange of land.
3. Purchased various supplies for P 13,500 and agreed to pay the supplier in the near future.
4. Earned P 75,000 by painting various cash customers' house.
5. Send bills to various customers for services rendered during the month, P 50,000.
6. Paid the following expenses for the month: Salaries, P 21,500; rental of office space, P 10,000; light and water, P 9,000, and various expenses. P 2,500.
7. Paid creditors, P 9,000.
8. Collection from charge customers, P 20,000.
9. Harry Jasper withdrew cash for personal use, P 10,000.
10. At month end, unused supplies per physical inventory is P 2,000.
11. Received billing from telephone company for the current month, P 5,000.
▪ The analysis using the accounting equation

Assets Liabilities Owner's Equity

Accounts = Accounts Utilities + Harry Jasper
No. Analysis Cash Receivable Supplies Land Payable Payable Capital Equity Account Effect
1. Cash was received. This is an
asset. Asset increased. 2,000,000

Owner's claim increase. This

equity. Owner's equity increased. 2,000,000 Harry Jasper, Capital increase
Balances (AE is in balance) 2,000,000 0 0 0 0 0 2,000,000
2. Land was received. This is an
asset. Asset increased. 1,500,000
Cash was paid. This is an asset.
Asset decreased. (1,500,000)
Balances (AE is in balance) 500,000 0 0 1,500,000 0 0 2,000,000
3.
Supplies were received. This is an
asset (unused). Asset increased. 13,500
Creditor's claim increased. This is a
liability (unpaid). Liability
increased. 13,500
Balances (AE is in balance) 500,000 0 13,500 1,500,000 13,500 0 2,000,000
4. Cash was received. This is an
asset. Asset increased. 75,000

Services already rendered. This is

an income. Increase in income
means increase in owner's capital. 75,000 Fees Earned increase
Balances (AE is in balance) 575,000 0 13,500 1,500,000 13,500 0 2,075,000
5. Collectibles from customers
increased. This is an asset. Asset
increased. 50,000

Services already rendered. This is

an income. Increase in income
means increase in owner's capital. 50,000 Fees Earned increase
Balances (AE is in balance) 575,000 50,000 13,500 1,500,000 13,500 0 2,125,000
 6. (21,500) Salaries Expense increase
Various services already received (10,000) Rent Expense increase
and used from employees, owner (9,000) Utilities Expense increase
of rented property, utility (2,500) Miscellaneous Expense increase
companies. Expenses increased for
using these. Increase in expenses
means decrease in owner's capital.
Cash was paid. This is an asset.
Asset decreased. (43,000)
Balances (AE is in balance) 532,000 50,000 13,500 1,500,000 13,500 0 2,082,000
7. Creditor's claim decrease. This is a
liability (now paid). Liability
decreased. (9,000)
Cash was paid. This is an asset.
Asset decreased. (9,000)
Balances (AE is in balance) 523,000 50,000 13,500 1,500,000 4,500 0 2,082,000
8. Cash was received. This is an
asset. Asset increased. 20,000
Collectibles from customers
decreased. This is an asset. Asset
decreased. (20,000)
Balances (AE is in balance) 543,000 30,000 13,500 1,500,000 4,500 0 2,082,000
9. Owner's withdrawal increase. This (10,000) Harry Jasper, Drawing increase
is equity. Owner's equity
decreased.
Cash was paid. This is an asset.
Asset decreased. (10,000)
Balances (AE is in balance) 533,000 30,000 13,500 1,500,000 4,500 0 2,072,000
10. Supplies were used. This is an (11,500) Supplies Expense increase
expense (used). Increase in (P 13,500 - P 2,000)
expense means decrease in
owner's capital.
Unused supplies decreased. This is
an asset. Asset decreased.
(11,500)
Balances (AE is in balance) 533,000 30,000 2,000 1,500,000 4,500 0 2,060,500
11. Services already received from (5,000) Utilities Expense increase
telephone utility companies.
Expenses increased for using this
services for the current month.
Increase in expenses means
decrease in owner's capital.

Utility company's claim increased.

