Basic Accounting Equation

Matching

Match the following transactions with their affects to the accounting equation.
a. Increase assets, increase liabilities
b. Increase liabilities, decrease owner’s equity
c. Increase assets, increase owner’s equity
d. No affect
e. Decrease assets, decrease liabilities
f. Decrease assets, decrease owner’s equity
____ 1. Received cash for services provided
____ 2. Received utility invoice to be paid next month
____ 3. Investment of land by owner
____ 4. Paid part of an amount owed to a creditor
____ 5. Paid cash for the purchase of a one year insurance policy
____ 6. Received payment from a customer for an invoice that was billed last month
____ 7. Cash withdrawal by owner
____ 8. Provided a service to a customer on account
____ 9. Purchased supplies on credit
____ 10. Paid wages

Exercise/Other

11. The assets and liabilities of Robinson Tree Services at May 31, 2008, the end of the current year, and its
revenue and expenses for the year are listed below. The capital of the owner was P190,000 at June 1, 2007,
the beginning of the current year.

Accounts Payable P1,200 Miscellaneous Expense P220

Accounts Receivable P12,340 Office Expense P560
Cash P32,990 Supplies P1,670
Fees Earned P78,350 Wages Expense P26,770
Land P65,000 Drawing P3,000
Building P143,670

Prepare an income statement for the current year ended May 31, 2008.
12. The assets and liabilities of Robinson Tree Services at May 31, 2008, the end of the current year, and its
revenue and expenses for the year are listed below. The capital of the owner was P190,000 at June 1, 2007,
the beginning of the current year. Mr. Robinson invested an additional P15,000 in the business during the
year.

Accounts Payable P1,200 Miscellaneous Expense P220

Accounts Receivable P12,340 Office Expense P560
Cash P32,990 Supplies P1,670
Fees Earned P78,350 Wages Expense P26,770
Land P65,000 Drawing P3,000
Building P143,670
 Prepare a statement of owner’s equity for the current year ended May 31, 2008.
13. The assets and liabilities of Robinson Tree Services at May 31, 2008, the end of the current year, and its
revenue and expenses for the year are listed below. The capital of the owner was P190,000 at June 1, 2007,
the beginning of the current year. Additional information: Mr. Robinson made an additional investment of
P15,000 during the year.

Accounts Payable P1,200 Miscellaneous Expense P220

Accounts Receivable P12,340 Office Expense P560
Cash P32,990 Building P143,670
Fees Earned P78,350 Wages Expense P26,770
Land P65,000 Drawing P3,000

Prepare a balance sheet for the current year ended May 31, 2008.
14. A summary of cash flows for Robinson Tree Services for the year ended May 31, 2008, is shown below.

Cash receipts:
Cash received from customers P82,990
Cash received from additional investment by owner 15,000

Cash payments:
Cash paid for expenses P26,000
Cash paid for land 65,000
Cash paid for supplies 430
Drawing 3,000

The cash balance as of June 1, 2007 P29,340

Prepare a statement of cash flows for Robinson Tree Services for the year ended May 31, 2008.

Problem

15. Selected transactions completed by a proprietorship are described below. Indicate the effects of each
transaction on assets, liabilities, and owner's equity by inserting "+" for increase and "-" for decrease in the
appropriate columns at the right. If appropriate, you may insert more than one symbol in a column.

A L OE
(a) Received cash from owner as an additional investment _____ _____ _____
(b) Purchased supplies on account _____ _____ _____
(c) Paid rent for the current month _____ _____ _____
(d) Received cash for services sold to customers _____ _____ _____
(e) Returned some defective supplies purchased in (b) _____ _____ _____
(f) Paid insurance premiums in advance _____ _____ _____
(g) Paid cash to creditor for purchases in (b) _____ _____ _____
(h) Charged customers for services sold on account _____ _____ _____
(i) Paid cash to a customer as a refund for an overcharge _____ _____ _____
(j) Received cash on account from customers _____ _____ _____
(k) Owner withdrew cash for personal use _____ _____ _____
(l) Recorded the cost of supplies used during the year _____ _____ _____
 (m) Received invoice for electricity used _____ _____ _____
(n) Paid wages _____ _____ _____
(o) Purchased a truck for cash _____ _____ _____
16. Koger Consultants began operations on June 1, 2007. The financial statements for Koger Consultants are
shown below for the month ended June 30, 2007 (the first month of operations). Determine the missing
amounts for letters (a) through (o).

