Chapter 1 Starting a Proprietorship: Changes That Affect the Accounting Equation • 1
Study
Guide
1
Name Perfect
Score Your
Score
Identifying Accounting Terms 27 Pts.
Identifying Account Concepts and Practices 18 Pts.
Analyzing How Transactions Change an Accounting Equation 10 Pts.
Analyzing How Transactions Change Owner’s Equity in an Accounting Equation 12 Pts.
Total 65 Pts.
Part One—Identifying Accounting Terms
Directions: Select the one term in Column I that best fits each definition in
Column II. Print the letter identifying your choice in the Answers column.
Answers
1.
2.
3.
Column I
A. account
B. account balance
C. account title
Column II
1. The process of planning, recording, analyzing, and
interpreting financial information. (p. 6)
2. A planned process designed to compile financial data and
summarize the results in accounting records and reports.
(p. 6)
3. Financial reports that summarize the financial condition
and operations of a business. (p. 6)
D
F
P
Column II
22. An account used to summarize the owner’s equity in a
business. (p. 14)
23. A person or business to whom a liability is owed. (p. 16)
24. An increase in equity resulting from the sale of goods or
Column I
V. proprietorship
W. revenue
X. sale on account
Answers
22.
23.
24.
Part Two—Identifying Account Concepts and Practices
Directions: Place a T for True or an F for False in the Answers column to show whether
each of the following statements is true or false.
1. Accounting is the language of business. (p. 6)
2. A creditor would favor a positive net worth. (p. 7)
3. The principles of right and wrong that guide an individual in making personal decisions
is called business ethics. (p. 8)
4. Keeping personal and business records separate is an application of the business entity
concept. (p. 11)
Answers
1.
2.
3.
4.
J
K
W
T
T
F
T
Name Date Class
Part Three—Analyzing How Transactions Change an Accounting Equation
Directions: For each of the following transactions, select the two accounts in the accounting equation
that are changed. Decide if each account is increased or decreased. Place a “+” in the column if the
account is increased. Place a “–” in the column if the account is decreased.
Transactions
1–2. Received cash from owner Nicole McGraw as an investment. (p. 14)
3–4. Paid cash for supplies. (p. 15)
Trans.
No.
Assets 5Liabilities 1Owner’s Equity
Cash 1Supplies 1
Prepaid
Insurance 5
Accts. Pay.—
Hyde Park
Office supplies 1
Nicole McGraw,
Capital
1–2
3–4
5–6
1 1
2 1
2 1
4 • Working Papers
Part Four—Analyzing How Transactions Change Owner’s Equity
in an Accounting Equation
Directions: For each of the following transactions, select the two accounts in the accounting
equation that are changed. Decide if each account is increased or decreased. Place a “+” in
the column if the account is increased. Place a “–” in the column if the account is decreased.
Transactions
1–2. Received cash from sales. (p. 18)
3–4. Sold services on account to New U Fitness. (p. 18)
5–6. Paid cash for rent. (p. 19)
Trans.
No.
Assets 5Liabilities 1Owner’s Equity
Cash 1
Accts. Rec.—
New U Fitness 1Supplies 1
Prepaid
Insurance 5
Accts. Pay.—
Hardcore
Fitness Supplies 1A. Conrad, Capital
1–2
3–4
5–6
TE
1 1
1 1
2 2
Across
1. A record that summarizes all the transactions
pertaining to a single item in the accounting
equation.
2. An increase in equity resulting from the sale of
goods or services.
5. An account used to summarize the owner’s
equity in a business.
Down
1. The difference between the increases and
decreases in an account.
3. The difference between assets and liabilities.
4. Assets taken from the business for the owner’s
personal use.
6. The process of planning, recording, analyzing,
1
56
11 12
10
7
23
9
4
8
1
56
11 12
10
7
23
9
4
8
A
C
CAPITA
C
C
O
U
N
LACCOU
I
T
Y
NT I
W
REVE
Q
NUE
O
U
N
T
B
CCOUNT
O
M
P
O
U
R
P
I
V
R
E
S
ET
H
D
R
A
SA
Chapter 1 Starting a Proprietorship: Changes That Affect the Accounting Equation • 7
1-1 WORK TOGETHER, p. 9
Completing a net worth statement
Megan Finder
Net Worth Statement
Current Date
Assets
Cash 800.00
Scooter 2,000.00
Total Assets 2,800.00
8 • Working Papers
1-1 ON YOUR OWN, p. 9
Completing a net worth statement
TE
Anthony Clement
Net Worth Statement
Current Date
Assets
Cash 1,085.00
Camera 635.00
Total Assets 1,720.00
Chapter 1 Starting a Proprietorship: Changes That Affect the Accounting Equation • 9
1-2 WORK TOGETHER, p. 17
Determining how transactions change an accounting equation
Trans. No. Assets 5Liabilities 1Owner’s Equity
1
1 1
10 • Working Papers
1-2 ON YOUR OWN, p. 17
Determining how transactions change an accounting equation
Trans. No. Assets 5Liabilities 1Owner’s Equity
1
2
TE
1 1
1 1
Chapter 1 Starting a Proprietorship: Changes That Affect the Accounting Equation • 11
1-3 WORK TOGETHER, p. 22
Determining how transactions change an accounting equation
Trans.