This is a liability (unpaid). Liability
increased. 5,000
Balances (AE is in balance) 533,000 30,000 2,000 1,500,000 4,500 5,000 2,055,500

From the above analysis, the following are noted:

1. For every analysis of business transactions, the accounting equation is always in balance.
2. The cumulative balances of each accounts affected reflect the equality of the accounting equation.
3. Owner's capital will decrease if expenses and owner's drawing will increase.
4. On the other hand, owner's capital will increase if owner's investment and income will increase.
5. After recording the business transactions, the following ledger accounts have the following balances:

Assets: Liabilities:
Cash 533,000 Accounts Payable 4,500
Account Receivable 30,000 Utilities Payable 5,000
Supplies 2,000
Land 1,500,000 Owner's Equity:
Harry Jaster, Capital 2,055,500
Total Assets 2,065,000 Total Liabilities & OE 2,065,000

6. The business entity reported a net income of P 65,000 which is the excess of total income over total expenses. Take note that owner's investment is not included as
income in accordance with the definition of income under the Conceptual Framework for Financial Accounting and Reporting. Owner's withdrawal (Harry Jasper,
Drawing) is also not included as expenses in accordance with the definition of expenses under the same conceptual framework.

Income:
Fees Earned 125,000
Less: Expenses:
Salaries Expense 21,500
Rent Expense 10,000
Utilities Expense 14,000
Supplies Exxpense 11,500
Miscellaneous Expense 2,500 59,500
Net Income 65,500
 6. Owner's Capital balance after recording all business transactions is computed as follows:

Harry Jaster, Capital, beginning 0

Add: Initial Investment 2,000,000
Net Income 65,500 2,065,500
Total capital 2,065,500
Less: Harry Jaster, Drawing 10,000
Harry Jaster, Capital, ending 2,055,500

FINANCIAL STATEMENTS
▪ After all business transactions are recorded and summarized in the ledgers, financial reports are prepared to assist various users in making business decision depending on
their financial interest on the reporting entity. These reports are called financial statements.
▪ The complete set of financial statements include the income statement, the statement of changes in equity, the statement of financial position, the statement of cash flows,
and the notes to the financial statements.

▪ INCOME STATEMENT
- Also called the the Profit and Loss Statement, or the Statement of Comprehensive Income
- This is a summary of income and expenses for a specific period of time like month or a year.
- This shows the operating performance of the entity for the period covered by the report.
- Since this is a formal financial report, it must have a heading to identify whose report is this, what it is, and the period covered by the report.
- The two forms of income statement are as follows:
1) Single step form
▪ This presents the simplest computation of net income or net loss by deducting the total income from the total expenses. This is the reason why it is called the
single step format.
▪ This format is commonly used in the preparation of the income statement of a sole proprietorship business.

YOUR HOME NET SOLUTION

Income Statement
For the month ended July 31, 2022

Income:
Fees Earned 125,000

Less: Operating Expenses:

Salaries Expense 21,500
Rent Expense 10,000
Utilities Expense 14,000
Supplies Exxpense 11,500
Miscellaneous Expense 2,500 59,500
Net Income 65,500
 2) Multiple step form
▪ This format separates operational revenues and expenses from non-operational ones.
▪ It follows a various step process to calculate net income that is why it is called multiple step income statement.
▪ This format is commonly used by merchandising and manufacturing businesses.

▪ STATEMENT OF CHANGES IN EQUITY

- Its name varies depending on the business formation as follows:
a) Statement of Changes in Owner's Capital for single proprietorship.
b) Statement of Changes in Partners' Capital for partnership.
c) Statement of Changes in Shareholders' Equity for corporation
- Like the income statement, it must have a heading to identify whose report is this, what it is, and the period covered by the report.
- It shows the summary of changes in the capital or ownership of the entity for a specific period of time like a month or a year.