Koger Consultants
Income Statement
For the Month Ended June 30, 2007
Fees earned P22,000
Operating expenses:
Wages expense P7,250
Rent expense (a)
Supplies expense 1,600
Utilities expense 900
Miscellaneous expense 1,550
Total operating expenses (b)
Net income P (c)

Koger Consultants
Statement of Owner's Equity
For the Month Ended June 30, 2007
Jan Koger, capital, June 1, 2007 0
Investment on June 1, 2007 P30,000
Net income for June 30, 2007 (d)
P (e)
Less withdrawals 4,000
Increase in owner's equity (f)
Jan Koger, capital, June 30, 2007 P32,100

Koger Consultants
Balance Sheet
June 30, 2007
Assets Liabilities
Cash P (g) Accounts payable P (i)
Supplies 1,100 Owner's Equity
Land (h) Jan Koger, capital (j)
Total assets P45,900 Total liabilities and
owner's equity P(k)

Koger Consultants
Statement of Cash Flows
For the Month Ended June 30, 2007
Cash flows from operating activities:
Cash received from customers P22,000
 Deduct cash payments for expenses and payments to 3,200
creditors
Net cash flow from operating activities P 18,800
Cash flows from investing activities:
Cash payments for acquisition of land (20,000)
Cash flows from financing activities:
Cash received as owner's investment P (l)
Deduct cash withdrawal by owner (m)
Net cash flow from financing activities (n)
Net cash flow and Dec. 31, 2007 cash balance P (o)

Place your answers in the space provided below. Hint: Use the interrelationships among the financial
statements to solve this problem.

(a) ___________
(b) ___________
(c) ___________
(d) ___________
(e) ___________
(f) ___________
(g) ___________
(h) ___________
(i) ___________
(j) ___________
(k) ___________
(l) ___________
(m) ___________
(n) ___________
(o) ___________
17. Jay Pyle, CPA, was organized on January 1, 2007, as a proprietorship. List the errors that you find in the
following financial statements and prepare the corrected statements for the three months ended March 31,
2007.

Jay Pyle, CPA

Income Statement
For the Three Months Ended March 31, 2007
Fees earned P40,000
Operating expenses:
Salary expense P7,735
Rent expense 3,200
Wages expense 1,950
Utilities expense 1,225
Miscellaneous expense 2,000
Answering service expense 550
Supplies expense 2,000
Total operating expenses 29,000
Net income P11,000

Jay Pyle, CPA

 Statement of Owner's Equity
March 31, 2007
Jay Pyle, capital, January, 1, 2007 P 0
Investment on January 1, 2007 P20,000
Net income for the 3 months 11,000
31,000
Less withdrawals 5,000
Increase in owner's equity 36,000
Jay Pyle, capital, March 31, 2007. P36,000

Balance Sheet
For the Three Months Ended March 31, 2007
Assets Owner's Equity
Land P10,000 Jay Pyle, capital P36,000
Cash 15,860 Liabilities
Accounts payable 2,670 Accounts receivable 12,225
Supplies 925 Total liabilities and
Total assets P48,125 owner's equity 48,125

18. Using the following accounts and their amounts, prepare in good format an Income Statement for ABC
Tutoring Company, month ended July 31, 2007:

Telephone Expense P750

Cash P3,150
Accounts Payable P640
Victor Moreno, Withdrawal P300
Fees Earned P10,700
Rent Expense P1,000
Supplies P230
Accounts Receivable P1,800
Computer Equipment P15,000
Victor Moreno, Capital P13,080
Wages Expense P3,600
Utilities Expense P350
Notes Payable P2,000
Office Expense P240
19. Using the following accounts and their amounts, prepare in good format a Balance Sheet for ABC Tutoring
Company, month ended July 31, 2007:

Telephone Expense P750

Cash P3,150
Accounts Payable P640
Victor Moreno, Withdrawal P300
Fees Earned P10,700
Rent Expense P1,000
Supplies P230
Accounts Receivable P1,800
 Computer Equipment P15,000
Victor Moreno, Capital P13,080
Wages Expense P3,600
Utilities Expense P350
Notes Payable P2,000
Office Expense P240
20. Using the following accounts and their amounts, prepare in good format a Statement of Owner’s Equity for
ABC Tutoring Company, month ended July 31, 2007:

Telephone Expense P750

Cash P3,150
Accounts Payable P640
Victor Moreno, Withdrawal P300
Fees Earned P10,700
Rent Expense P1,000
Supplies P230
Accounts Receivable P1,800
Computer Equipment P15,000
Victor Moreno, Capital P13,080
Wages Expense P3,600
Utilities Expense P350
Notes Payable P2,000
Office Expense P240
21. The account balances of Lovelady Travel Services at December 31, 2007 are listed below:

Accounts Payable P12,000 Lovelady, Capital P10,000

Accounts Receivable 6,000 Supplies 2,000
Cash 16,000 Taxes Expense 300
Computer Equip 13,000 Utilities Expense 4,000
Fees Earned 47,000 Wages Expense 21,000
Rent Expense 6,000 Supplies Expense 700
Prepare and income statement, statement of owner’s equity, and a balance sheet as of December 31, 2007.