No.
Assets 5Liabilities 1Owner’s Equity
Cash 1
Accts. Rec.—
Harmon Co. 1Supplies 1
Prepaid
Insurance 5
Accts. Pay.—
Corona Supplies 1
Nathaniel Conrad,
Capital
1
2
1 1
1 1
12 • Working Papers
1-3 ON YOUR OWN, p. 22
Determining how transactions change an accounting equation
Trans.
No.
Assets 5Liabilities 1Owner’s Equity
Cash 1
Accts. Rec.—
Bethany Center 1Supplies 1
Prepaid
Insurance 5
Accts. Pay.—
McGrew Supplies 1
Bryan Arnett,
Capital
1
2
TE
1 1
1 1
Chapter 1 Starting a Proprietorship: Changes That Affect the Accounting Equation • 13
1-1 APPLICATION PROBLEM (LO2), p. 25
Preparing a net worth statement
Lauren Juliana
Net Worth Statement
Assets
Cash
Jewelry
Total Assets
Today’s Date
14,692.00
2,575.00
17,267.00
14 • Working Papers
1-2.1 APPLICATION PROBLEM (LO4), p. 25
Completing the accounting equation
Assets = Liabilities 1 Owner’s Equity
15,650 11,475
11,000 6,000
2,000 3,300
12,000 7,000
125,000 69,000
42,000 17,000
8,750 2,980
47,000 24,000
67,000 32,000
73,000 41,000
4,175
5,000
5,300
5,000
56,000
25,000
5,770
71,000
35,000
32,000
TE
Chapter 1 Starting a Proprietorship: Changes That Affect the Accounting Equation • 15
1-2.2 APPLICATION PROBLEM (LO4, 5), p. 26
Determining how transactions change an accounting equation
Trans.
No.
Owner’s
Assets = Liabilities 1 Equity
Prepaid Accts. Pay.— Accts. Pay.— Bethany
Cash 1 Supplies 1 Insurance = Knapp Co. 1 Hickman Mowing 1 Hartman, Capital
Beg. Bal.
10
15,000 0 0 0 0 0
15,000
New Bal.
5
New Bal.
6
New Bal.
7
3,200
2300 900 1,800 200 700
2300 5,000
2,900
2100 900
1100 1,800 200 400 5,000
2,800
2100 1,000 1,800 200
2100 400 5,000
16 • Working Papers
1-3 APPLICATION PROBLEM (LO4, 5, 6), p. 26
Determining how revenue, expense, and withdrawal transactions change an accounting
equation
Trans.
No.
Assets = Liabilities 1 Owner’s Equity
Accts. Rec.— Accts. Pay.—
Eden Wedding Prepaid Shutter Shannon
Cash 1 Planners 1 Supplies 1 Insurance = Supplies 1 O’Bryan, Capital
Beg. Bal.
1725
2400 0 200 300 200 1,025
2400 (expense)
New Bal.
2325 0 200 300 200 625
New Bal.
5
New Bal.
6
New Bal.
7
2150 2150 (withdrawal)
975 0
1400 200 300 200 1,275
1400 (revenue)
975
1650 400 200 300 200 1,675
1650 (revenue)
1,625
235 400 200 300 200 2,325
235 (expense)
TE
Chapter 1 Starting a Proprietorship: Changes That Affect the Accounting Equation • 17
Name Date Class
1-M MASTERY PROBLEM (LO4, 5, 6), p. 27
Determining how transactions change an accounting equation
Trans.
No.
Assets = Liabilities 1 Owner’s Equity
Accts. Pay.—
Accts. Rec.— Prepaid Paws & Peter Gentry,
Cash 1 Dr. Shephard 1 Supplies 1 Insurance = Claws Co. 1 Capital
Beg. Bal.
12,500
2500 0 200 100 1,300 1,500
2500 (expense)
New Bal.
22,000 0 200 100 1,300 1,000
New Bal.
3
New Bal.
4
New Bal.
5
2,000
1700 0 200 100 1,300 1,000
1700 (investment)
2,700
275 0 200 100 1,300 1,700
275 (expense)
2,625
11,050 0 200 100 1,300 1,625
11,050 (revenue)
3,675 0 200
1275 100 1,300
1275 2,675
18 • Working Papers
1-C CHALLENGE PROBLEM (LO4, 5, 6), p. 28
Determining how transactions change an accounting equation
1.
Trans.
No.
Assets = Liabilities 1 Owner’s Equity
Accts. Pay.—
Accts. Rec.— Prepaid Ashley Tech Linda Liu,
Cash 1 4Kids Daycare 1 Supplies 1 Insurance = Services 1 Capital
Beg. Bal.
17,542 1,265 1,100 600 3,145 7,362
New Bal.
2
2. a. The owner of a business can withdraw assets from that business for personal use because the
assets belong to the owner through the business. However, the owner must be careful to leave
enough cash in the business for daily operations.
2300 2300 (withdrawal)
7,542 1,265 800 600 3,145
1225 7,062
2225 (expense)
TE