YOUR HOME NET SOLUTION

Statement of Changes in Owner's Equity
For the month ended July 31, 2022

Harry Jaster, Capital, beginning 0

Add: Initial investment 2,000,000
Net Income 65,500 2,065,500
Total capital 2,065,500
Less: Harry Jaster, Drawing 10,000
Harry Jaster, Capital, ending 2,055,500

▪ STATEMENT OF FINANCIAL POSITION

- Also called the Balance Sheet
-
This is the list of assets, liabilities and owners' equity as of a specific date, usually at the close of the last day of a month or a year (i.e., calendar year or fiscal year)
- This shows the financial position of the entity as of a certain date.
- Like the income statement and the statement of changes in owner's equity, it must have a heading to identify whose report is this, what it is, and the period covered
by the report.

- The two forms of the statement of financial position are as follows:

1) Account Form
▪ This format presents the list of assets on the left side of the statement of financial position while the list of liabilities and owner's equity on the right side.
 YOUR HOME NET SOLUTION
Statement of Financial Position
As of July 31, 2022

Assets Liabilities and Owner's Equity

Cash 533,000 Liabilities:

Account Receivable 30,000 Accounts Payable 4,500
Supplies 2,000 Utilities Payable 5,000
Land 1,500,000 Total Liabilities 9,500

Owner's Equity:
Harry Jasper, Capital 2,055,500
Total Assets 2,065,000 Total Liabilities and Owner's Equity 2,065,000

2) Report Form
▪ This format presents the list of assets, liabilities and owner's equity vertically.
▪ This is the most common format of the statement of financial position.

YOUR HOME NET SOLUTION

Statement of Financial Position
As of July 31, 2022

Assets
Cash 533,000
Account Receivable 30,000
Supplies 2,000
Land 1,500,000
Total Assets 2,065,000

Liabilities And Owner's Equity

Liabilities:
Accounts Payable 4,500
Utilities Payable 5,000
Total Liabilities 9,500

Owner's Equity:
Harry Jasper, Capital 2,055,500
Total Liabilities and Owner's Equity 2,065,000
▪ STATEMENT OF CASH FLOWS
- It shows the summary of changes in cash balane as a result of cash receipts and cash disbursements for a specific period of time like a month or a year.
- This will be discussed in detail in higher accounting courses.

- For basic accounting purposes, the statement of cash flows consists of three sections as follows:
1) Operating activities
▪ This section reports a summary of cash receipts and cash payments from operations.
2) Investing activities
▪ This sections reports the cash transactions for the acquisitions and sale of relatively permanent assets like property and equipment.
3) Financing activities
▪ This section reports a summary of cash receipts and cash payments related to cash investments by the owners, cash borrowings from creditors, and cash
payment to owners as a result of withdrawal of investment.

No. A nalysis Cash Operating Investing Financing YOUR HOME NET SOLUTION
1. Cash w as received. T his is an Statement of Cash Flows
asset . Asset increased. 2,000,000 2,000,000 For the month ended July 31, 2022
Ow ner's claim increase. T his
equit y. Ow ner's equit y Cash flows from operating activities:
increased.
2. Land w as received. T his is an
Cash received from customers 95,000
asset . Asset increased. Cash payment for expenses (43,000)
Cash w as paid. T his is an Cash payment to creditors (9,000)
asset . Asset decreased. (1,500,000) (1,500,000) Net cash flows from operating activities 43,000
4. Cash w as received. T his is an
asset . Asset increased. 75,000 75,000 Cash flows from investing activities:
Services already rendered. Cash payment for acquisition of land (1,500,000)
T his is an income. Increase in
income means increase in
ow ner's capit al. Cash flows from financing activities:
6. Various services already Cash received from owner's investment 2,000,000
received and used from Cash payment to owner for personal use (10,000)
employees, ow ner of rent ed
propert y, ut ilit y companies.
Net cash flows from financing activities 1,990,000
Expenses increased for using
t hese. Increase in expenses Net cash flows for the month of July 533,000
means decrease in ow ner's
Add: Cash balance, July 1, 2022 0
capit al.
Cash balance, July 31, 2022 533,000
Cash w as paid. T his is an
asset . Asset decreased. (43,000) (43,000)
7. Credit or's claim decrease. T his
is a liabilit y (now paid). Liabilit y
decreased.
Cash w as paid. T his is an
asset . Asset decreased. (9,000) (9,000)
8. Cash w as received. T his is an
asset . Asset increased. 20,000 20,000
Collect ibles from cust omers
decreased. T his is an asset .
Asset decreased.
9. Ow ner's w it hdraw al increase.
T his is equit y. Ow ner's equit y
 is a liabilit y (now paid). Liabilit y
decreased.
Cash w as paid. T his is an
asset . Asset decreased. (9,000) (9,000)
8. Cash w as received. T his is an
asset . Asset increased. 20,000 20,000
Collect ibles from cust omers
decreased. T his is an asset .
Asset decreased.
9. Ow ner's w it hdraw al increase.
T his is equit y. Ow ner's equit y
decreased.
Cash w as paid. T his is an
asset . Asset decreased. (10,000) (10,000)
NET CASH FLOWS 533,000 43,000 (1,500,000) 1,990,000

▪ NOTES TO THE FINANCIAL STATEMENTS

- These are the disclosures of the detailed assumptions made by accountants when preparing a company's financial statements.
- Disclosures to financial statements are set at minimum by various generally accepted accounting standards (GAAS) that will also be discussed in higher accounting
courses.

EXERCISES

EXERCISE 1
Accounting Equation
The total assets and liabilities of Magiting Company and Makabayan Company are shown below:

Magiting Makabayan
Assets 250,650 263,475
Liabilities 128,075 150,625

Determine the owner's equity of each company.

EXERCISE 2
Accounting Equation
Determine the missing amount for each of the following:

Assets = Liabilities + O. Equity

A. X = 30,000 + 72,000
B. 83,500 = X + 20,500
C. 39,450 = 18,500 + X
EXERCISE 3
Accounting Equation

Samuel James is the proprietor and operator of Inspired People, a motivational consulting firm. At the end
of its calendar period, December 31, 2022, it has assets of P 950,000 and liabilities of P 400,000. Using the
accounting equation and considering each case independently, determine the following amounts:

1) Owner's equity, as of December 31, 2022.

2) Owner's equity, as of December 31, 2023, assuming that assets increased by P 150,000 and liabilities
increased by P 80,000 during 2023.
3) Owner's equity, as of December 31, 2023, assuming that assets decreased by P 30,000 and liabilities
increased by P 54,000 during 2023.
4) Owner's equity, as of December 31, 2023, assuming that assets increased by P 250,000 and liabilities
decreased by P 130,000 during 2023.
5) Net income (or net loss) during 2023, assuming that as of December 31, 2023, assets were P 850,000,
liabilities were P 210,000, and there were no withdrawals and no additional investment.

EXERCISE 4
Determining the Effect of Transactions in Basic Accounting Equation

Presented below are three business transactions. Using the solution guide provides, indicate whether the
transactions increased (+), decreased (-) or had no effect (NE) on assets, liabilities and owner's equity.

No. Transactions Assets Liabilities O. Equity

1. Purchased supplies on account. + + NE
2. Received cash for providing a service. + NE +
3. Paid expenses in cash. - NE -

EXERCISE 5
Determining the Effect of Transactions in Basic Accounting Equation

Presented below are three business transactions. Using the solution guide provides, indicate whether the
transactions increased (+), decreased (-) or had no effect (NE) on assets, liabilities and owner's equity.

No. Transactions Assets Liabilities O. Equity

1. Invested cash in business. + NE +
2. Withdrawal of cash by owner. - NE -
3. Collection of customer's accounts. NE NE NE
EXERCISE 6
Determining the Effect of Transactions in Basic Accounting Equation

Presented below are independent cases for analysis to determine the effect in basic accounting equation.

1. A vacant lot acquired for P 500,000 is sold for P 1,300,000 in cash. What is the effect of the sale on
the total amount of the seller's (1) assets, (2) liabilities, and (3) owner's equity.
2. Assume that the seller owes P 300,000 on a loan for the land. After receiving the P 1,300,000 cash in
(1) the seller pays P 300,000 owed. What is the effect of the payment on the total amount f the
seller's (a) assets, (b) liabilities, and (c) owner's equity?

SOLUTION GUIDE:
No. Transactions Asset Liabilities O. Equity
1. A vacant lot acquired for P 500,000 is sold for P
1,300,000 in cash.
2.
Assume that the seller owes P 300,000 on a loan
for the land. After receiving the P 1,300,000
cash in (1) the seller pays P 300,000 owed.
SOLUTION:
No. Transactions Asset Liabilities O. Equity
1. A vacant lot acquired for P 500,000 is sold for P
1,300,000 in cash.
a) Cash was received. Asset increased. 1,300,000
b) Land was sold. Asset decreased cost. (500,000)
c)
Gain on sale of land increased by the
difference between selling price and cost of
land. Gain is income. Increase in income
means increase in owner's equity. 800,000
2.
Assume that the seller owes P 300,000 on a loan
for the land. After receiving the P 1,300,000
cash in (1) the seller pays P 300,000 owed.
a) Cash was paid. Asset decreased. (300,000)
b) Creditor's claim decreased. Liability
decreased. (300,000)

EXERCISE 7
Effect of Transactions in Owner's Equity
Indicate the effect of the following transactions in owner's equity if (a) increase, (b)
decrease, or (c) no effect.

decrease 1. Payment of expenses.

increase 2. Receipt of income from customers.
decrease 3. Cash withdrawals of owner.
increase 4. Additional cash investment by owner.
decrease 5. Received billings from utility companies.
no effect 6. Advance payment of rental expenses.
no effect 7. Advance collection from customers for future delivery of goods.
increase 8. Sent billings to customers for services rendered.
EXERCISE 8
Analyzing the Effect of Transactions
By completing the table below, indicate the effect of the following transactions ofBeautiful
Garden Caretakers in assets, liabilities and owners equity.

No. Transactions Asset Liabilities O. Equity

1. Made initial cash investment to start the
business. increase no effect increase
2. Paid monthtly rent. decrease no effect decrease
3. Bought equipment on credit. increase increase no effect
4. Billed customers for services performed. increase no effect increase
5. Cash withdrawal for personal use. decrease no effect decrease
6. Collection from charge customers. no effect no effect no effect
7. Incurred advertising costs but unpaid. no effect increase decrease
8. Purchased additional equipment for cash. no effect no effect no effect
9. Collected cash for services rendered. increase no effect increase

EXERCISE 9
Analyzing the Effect of Transactions
(Adapted from Principles of Accounting 2nd Edition by Weygand, Chalmer, et al)
Gem Computers entered into the following transactions during May 2022.

C 1. Purchased computer terminals for P 536,500 from Digital Equipment on account.

D 2. Paid P 20,000 cash for May rent on storage space.
A 3. Received P 165,000 cash from customers for contracts billed in April.
B 4. Provided computer services to Fisher Construction Ltd. For P 33,000 cash.
D 5. Paid Northern States Power Ltd. P 31,000 cash for energy usage in May.
B 6. Peter Rolling invested an additional P 352,000 in the business.
E 7. Paid Digital Equiment for the terminals purchased in (1) above.
F 8. Incurred advertising expense for May of P 13,200 on account.

Instructions:
Indicate with the appropriate letter whether each of the transactions above results in:
A. an increase in assets and a decrease in another assets.
B. an increase in assets and an increase in owner's equity.
C. an increase in assets and an increase in liabilities.
D. a decrease in assets and a decrease in owner's equity.
E. a decrease in assets and a decrease in liabilities.
F. an increase in liabilities and a decrease in owner's equity.
G. an increase owner's equity and a decrease in liabilities.
EXERCISE 10
Analyzing the Transactions and Calculating Profit
(Adapted from Principles of Accounting 2nd Edition by Weygand, Chalmer, et al)
An analysis if the transactions made by J.L. Kuang and Associates, a public accounting firm,
for the month of August is shwn below. Each increase and decrease in owner's equity is
explained.

Accounts Office Accounts Owner's Equity

No. Cash Receivable Supplies Equipment Payable J. L. Juang, Capital
1. 30,000 30,000 Investment
2. (4,000) 10,000 6,000
3. (1,500) 1,500
4. 5,200 7,400 12,600 Service Revenue
5. (3,000) (3,000)
6. (4,000) (4,000) Drawings
7. (1,300) (1,300) Rent Expense
8. 900 (900)
9. (7,800) (7,800) Salaries Expense
10. 1,000 (1,000) Utilities Expense

Instructions:
A. Describe each transaction that occurred for the month.
B. Determine how much owner's equity increased for the month.
C. Calculate the amount of profit for the month.

EXERCISE 11
Analyzing the Transactions and Calculating Profit
(Adapted from Principles of Accounting 2nd Edition by Weygand, Chalmer, et al)
An analysis of transactions for J.L. Kuang and Associates was presented in Exercise 11.

Instructions:
Prepare an income statement and a statement of changes in equity for August and a
statement of financial position as of August 31, 2022.
EXERCISE 12
Analyze Transactions and Calculate Profit
(Adapted from Principles of Accounting 2nd Edition by Weygand, Chalmer, et al)
On April 1, 2022, Leanne Aisling established Plenty Travel Agency. The following
transactions were completed during the month.

1. Invested P 110,000 cash to start the agency.

2. Paid P 4,400 cash for April office rent.
3. Purchased office equipment for P 27,500 cash.
4. Incurred P 3,300 of advertising costs in the Asian Daily News, on account.
5. Paid P 6,600 cash for office supplies.
6. Earned P 82,500 for services rendered: P 11,000 cash is received from customers and
the balance of P 71,500 is billed to customers on account.
7. Withdrew P 2,200 cash for personal use.
8. Paid Asian Daily News amount due in transaction (4).
9. Paid employees' salaries, P 24,200.
10. Received P 55,000 in cash from customers who have previously billed in transaction (6).

Instructions:
A. Prepare a tabular analysis of the transactions using the following column headings:
Cash, Accounts Receivable, Supplies, Office Equipment, Accounts Payable, and Leanne
Aisling, Capital.
B. From an analysis of the column Leanne Aisling, Capital, calculate the profit or loss for
April.
EXERCISE 13
Analyze Transactions and Prepare Financial Statements
(Adapted from Principles of Accounting 2nd Edition by Weygand, Chalmer, et al)

Marie Trigger opened a doctor's practice, Marie Trigger, Medical Practitioner, on July 1, 2022.
On July 31, the statement of financial position showed Cash P 40,000, Account Receivable P
15,000, Supplies P 5,000, Office Equipment P 50,000, Accounts Payable P 42,000, and Marie
Triger, Capital P 68,000. During August the following transactions occurred:

1. Collected P 14,000 of accounts receivable.

2. Paid P 27,000 cash on accounts payable.
3. Earned revenue of P 75,000 of which P 30,000 is collected in cash and the balance
is due in September.
4. Purchased additional office equipment for P 10,000, paying P 4,000 in cash and
the balance on account.
5. Paid salaries P 30,000, rent for August P 9,000, and advertising expense P 3,500.
6. Withdrew P 5,500 in cash for personal use.
7. Received P 20,000 from Standard Federal Bank - money borrowed on a note payable.
8. Incurred utility expenses for month on account P 2,500.

Instructions:
A. Prepare a tabular analysis of the August transactions beginning with July 31 balances. The
column headings should be as follows: Cash + Accounts Receivable + Supplies + Office
Equipment = Notes Payable + Accounts Payable + Marie Trigger, Capital.
B. Prepare an income statement for August, a statement of changes in equity for August,
and a statement of financial position as of August 31.

EXERCISE 12
Determining Profits or Loss
(Adapted from Principles of Accounting 2nd Edition by Weygand, Chalmer, et al)
The Pitman Business had the following assets and liabilities on the dates indicated.

Total Total
Dec. 31 Assets Liabilities
2022 380,000 250,000
2023 460,000 310,000
2024 590,000 400,000

Pitman began business on January 1, 2022 with an investment of P 100,000.

Instructions:
From an analysis of the change in owner's equity during the year, calculate the profit (or loss)
for:
A. 2022, assuming Pitman's drawings were P 15,000 for the year.
B. 2023, assuming Pitman made an additional investment of P 50,000 and had no
drawings in 2023.
C. 2024, assuming Pitman made an additional investment of P 15,000 and had drawings
of P 30,000 in 2024.

EXERCISE 13
Determining Profits or Loss
(Adapted from Principles of Accounting 2nd Edition by Weygand, Chalmer, et al)
Two items are omitted from each of the following summaries of statement of financial
position and income statement data for the two sole proprietorships for the year 2022,
Craig Stevens amnd Lou Young.

Craig
Stevens Lou Young
Beginning of year: 97,000 129,000
Total Assets 85,000 (c)
Total Liabilities (a) 75,000
Total Owner's Equity
End of year:
Total Assets 160,000 180,000
Total Liabilities 120,000 50,000
Total Owner's Equity 40,000 130,000
Changes during year in owner's equity:
Additional investment (b) 25,000
Drawings 24,000 (d)
Total revenue 215,000 100,000
Total expenses 175,000 55,000

Instructions:
Determine the missing amounts.
EXERCISE 14
Preparation of Income Statement and a Statement of Changes in Equity
(Adapted from Principles of Accounting 2nd Edition by Weygand, Chalmer, et al)
The following information relates to Eric Ng Consulting for the year 2022.

Eric Ng, Capital, January 1, 2022 240,000

Eric Ng, Drawings during 2022 25,000
Service Revenue 312,500
Salaries Expense 140,000
Advertising Expense 9,000
Rent Expense 52,000
Utilities Expense 15,500

Instructions:
After analyzing the data, prepare an income statement and a statement of changes in
equity for the year ending December 31, 2022.

EXERCISE 15
Correcting Incorrect Statement of Financial Position
(Adapted from Principles of Accounting 2nd Edition by Weygand, Chalmer, et al)
Lynette Close is the bookkeeper for Shed Works. Lynette has been trying to get the
statement of financial position of Shed Works to balance. Shed Work's statement of
financial position is as follows:

SHED WORKS
Statement of Financial Position
As of December 31, 2022

Assets Liabilities
Cash 330,000 Accounts Payable 400,000
Supplies 160,000 Accounts Receivables (170,000)
Equipment 920,000 Shed, Capital 1,350,000
Shed, Drawings 170,000
Total Assets 1,580,000 Total Liabilities and O.E. 1,580,000

Instructions:
Prepare a correct statement of financial position.
EXERCISE 16
Calculate profits and prepare statement of financial position
(Adapted from Principles of Accounting 2nd Edition by Weygand, Chalmer, et al)
Wen Woo is the sole owner of Happy Holiday Camping, a public camping ground near the
Blue Mountain National Recreation Area. Wen has compiles the following technical information
as at December 31, 2022:

Revenues during 2022 - camping fees 1,400,000

Revenues during 2022 - general store 470,000
Accounts Payable 110,000
Cash on Hand 200,000
Original cost of equipment 1,055,000
Market value of equipment 1,400,000
Notes Payable 600,000
Expenses during 2022 1,500,000
Supplies on Hand 25,000

Instructions:
A. Determine Happy Holiday Camping's profit for 2022.
B. Prepare a statement of financial position for Happy Holiday Camping as at December 31, 2022.

EXERCISE 17
Preparation of Statement of Changes in Equity
(Adapted from Principles of Accounting 2nd Edition by Weygand, Chalmer, et al)
Presented below is the information related to the sole proprietoship of Geoff Butters, Solicitor.

Legal Service Revenue - 2022 340,000

Total Expenses - 2022 211,000
Assets, January 1, 2022 85,000
Liabilities, January 1, 2022 62,000
Assets, Decemmber 31, 2022 168,000
Liabilities, December 31, 2022 80,000
Drawings - 2022 ?

Instructions:
Prepare the statement of changes in equity for Geoff Butters.